VF Q1 Net Up Despite Nautica Ills

by MR Magazine Staff

NEW YORK – Shrugging off weakness in sportswear coalition related to problems at Nautica, VF Corp. Tuesday closed the books on a strong first quarter and raised its guidance for the current second quarter.

Investors voted their approval as shares of the Greensboro, N.C.-based apparel firm increased $2.86, or 3.3%, to close at $88.70 in New York Stock Exchange trading.

For the three months ended March 31, net income rose 7.9% to $138.3 million, or $1.20 a diluted share, from $128.2 million, or $1.14, in the first quarter of 2006. Excluding the discontinued intimate apparel operation, sold to Fruit of the Loom, EPS for continuing operations was $1.17, $0.06 above consensus estimates, versus $1.05 in the prior-year period.

Net sales rose 15.1%, to $1.65 billion from $1.44 billion. Mackey McDonald, chairman and chief executive officer, said that organic sales growth, for comparable operations, was 12%, versus projected expansion of 10%, while VF’s two acquisitions, Eagle Creek and Majestic Athletic, “added an additional three percentage points of growth to our top line.”

The record-setting quarter came as all of VF’s coalitions except sportswear registered increases in revenues and operating income. Jeanswear coalition sales rose 8.1% to $760.8 million while profit was up 5.2% to $129.5 million. Outdoor sales, aided by the addition of Eagle Creek, advanced 39.7% to $538.8 million while profits mushroomed 65.5% to $83.7 million. Imagewear sales were up 10.2% to $213.7 million while profits eked out a 1.3% advance, to $30.5 million.

However, the sportswear unit, which includes the Nautica, John Varvatos and Kipling businesses, weathered an 8.9% decrease in revenue, to $148.4 million, and a 51.2% decline in profit, to $10 million. VF said that Kipling and Varvatos had double-digit gains in sales but that Nautica, as planned, raked in lower revenues as it suffered from a shift in shipping dates by retailers and lower sales of “distressed inventory.” Investments in Nautica women’s sportswear also cut into profitability.

VF stuck by its target of a mid-single digit increase in sportswear sales for the year and “more positive” sales and profit comparisons in the second half of the year.

The acquisition of Eagle Creek added $6 million in quarterly revenues, while the purchase of Majestic added $27 million in sales.

While domestic jeanswear revenues were up 5%, international sales grew 14%, led by a 30% increase in Asia.

VF said gross margin and operating margin were “essentially flat” at 43.5% and 12.9%, respectively.

The company projected full-year revenues of $7 billion, 12% higher than last year, with an identical increase in earnings per share from continuing operations, versus an earlier forecast of 10% growth. In the second quarter, EPS from continuing operations is expected to rise 8% while revenues grow 14%.

VF’s brand portfolio also includes Wrangler, Lee, The North Face, JanSport and Eastpak.