Shares of VF Corp (VFC +4.15%) fell 14% on Tuesday after the apparel and footwear company of brands including Vans, The North Face, Timberland, and Smartwool announced mixed quarterly results and withdrew its full fiscal-year earnings guidance.
For its fiscal second-quarter 2024 ended Sept. 30, VF Corp's revenue declined 2% year over year (down 4% at constant-currency), to $3.034 billion, translating to a generally accepted accounting principles (GAAP) net loss of $450.7 million, or $1.16 per share. On an adjusted (non-GAAP) basis -- which notably excludes an additional tax expense booked resulting from an unfavorable tax case ruling for its Timberland brand -- VF Corp generated net income of $0.63 per share.
Analysts, on average, were looking for higher adjusted earnings of $0.66 per share, but on slightly lower revenue of $3.02 billion.
Key Data Points
On VF Corp's mixed quarter
Within VF Corp's consolidated results, The North Face saw strong 19% year-over-year growth, helped by on-time deliveries, given the resolution of supply chain disruptions which marred growth in last year's fiscal second quarter. Meanwhile, Vans sales declined 21%, wholesale revenue was down 1%, and direct-to-consumer (DTC) revenue fell 3%. International sales grew 10% year over year (5% at constant currencies), including 8% growth in the Greater China geography and 14% growth from the EMEA region.
Normally, a slightly mixed quarter such as this one wouldn't merit a 14% single-day decline. But VF Corp followed by introducing a "transformation program" -- dubbed "Reinvent" -- which aims to enhance brand-building and improve operating performance. As part of this program, VF Corp plans to implement a large-scale cost-reduction program that will target delivering $300 million in fixed-cost savings by removing spend in nonstrategic areas of the business. VF Corp will also work to lower its debt and leverage ratios, starting with reducing its quarterly dividend by 70% to $0.09 per share.
Why VF Corp just withdrew its full-year outlook
"Despite pockets of continued strong performance throughout the first half and solid profit margins in the second quarter, it's not enough, and we are not making sufficient progress at Vans or in the U.S.," explained VF Corp CFO Matt Puckett. "Our transformation plan, Reinvent, directly addresses these areas in particular, and importantly, commits to lowering our cost structure by $300 million."
Consequently, VF Corp also withdrew its previous fiscal-year 2024 revenue and earnings guidance, and lowered its outlook for full fiscal-year free cash flow to be roughly $600 million (down from $900 million before).
The company added that its Reinvent plan will likely result in yet-to-be-determined cash and non-cash restructuring charges in the coming quarters.
In the end, perhaps this is exactly the kind of drastic action VF Corp needs to take in order to return its consolidated business to sustained, profitable growth. But in the absence of clarity with its full-year outlook now withdrawn, its free cash flow guidance reduced, and its dividend slashed by 70%, it's hard to blame investors for taking a big step back from this leading apparel stock today.
