2Q EPS increases 47% to record $1.00
2Q revenues up 7%
2Q gross margins reach record 47.1%
Raising 2010 revenue, EPS and cash flow guidance
Cash flow from operations now expected to approximate $850 million
GREENSBORO, N.C.--(BUSINESS WIRE)--VF Corporation (NYSE: VFC - News), a global leader in branded lifestyle apparel, today announced results for the second quarter of 2010. All per share amounts are presented on a diluted basis.
Second quarter revenues rose 7% to $1,594.1 million from $1,485.6 million in the second quarter of 2009. Net income and earnings per share reached record levels in the quarter, with each increasing by 47%. Net income rose to $110.8 million or $1.00 per share, compared with $75.5 million or $.68 per share in the 2009 quarter.
For the first half of 2010, revenues increased 4% to $3,344.0 million from $3,211.1 million in the 2009 period. Net income rose 55% to $274.4 million from $176.5 million, while earnings per share also increased 55% to $2.47 from $1.59. Foreign currency translation rates benefitted earnings by $.06 per share in the first half of 2010.
“This was another outstanding quarter: revenues grew across all coalitions, gross margins reached record levels and earnings per share hit an all-time high,” said Eric C. Wiseman, Chairman and Chief Executive Officer. “While current indicators point to a pause in the economic recovery, strong, highly profitable brands with compelling products that speak to consumers’ needs can be successful regardless of the external environment. Our outstanding and diversified brand portfolio continues to perform exceptionally well and we look forward to a strong second half.”
Outdoor & Action Sports: Our Outdoor & Action Sports businesses achieved record revenues, operating income and operating margins in the second quarter. Global revenues rose 12% with strong increases in both our Americas and international businesses. Revenue growth in Asia was particularly strong, rising 28% in the quarter. Global revenues of The North Face® and Vans® brands grew 12% and 24%, respectively. Total direct-to-consumer revenues for our Outdoor & Action Sports businesses rose 13% in the quarter, with double-digit growth in The North Face®, Vans® and lucy® brands.
Operating income rose by 35%, with operating margins increasing by more than two full percentage points to nearly 14% in the quarter, despite significant increases in marketing and other brand-building investments.
Jeanswear: Our global Jeanswear business resumed growth in the quarter, with revenues rising 2%. Domestic revenues rose 5% with growth in all three major businesses – Mass Market, Lee and Western Specialty. We were especially pleased with the 6% increase in our Mass Market business, driven by continued strength in our core Wrangler® and Riders® businesses. Revenues of our Lee® brand in the U.S. rose 2% in the quarter and revenues in our Western Specialty business increased 5%. International jeans revenues declined 5% due primarily to the exit of our mass business in Europe. Solid growth continued in other international markets including Mexico, South America and Canada.
Operating income increased 40%, with a significant increase in operating margins to 17% in the quarter.
Sportswear: Our Sportswear business also resumed growth in the quarter, with revenues rising 5%. Revenues of our Nautica® brand increased 4% with a double-digit increase in the brand’s wholesale business with department stores. Kipling® brand revenues in the U.S. increased 17% in the quarter, reflecting the successful launch of a new, exclusive program with Macy’s. The improvements in profitability achieved in the past several quarters continued in the second quarter, with operating income and operating margins improving substantially over those of the prior year’s quarter.
Contemporary Brands: Revenues of our Contemporary Brands coalition, which consists of the 7 For All Mankind®, John Varvatos®, Splendid® and Ella Moss® brands, rose 18%, driven by double-digit growth across all brands.
Operating income rose 12%, with a slight decline in operating margins reflecting higher brand spending as well as investments in new 7 For All Mankind® retail stores.
Imagewear: As anticipated, our Imagewear business rebounded in the quarter, with revenues rising 8% driven by growth in both our Image and Licensed Sports Apparel businesses. Operating income rose 36% in the quarter with operating margins improving by 250 basis points to 12%.
Second quarter gross margins reached record levels, rising 320 basis points to an all-time high of 47.1%. As in the first quarter, this substantial improvement was driven by three primary factors: 1) lower product costs; 2) continued expansion and improved gross margins in our retail stores; and 3) generally clean inventories across our businesses. Operating margins rose to 10.6% from 8.1%, while marketing spending increased 19% as we continued to implement a focused program of investment spending behind our strongest and most profitable brands.
Our international and direct-to-consumer businesses remain important long-term drivers of both organic growth and margin expansion. During the quarter, international revenues increased 6% on a constant currency basis driven by strong growth in our Outdoor & Action Sports and Contemporary Brands businesses. Our momentum in Asia continued in the quarter, with revenues rising 26% reflecting double-digit growth in The North Face®, Vans® and 7 For All Mankind® brands.
