In the second quarter of 2009, which compares with strong results a year earlier,VF Corporation’s net income after minority interests slid by 27.4 percent to $75.5 million on a drop of 11.4 percent in total revenues to $1,485.6 million.
The outdoor and action sports coalition was bolstered by major sales growth in Asia (+32 percent) and direct-to-consumer (+19 percent), but revenues still fell by 2.5 percent to $510.5 million, though this would have been a 2 percent increase in constant currencies.
Profit rose by 7.9 percent to $63.3 million. Vans' sales rose by 14 percent in constant currencies; turnover at The North Face improved by 4 percent at constant exchange rates. Management confirmed that conditions remain difficult in key European markets, but added that “it was seeing signs of stabilization” and improvements in gross margins.
To that end, VF Corp. said its wholesale customers have been doing a good job over the last six months of keeping inventories in line with demand as the group moves to reduce its own inventories by $100 million year-over-year at the end of the fiscal year.
In other divisions of VF, sportswear’s sales dropped by 22.6 percent to $104.3 million, and its profit fell by 52.2 percent to $6.9 million. The imagewear coalition also had a tough quarter with a 19.0 percent drop in revenues to $195.3 million. Contemporary brands saw sales increase by 1.7 percent to $102.7 million, with a 34 percent jump outside the U.S. in constant currencies. Jeanswear sales fell by 15.6 percent to $545.4 million.
For the full first half, total company sales fell by 9 percent to $3,211.1 million, with 4 percent of the decline attributable to foreign currency exchange. Net income fell by 30 percent to $176.5 million.
Management says it is “too early” to speculate about improvements in consumer demand, but confirms that it faces easier second-half comparisons in sales and profits. That knowledge, coupled with the company’s strong cash and inventory positions and burgeoning business in key Asian markets, has VF Corp. remaining confident about its full-year outlook. Current guidance calls for an annual revenue decline of 5-7 percent, with 3 percent of the drop due to currency, and profits of $535.9 million.
VF Corp., whose cash position was up by 40 percent over last June 30 at $385 million, is projecting $750 million in cash flow from operations this year as inventories should decline by 10 percent. Management remains optimistic about further expansion in key Asia-Pacific markets, particularly China and India. That region is forecast to generate $300 million in revenues this year, half from China, with jeans accounting for approximately 40 percent of the total and TNF about 20 percent ($60 million). Revenues there were up by 13 percent and are 18 percent higher year-to-date. VF Corp. is counting on the region to generate an annual growth rate of about 30 percent to eventually reach $1 billion in yearly revenues, bolstered by contributions from action sports, outdoor and jeans. Sales in China, up by 27 percent for the year to date, are forecast to increase by 30 percent for the full year as the company raises the number of retail doors by 250 to 1,000 by year-end.