The Outdoor & Action Sports coalition of VF Corp, with brands such as The North Face, Vans and Timberland, raised its sales by 2 percent to $1.64 billion for the first quarter ended on April 2. They were up by 4 percent in constant currencies, with increases of 8 percent for TNF, 2 percent for Vans and 3 percent for Timberland. While wholesale revenues were flat for the division, direct-to-consumer (DTC) sales went up by a low double-digit rate.
TNF and Kipling where the fastest-growing brands in the whole VF group during the quarter. In terms of dollars, TNF grew by 6 percent, but the brand's wholesale revenues declined by a mid-single percentage rate as retailers continued to work down the high inventories they were left with after a poor fourth quarter.
TNF's top ten outerwear styles grew by a mid-single digit in the first half of the quarter, driven by a cold start of the season. In the warmer second half of the quarter, rainwear, the Mountain Athletic range and women-specific products showed strength and built up momentum. VF has decided to scale up production by 15 times in the second year of its Made in USA apparel program.
In local currencies, TNF's total sales went up by a low single-digit percentage in the Americas, by almost 20 percent in Europe and by a high single digit in Asia-Pacific. In Europe, the launch of Mountain Athletics across the region and the Ultra footwear line helped fuel increases in the mid-teens at wholesale and more than 25 percent in DTC. The management highlighted the strong performance of the brand in the U.K., Italy, France, Spain and the Nordic countries.
Timberland's sales increased by 2 percent in dollars during the quarter. In constant currencies, they rose by a mid-single digit in the Americas and in Europe, but declined by a low single digit in Asia-Pacific. Boots continued to be the main driver of the growth, and the brand's women's business shot up by nearly 50 percent.
DTC helped Timberland to progress in Europe. The order book for the brand's SensorFlex platform has reached one million pairs for the first time in the region. Strong growth was recorded in China, following the launch of performance footwear, and in Korea, where Timberland won a design prize for its flagship store. Hong Kong was weak and Japan flat.
Vans' DTC revenues went up by 20 percent in the quarter, boosted by the 50th anniversary celebrations for the brand, indicating a drop in the wholesale channel, particularly in Europe. Overall, the brand's sales were down in the low teens in Europe, where some key retail continues to work through high inventories of certain classic styles.
On the other hand, reorders placed for Vans merchandise were up by close to 10 percent during the quarter in Europe, where the brand also scored increases in the mid-teens in the DTC channel and 30 percent online. The situation should improve significantly in the second quarter, according to the management.
The Outdoor & Action Sports coalition also includes smaller brands such as Eagle Creek, Eastpak, Jansport, Kipling, Napapijri, Reef and Smartwool. The operating profit of the segment declined by 12.7 percent to $227 million, but with more than half of its revenues generated outside the U.S., they would have been flat if currency exchange rates had remained unchanged. The operating margin amounted to 13.9 percent, down by 2.3 percentage points from the year-ago period, and the group said that more than half of the decline was due to foreign exchange rate changes.
The turnover of the entire VF group was basically flat at $2.8 billion and up by 2 percent in constant currencies, but the company pointed out that its five major brands grew twice as fast as the group as a whole. The group's sales outside the U.S. went up by one percent in dollars and by 4 percent in local currencies, with increases of 2 percent in Europe, 6 percent in Asia and 12 percent in the Americas region outside the U.S. Worldwide, DTC revenues improved by 8 percent on a currency-neutral basis and were up on a comparable store basis by a low single digit.
The growth of the outdoor and action sports division, as well as the jeanswear business, was offset by declines in the imagewear, sportswear and contemporary brands divisions. Flat revenues were recorded in the Licensed Sports Group (LSG) of VF's imagewear coalition, which includes Majestic Athletic, and for which the company is exploring strategic alternatives.
The group's quarterly net income slid by 9.9 percent to $260.2 million, due in part to the strong dollar, which reduced VF's gross margin by one percentage point and the operating margin by 0.9 points. The gross margin went down by 0.8 percentage points to 48.2 percent in spite of lower production costs, pricing and the ongoing shift to higher-margin products. The operating margin fell by 2.2 percentage points to 11.8 percent.
VF performed better than some other companies in the outdoor sector. Part of that was due to the growing DTC business of the group. Eric Wiseman, chairman and chief executive, mentioned other factors such as “best-in-class product innovation, providing exceptional consumer engagement and leveraging our operational expertise to manage the growth potential for our brands and our shareholders.”
The management's guidance remains unchanged, with sales projected to increase at a mid-single-digit percentage rate, the gross margin to improve by 0.5 percentage points to 48.8 percent and the operating margin to reach 14.4 percent. On a currency-neutral basis, sales are seen advancing by a low single-digit rate in the first half and a high single-digit rate in the second half. Earnings per share should advance by 11 percent in terms of constant currencies.