V.F. Corp's (VFC) Stock Down on Q2 Earnings & Sales Miss

V.F. Corporation VFC posted dismal second-quarter fiscal 2020 results, wherein both the top and the bottom line missed the Zacks Consensus Estimate. Notably, this marked the first earnings miss in the last seven quarters. Also, sales lagged the estimates after five straight quarters of beat. Nonetheless, management reaffirmed its outlook for the fiscal year.

Following lower-than-expected results, shares of the company declined approximately 5% during pre-market trading. In the past six months, the stock has declined 3.9%, while the industry decreased 11.5%.

Q2 Highlights

V.F. Corp delivered adjusted earnings of $1.26 per share. Although, the bottom line improved 6% year over year, it missed the Zacks Consensus Estimate of $1.30. On a constant-dollar basis, adjusted earnings rose 8%.

V.F. Corp generated net revenues of $3,393.3 million, which increased about 5% year over year but fell short of the Zacks Consensus Estimate of $3,415 million. Constant-dollar revenues improved 7%. Excluding acquisitions and divestitures, the metric rose 6% (up 8% in constant currency). Revenue growth can be attributed to strength in the company’s largest brands, and international and direct-to-customer businesses along with robust Active and Outdoor segments.

Excluding acquisitions and divestitures, adjusted international revenues edged up 4% (up 8% in constant dollars). Further, revenues in China improved 20% (up 24% in constant dollars).

V.F. Corporation Price, Consensus and EPS Surprise

 

V.F. Corporation Price, Consensus and EPS Surprise

V.F. Corporation price-consensus-eps-surprise-chart | V.F. Corporation Quote

Moreover, V.F. Corp’s direct-to-consumer revenues grew 11% (up 13% in constant dollars). Digital revenues were up 15% (up 17% in constant dollars)

Adjusted gross margin expanded 90 basis points (bps) year over year to 53.1%. Furthermore, adjusted operating income increased 7% to $606 million. Adjusted operating margin grew 40 bps to 17.9%.

Segmental Details

Revenues at the Active segment grew 9% to $1,413.6 million (up 11% on a constant-dollar basis). This includes revenue growth of 14% (up 16% in constant dollars) at Vans brand.
 
The Outdoor segment reported revenues of $1,525.9 million, which improved 4% year over year (up 6% in constant dollars). This includes revenue growth of 4% (up 6% in constant dollars) at The North Face brand.
 
Revenues at the Work segment decreased 4% year over year and declined 3% at constant currency to roughly $435.6 million.

Other revenues came in at $18.1 million compared with $1.3 million reported in the year-ago quarter.

Financial Details
 
V.F. Corp ended second-quarter fiscal 2020 with cash and cash equivalents of $507.6 million, long-term debt of $2,090.9 million, and shareholders’ equity of $4,647.6 million. At the end of the fiscal second quarter, the company used cash from operating activities of $365.5 million.

During the reported quarter, this Zacks Rank #2 (Buy) company paid out about $171 million of dividends. It did not buyback any share in the quarter and therefore had an outstanding balance of $3.8 billion under its existing share repurchase authorization.

Further, management hiked quarterly dividend by 12% to 48 cents per share, which is payable Dec 20, 2019, to its shareholders of record as of Dec 10.

Outlook
 
V.F. Corp reiterated its view for fiscal 2020. The company continues to expect revenues to be about $11.8 billion, which indicates growth of about 6% (and 8% in constant dollars excluding the impact of acquisitions and divestitures).

On a segmental basis, the company still expects revenue growth of 5% for Outdoor (6-7% in constant dollars). For Active, revenues are expected to increase 8-9% (11-12% in constant dollars) and 2-3% for Work (4-5% in constant dollars) segments.

This apart, V.F. Corp now expects International revenues to grow 4-5% (8-9% at constant currency). Revenues for the direct-to-consumer business are anticipated to increase 10-12% (11-13% at a constant-dollar basis). The company estimates digital revenue growth of nearly 25%.

Adjusted gross and operating margins are still anticipated to increase nearly 80 and 90 bps, respectively, to 54.1% and 13.8% in fiscal 2020.

Management continues to envision adjusted earnings per share of $3.32-$3.37, indicating 16-18% growth from the year-ago period (19-21% at constant currency). The Zacks Consensus Estimate for earnings is currently pegged at $3.37.

Further, V.F. Corp still expects adjusted cash flow from operations to be at least $1.3 billion in fiscal 2020. The effective tax rate is expected to be 15-15.5%. Moreover, capital expenditure is estimated to be roughly $400 million for the fiscal year.

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