VF Reports First Quarter Fiscal 2021 Results.
Revenue from continuing operations decreased 48 percent (down 47 percent in constant dollars) to $1.1 billion;
Active segment revenue decreased 54 percent (down 53 percent in constant dollars) including a 52 percent (51 percent in constant dollars) decrease in Vans brand revenue; Outdoor segment revenue decreased 44 percent (down 43 percent in constant dollars) including a 45 percent (44 percent in constant dollars) decrease in The North Face brand revenue; Work segment revenue decreased 19 percent (down 18 percent in constant dollars) including a 16 percent (15 percent in constant dollars) decrease in Dickies brand revenue;
International revenue decreased 39 percent (down 37 percent in constant dollars); Europe revenue decreased 48 percent (down 47 percent in constant dollars); Greater China revenue was flat (up 3 percent in constant dollars), including an increase of 5 percent (9 percent in constant dollars) in Mainland China;
Direct-to-Consumer revenue decreased 37 percent; Digital revenue increased 78 percent (up 81 percent in constant dollars);
Gross margin from continuing operations decreased 340 basis points to 52.9 percent; on an adjusted basis, gross margin decreased 220 basis points to 54.1 percent;
Operating income (loss) from continuing operations on a reported basis was $(247) million; on an adjusted basis, operating income (loss) from continuing operations was $(230) million;
Earnings (loss) per share from continuing operations was $(0.71). Adjusted earnings (loss) per share from continuing operations was $(0.57); and,
VF ended the first quarter of fiscal 2021 with inventories up 2 percent, approximately $2.8 billion of cash and short-term investments in addition to $2.23 billion remaining under VF's revolving credit facility; the company also returned $187 million to shareholders through dividends.
DENVER- VF Corporation (NYSE: VFC) today reported financial results for its first quarter ended June 27, 2020. All per share amounts are presented on a diluted basis. This release refers to 'reported' and 'constant dollar' amounts, terms that are described under the heading 'Constant Currency - Excluding the Impact of Foreign Currency.' Unless otherwise noted, 'reported' and 'constant dollar' amounts are the same. This release also refers to 'continuing' and 'discontinued' operations amounts, which are concepts described under the heading 'Discontinued Operations - Occupational Workwear Business.' Unless otherwise noted, results presented are based on continuing operations. This release also refers to 'adjusted' amounts, a term that is described under the heading 'Adjusted Amounts - Excluding Costs Related to Specified Strategic Business Decisions.' Unless otherwise noted, 'reported' and 'adjusted' amounts are the same.
'VF is built for this moment, which is what gives us continued confidence and optimism,' said Steve Rendle, VF's Chairman, President and CEO. 'Our financial and operational rigor, the affinity consumers have for our iconic brands, and the progress we've made in recent years with our digital transformation have us well-positioned to not only manage the complexities of the current environment, but to drive long-term growth. As we continue through our fiscal year, we'll build on the strengths we're already seeing in the core elements of our strategy, including maintaining our strong cash and liquidity position and further accelerating our digital business worldwide, especially in China.'
Constant Currency - Excluding the Impact of Foreign Currency
This release refers to 'reported' amounts in accordance with U.S. generally accepted accounting principles ('GAAP'), which include translation and transactional impacts from foreign currency exchange rates. This release also refers to 'constant dollar' amounts, which exclude the impact of translating foreign currencies into U.S. dollars. Reconciliations of GAAP measures to constant currency amounts are presented in the supplemental financial information included with this release, which identifies and quantifies all excluded items, and provides management's view of why this information is useful to investors.
Discontinued Operations - Occupational Workwear Business
On January 21, 2020, VF announced its decision to explore the divestiture of its Occupational Workwear business. The Occupational Workwear business is comprised primarily of the following brands and businesses: Red Kap, VF Solutions, Bulwark, Workrite, Walls, Terra, Kodiak, Work Authority and Horace Small. The business also includes certain Dickies occupational workwear products that have historically been sold through the business-to-business channel.
During the three months ended March 2020, the company determined that the Occupational Workwear business met the held-for-sale and discontinued operations accounting criteria. Accordingly, the company has reported the related held-for-sale assets and liabilities as assets and liabilities of discontinued operations and included the operating results and cash flows of the business in discontinued operations for all periods presented.
