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VF Reports Second Quarter Fiscal 2022 Results; Reaffirms Full Year Fiscal 2022 Earnings Outlook

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  • Revenue from continuing operations increased 23 percent (up 21 percent in constant dollars) to $3.2 billion; excluding acquisitions, revenue increased 19 percent (up 17 percent in constant dollars);

  • Active segment revenue increased 16 percent (up 14 percent in constant dollars) including an 8 percent (7 percent in constant dollars) increase in Vans® brand revenue and an 8 percentage point revenue growth contribution from acquisitions; Outdoor segment revenue increased 31 percent (up 28 percent in constant dollars) including a 31 percent (29 percent in constant dollars) increase in The North Face® brand revenue; Work segment revenue increased 18 percent (up 17 percent in constant dollars) including a 21 percent (19 percent in constant dollars) increase in Dickies® brand revenue;

  • International revenue increased 18 percent (up 15 percent in constant dollars) including a 2 percentage point revenue growth contribution from acquisitions; Europe revenue increased 19 percent (up 17 percent in constant dollars); Greater China revenue increased 9 percent (up 3 percent in constant dollars), including a 9 percent (2 percent in constant dollars) increase in Mainland China;

  • Direct-to-Consumer revenue increased 32 percent (up 31 percent in constant dollars) including an 11 percentage point revenue growth contribution from acquisitions; Digital revenue increased 24 percent (up 22 percent in constant dollars) versus the prior year including a 19 percentage point revenue growth contribution from acquisitions; excluding acquisitions, Digital revenue increased 54 percent versus the second quarter of fiscal 2020;

  • Gross margin from continuing operations increased 290 basis points to 53.7 percent; on an adjusted basis, gross margin increased 300 basis points to 53.9 percent including a 20 basis point positive impact from acquisitions;

  • Operating income from continuing operations on a reported basis was $558 million; on an adjusted basis, operating income from continuing operations increased 56 percent (53 percent in constant dollars) to $534 million including an $8 million contribution from acquisitions;

  • Earnings per share from continuing operations was $1.18; adjusted earnings per share from continuing operations increased 66 percent (up 63 percent in constant dollars) to $1.11 including a $0.02 per share contribution from acquisitions;

  • Full year fiscal 2022 revenue is now expected to be approximately $12.0 billion, reflecting growth of around 30 percent, including an approximate $600 million contribution from the Supreme® brand; full year fiscal 2022 adjusted earnings per share is expected to be around $3.20, including an approximate $0.25 contribution from the Supreme® brand.

DENVER, October 22, 2021--(BUSINESS WIRE)--VF Corporation (NYSE: VFC) today reported financial results for its second quarter ended October 2, 2021. All per share amounts are presented on a diluted basis. This release refers to "reported" and "constant dollar" amounts, terms that are described under the heading "Constant Currency - Excluding the Impact of Foreign Currency." Unless otherwise noted, "reported" and "constant dollar" amounts are the same. This release also refers to "continuing" and "discontinued" operations amounts, which are concepts described under the heading "Discontinued Operations - Occupational Workwear Business." Unless otherwise noted, results presented are based on continuing operations. This release also refers to "adjusted" amounts, a term that is described under the heading "Adjusted Amounts - Excluding Transaction and Deal Related Activities and Costs Related to Specified Strategic Business Decisions." Unless otherwise noted, "reported" and "adjusted" amounts are the same.

"As we move through the halfway point of our fiscal year, I remain encouraged by the underlying momentum across the portfolio, and the broad-based nature of this strength gives me confidence that we are driving the right strategy to accelerate growth in the quarters ahead," said Steve Rendle, VF's Chairman, President and CEO. "While the recovery has been impacted by further pandemic-related disruptions, we continue to see accelerating demand signals across our business, and our ability to reaffirm our Fiscal 2022 revenue and earnings outlook is a clear testament to the resiliency and optionality of our model."

