Footwear Sales Fuel VF Corp.

The unseasonably cold weather in the U.S. drove stronger sales of VF Corp.’s Timberland and Vans footwear products in the fourth quarter.

But weakness in the jeanswear business weighed on the company’s overall results, which missed analysts’ forecasts for the period.

The company posted a 10 percent increase fourth-quarter earnings to $367.7 million, or 82 cents a diluted share, from $334.2 million, or 75 cents, in the prior corresponding period. The result missed analysts’ consensus forecast of 84 cents.

While the result missed the Street’s expectations, analysts were positive on the company’s performance in footwear, especially the significant improvement in sales of its Timberland and Vans brands.

“What we find really positive is with this [result] is the acceleration of Timberland revenues after two years of investments. Timberland revenues were up 13 percent for the fourth quarter after last quarter’s two percent increase and prior disappointing results,” said Macquarie Equities Research analyst Laurent Vasilescu.

“The North Face, Vans and Timberland all posted double-digit revenue growth for the fourth quarter with continued strength for 2014,” Vasilescu said.

Following Skechers’ strong fourth-quarter result on Wednesday, where management noted strength in its boots and lined footwear amid the colder weather in the U.S., market watchers had been optimistic about VF Corp’s performance in the quarter. But the company’s shares sank in early trade after the result missed expectations.

Despite the pullback, UBS analyst Michael Binetti is optimistic on the outlook for 2014. “While fourth-quarter revenues and gross margins fell short of estimates, we believe VF Corp. is guiding to 2014 numbers it can beat,” he said.

On a conference call with analysts and investors, VF Corp. CFO Robert K. Shearer said he was pleased with the solid performance for the quarter given the challenging retail environment. 

“Revenue for our outdoor and action sports business was up 12 percent, with double-digit gains in both [our] wholesale and direct-to-consumer businesses. This growth was balance between U.S. and international markets,” he said.

“In terms of brands, the North Face, Vans, and Timberland delivered double-digit growth, [which is] pretty impressive in [a] quarter marked by negative mall traffic tends and fairly aggressive promotions.”

During the conference call’s Q&A section with analysts, VF Corp. CEO Eric Wiseman said he expects the company’s Vans brand – which posted revenue of more than $1.7 billion in 2013 – to gain further momentum in 2014.

“Vans will be one of our fastest-growing brands this year and obviously [the brand] is not a winter-weather brand primarily, so it does much better as the climate heats up here some,” he said. 

The results came as the company announced plans to return more than $1 billion to shareholders through share repurchases and dividends. VF Corp. said its board of directors authorized an additional 50 million shares to its share repurchase program.

The company will spend $700 million under its share repurchase program in 2014, beating analysts’ forecast of approximately $280 million.

This means VF Corp could be less likely to make an acquisition in the first half of 2014, analysts said.
“Management’s indication that it will repurchase approximately $700 million in shares [suggests] they might not be ready to make an acquisition in the first half of 2014 [in order to] achieve two percent long-term acquisition growth,” Vasilescu said.

Despite this, Shearer said on the conference call that VF Corp.’s mergers and acquisitions pipeline remains strong.

“We can afford to return more cash through our buyback program as well as our dividend program and still absolutely address our M&A program…Our M&A activity is as strong as ever,” he said. 

Total sales increased 8.5 percent to $3.29 billion for the quarter, from $3.03 billion in the prior corresponding period, roughly in line with consensus forecasts of $3.34 billion. Sales for the full year rose 5 percent to $11.4 billion, slightly below consensus forecasts for an increase to $11.5 billion.

For the full year, the company expects sales to increase by between seven and eight percent, in line with management’s long-term guidance of 8 percent organic growth.

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