A month has gone by since the last earnings report for V.F. (VFC). Shares have added about 2.3% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is V.F. due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
V.F. Corps Q2 Earnings Beat, Gives FY21 View
V.F. Corp has reported better-than-expected earnings in second-quarter fiscal 2021, while the top line missed the Zacks Consensus Estimate. The company’s fiscal second-quarter results continued to reflect significant impacts of the coronavirus pandemic, resulting in sales and earnings declines, on a year-over-year basis.
Nonetheless, it provided the outlook for fiscal 2021 based on encouraging business trends due to the reopening of almost all stores across all regions. Moreover, it is particularly gaining from strong business performance in digital and across China.
Notably, the company continued to execute its store-reopening plans during the fiscal second quarter, which slightly aided results. It had nearly all its stores operational in the reported quarter in the EMEA and APAC regions, including Mainland China. Moreover, it had about 95% of its stores open in North America at the end of the fiscal second quarter, following the reopening of nearly 75% stores in the region as of the end of the first quarter.
Moreover, the company reopened several other stores in North America in the fiscal second quarter, with nearly all stores in the region now operational. Moreover, its wholesale customers in APAC, North America and EMEA have re-opened most of their retail stores. Additionally, its supply chain and distribution centers remained operational during the quarter.
Q2 Highlights
V.F. Corp’s reported adjusted earnings per share of 67 cents were significantly below adjusted earnings of $1.20 earned in the year-ago quarter. However, the bottom line beat the Zacks Consensus Estimate of 51 cents.
Net revenues of $2,068.3 million declined 18% year over year and missed the Zacks Consensus Estimate of $2,498 million. Constant-dollar revenues declined 19%.
Moreover, the company reported a 15% decline (down 18% in constant dollars) in International revenues. Revenues in Europe fell 16% (down 20% in constant dollars), while that in Greater China improved 16% (up 14% in constant dollars). Revenues for Greater China reflected 21% growth (up 19% in constant dollars) in Mainland China.
Revenues at the company’s direct-to-consumer business dropped 17% (down 18% in constant dollars) in the fiscal second quarter, while digital revenues rose 44% (up 42% in constant dollars).
Adjusted gross margin contracted 350 basis points (bps) year over year to 50.9%, owing to increased promotional activity to clear excess inventory and the timing of foreign-currency transactions. The company reported an adjusted operating income of $342 million compared with an adjusted operating income of $578 million in the year-ago quarter. Meanwhile, the adjusted operating margin was 13.1% versus 18.2% in the prior-year quarter.
Segmental Details
Revenues at the Active segment declined 15% to $1,200.2 million (down 16% in constant-currency basis). This included a 10% decline (11% decline in constant dollars) for the Vans brand.
The Outdoor segment reported revenues of $1,154.4 million, down 24% year over year (a 26% decline in constant currency). This included a decline of 25% (down 26% in constant currency) for the North Face brand.
Revenues at the Work segment fell 14% year over year and in constant currency to $253.6 million. This included a 19% decline (down 18% in constant currency) for the Dickies brand.
Other revenues were $0.2 million compared with $18.1 million reported in the year-ago quarter.
Financial Details
V.F. Corp ended second-quarter fiscal 2021 with cash and cash equivalents of $1,877.4 million, long-term debt of $5,679.4 million, and shareholders’ equity of $2,945.2 million. Additionally, it had $2.23 billion remaining under its revolving credit facility. Inventories were down 10% at the end of the fiscal second quarter.
In the reported quarter, the company returned $186 million to shareholders through dividend payouts. As part of its liquidity-preservation actions amid the coronavirus outbreak, it previously suspended its share-repurchase program on a temporary basis. Currently, it has $2.8 billion remaining under its current share-repurchase authorization.
Concurrent to the earnings release, the company hiked its quarterly dividend by 2% to 49 cents per share. This marks its 48th consecutive annual dividend hike. The increased dividend rate is payable Dec 21 to shareholders of record as of Dec 10.
Outlook
Encouraged by the year-to-date results, which exceeded expectations, and signs of stabilization and strength across all facets of business, the company outlined its outlook for fiscal 2021. Though it expects the uncertainties regarding the coronavirus pandemic to remain, it anticipates no further deterioration in its current business trends.
For fiscal 2021, it predicts revenues of $9 billion, suggesting a decline of 14% on an adjusted basis. The company’s revenue view is based on expectations of achieving low-single-digit growth in the second half of fiscal 2021 as it expects its business to return to growth in the fiscal fourth quarter.
It anticipates adjusted earnings per share of at least $1.20, which will likely decline 55% year over year and 56% in constant currency. The company expects to generate adjusted free cash flow of more than $600 million in fiscal 2021.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended downward during the past month. The consensus estimate has shifted -5.23% due to these changes.
VGM Scores
At this time, V.F. has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. However, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, V.F. has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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