Constant Currency - Excluding the Impact of Foreign Currency

This release refers to "reported" amounts in accordance with U.S. generally accepted accounting principles ("GAAP"), which include translation and transactional impacts from foreign currency exchange rates. This release also refers to "constant dollar" amounts, which exclude the impact of translating foreign currencies into U.S. dollars. Reconciliations of GAAP measures to constant currency amounts are presented in the supplemental financial information included with this release, which identifies and quantifies all excluded items, and provides management’s view of why this information is useful to investors.

Discontinued Operations - Occupational Workwear Business

On June 28, 2021, VF completed the sale of its Occupational Workwear business. The Occupational Workwear business was comprised primarily of the following brands and businesses: Red Kap®, VF Solutions®, Bulwark®, Workrite®, Walls®, Terra®, Kodiak®, Work Authority® and Horace Small®. The business also included a license for certain Dickies® occupational workwear products that have historically been sold through the business-to-business channel. Accordingly, the company has reported the related held-for-sale assets and liabilities as assets and liabilities of discontinued operations and included the operating results and cash flows of the business in discontinued operations for all periods, through the date of sale.

Adjusted Amounts - Excluding Transaction and Deal Related Activities and Costs Related to Specified Strategic Business Decisions

The adjusted amounts in this release exclude transaction and deal related activities associated with the acquisition of the Supreme® brand. Total transaction and deal related activities include a decrease in the estimated fair value of the contingent consideration liability of $35 million in the second quarter of fiscal 2022 and $108 million in the first six months of fiscal 2022, and integration costs of approximately $1 million in the second quarter of fiscal 2022 and $6 million in the first six months of fiscal 2022.

The adjusted amounts in this release exclude costs related to VF's business model transformation, a transformation initiative for our Asia-Pacific regional operations and certain cost optimization activities and other charges indirectly related to the divestiture of the Occupational Workwear business. Total costs were approximately $10 million in the second quarter of fiscal 2022 and $24 million in the first six months of fiscal 2022.

Combined, the above items positively impacted earnings per share by $0.07 during the second quarter of fiscal 2022 and $0.19 during the first six months of fiscal 2022. All adjusted amounts referenced herein exclude the effects of these amounts.

Reconciliations of measures calculated in accordance with GAAP to adjusted amounts are presented in the supplemental financial information included with this release, which identifies and quantifies all excluded items, and provides management’s view of why this information is useful to investors.

COVID-19 Outbreak Update

To help mitigate the spread of COVID-19 and in response to public health advisories and governmental actions and regulations, VF has modified its business practices, including the temporary closing of offices and retail stores, instituting travel bans and restrictions and implementing health and safety measures including social distancing and quarantines.

The majority of VF's supply chain is currently operational. Suppliers are complying with local public health advisories and governmental restrictions which has resulted in isolated product delays. The resurgence of COVID-19 lockdowns in key sourcing countries has resulted in additional manufacturing capacity constraints during the second quarter. Additionally, continued port congestion, equipment availability and other logistics challenges have contributed to increasing product delays. VF is working with its suppliers to minimize disruption and is employing expedited freight as needed. VF's distribution centers are operational in accordance with local government guidelines while maintaining enhanced health and safety protocols.

In North America, no stores were closed during second quarter. Currently, all stores are open.

In the EMEA region, no stores were closed during second quarter. Currently, all stores are open.

In the APAC region, including Mainland China, 5% of stores were closed at the beginning of the second quarter. Stores have since re-opened and nearly all stores are open at the end of the quarter.

VF is continuing to monitor the COVID-19 outbreak globally and will comply with guidance from government entities and public health authorities to prioritize the health and well-being of its employees, customers, trade partners and consumers. As COVID-19 uncertainty continues, VF expects ongoing disruption to its business operations.

Second Quarter Fiscal 2022 Income Statement Review

  • Revenue increased 23 percent (up 21 percent in constant dollars) to $3.2 billion. Excluding the impact of acquisitions, revenue increased 19 percent (up 17 percent in constant dollars) driven by the EMEA and North American regions, which experienced a negative impact from COVID-19 in the prior year period. VF's wholesale business continues to be materially impacted by the timing of shipments due to port delays and logistics challenges.

