The American conglomerate has done it before. While reporting better-than-expected results for the third quarter, VF Corp. announced that it had decided to reinvest a further $40 million in marketing during the second half of this year. It has already allocated $10 million to the third quarter. The balance will be spent during the fourth quarter, with a focus on the international expansion of The North Face, Timberland and Vans. The budget for TNF is being doubled in China, where the brand is going to advertise for the first time on television.
The results for VF's quarter, which ended on Sept. 28, show a 13.8 percent increase in net income to $433.8 million and a 4.7 percent hike in total revenues to $3,297 million. Excluding charges related to Timberland's acquisition, adjusted net profit went up by 10.9 percent.
Currency exchange boosted the reported sales figure by one percentage point. At 47.6 percent, the gross margin was 0.9 percentage points better than a year ago. The operating margin moved up at the same speed to reach a healthy level of 21.4 percent, or 17.7 percent on an adjusted basis.
The Outdoor & Action Sports Coalition led the group with a 6.5 percent increase in sales to $1,972 million and an increase in operating income of 5.6 percent on an adjusted basis to $582 million. Sales grew by 16 percent for Vans, by 3 percent for the North Face and by 3 percent for Timberland.
According to the management, TNF would have risen by a higher single digit without the negative effect from a shift in retailers' orders. This was due to the last two bad winter seasons in the U.S. and was calculated to be around $40 million.
Indicating that TNF's sales growth should speed up in the fourth quarter, the management pointed out that VF's inventories are clean. TNF's wholesale business was flat overall in the third quarter, but it was down in Europe because of the opening of a new distribution center.
TNF's direct-to-consumer revenues were up instead by more than 25 percent worldwide and by nearly 20 percent in Europe, where e-commerce enjoyed a 60 percent boost. In the Asia-Pacific region, TNF's sales rose by 11 percent, with growth of around 15 percent in China.
Sales of TNF's new Thermoball line of insulated jackets have exceeded expectations. They have been particularly strong in Europe, where almost half of the brand's product line has been specifically designed for individual markets.
At the Outdoor Retailer show in Salt Lake City last August, TNF showcased its efforts to reach more balanced seasonal collections, with a focus on cross-fit and “mountain athletics” for the summer, including an Ultra Protection line of footwear combining training with light hiking.
The group's total sales outside the U.S. advanced by 7 percent in dollars and by 4 percent on a currency-neutral basis, representing 40 percent of the total turnover. Much of the growth was generated by the direct-to-consumer business, which was up internationally by 19 percent for TNF and by 44 percent for Vans. JanSport and Reef also recorded significant growth outside the U.S.
In Europe, sales went up by 7 percent in dollars and by 2 percent in local currencies, with positive figures for Vans, SmartWool, Eastpak, Kipling, Napapijri and a couple of denim brands. Vans' sales grew by 25 percent in the region, and they were up at a high single-digit rate in Asia-Pacific.
Vans has expanded its offering of cold-weather shoes. It opened a store in Dublin during the quarter at the same time as its Irish online store, raising to seven the number of European countries where it is trading online.
As expected, Timberland was flat in Europe during the quarter. The brand's wholesale revenues rose slightly there, but retail sales declined because of an ongoing reset of key locations. Timberland should return to good growth in Europe during the fourth quarter and early next year.
VF's group sales went up by only 2 percent in the Asia-Pacific region, but were up by 10 percent in China.
The management is still expecting a 13 percent increase in earnings per share for the full financial year, in spite of an overall increase of $100 million in the marketing budget for the year. At $11.5 billion, there is no change in the sales outlook for the year, indicating that sales should grow by around 10 percent in the fourth quarter. The group is expected to deliver a gross margin of nearly 48 percent, 1.5 percentage points more than in 2012.
In a demonstration of its confidence, the company's board of directors raised its quarterly dividend by 21 percent to $1.05 per share. It also announced a four-for-one stock split, granting three additional shares to shareholders on record on Dec. 10 as a form of stock dividend.
Eric Wiseman, chairman, president and chief executive of VF, indicated at the end of the management's conference with financial analysts that the company is considering new acquisitions outside the U.S., more likely in Europe at this stage than in Asia.