In the money: VF moderates short term growth aspirations
Apparel maker VF Corp has admitted revenue in the year ahead is likely to fall short of long-term expectations, with performance hindered by unseasonably warm weather affecting sales of the North Face brand combined with weak economic conditions in Europe.
"We expect revenues to increase approximately 6%, which will take us to the $11.5bn mark. But let me make one thing clear, VF is not a 6% growth company, it's a 10% growth company," VF Corp president and CEO Eric Wiseman told analysts on Friday (15 February).
"In 2013, there are two external factors weighing on our growth, both of which are well known to you. First, a second unseasonably warm winter, which is affecting our largest brand, The North Face; and second, weak economic conditions in Europe, which accounts for 22% of VF's revenues.
"In addition, we have no acquisitions baked into our plan this year. Beyond 2013, our confidence in the power of VF's portfolio to deliver 10% revenue growth remains high."
The comments came as the company recorded a 32% increase in fourth quarter net income, driven by sales growth in its outdoor and sportswear divisions, combined with improved gross margins.
The company said that adjusted net income reached US$344m in the quarter ended 29 December, up from $262m in the same period of the prior year. Revenue grew 4% to $3bn over the quarter.
Gross margin also improved 75 basis points over the full year to 46.5% and is expected to continue to improve during 2013. Wiseman said that gross margins should rise nearly 100 basis points to 47.5% in 2013, putting the company very close to its 2015 goal two years ahead of schedule.
CFO Robert Shearer attributed the increases to the shift in the company's mix to higher margin businesses - through the growth of its retail store footprint and expanding e-commerce business within its higher margin lifestyle brands.
"The positive dynamic of expanding gross margin driven by the faster pace of growth in our higher-margin businesses has been, and will continue to be, a key component of VF's earnings growth story in both 2013 and in years to come," he said.
Jeanswear sales grew 4% over the quarter, with growth in the Americas business across mass, western and Latin America. However, Lee's top line continues to experience pressure, both in the US and abroad, with "challenging dynamics in mid-tier department stores, weak economic conditions in Europe, and a build-up in retailers' inventories in China," emphasised Shearer.
The division also recorded a significant improvement in profitability, with operating margin reaching 17.9%.
The company has also lowered its targets for Asian growth this year, with expectations for growth in the low teen percentage points, below the 17% five-year target it presented in September.
"There has been a build-up in inventories of certain categories in China as a result of some moderation in economic growth there last year. That is placing some near-term pressure on our growth, particularly in our Jeans business.
"We think it will take a couple more quarters for those inventories to clear, at which time we expect to resume growth in Asia closer to our target levels. Our 5-year targets for 17% revenue growth in Asia and 21% in China remain intact," said Shearer.
"In Europe, our brands continue to expand and gain share, which should help drive a high single-digit increase in our European revenues this year. And on a combined basis, our non-US Americas region is looking forward to a really strong year, with revenues expected to grow at a mid-teen rate."
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