  • Gross margin increased 290 basis points to 53.7 percent, primarily driven by reduced promotional activity. On an adjusted basis, gross margin increased 300 basis points, including a 20 basis point positive impact from acquisitions, to 53.9 percent.

  • Operating income on a reported basis was $558 million. On an adjusted basis, operating income increased 56 percent (53 percent in constant dollars) to $534 million, including an $8 million contribution from acquisitions. Operating margin on a reported basis was 17.5 percent. Adjusted operating margin increased 360 basis points, including a 30 basis point negative impact from acquisitions, to 16.7 percent.

  • Earnings per share was $1.18 on a reported basis. On an adjusted basis, earnings per share increased 66 percent (up 63 percent in constant dollars) to $1.11, including a $0.02 contribution from acquisitions.

Balance Sheet Highlights

Inventories were up 2 percent compared with the same period last year. During the quarter, VF returned approximately $192 million of cash to shareholders through dividends. VF is reinstating its share repurchase program, under which it is authorized to repurchase up to $2.8 billion of its common stock. This plan was suspended on April 7, 2020 as a precaution due to the COVID-19 pandemic.

Full Year Fiscal 2022 Outlook

VF's full year outlook assumes no material deterioration to the company's current business operations as a result of COVID-19 and related governmental actions and regulations. VF's full year fiscal 2022 outlook includes the following:

  • Revenue is expected to be approximately $12.0 billion, reflecting growth of around 30 percent, including an approximate $600 million contribution from the Supreme® brand. By segment, revenue for Outdoor is now expected to increase between 25 percent and 27 percent versus the previous expectation of a 24 to 26 percent increase; revenue for Active is now expected to increase between 35 percent and 37 percent versus the previous expectation of a 37 to 39 percent increase; revenue for Work is now expected to increase between 19 and 21 percent versus the previous expectation of a 16 to 18 percent increase.

  • International revenue is expected to increase between 24 percent and 26 percent. By geographic region, in the EMEA region, revenue is expected to increase between 30 percent and 32 percent. In the Asia Pacific region, revenue is expected to increase between 12 percent and 14 percent. And, in the Americas (non-U.S.) region, revenue is expected to increase between 30 percent and 32 percent.

  • Direct-to-consumer revenue is now expected to increase between 34 percent and 36 percent versus the previous expectation of 39 percent and 41 percent, including Digital revenue growth of about 20 percent versus the previous expectation of 29 and 31 percent.

  • Adjusted gross margin is expected to be around 56.0 percent, which represents an estimated increase of around 270 basis points.

  • Adjusted operating margin is expected to increase around 500 basis points to around 13.0 percent.

  • Adjusted earnings per share is expected to be around $3.20, including an approximate $0.25 contribution from the Supreme® brand.

  • Adjusted cash flow from operations is expected to exceed $1.0 billion.

  • Other full year assumptions include an effective tax rate of approximately 15 percent and capital expenditures of approximately $350 million.

Dividend Declared

VF’s Board of Directors declared a quarterly dividend of $0.50 per share, payable on December 20, 2021, to shareholders of record on December 10, 2021. Subject to approval by its Board of Directors, VF intends to continue to pay its regularly scheduled dividend and is not currently contemplating the suspension of its dividend.

Webcast Information

VF will host its second quarter fiscal 2022 conference call beginning at 8:30 a.m. Eastern Time today. The conference call will be broadcast live via the Internet, accessible at ir.vfc.com. For those unable to listen to the live broadcast, an archived version will be available at the same location.

Presentation

A presentation on second quarter fiscal 2022 results will be available at ir.vfc.com beginning at approximately 7:30 a.m. Eastern Time today and will be archived at the same location.

About VF

Founded in 1899, VF Corporation is one of the world’s largest apparel, footwear and accessories companies connecting people to the lifestyles, activities and experiences they cherish most through a family of iconic outdoor, active and workwear brands including Vans®, The North Face®, Timberland® and Dickies®. Our purpose is to power movements of sustainable and active lifestyles for the betterment of people and our planet. We connect this purpose with a relentless drive to succeed to create value for all stakeholders and use our company as a force for good. For more information, please visit vfc.com.

