China Sticking Point at VF Corp. Despite $517M Profit – WWD

VF Corp. Just sent a fashion alert China.

Powerful country owner of VansThe North Face, Supreme and Dickies posted better profits of half a billion dollars in the third quarter, but said China turned out to be something significant, with a modest effect on the sales outlook for the year. (Vans has also become a weak point for the company.)

Steve Rendle, president, president and chief executive officer, told analysts during Friday’s conference call that continued global demand for active and outdoor goods “is supported by trends secular direction towards a healthier, active lifestyle”.

And while the Omicron variant affected store traffic towards the end of the holiday season overall, Rendle said “more pronounced macro disruptions” have been happening in the Asia Pacific region for some time. .

“Following a strong recovery in the first half of 2021, China’s economy saw a slowdown in growth, reflecting the government’s aggressive policy response to the rise of the economy,” Rendle said. virus, putting pressure on consumption in the second half of the year,” Rendle said.

Traffic is also lower on mainstream online stores, and the company is changing its strategy to compensate.

“Our teams are maximizing new social commerce opportunities to offset lower traffic on certain digital titan platforms with plans to ramp up key festival activities with new targeted marketing stories and product drops,” Rendle said. “We are focused on increasing conversions in owned and partner brick-and-mortar stores through operational improvements while improving partner inventory levels.”

Rendle has an opportunity in China, where the company has restructured to have management close to the business. But it is clear that storms have come.

China has thrived in fashion for decades, first as a large source of low-cost products and then as an important consumer base. But recently, Beijing has been asserting itself more in the enterprise sector, especially in the technology sector and at the consumer giant Alibaba. The government is also pursuing a rigorous approach to COVID-19 lockdowns to avoid the spread of the virus, although it may be a more difficult approach to maintain as the virus persists.

This year, VF is looking for digital revenue growth of more than 15%, down from the previously predicted 20%, a setback the company attributes to China.

When asked about trends in domestic brands in China, Rendle said it has something to do with “the rise of nationalism”.

“But from a brand standpoint in our portfolio… we monitor consumer sentiment weekly with regards to brand origin and we don’t see any impact there,” the CEO said. know.

The company is still trying to position itself to avoid any problems along those roads.

“This is an important part of our future strategy…really speaking to Chinese consumers as Chinese consumers and enhancing the creation of local produce for local, creating needs and events that really suit them and their needs,” Rendle said.

China is also involved in the company’s Vans business.

The brand’s sales rose 8% in the third quarter, a modest improvement from pre-pandemic levels.

“Vans fell short of expectations in the third quarter with mixed operating results over the holidays reflecting increased disruption across China and a slower-than-expected recovery in the economy,” Rendle said. Classics shoes.

VF’s total third-quarter net income increased 49.1% to $517.8 million, or $1.32 per diluted share, from $347.2 million, or 88 cents, a year ago. Adjusted earnings of $1.35 per share were well above the $1.21 expected by analysts.

Shares of the company fell 6.5% to $62.96 on Friday as investors bought out. VF remains one of the largest players in the fashion sector with a market capitalization of $24.7 billion.

“We recognize the power of brands, but it’s hard to ignore that despite the industry-wide inventory scarcity, GM said it’s a big deal,” said BMO analyst Simeon Siegel. [gross margin] continues to disappoint, and we continue to worry that current valuations leave little room for error and are above multi-brand peers.”

The analyst noted that gross margin came in at 56.3% of sales, as opposed to about 57% expected.

VF’s revenue for the three months ended January 1 rose 22% to $3.6 billion from $3 billion.

North Face brand led the company with a 28% increase in sales while Timberland increased 11% and Dickies increased 8%.

The company reconfirmed its annual earnings guidance, calling for an adjusted profit of $3.20 with a 25-cent contribution from Supreme.

However, the sales outlook for the year dipped modestly, to $11.85 billion from $12 billion expected in October.

In a grand scheme, missing $15 million in such a large business is still a rounding error.

Still, Wall Street is keeping a close eye on the revenue outlook for any signs of a change in trend.

By category, the outdoor business is running ahead of schedule, with sales up 26% to 28% instead of 25% to 27% expected. But the active division, which includes Vans, is now up 31% to 33% instead of 35% to 37%.

The outlook for the Supreme brand, which is expected to hit $600 million in sales, is unchanged. And the jobs division, which includes Dickies, is still expected to see a 19% to 21% increase in revenue.

MORE FROM WWD:

Fashion meets BlackRock’s call to purpose

Farfetch got Violet Gray before the beauty debut

Spread against the S&P 500