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May 19, 2020
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VF Corp fights to control declines in full-year income

May 19, 2020

VF Corp's last fiscal year was characterized by change and challenges. Led by CEO Steve Rendle, the group was able to consolidate the position of its flagship brands, The North Face and Vans, while also refocusing its portfolio around outdoor and sportswear, as well as lifestyle products.

Vans put in a solid performance in 2019-2020 - Vans

Over the course of the twelve-month period, the company completed the integration of running shoe brand Altra and merino wool specialist Icebreaker. The group also spun off its successful denim business as Kontoor Brands, thereby separating its jeans brands, which include Lee and Wrangler, from its activewear and outdoor operations. The company also sold its Reef surf label. All these changes added up to a lot of disruption, but this barely reflected in VF Corp's annual results. 

For the last fiscal year, the company reported revenues of $10.5 billion, up 2% compared to $10.3 billion in the previous year, or 4% in constant currencies. Operating income saw a 22% decline, totaling $928 million, while adjusted operating income posted a 6% rise in constant currencies. Income from continuing operations before taxes fell 30% to $727 million, reflecting the effects of the coronavirus crisis in the fourth quarter, while total net income was $679 million, down from $1.26 billion in the previous year. 

In Q4 the company's sales dropped 11% to $2.13 billion. Net loss was $483 million, down from income of $129 million in the prior-year period. Adjusted quarterly operating income was $87 million. 

As for VF Corp's major brands, full-year revenues in the company's outdoor segment remained stable at $4.64 billion, reflecting a 3% increase at the North Face, whose sales rose 7% in Europe. The fourth quarter proved to be difficult for the segment, which saw a 14% decrease in revenues compared to the same period in the previous year, with the Americas and Asia-Pacific posting declines of 21% and 26%, respectively. 

Annual revenues in the group's active segment rose 4% (7% in constant currencies) to $4.92 billion, progress led by Vans, which saw a 10% increase, including a 17% rise in the Asia-Pacific region. In the last three months, however, the brand posted a 7% decline in sales. 

The company's work segment's full-year revenues were flat compared to the previous year (up 4% in constant currencies). Sales at Dickies rose 3%, with a 7% increase in Asia-Pacific. The brand's European revenues fell 35% in Q4.

Goodwill impairment for Timberland

Finally, Timberland is a special case. Even before the Covid-19 crisis, VF Corp's CEO had been working hard to get the brand back on track. The label's annual revenues decreased 6%, reflecting flat sales in the Americas, but declines of 12% in Europe and 8% in Asia-Pacific. In the fourth quarter, the label saw a 19% decrease, with decreases of 34% in Asia, 20% in Europe and 10% in the Americas. 

These declines are far from being a one-off and raise questions about the brand's future. In fiscal 2020, VF Corp undertook a goodwill impairment operation for Timberland worth $323 million. 

Overall, VF Corp's annual wholesale revenues were flat, while direct-to-consumer sales continued to be the driving force behind the group's growth, posting an increase of 5%, including a 15% rise in digital revenues. 

Looking to the future, the group expects to see a decline of more than 50% in its revenues in the first quarter of fiscal 2021, which ends in late June. 

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