Forward-looking Statements

Certain statements included in this release are "forward-looking statements" within the meaning of the federal securities laws. Forward-looking statements are made based on our expectations and beliefs concerning future events impacting VF and therefore involve several risks and uncertainties. You can identify these statements by the fact that they use words such as "will," "anticipate," "estimate," "expect," "should," and "may" and other words and terms of similar meaning or use of future dates, however, the absence of these words or similar expressions does not mean that a statement is not forward-looking. All statements regarding VF’s plans, objectives, projections and expectations relating to VF’s operations or financial performance, and assumptions related thereto are forward-looking statements. We caution that forward-looking statements are not guarantees and that actual results could differ materially from those expressed or implied in the forward-looking statements. VF undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. Potential risks and uncertainties that could cause the actual results of operations or financial condition of VF to differ materially from those expressed or implied by forward-looking statements include, but are not limited to: risks arising from the widespread outbreak of an illness or any other communicable disease, or any other public health crisis, including the coronavirus (COVID-19) global pandemic; the level of consumer demand for apparel, footwear and accessories; disruption to VF’s distribution system; the financial strength of VF’s customers; fluctuations in the price, availability and quality of raw materials and contracted products; disruption and volatility in the global capital and credit markets; VF’s response to changing fashion trends, evolving consumer preferences and changing patterns of consumer behavior; intense competition from online retailers and other direct-to-consumer business risks; manufacturing and product innovation; increasing pressure on margins; VF’s ability to implement its business strategy; VF’s ability to grow its international, direct-to-consumer and digital businesses; VF's ability to transform its model to be more consumer-minded, retail-centric and hyper-digital; retail industry changes and challenges; VF's ability to create and maintain an agile and efficient operating model and organizational structure; VF’s and its vendors’ ability to maintain the strength and security of information technology systems; the risk that VF’s facilities and systems and those of our third-party service providers may be vulnerable to and unable to anticipate or detect data security breaches and data or financial loss; VF’s ability to properly collect, use, manage and secure business, consumer and employee data and comply with privacy and security regulations; foreign currency fluctuations; stability of VF’s and VF's vendors' manufacturing facilities and VF's ability to establish and maintain effective supply chain capabilities; continued use by VF’s suppliers of ethical business practices; VF’s ability to accurately forecast demand for products; continuity of members of VF’s management; VF's ability to recruit, develop or retain qualified employees; VF’s ability to protect trademarks and other intellectual property rights; possible goodwill and other asset impairment; maintenance by VF’s licensees and distributors of the value of VF’s brands; VF’s ability to execute acquisitions and dispositions and integrate acquisitions, including the recently acquired Supreme® brand; business resiliency in response to natural or man-made economic, political or environmental disruptions; changes in tax laws and liabilities; legal, regulatory, political and economic risks and changes to laws and regulations; adverse or unexpected weather conditions; VF's indebtedness and its ability to obtain financing on favorable terms, if needed, could prevent VF from fulfilling its financial obligations; climate change and increased focus on sustainability issues; and risks associated with the spin-off of our Jeanswear business completed on May 22, 2019, including the risk that VF will not realize all of the expected benefits of the spin-off; the risk that the spin-off will not be tax-free for U.S. federal income tax purposes; and the risk that there will be a loss of synergies from separating the businesses that could negatively impact the balance sheet, profit margins or earnings of VF. More information on potential factors that could affect VF’s financial results is included from time to time in VF’s public reports filed with the SEC, including VF’s Annual Report on Form 10-K, and Quarterly Reports on Form 10-Q, and Forms 8-K filed or furnished with the SEC.

