Skechers' stock market capitalization went up by 6.3 percent after a Tweet message according to which VF Corporation, the parent of Timberland, Vans and other brands, was in advanced negotiations to buy the company at a high premium, giving it an enterprise value of about $6.5 billion.
On the next day, while commenting on VF's excellent quarterly results, the group's chief executive, Steve Rendle, indicated that Skechers would not be a good fit for its recently revisited brand portfolio, which focuses on the outdoor, active and work segments. However, with free cash flow of more than $1.5 billion expected in the current financial year, VF continues to be on the hunt for suitable acquisitions.
VF's own share price jumped by more than 12 percent after the release of its income statement for its third quarter, ended on Dec. 29. Powered by sales increases of 25 percent at Vans and 14 percent at The North Face, group revenues increased by 8 percent to $3.94 billion, with growth of 10 percent in local currencies.
Excluding acquisitions and divestitures, the adjusted gross margin improved by 0.6 percentage points to 52.2 percent, while the adjusted operating margin rose by 2.8 percentage points to 16.8 percent. The group ended up with a net profit of $463.5 million for the quarter, compared with a loss of $90.3 million in the year-ago period that had been caused by the new Tax Act in the U.S.
VF credited its best quarter in two years to progress in The North Face's turnaround. In constant currencies, the brand's sales grew by 15 percent in the Americas, by 12 percent in Europe, the Middle East and Africa (EMEA) and by 27 percent in Asia-Pacific. Globally, wholesale revenues jumped by 19 percent, while direct-to-consumer (DTC) sales went up by 10 percent, with a 9 percent increase on a comparable store basis and growth of nearly 20 percent in digital sales.
TNF's mountain sports as well as lifestyle and urban exploration products sold well in the quarter, led by insulated outerwear and fleece. In contrast, Timberland booked a currency-neutral sales increase of only 3 percent in the latest quarter, rising by 7 percent in the Americas, but recording a 2 percent decline in EMEA and flat sales in Asia-Pacific. In China, the brand's sales grew by 25 percent in dollars and by 30 percent in the local currency, however.
Offsetting Timberland's protracted overall weakness, TNF's strong performance help boost the revenues of VF's whole Outdoor segment by 11 percent to $1.613 million in the quarter, generating 23 percent higher operating earnings of $338.9 million.
Vans delivered a 27 percent sales increase in local currencies globally, with growth of 29 percent in the Americas, 10 percent in EMEA and 41 percent in Asia-Pacific. Online sales jumped by nearly 60 percent, including a 45 percent increase in Europe.
The skate shoe brand, whose sales are seen likely to reach a level of $5 billion by 2023, benefited in the latest quarter from a strong momentum for its Old Skool line and a fast-growing business with slip-on styles.
Vans represents the bulk of VF's Active division, whose total sales went up by 16 percent in the quarter to $1,142.6 million, generating 37 percent higher operating earnings of $272.9 million.
The growth in the group's total sales outside the U.S. softened to 9 percent in the quarter on a currency-neutral basis, but China continued to outperform, rising by 18 percent. The management said it is carefully monitoring the geopolitical situation in the U.K. and China, which has had a minimal effect on its results so far. It is preparing a contingency plan if U.S. tariffs on Chinese products are going to be raised.
The development of the international and DTC businesses are still among the group's priorities, but neither of them stood out clearly during the quarter. Across the group, a 24 percent increase in online sales drove an increase of 10 percent in DTC revenues.
In any case, overall, the group's better-than-expected quarterly results prompted the management to upgrade its forecast for the full financial year, projecting total revenues of $13.8 billion for VF instead of the previous guidance of $13.7 billion, despite the lost revenues of the divested Reef and Van Moer businesses. TNF's sales should be up by 8 percent and Vans by 23 percent, but Timberland is likely to be flat for the year. The management is looking at earnings per share of about $3.73 for the year, which would be imply a net profit of around $1.5 billion.