VF Corporation (NYSE:VFC) released its fiscal third-quarter 2021 earnings report Wednesday morning before markets opened for trading. The Denver-based clothing brands conglomerate revealed compression on both its top and bottom lines, although it did lift its full-year 2021 outlook with one quarter remaining in the fiscal year.   

Given a mix of brick-and-mortar sales and e-commerce, the company's revenue has been challenged by the ongoing COVID-19 pandemic, and it's also faced COVID-19-induced supply chain issues throughout fiscal 2021. Below, let's briefly review third-quarter results and look ahead to the brand behemoth's prospects over the next few quarters.

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COVID-19 continues to impact results

VF Corporation reported a year-over-year decline in revenue from continuing operations of 6%, to $3 billion (the company is in the process of divesting its occupational workwear business, which is accounted for as "discontinued operations" on its income statement). Management cited store closings and weakened consumer demand for the softer sales.

A rising wave of COVID-19 cases in the fall and winter across multiple geographic markets certainly stymied results. Before the third quarter, the company had reopened 95% of its owned retail locations in North America, yet during the quarter, open stores fell to 85% of the North American base. Similarly, in Europe, VF had managed to reopen all of its owned stores, but over the last three months, a wave of store closings due to COVID-19 restrictions left the company operating on the continent with just half of its retail base open for business.

As a result, U.S. sales decreased by 11% against the third quarter of fiscal 2020, while European sales edged up just 1%, and the Americas segment (North and South America excluding the U.S.) suffered a 17% drop in quarterly sales. However, VF's Asia Pacific business, where nearly all stores remained open during the quarter, proved a bright spot. Sales in this segment advanced by 6% year over year, paced by a vigorous showing in the Greater China region, which posted a top-line increase of 18%.

VF's sales compression put pressure on profitability: Gross margin from continuing operations slipped 250 basis points against the prior-year quarter, to 54.7%. Net income decreased by 24% year over year to $347.2 million, and diluted earnings per share (EPS) fell by the same percentage, to $0.88.

Where VF Corp goes from here

Management updated full-year guidance on Wednesday, offering investors a slightly better picture compared to its previous outlook. The company now expects revenue to decrease by 12% to 13% in fiscal 2021 against the prior year, which translates to a top line of between $9.1 billion and $9.2 billion. VF's previous guidance pegged 2021 revenue at $9 billion.

The organization likewise boosted its adjusted earnings per share projections for the year, revising its 2021 target to $1.30, or a 50% decline against fiscal 2020's adjusted EPS. Previously, VF had guided for adjusted EPS of $1.20, or a 55% decline against the prior year. 

Together, the earnings results and slightly modified outlook did little to impress investors. Shares were down 6% in early afternoon trading Wednesday. This brings year-to-date performance to a downdraft of 6.5%, after a 14.3% drop in VF's shares in 2020.

With a market cap of $33 billion, VF Corporation is one of the largest fashion holding companies in the U.S. market. The consumer discretionary multinational has tweaked its brand portfolio considerably over the last two years. It spun off its slower growth jeans business into publicly traded Kontoor Brands in May of 2019 and is currently seeking to dispose of another middling revenue stream (occupational workwear, as mentioned above). Just a few weeks ago, at the end of December 2020, VF acquired Supreme, an edgy streetwear brand associated with the skateboarding lifestyle, for $2.1 billion. In essence, the company is switching out mature clothing lines with contemporary brands that exhibit higher growth potential.

The pandemic has muted the effect of these significant changes, but in today's earnings release, CEO Steve Rendle reiterated management's confidence in VF's forward prospects, stating: "Our portfolio remains on track to return to growth in the fiscal fourth quarter and we are confident in VF's plans to accelerate growth into fiscal 2022 and to continue advancing our business model transformation." If the company executes on its promise to grow year-over-year revenue next quarter, shareholders will probably prove responsive to the longer-term picture as 2021 wears on. 

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