VF CORPORATION

Condensed Consolidated Statements of Operations

(Unaudited)

(In thousands, except per share amounts)

Three Months Ended September

Six Months Ended September

2021

2020

2021

2020

Net revenues

$

3,198,235

$

2,608,324

$

5,392,792

$

3,684,617

Costs and operating expenses

Cost of goods sold

1,479,446

1,282,406

2,434,997

1,789,357

Selling, general and administrative expenses

1,160,303

1,005,970

2,196,425

1,822,121

Total costs and operating expenses

2,639,749

2,288,376

4,631,422

3,611,478

Operating income

558,486

319,948

761,370

73,139

Interest, net

(34,370

)

(30,931

)

(67,145

)

(58,880

)

Other income (expense), net

7,549

4,644

16,590

(33,543

)

Income (loss) from continuing operations before income taxes

531,665

293,661

710,815

(19,284

)

Income tax expense

67,612

50,415

92,790

15,212

Income (loss) from continuing operations

464,053

243,246

618,025

(34,496

)

Income from discontinued operations, net of tax

13,476

170,273

5,605

Net income (loss)

$

464,053

$

256,722

$

788,298

$

(28,891

)

Earnings (loss) per common share - basic (a)

Continuing operations

$

1.18

$

0.62

$

1.58

$

(0.09

)

Discontinued operations

0.03

0.43

0.01

Total earnings (loss) per common share - basic

$

1.18

$

0.66

$

2.01

$

(0.07

)

Earnings (loss) per common share - diluted (a)

Continuing operations

$

1.18

$

0.62

$

1.57

$

(0.09

)

Discontinued operations

0.03

0.43

0.01

Total earnings (loss) per common share - diluted

$

1.18

$

0.66

$

2.00

$

(0.07

)

Weighted average shares outstanding

Basic

391,779

389,219

391,565

388,957

Diluted

394,017

391,180

394,072

390,986

Cash dividends per common share

$

0.49

$

0.48

$

0.98

$

0.96

* Calculation not meaningful

Basis of presentation of condensed consolidated financial statements: VF operates and reports using a 52/53 week fiscal year ending on the Saturday closest to March 31 of each year. For presentation purposes herein, all references to periods ended September 2021 relate to the 13-week and 26-week fiscal periods ended October 2, 2021 and all references to periods ended September 2020 relate to the 13-week and 26-week fiscal periods ended September 26, 2020. References to March 2021 relate to information as of April 3, 2021.

(a) Amounts have been calculated using unrounded numbers.

VF CORPORATION

Condensed Consolidated Balance Sheets

(Unaudited)

(In thousands)

September

March

September

2021

2021

2020

ASSETS

Current assets

Cash and equivalents

$

1,360,138

$

815,750

$

1,877,398

Accounts receivable, net

1,787,331

1,298,020

1,606,479

Inventories

1,464,714

1,061,839

1,434,843

Short-term investments

598,806

800,000

Other current assets

357,687

423,877

408,809

Current assets of discontinued operations

587,578

552,677

Total current assets

4,969,870

4,785,870

6,680,206

Property, plant and equipment, net

1,011,415

975,876

933,990

Goodwill and intangible assets, net

5,434,009

5,454,972

3,024,607

Operating lease right-of-use assets

1,380,106

1,474,434

1,385,121

Other assets

1,093,687

1,062,877

917,342

Total assets

$

13,889,087

$

13,754,029

$

12,941,266

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities

Short-term borrowings

$

10,173

$

11,061

$

13,237

Current portion of long-term debt

1,001,037

1,023

1,127

Accounts payable

534,365

463,208

450,109

Accrued liabilities

1,838,790

1,609,928

1,505,703

Current liabilities of discontinued operations

125,257

114,356

Total current liabilities

3,384,365

2,210,477

2,084,532

Long-term debt

4,682,751

5,709,149

5,679,440

Operating lease liabilities

1,146,944

1,236,461

1,129,840

Other liabilities

1,076,546

1,541,778

1,102,216

Total liabilities

10,290,606

10,697,865

9,996,028

Stockholders' equity

3,598,481

3,056,164

2,945,238

Total liabilities and stockholders' equity

$

13,889,087

$

...

$

12,941,266

VF CORPORATION

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

Six Months Ended September

...

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