V.F. Corporation (VFC) recently reported fourth-quarter and full year earnings results for its fiscal year 2021, which ended on April 3.
The company, which is one of the largest apparel names in the world, struggled like many other retailers during the COVID-19 pandemic. However, the company’s most recent quarter saw growth in key areas that have me believing that V.F. Corp is starting to return to its pre-pandemic standing.
A rundown of earnings results
V.F. Corp reported fourth-quarter and full year fiscal 2021 earnings results on May 21. For the quarter, revenue grew 23% to $2.6 billion, the company’s best year-over-year quarterly growth rate since 2016. Revenue was $70 million above what Wall Street analysts had anticipated. A weaker U.S. dollar was a 4% tailwind to results. Adjusted net income of $106 million, or 27 cents per share, compared favorably to adjusted net income of $40 million, or 10 per share, in the previous year. Adjusted earnings per share did come in 2 cents short of expectations.
For fiscal year 2021, revenue decreased 12% to $9.2 billion, with currency translation adding 2% to results. Adjusted net income of $512 million, or $1.31 per share, was down from adjusted net income of $1.1 billion, or $2.68 per share, the previous year. Adjusted earnings per share was 1 cent better than the company’s guidance that was issued at the end of the third quarter.
The double-digit decrease in yearly revenue was almost entirely due to the Covid-19 pandemic as many store locations were closed worldwide through the first couple of quarters of the year. The fourth quarter saw a reopening of the vast majority of its locations, though approximately 15% of U.S. stores were closed at the beginning of the period. Nearly all stores were open at the time of the earnings release.
Except for Dickies, V.F. Corp’s four largest brands all fell double-digits for the fiscal year. On the other hand, the four top brands combined for 16% growth excluding currency exchange during the fourth quarter.
Leading the way was a 23% improvement for The North Face. Non-U.S. Americas region remains challenged as revenues fell 12%, but other regions fared much better. U.S. was up 15% and EMEA grew 19%, but it was the APAC region that was the best performer with a 93% gain in revenue. Much of this was due to higher demand in mainland China. EMEA was resilient during the quarter even as many stores in several European countries were closed. The company expects revenue to grow a mid-teens percentage from fiscal year 2020.
Timberland grew 19%. Of all the core brands, Timberland had the best results for the Americas as sales were up 21% as demand for classics and outdoor footwear returned. EMEA sales grew 2% despite store closings throughout Europe. APAC improved 57%, primarily due to a 143% increase in wholesale store sales. China growth was also very high. The company pegs Timberland revenues to be in-line with fiscal year 2020 levels.
Vans was higher by 10% even as lockdowns forced the closing of stores in the EMEA region during the quarter. Direct-to-consumer sales of 17% were above that of brick-and-mortar, but the latter still was positive compared to the prior year. U.S. sales improved 19% while APAC was up 24%, with China once again being the real driver of growth. EMA was down 4% and non-U.S. Americas fell 21%. Revenues for Vans are expected to grow at a high single-digit rate compared to fiscal year 2020.
Dickies was up 19%, led by a 52% improvement in direct-to-consumer. U.S. improved 10% while APAC more than doubled. EMEA fell 3% as a strong showing in direct-to-consumer and digital was more than offset by weakness in the wholesale business. Dickies is expanding its digital business and expects acceleration to begin to show up. Work lifestyle products were in high demand throughout all regions. Dickies is projected to grow at least 20% from fiscal year 2020.
For the year, adjusted gross margins decreased 220 basis points to 53.3% and the adjusted operating margins fell 480 basis points to 12.8%, mostly due to the company’s promotional activity as it worked to clear excess inventory.
V.F. Corp had total assets of $13.8 billion at the end of the fiscal year, including current assets of $4.8 billion and cash, cash equivalents and short-term investments of $1.4 billion. Inventories were down 18% from the previous year as the company used promotions to clear its shelves. Total liabilities stood at $10.7 billion, with current liabilities of $2.2 billion. Long-term debt obligations were $4.9 billion, but just over $12 million of debt matures within the next year. The balance sheet looks very clean and unlikely to be a hinderance to the company’s future business.
V.F. Corp also issued guidance for fiscal year 2022. The company expects revenue to grow more than 28% to $11.8 billion. Adjusted earnings per share should be around $3.05, which would be a 134% improvement from the prior fiscal year and a 14% increase from fiscal year 2020.
Takeaways
V.F. Corp’s core brands did very well in the latest quarter, a stark turn around compared to the rest of the fiscal year. This strength is what attracted me to the company in the first place, so the most recent quarter reaffirms my belief that the top brands remain in high demand amongst consumers.
E-commerce continues to be a major contributor to results. Direct-to-consumer was higher by 32% with the digital business nearly doubling during the quarter. Demand for The North Face and Timberland returned in a big way as digital sales for these brands grew 118% and 122%, respectively.
V.F. Corp did benefit from favorable comparable numbers as the fourth quarter of fiscal 2020 did see a 35% decrease in revenue and an 83% decline in adjusted earnings per share.
It should be noted that while the company is projecting excellent year-over-year revenue growth numbers for fiscal 2022, results are still below fiscal year 2020 revenues of $13.8 billion. So, the company is not yet out of the woods, though that year’s revenue total does include the jeans businesses that were spun off to form Kontoor Brands (KTB) in May of 2019. On the plus side, most of the major brands are expected to show excellent results compared to fiscal year 2020, so it appears that demand is likely to outpace pre-pandemic results.
V.F. Corp has also made investments in recent years to its direct-to-consumer and digital presence and the results in the most recent quarter are evidence of the strides the company has made in these areas. The company also attempted to increase its ability to retain customers through its loyalty membership program. V.F. Corp added 1.6 million new members in the Americas region during the last year.
V.F. Corp has also not been shy about making strategic acquisitions. The company added Dickies, which was the lone top brand to show growth for the full fiscal year. More recently, the company added Supreme, a privately owned global streetwear brand, for $2.1 billion late last year. Supreme added $142 million to revenue and 6 cents to adjusted earnings per share last fiscal year. V.F. Corp expects this acquisition to contribute approximately $600 million to revenue and 25 cents to adjusted earnings-per-share in fiscal year 2022, above what the company expected at the time of the acqusition close.
Final thoughts
Shares of the company closed Friday’s trading session at $79, resulting in a forward price-earnings ratio of 25.9 using V.F. Corp’s guidance for the year. This is a premium to the stock’s 10-year average price-earnings ratio of 20.4.
With that caveat, V.F. Corp produced a fourth-quarter result that was up nicely compared to the prior year. The company’s top four brands acted very well and direct-to-consumer and digital remains a driving force. Acquisitions made in previous years and more recently contributed to gains as well.
V.F. Corp also has a strong tradition of returning capital to shareholders as evidenced by its 48-year dividend growth streak. The stock offers a yield of 2.5%, well above the average yield of 1.4% for the S&P 500 index.
Due to its entrenched position as a leading apparel retailer, resilient business, dividend yield and dividend growth streak, I decided to add to my position on May 24 at a price of $76.53. In my opinion, investors looking for an apparel company benefiting from the Covid-19 rebound could consider adding V.F. Corporation to their portfolio.
Author disclosure: the author maintains a long position in V.F. Corporation.
