VF Corporation (VFC, Financial) recently reported financial results for the third-quarter 2014 that slightly missed analyst’s estimates on both the top as well as bottom lines. However, its results were pretty good, led by strong performance of its Outdoor and Action Sports coalition that grew 12% to $2.2 billion. Also, it witnessed strong performance for its international and direct-to-consumer businesses during the quarter that helped the company to display comprehensively a better show for the quarter. Its gross margin expanded 70 basis points to 48.3% of the total revenue. In addition, the company continues to execute its revenue mix strategies that should possibly enhance its margins going forward.
A detailed look at its results
The Greensboro, North Carolina-based company for the third-quarter posted revenue of $3.52 billion, an uptick of 6.67% as compared to $3.30 billion in the same quarter a year earlier. However its revenue failed to meet the $3.57 billion estimated by the analysts for the quarter. Its net income for the quarter rose 8.5% to $477 million or earnings of $1.08 per share as against $433 million or earnings of $0.97 per share in the corresponding period last year. The analysts had been modeling earnings of $1.09 per share for the quarter.
Looking forward, VF Corp has raised its full year guidance. It expects its full year revenue to grow approximately 8% to $12.3 billion over 2013. VF Corp additionally expects its gross margin to expand around 49%, while its operating margin is expected to attain 15% for the full year. Its earnings per share for the full year are estimated to appreciate $0.02 per share to $3.08 over earnings of 2013.
Long-term prospects
The company is very excited entering into the holiday season and expects its three big brands such as the Outdoor & Action sports coalition, The North Face, Timberland brands to accelerate its overall performance. The management has increased forecasts for these strong performing brands categories. It expects its revenue for outdoor & action sport to grow around 13% for the full year. It has also raised revenue forecasts for its Timberland brand. It now expects its Timberland brand to generate revenue of 13% for the year higher than its previously stated 12% revenue growth.
In fact the company sees total revenue potential of $3.1 billion by the end of 2019. These brands such Outdoor & Action sports coalition, The North Face, Vas and Timberland brands grew 11%, 9%, 12% and 15% respectively during the third-quarter. These powerful brands are well supported by the innovative products and global growth. Also, the company is effectively executing various growth strategies keeping in mind customer insights, should propel its growth going forward.
Also, its ultra-footwear product such as ThermoBall, Mountain Athletics and FuseForm continues to gain traction in the market. VF Corp has tested its Mountain Athletics collection with few stores in Europe and remains on track roll over these products to other stores this quarter. It is also promoting its ThermoBall collection with effective marketing campaign across Europe and Asia Pacific. This marketing campaign includes TV and online advertisement. The company has executed this product at more than 450 partner location in China. It has observed strong results so far and expects these products to drive its growth in the long-run.
Moreover, the company is also expected to benefit from its direct-to-consumer business, which remains solid and continues to grow at a healthy rate. The company is seeing positive momentum going in around its VF brands coupled with retail operations. It opened approximately 49 stores during the third-quarter that brings VF owned retail store total tally to 1,333.
These added stores will certainly drive growth for its direct-to-consumer business. Its direct-to-consumer business is also benefitting from growing revenues for its concession location that should accelerate its revenue for the segment. At present the direct-to-consumer business contributed nearly 22% to the total revenue during the reported quarter, which is higher than 19% contribution in the same quarter last year.
Furthermore, the company is executing various other initiatives. It is working in tune of its global supply chain organization in order to effectively bring its product in the market. It is also expanding its sourcing relationship that should help the company in better delivery of its product in the market. Moreover, the company continues to leverage its ground-breaking platforms that should accelerate growth across the entire product portfolio.
Ending remarks and valuation:
VF Corp is working on various growth initiatives. It is experiencing solid growth movement in most of its brands such as Outdoor & Action sports coalition, The North Face, Timberland. Also, the company is aggressively executing marketing campaign and rolling out new products this winter that should augment its performance this quarter. The analysts have estimated CAGR of 13.60% for the next five years that indicate remarkable growth prospects for the investors in the long-run.
