After a stronger-than-expected third quarter, VF Corporation's management is again revising its guidance for the current financial year. It told analysts that the group's total revenues should grow by between 22 and 23 percent, including an organic increase of 12 to 13 percent. Earnings per share are expected to hit $8.15 on an adjusted basis, including 55 cents from Timberland, which it formally acquired on Sept. 13. This compares with a previous forecast of 44 cents for Timberland and of $7.50 overall.
Furthermore, VF managers were quite bullish about the potential effects of integrating Timberland and its sister brand, Smartwool, into the group, particularly in the U.S. The group is starting by adding full ranges of Smartwool socks in the top 23 U.S. stores of The North Face. Timberland's successful European apparel story will be transferred to U.S. stores in the autumn of 2012, ahead of a wholesale rollout in spring 2013. The management is also considering the use of Timberland's shoe manufacturing operations in the Caribbean for TNF and Vans.
Beating analysts' estimates, VF's net profit rose by 23.8 percent to $301.4 million in the third quarter, with increases of 29 percent on an adjusted basis and of 18 percent on an organic basis. Timberland and foreign currency conversions contributed 25 and 10 cents a share to total earnings per share of $2.69.
Total revenues increased by 23.3 percent in the quarter to $2.75 billion, driven by strong gains at Vans and The North Face and by better-than expected results for Timberland. Excluding Timberland and Smartwool, which contributed revenues of $163.6 million for the three weeks under VF's ownership, the group's sales went up organically by 16 percent. In constant currencies, international sales rose by 28 percent.
Eric Wiseman, chief executive of VF, said the company has seen little evidence of a slowdown in its business, in spite of the increasingly uncertain economic environment. He concluded that consumers tend to gravitate toward the stronger brands in tough times.
Organically, currency-neutral growth reached 22 percent at VF's Outdoor & Action Sports Coalition as compared to one year ago, but the lower value of the dollar and Timberland's takeover boosted the reported growth to 37.5 percent, taking the division's total revenues for the quarter up to $1.44 billion. By brand, sales went up by 22 percent at TNF, by 25 percent at Vans, by 23 percent at Napapijri and by 30 percent at Kipling. Timberland and Smartwool grew by 22 and 21 percent, respectively, during the quarter. Globally, TNF's orders for next spring were up by 15 percent as of Sept. 30, with a particularly strong performance in the U.S.
The operating margin of the coalition declined to 22.3 percent from 23.7 percent in the same quarter a year ago, with acquisition-related expenses driving it down by 1.2 percentage points. Excluding Timberland, the coalition had an operating margin of 23.5 percent.
Outside the Americas, the coalition saw its revenues jump by 38 percent. Even excluding Timberland, they rose by 32 percent in constant currencies, with increases of more than 25 percent for TNF and more than 50 percent for Vans. In Europe, Timberland's revenues went up by 30 percent, and while the U.K. market was described as weak, the brand's sales grew even in the tough Italian market.
The group is boosting the number of store openings in Europe compared with previous plans. For the full calendar year, it will have opened 18 new TNF stores and 16 new Vans stores in the region. In China, where the group will have opened a total of 530 doors this year, revenues increased by 50 percent in the quarter. The coalition's sales rose by 32 percent in Asia on a currency-neutral basis, with reorders up by 25 percent for TNF and by 50 percent for Vans.
In the Americas, the Outdoor & Action Sports Coalition improved its sales by 21 percent, or by 13 percent excluding Timberland and Smartwool. TNF scored double-digit increases at retail and wholesale in the region, and its revenues from e-commerce surged by 61 percent.
All the other segments of VF improved their profits and posted double-digit increases except the jeans wear division, which suffered from higher cotton prices.
As expected, the group's overall gross margin declined in the quarter, down to 45.3 percent from 46.5 percent in the year-ago period, but operating profits increased overall by 21.3 percent to $430.1 million, including a net benefit of $13.5 million after acquisition costs from Timberland's takeover. Excluding Timberland, the operating margin improved to 16.1 percent from 15.9 percent.
Operating margins should remain stable for the full year, in spite of a drop of about 1 percentage point in gross margins and a planned further increase in marketing spending to 5.5 percent of revenues in the fourth quarter.