Our direct-to-consumer revenues increased 7%, driven by new store openings in the quarter. The direct-to-consumer businesses of The North Face®, Vans®, 7 For All Mankind® and lucy® brands each achieved double-digit revenue gains in the period. We opened a total of 25 stores across our brands in the quarter and 41 stores year-to-date, bringing the number of owned retail stores to 768 at the end of the quarter. We remain on track to open a total of 80 to 90 stores this year.
Cash and equivalents were $540 million at the end of the quarter and inventories declined 10% from prior year levels. We continue to expect a very strong year of cash flow generation, which is now expected to approximate $850 million. Year-to-date we have spent $318 million to repurchase 4 million shares, which is one million shares higher than indicated in our previous guidance.
Based on strengthening trends across our businesses – and in particular in those areas where we have increased our marketing spending – we now expect revenues to increase 4 to 5% in 2010 compared with our prior guidance of an increase of 3 to 4%. The new guidance includes a negative 1% impact on revenues from foreign currency translation due to the decline in the value of the euro since our prior guidance in April. On a constant currency basis revenues are expected to rise 5 to 6%.
We are also raising our earnings per share guidance to $6.10 per share, versus our previous guidance of $5.90 per share. The new guidance, which includes a negative impact from foreign currency translation of $.04, represents an increase of 18% over 2009 earnings per share of $5.16 (before impairment charge). On a GAAP basis, earnings per share are now expected to increase 48% from the $4.13 reported in 2009.
The revised guidance reflects our expectation for an increase of approximately 5% in second half revenues versus 2009, compared with a 4% increase in first half revenues. Gross margins in the second half of 2010 should be above prior year levels. An increase in SG&A in the period will reflect the timing of higher investment spending in our brands. Of the total $85 million in planned spending this year, $65 million will occur in the second half of the year. Also included in our guidance for second half earnings is a negative impact of $.10 per share from foreign currency translation, with most occurring in the third quarter.
For the full year, we expect gross margins will reach record levels, slightly exceeding 46%. Operating margins should improve substantially as well, despite the incremental $85 million in brand investments.
Concluded Mr. Wiseman, “I can think of no better way to demonstrate our confidence in the strength of our brands than by continuing to invest behind their global growth potential. We look forward to reaping the benefits of these investments this year in the form of strong revenue growth, record gross margins and all-time high earnings.”
The Board of Directors declared a quarterly cash dividend of $.60 per share, payable on September 20, 2010 to shareholders of record as of the close of business on September 10, 2010.
This press release contains constant currency financial information, which is a measure of financial performance that is not prepared in accordance with generally accepted accounting principles ("GAAP"). An explanation of management's use of this non-GAAP financial information is described in the supplemental financial information beginning on page 10.
Certain statements included in this release are "forward-looking statements" within the meaning of the federal securities laws. Forward-looking statements are made based on our expectations and beliefs concerning future events impacting VF and therefore involve a number of risks and uncertainties. We caution that forward-looking statements are not guarantees and that actual results could differ materially from those expressed or implied in the forward-looking statements. Potential risks and uncertainties that could cause the actual results of operations or financial condition of VF to differ materially from those expressed or implied by forward-looking statements in this release include the overall level of consumer spending on apparel; general economic conditions and other factors affecting consumer confidence; disruption and volatility in the global capital and credit markets; VF's reliance on a small number of large customers; the financial strength of VF's customers; changing fashion trends and consumer demand; increasing pressure on margins; VF's ability to implement its growth strategy; VF's ability to grow its international and direct-to-consumer businesses; VF's ability to successfully integrate and grow acquisitions; VF's ability to maintain the strength and security of its information technology systems; stability of VF's manufacturing facilities and foreign suppliers; continued use by VF's suppliers of ethical business practices; VF's ability to accurately forecast demand for products; continuity of members of VF's management; VF's ability to protect trademarks and other intellectual property rights; maintenance by VF's licensees and distributors of the value of VF's brands; fluctuations in the price, availability and quality of raw materials and contracted products; foreign currency fluctuations; and legal, regulatory, political and economic risks in international markets. More information on potential factors that could affect VF's financial results is included from time to time in VF's public reports filed with the Securities and Exchange Commission, including VF's Annual Report on Form 10-K and Quarterly Reports on Form 10-Q.
VF Corporation is a global leader in branded lifestyle apparel with more than 30 brands, including Wrangler®, The North Face®, Lee®, Vans®, Nautica®, 7 For All Mankind®, Eagle Creek®, Eastpak®, Ella Moss®, JanSport®, John Varvatos®, Kipling®, lucy®, Majestic®, Napapijri®, Red Kap®, Reef®, Riders® and Splendid®.