Analysts: VF Momentum a Good Sign for Timberland

NEW YORK — The strong momentum in VF Corp’s outdoor and action-sports division, which grew the most in the second quarter, will benefit the newly acquired Timberland business, analysts said.

“Part of what’s driving the coalition is some pretty aggressive reinvestments in marketing [VF has] made over the last 12 months, some of which I imagine will also be put toward Timberland and improving its brand equity going forward,” said Ken Stumphauzer, analyst at Sterne Agee.

Michael Binetti, analyst at UBS Investment Bank, added that VF’s strong position in the sector should give Timberland an opportunity to diversify its product lines.

VF said it expects Timberland to add $700 million to full-year revenues, and 25 cents to earnings per share. The acquisition is slated to close in the third quarter.

“Over the past five weeks we have spent a lot of time getting to know Timberland better. Our meetings have confirmed what we saw from the beginning. These are highly talented, very passionate teams whose business priorities are very much aligned with ours,” Eric Wiseman, VF’s chairman, president and CEO, said in a call with analysts last week.

Wiseman added that one big opportunity for the brand will be in apparel, where VF’s expertise lies.

VF’s outdoor and action-sports revenues grew 23 percent in the second quarter. Revenue at its contemporary brands group rose 11 percent in the period, driven by a 28 percent increase in combined revenues from Splendid and Ella Moss and a 36 percent jump in John Varvatos. Jeanswear revenues advanced 10 percent, as did its sportswear sales.

The company’s international revenues surged 30 percent in the quarter, driven by Latin America, up 40 percent; Europe, up 30 percent; and Mexico, up 26 percent.

Kate McShane, analyst at Citi Investment Research, also noted the firm’s “inventory progress looks good. The lower year-over-year inventory growth is encouraging [given] our current view of third-quarter revenue growth in the mid- to high-single teens.”

Gross margin, however, declined 120 basis points to 45.9 percent, reflecting the impact of higher product costs, especially cotton. For the three months ended July 2, VF reported a 17 percent rise in net income to $129.4 million, or $1.17 a share, from $110.8 million, or $1, a year ago. Total revenues rose 15 percent to $1.84 billion, from $1.59 billion.

Analysts were expecting earnings of $1.02 a share on revenue of $1.74 billion, as polled by Yahoo Finance. So the better-than-expected results prompted the firm’s shares to jump 5 percent last Thursday morning. VF ended the period with $611.5 million in cash and cash equivalents, and $934.6 million in long-term debt, and also raised its 2011 guidance.

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