Branded apparel maker VF Corp. (VFC) on Monday reported a decline in net profit for the third quarter, reflecting higher pension expense and unfavorable foreign currency translations. Both earnings and revenues came in short of analysts' consensus estimate. Based on the quarter's results, VF raised its earnings forecast for fiscal year 2009. Shares of VF dropped by more than 5% in the after-hours trading, following the announcement of results.
Eric Wiseman, Chairman, President and Chief Executive Officer, VF Corp said, "We achieved an important improvement in our third quarter performance relative to the first half of the year as conditions have stabilized, giving us the confidence to move our earnings guidance toward the higher end of our prior range."
For the third quarter, the Greensboro, North Carolina-based company's net income attributable to VF Corp. decreased to $217.92 million or $1.94 per share from $233.90 million or $2.10 per share in the same period last year.
Results for the quarter were negatively impacted by a $0.11 per share from higher pension expense and $0.06 per share from foreign currency translation, respectively, and the absence of a $0.07 per share benefit from unusual items recorded in the year-ago quarter.
On average, 11 analysts polled by Thomson Reuters expected the company to earn $1.95 per share for the quarter. Analysts' estimates typically exclude one-time charges and gains.
In the preceding second quarter, VF reported a net income of $75.5 million or $0.68 per share, down from $104.0 million or $0.94 per share in the year-ago quarter. Analysts expected earnings of $0.59 a share for the quarter.
Revenues for the third quarter were $2.09 billion, down 5% from $2.21 billion in the year-earlier quarter, with foreign currency translation accounting for two percentage points of the decline. Analysts expected the company to report revenue of $2.10 billion for the quarter.
For the preceding second quarter, sales declined 11% to $1.49 billion from $1.68 billion in the year-earlier period.
The company's revenues from VF's outdoor and action Sports coalition for the recent third quarter were about even with last year, but rose 3% on a constant currency basis. Jeanswear revenues declined 16% from the prior-year quarter. On a constant currency basis, revenues dropped 7% year-over-year. Revenues of sportswear coalition, which includes Nautica brand and the Kipling brand in North America grew 4% from the prior-year quarter.
Revenues from contemporary brands coalition for the quarter climbed 3% year-over-year or 4% on a constant currency basis. Imagewear coalition revenues slipped 15%, with comparable declines in both its image and licensed sports businesses.
Operating income for the quarter slipped to $317.90 million from $351.21 million in the same quarter last year.
Gross margins for the quarter contracted to 44.3% from 44.4% last year, while operating margins declined slightly to 15.2% from 15.9% in the year-ago period.
The company which makes clothes under brands such as the North Face, Vans, Wrangler and Lee indicated that its relentless drive to control costs, reduce inventories and focus investments on highest return opportunities has served it very well during these difficult and volatile times.
VF noted that cash and equivalents were $379 million and should exceed $600 million at year-end assuming no additional acquisitions this year. The company's inventory reduction actions have resulted in a decline in inventories of 13% from September 2008 levels. By year-end, the company expects inventories to be down around 13% or $150 million, from the year-end 2008 levels.
Amongst others in the industry, San Francisco, California-based specialty retailer Gap Inc. (GPS), is slated to release its third quarter results on Thursday, November 19. On average, 28 analysts on consensus expect the company to report earnings of $0.38 per share for the quarter.
For the nine-month period, net income attributable to VF Corp. declined 19% to $394.40 million or $3.54 per share from $486.90 million or $4.37 per share in the same period last year. Revenues for nine months were $5.30 billion, down 7% from $5.73 billion in the prior-year period.
Looking ahead to the fourth quarter, the company expects stronger revenue comparisons in the quarter, helped in part by more favorable foreign currency translation rates. The company noted that earnings per share should be up sharply over 2008 levels, as comparisons will benefit from growing direct-to-consumer business, operating efficiencies and the absence of the restructuring actions that reduced prior-years quarterly earnings by $0.30 per share. The company expects higher pension expense to impact earnings by $0.12 per share.
For fiscal year 2009, VF now expects earnings in the range of $4.85 - $5.00 per share, compared to earlier issued forecast of $4.70 - $5.00 per share, including a negative impact of about $0.70 per share in 2009 from higher pension expense and currency translation. The company now anticipates revenues to be down about 6%, with 2% of the decline due to foreign currency translation from the previous estimate of 5% to 7%.
Analysts currently expect the company to earn $4.98 per share on revenue of $7.21 billion for the full year.
VF also declared a quarterly cash dividend of $0.60 per share, an increase of $0.01 per share or 2%, payable on December 18 to stockholders of record as of the close of business on December 8.
VFC closed Monday's trading at $78.49, up $0.17 or 0.22%, on a volume of 2.00 million shares on the NYSE. In after hours, the stock lost $4.50 or 5.73%, trading at $73.55. In the past 52 weeks, the stock trended in a broad range of $38.22 - $79.79, with a three-month average volume of 1.41 million shares.
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