VF Corp., parent of brands from North Face and Timberland to Vans and Wrangler, saw its shares surge to another record high on Friday after it reported better-than-expected fiscal Q1 results and raised its full-year outlook.
For good reason.
At a time when many in the fashion industry are struggling to drive growth and contend with shifts in consumers’ wallet share to tech gadgets, home and travel, the Greensboro, N.C.-based VF VFC +4.15% reported that revenue in the quarter ended June 30 surged 23%, to $2.8 billion, thanks partly to acquisitions of Dickies work uniform parent Williamson-Dickie, Icebreaker merino wool apparel and Altra running shoes in the past year.
Excluding the combined $249 million contribution those acquisitions made to sales, revenue still climbed 12% on gains across most of VF’s segments (and 10% minus foreign currency translation impact). Net income surged 46% as gross margin also widened.
Why? VF is responding to the needs and wants of consumers. Just look at the 35% sales jump in Vans sneakers, for instance. Vans, which was bought by VF in 2004, was once considered a niche skate and surf brand tucked away in the corners of retail stores, but it now commands central displays and prime shelf space at many stores to compete head-on with the likes of Nike.
And don’t say the brand is just benefiting from the hot athleisure trend. Vans has cracked the code on how to attract young consumers with such collections as Marvel Comics tie-ups. It also answered the personalization (and Instagram/social-media bragging) needs of millennials and Gen Z consumers by allowing them to design their own shoes featuring prints from a family photo or an artwork. To respond to consumers’ instant gratification demands, VF cut down the so-called product cycle time for those personalized products by half, to about three weeks. That’s a feat in a sneaker industry where traditional cycle time could take up to 18 months.
“The key element to its growth is having a brand to let young people be who they want to be,” VF president and CEO Steve Rendle said in an interview. It’s “enabling creative self expression.”
Vans’ ranking in the fragmented U.S. apparel and shoe market jumped to 46 last year, from 61 in 2012, Euromonitor data shows. In total, VF ended 2017 as the fourth-largest U.S. apparel and shoe company in the $341 billion market, after Nike, Gap and Hanesbrands, according to Euromonitor. Globally, a $1.7 trillion market, it was ranked No. 7.
Embracing Amazon As A Partner
Vans is just one example. VF, once known as a wholesale manufacturer selling to retailers from Walmart and Target to JC Penney and Macy’s, is also reducing its brick-and-mortar wholesale exposure, like the other traditionally wholesale brands, to expand its own direct-to-consumer business. That involves opening more of its own brick-and-mortar stores both in the U.S. and overseas and expanding online, including selling on Amazon.
“The vision we put in place last year was to transform VF to consumer- and retail-centric focused from a manufacturing wholesale-minded corp.,” Rendle, a nearly 20-year VF veteran promoted to his position last year, told me. “Consumers were changing. We began to see changes like everybody else.”
VF shares jumped nearly 5% to $93.29 Friday afternoon, on track to close at a record high. In contrast, Skechers shares tumbled 21% after reporting a profit shortfall.
Fiscal Q1 direct-to-consumer revenue gained 22%, including a 54% surge in online sales. Rendle described Amazon as “a partner,” adding that VF has teams in the U.S. and Europe working with the online giant on “helping them to understand how to build assortment.” “We are learning how they fit into our integrated strategy,” he said. VF sells brands including Lee and Wrangler jeans and Kipling backpacks on Amazon.
Wholesale revenue is still 70% of VF’s business, CFO Scott Roe said in the interview. Even that segment saw Q1 sales up 10%, outpacing the growth rate many of its department-store and mass-market-retail customers have reported.
International revenue jumped 27%. On that front, Rendle said VF doesn’t yet see any impact from the U.S.’s tariffs war with China, the company’s key expansion market. China represents just 15% of VF’s imports for U.S. consumption. We are “watching the escalation of the conversation,” he told me.
With acquired brands like Vans, North Face and Timberland now part of its top five brands, acquisitions will continue to be key to VF’s growth strategy and its response to the new demands of consumers. One good example of that: this year’s purchase of New Zealand’s Icebreaker brand, known for its natural fiber and sustainably sourced merino wool. “It’s a big growth opportunity,” Roe said in the interview, adding that Icebreaker apparel is a good complement to VF’s acquired Smartwool socks label. He said some of what Icebreaker does on the natural fiber front can also be applied to labels like North Face and Timberland.
Icebreaker is what “we categorized as the first purpose-led acquisition,” Rendle said. “Our consumers give a lot of credit to the end-to-end care given to responsible supply chain such as how the sheep live and the shearing cycle. Our consumer research is validating this is an opportunity.”
One other growth opportunity is consolidating the fragmented work uniform industry. VF last year bought the mass-market Dickies label to complement its other brands including the higher-end Timberland Pro line. Rendle said the company is also looking at taking some “comfort material” used by North Face, for instance, to upgrade its work uniform line.
“We’ve had good workwear business for years,” he said. “It’s very profitable. Our research shows there’s an opportunity to elevate the dignity of work. It’s not just a product.”
VF’s Q1 work uniform segment sales more than doubled while profit surged 62%, far outpacing performance in all other category segments.
Winning in today’s retail landscape is not about mindlessly chasing after the latest fad, but in tuning in to what consumers want and finding opportunities in often-ignored growth areas that may not have that glamorous façade.
Follow me on Twitter: @andriacheng