Adjusted Amounts - Excluding Costs Related to Specified Strategic Business Decisions
The adjusted amounts in this release exclude costs related to strategic business decisions in South America and the operating results of jeanswear wind down activities in South America following the spin-off of Kontoor Brands. The adjusted amounts also exclude certain cost optimization activities indirectly related to the strategic review of the Occupational Workwear business. Total costs were approximately $16 million in the first quarter of fiscal 2021. In addition, the first quarter of fiscal 2021 excludes approximately $42 million of noncash non-operating expenses related to the release of certain currency translation amounts associated with the wind down activities in South America.
Combined, the above items negatively impacted earnings per share by $0.14 during the first quarter of fiscal 2021. All adjusted amounts referenced herein exclude the effects of these amounts.
Reconciliations of measures calculated in accordance with GAAP to adjusted amounts are presented in the supplemental financial information included with this release, which identifies and quantifies all excluded items, and provides management's view of why this information is useful to investors.
COVID-19 Outbreak Update
As the global impact of COVID-19 continues, VF remains first and foremost focused on a people-first approach that prioritizes the health and well-being of its employees, customers, trade partners and consumers around the world. To help mitigate the spread of COVID-19 and in response to public health advisories and governmental actions and regulations, VF has modified its business practices, including the temporary closing of offices and retail stores, instituting travel bans and restrictions, implementing health and safety measures including social distancing and quarantines.
All of VF's retail stores in the APAC region, including Mainland China, re-opened during the first quarter. Over 90 percent of VF's retail stores in the EMEA region re-opened during the first quarter, with most of the stores that remained closed located in the UK. In North America, 75 percent of all retail stores were open at the end of the first quarter. Additional stores have re-opened since the end of the quarter, partially offset by over 120 retail stores that have since temporarily re-closed due to localized resurgence of COVID-19 outbreaks and resulting government action and public health advisories. VF's wholesale customers in APAC, North America and EMEA have re-opened most of their retail stores.
The majority of VF's supply chain is currently operational. Suppliers are complying with local public health advisories and governmental restrictions which can result in product delays. VF is working with its suppliers to minimize disruption. VF's distribution centers are operational in accordance with local government guidelines but are experiencing intermittent disruptions while maintaining enhanced health and safety protocols.
VF is continuing to monitor the COVID-19 outbreak globally and will comply with guidance from government entities and public health authorities to prioritize the health and well-being of its employees, customers, trade partners and consumers. As COVID-19 uncertainty continues, VF expects ongoing disruption to its business operations.
First Quarter Fiscal 2021 Income Statement Review
Revenue decreased 48 percent (down 47 percent in constant dollars) to $1.1 billion driven by store closures and lower consumer demand as a result of the COVID-19 outbreak and related government actions and regulations.
Gross margin decreased 340 basis points to 52.9 percent, primarily driven by elevated promotional activity to clear excess inventory, partially offset by favorable mix shift toward higher margin businesses. On an adjusted basis, gross margin decreased 220 basis points to 54.1 percent.
Operating income (loss) on a reported basis was $(247) million. On an adjusted basis, operating income (loss) was $(230) million. Operating margin was (22.9) percent. Adjusted operating margin was (21.4) percent.
Earnings (loss) per share was $(0.71) on a reported basis. On an adjusted basis, earnings (loss) per share was $(0.57).
Balance Sheet Highlights
Inventories were up 2 percent compared with the same period last year. During the quarter, VF returned approximately $187 million of cash to shareholders through dividends. As part of the company's liquidity preservation actions during the ongoing COVID-19 outbreak, the company has suspended its share repurchase program. VF has $2.8 billion remaining under its current share repurchase authorization.
Full Year Fiscal 2021 Outlook
Due to the uncertainty of the duration and severity of COVID-19, governmental actions and regulations in response to the pandemic and the speed with which the pandemic is developing and impacting VF, its consumers, customers and suppliers, it is not possible to provide a financial outlook for full-year fiscal 2021 at this time. However, second quarter fiscal 2021 revenues are expected to be down less than 25% and full-year fiscal 2021 free cash flow is still expected to exceed $600 million.
