Outdoor and active stalwart VF Corp. logged revenue declines and net losses for the fiscal second quarter — as falling sales at Vans and a $422 million writedown at Supreme weighed on results.
But Steve Rendle, chairman, president and chief executive officer, who telegraphed the results at an investors’ meeting last month, said the apparel giant still has the power of portfolio on its side.
“VF’s balanced performance in [the second quarter] demonstrates the resiliency of our brand portfolio against a more disrupted global marketplace,” Rendle said. “Our purpose-built portfolio of iconic, deeply loved brands continues to benefit from tailwinds in the outdoor, active, streetwear and workwear spaces while we also actively address the near-term challenges at Vans, the ongoing COVID-19-related disruption in China, and the broader macroeconomic and geopolitical headwinds, which have created tremendous uncertainty for all businesses and consumers.
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“In the near term, in light of the challenging environment, we are acting proactively to generate increased revenue through the balance of the year while protecting profitability by tightly controlling all non-strategic spend,” the CEO said.
VF’s second-quarter net losses tallied $118.4 million, or 31 cents a diluted share, which compared with year-ago earnings of $464.1 million, or $1.18.
Adjusted earnings per share fell 34 percent to 73 cents.
The adjusted bottom line factors out the writedown on Supreme’s “goodwill and indefinite-lived trademark intangible asset.”
VF said: “The impairment charges were driven by non-operating factors including higher interest rates and foreign currency fluctuations.”
The charge does not impact Supreme’s business or necessarily reflect on the brand itself, but does shine a spotlight on the fallout in the global economy from rampant inflation and the threat of recession as companies, currencies and central bankers around the world try to adjust rapidly in a highly unusual market.
Revenues for the three months fell 4 percent to $3.08 billion from $3.2 billion, although the top line increased 2 percent in constant currencies.
The struggling Vans business, which is being reset, saw revenues fall 13 percent to $1 billion (down 8 percent in constant currencies) while The North Face gained 8 percent to $1 billion (up 14 percent in constant currencies).
On a conference call with analysts, Rendle said: “While consumer health remains relatively intact across most of our markets, we continue to see global trends resulting in more choiceful and cautious spending behavior. In North America, we saw mixed back-to-school results across product categories and today we are seeing variable traffic patterns across channels and an elevating promotional environment in most markets.”
Inventories at the end of the quarter were up 88 percent, driven by a $510 million increase in in-transit inventory after VF modified terms with most of its suppliers to take ownership of inventory when it’s shipped instead of when it arrives. Along with that, accounts payable increased 91 percent.
While the company said its supply chain is humming along again, its raw material suppliers in China were caught up in an eight-week lockdown in the first quarter that is still contributing to product delays.
Investors were ready for the results and shares of the company dipped just modestly, falling 0.2 percent to $28.15 in after-hours trading.