By Eric Smith
The fiscal second quarter proved difficult for VF Corp. in general and The North Face — one of VF’s Big Four brands and a snowsports apparel and gear stalwart — in particular as the brand saw smaller fall orders and slower brick-and-mortar activity.
But improvement could be on the horizon for the brand thanks to pandemic-related trends such as socially distanced hiking, skiing and other adventuring.
“There is a trend towards outdoors and people’s desire to get outside linked to health and wellness,” VF Chairman, President and CEO Steve Rendle told analysts on Friday morning’s earnings call. “And I think there is a moment in time and as we came into the pandemic, the outdoor sector was in a position of growth as well and I think this bodes well for our brands and the sector in general, as people continue to focus about that outdoor activity, health and wellness, and how can they take advantage of this particular moment time. So we’re very well positioned for that.”
First, some pain to work through for VF and one of its flagship brands (along with Vans, Timberland and Dickies).
Sales at The North Face dipped 25 percent (26 percent in constant currency) during the three months ended Sept. 30. The brand’s decline in the Americas was the most significant, at 32 percent, while The North Face’s sales were down 15 percent in EMEA (Europe, Middle East and Africa) and 3 percent in APAC (Asia Pacific).
Wholesale sales at the brand plummeted 28 percent and direct-to-customer sales dipped 14 percent. One positive note for the brand in the quarter was that digital sales grew 40 percent globally.
The North Face’s parent company expects those numbers to improve. For the full fiscal year, VF expects a sales decline at the brand slightly less than 13 percent after a return to growth in the fourth quarter.
It all comes down to the company’s bullish outlook on the outdoor and snowsports market and how The North Face can leverage its product lines and channel strength. Speaking specifically on The North Face’s difficult sell-in during fall, Rendle said that the tide is starting to turn, as evidenced by the company’s expectations for the brand’s revenue growth to improve.
“We’ve seen good energy start here in September, carried into October, and if that continues, I think, there’s an opportunity, but I would just remind you, that we’ve been very thoughtful and control that our inventory purchases, there’s not a tremendous amount or any excess inventory to service a big reorder pop. What we would expect to see is really good sell-throughs, clean inventories and positioning ourselves well for those next two seasons spring and fall order books that our teams are working on.
Another big move at the brand was the appointment of a new global brand president, Steve Murray, which SBR recently covered.
“As we work to become a more integrated brand-building company, we must operate differently and manage our Core and Emerging Brands in differentiated ways in order to help each of them achieve their full potential,” Rendle said earlier this week. “As we do this, it’s critical that we place our strongest talent on our most important opportunities to drive long-term, sustainable growth across our portfolio and in all geographies.”
Still, The North Face’s disappointing performance was a drag on VF’s Outdoor segment, which saw revenue decrease 24 percent. And VF’s companywide revenue dipped 18 percent in the quarter while net income of $256.7 million was down from $649 million in the year-ago period.
But there were some bright spots in VF’s earnings report. Not only did the company surpass Wall Street’s revenue and earnings expectations, but the company now expects full-year revenue of at least $9 billion versus analyst consensus of $8.8 billion and EPS of at least $1.20 versus analyst consensus of $1.11.
“Our year-to-date results have surpassed our internal expectations across all brands, driven by Digital and China, two of our key growth pillars,” Rendle said. “We are beginning to see signs of stabilization and strength across all aspects of our business, supporting our decision to raise the dividend and provide a financial outlook for the balance of the year. Although uncertainties remain, investments in our digital transformation are resulting in near-term momentum and improved capabilities to emerge in an even stronger position.”
For the first six months of Fiscal 2021, The North Face’s revenue has declined 30 percent (38 percent in the Americas, 21 percent in EMEA and 5 percent in APAC).
On the earnings call, Rendle and VF CEO Scott Roe didn’t discuss the “emerging brands” that also make and sell snowports apparel — Icebreaker and Smartwool — but we’ll have more on those brands in future coverage at the Snowsports Business Report.
Photo courtesy VF Corp.