VF's Board of Directors declared a quarterly dividend of $0.48 per share, payable on September 21, 2020, to shareholders of record on September 10, 2020. Subject to approval by its Board of Directors, VF intends to continue to pay its regularly scheduled dividend and is not currently contemplating the suspension of its dividend.
VF will host its first quarter fiscal 2021 conference call beginning at 8:30 a.m. Eastern Time today. The conference call will be broadcast live via the Internet, accessible at ir.vfc.com. For those unable to listen to the live broadcast, an archived version will be available at the same location.
A presentation on first quarter fiscal 2021 results will be available at ir.vfc.com beginning at approximately 7:30 a.m. Eastern Time today and will be archived at the same location.
Founded in 1899, VF Corporation is one of the world's largest apparel, footwear and accessories companies connecting people to the lifestyles, activities and experiences they cherish most through a family of iconic outdoor, active and workwear brands including Vans, The North Face, Timberland and Dickies. Our purpose is to power movements of sustainable and active lifestyles for the betterment of people and our planet. We connect this purpose with a relentless drive to succeed to create value for all stakeholders and use our company as a force for good. For more information, please visit vfc.com.
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 several risks and uncertainties. You can identify these statements by the fact that they use words such as 'will,' 'anticipate,' 'estimate,' 'expect,' 'should,' and 'may' and other words and terms of similar meaning or use of future dates, however, the absence of these words or similar expressions does not mean that a statement is not forward-looking. All statements regarding VF's plans, objectives, projections and expectations relating to VF's operations or financial performance, and assumptions related thereto are forward-looking statements. 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. VF undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. 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 include, but are not limited to: risks arising from the widespread outbreak of an illness or any other communicable disease, or any other public health crisis, including the coronavirus (COVID-19) global pandemic; the level of consumer demand for apparel, footwear and accessories; disruption to VF's distribution system; the financial strength of VF's customers; fluctuations in the price, availability and quality of raw materials and contracted products; disruption and volatility in the global capital and credit markets; VF's response to changing fashion trends, evolving consumer preferences and changing patterns of consumer behavior; intense competition from online retailers; manufacturing and product innovation; increasing pressure on margins; VF's ability to implement its business strategy; VF's ability to grow its international and direct-to-consumer businesses; retail industry changes and challenges; VF's and its vendors' ability to maintain the strength and security of information technology systems; the risk that VF's facilities and systems and those of our third-party service providers may be vulnerable to and unable to anticipate or detect data security breaches and data or financial loss; VF's ability to properly collect, use, manage and secure consumer and employee data; foreign currency fluctuations; 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; possible goodwill and other asset impairment; maintenance by VF's licensees and distributors of the value of VF's brands; VF's ability to execute and integrate acquisitions; changes in tax laws and liabilities; legal, regulatory, political and economic risks; the risk of economic uncertainty associated with the exit of the United Kingdom from the European Union ('Brexit') or any other similar referendums that may be held; adverse or unexpected weather conditions; VF's indebtedness and its ability to obtain financing on favorable terms, if needed, could prevent VF from fulfilling its financial obligations; climate change and increased focus on sustainability issues; and risks associated with the spin-off of our Jeanswear business completed on May 22, 2019, including the risk that VF will not realize all of the expected benefits of the spin-off; the risk that the spin-off will not be tax-free for U.S. federal income tax purposes; and the risk that there will be a loss of synergies from separating the businesses that could negatively impact the balance sheet, profit margins or earnings of VF. 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 SEC, including VF's Annual Report on Form 10-K, and Quarterly Reports on Form 10-Q, and Forms 8-K filed or furnished with the SEC.
Condensed Consolidated Statements of Operations: See details at:
Refer to constant currency definition on previous pages.
(a) Excludes the operating results of jeanswear wind down activities in South America post the separation of Kontoor Brands for the three months ended June 2019. Refer to Non-GAAP financial information on 'Reconciliation of Select GAAP Measures to Non-GAAP Measures - Three Months Ended June 2019' page for additional information.
(b) Royalty revenues are included in the wholesale channel for all periods.
Joe Alkire, 720-778-4051
Vice President, Corporate Development, Investor Relations and Treasury
Craig Hodges, 720-778-4116
Vice President, Corporate Affairs