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VF Corporation Stock Tanks, Q2 Earnings Miss Estimates

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Today, VF Corporation (VFC) reported its earnings results for the second quarter of fiscal 2020, which ended on September 30. VF Corporation’s revenue grew 5.4% to $3.39 billion but missed analysts’ estimate of $3.42 billion. Adverse currency fluctuations affected the company’s top-line. VF Corporation stock was down 6.8% as 3:21 PM ET today.

Also, VF Corporation’s adjusted EPS of $1.26 lagged behind analysts’ estimate of $1.31. Adjusted EPS rose about 6% year-over-year. The adjusted gross margin was up 90 basis points to 53.1%. Moreover, its adjusted operating margin improved 40 basis points to 17.9%. A favorable mix of higher-margin businesses drove improvement in VF Corporation’s margins.

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In May, the company completed its spin-off of the Wrangler and Lee jeans brands to form Kontoor Brands (KTB). Following the spin-off, VF owns four key brands: Vans, The North Face, Timberland, and Dickies. As part of its strategic plan announced in September, the company is focusing on its direct channels, with emphasis on digital business.

VF Corporation faces competition from players like Nike (NKE) and Under Armour (UAA). Both Nike and Under Armour recently announced CEO succession plans. Nike named John Donahoe as its new president and CEO, succeeding Mark Parker early next year. And Under Armour’s president and COO, Patrik Frisk, will succeed Kevin Plank as CEO in January 2020.

VF Corporation’s Q2 revenue

Revenue from VF Corporation’s Active segment grew 9% in the second quarter, primarily due to a 14% rise in the Vans brand. The 4% rise in Outdoor segment revenue was mainly the result of an 8% growth in the revenue from The North Face brand. However, the Work segment’s revenue fell 4% in the second quarter.

Unlike Vans and The North Face, revenue from Timberland and Dickies declined by 1% and 4%, respectively. Planned business model changes hit Timberland-brand revenue from the non-US Americas region. The timing of shipments also hurt revenue for the Dickies brand.

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The company’s international revenue increased 4%, with China seeing a 20% rise in top-line. US revenue grew 7%. Let’s take a look at revenue growth by channel. The DTC (direct-to-consumer) channel saw growth of 11%, outpacing the 3% growth in the wholesale channel. Note that, within the DTC channel, digital revenue growth was 15%. Both wholesale and DTC revenue benefitted from the back-to-school season.

Guidance update

Despite an uncertain macro environment, VF Corporation continues to expect revenue to grow by about 6% to $11.8 billion in fiscal 2020. The company also continues to forecast Outdoor segment revenue growth of 5%.

Active segment revenue growth is now expected in the range of 8% to 9%, versus the prior outlook range of about 7% to 8%. However, revenue growth from the Work segment is expected in the range of 2% to 3%, compared to the prior range of 3% to 5%.

VF Corporation continues to expect its fiscal 2020 adjusted EPS to grow in the range of 16%–18% to $3.32–$3.37. Overall, the company’s guidance fell short of analysts’ estimates. Analysts expected revenue of $11.9 billion and adjusted EPS of $3.39 for fiscal 2020.

As of October 24, VF Corporation stock was up 35.3% year-to-date. So VFC is ahead of the 23.4% rise in Nike stock and 18.1% rise in Under Armour stock.

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