GREENSBORO, N.C.--(BUSINESS WIRE)--VF Corporation (NYSE: VFC) today reported financial results for its second quarter ended July 2, 2016. All per share amounts are presented on a diluted basis. This release refers to “currency neutral” and “reported” amounts, terms that are described under the “Currency Neutral – Excluding the Impact of Foreign Currency” paragraph. Reconciliations of GAAP measures to currency neutral amounts are presented in the supplemental financial information included with this release, which identifies and quantifies all excluded items. Unless otherwise noted, currency neutral and reported amounts are the same. This release also refers to both “continuing” and “discontinued” operations amounts, concepts that are described under the “Discontinued Operations – Contemporary Brands” paragraph. Unless otherwise noted, results presented are based on continuing operations.

“Our second quarter results were in line with our expectations, despite a challenging environment with mixed economic and currency conditions around the world,” said Eric Wiseman, VF Chairman and Chief Executive Officer. “Earlier this year, we said we would actively manage our portfolio of brands and we’re doing just that. We expect to deliver on our current 2016 outlook and, as a result of the actions we are taking, be even better positioned to provide the strong long-term returns our shareholders have come to expect.”

Discontinued Operations – Contemporary Brands

On June 30, 2016, the company announced it had reached an agreement to sell its Contemporary Brands businesses, which include the 7 For All Mankind®, Splendid®and Ella Moss®brands, to Delta Galil Industries, Ltd. for $120 million, subject to various regulatory approvals and working capital adjustments. Accordingly, the company has classified the assets and liabilities of the Contemporary Brands businesses as held for sale and included the results of these businesses in discontinued operations for all periods presented. The company expects to complete the sale of its Contemporary Brands businesses in the third quarter of 2016.

The company’s net loss from discontinued operations was $97 million in the second quarter of 2016, which includes both the estimated loss recorded for the expected sale of the Contemporary Brands businesses and the operating results for the businesses during the quarter, net of tax.

Income Statement Review

• Revenue increased 1 percent to $2.4 billion driven by positive results from our Outdoor & Action Sports, Jeanswear and Imagewear coalitions and our direct-to-consumer and international businesses.
• Gross margin was up slightly compared to the second quarter of last year at 48.1 percent on a reported basis, as benefits from lower product costs, pricing and mix were offset by changes in foreign currency and inventory management.
• Operating income on a reported basis was down 3 percent to $211 million compared with the same period of 2015. Operating margin on a reported basis declined 40 basis points to 8.6 percent.
• Earnings per share was $0.35 compared with $0.39 during the same period last year. On a comparative basis, the second quarter of 2016 was negatively impacted by approximately $0.01 of net tax discretes while the second quarter of 2015 benefitted by about $0.05 from net tax discretes. Excluding the negative impact of foreign currency, second quarter earnings per share was down 6 percent.

Coalition Review

Second quarter revenue for Outdoor & Action Sports was up 2 percent to $1.4 billion.

• Revenue for The North Face® brand was up 2 percent including low single-digit growth in the Americas; a high-teen percentage rate increase in Europe (up low-teen currency neutral); and, a high-teen percentage rate decline in Asia-Pacific (down mid-teen currency neutral).
• Vans® brand revenue was up 4 percent (up 6 percent currency neutral) driven by a high single-digit percentage rate increase in the Americas business; a high single-digit percentage rate increase in Asia-Pacific (up mid-teen currency neutral); and, as expected, a high single-digit percentage rate decrease in Europe where the brand continues to manage through elevated inventories related to its Classics collection.
• Timberland®brand revenue was down 7 percent in the second quarter including a high-teen percentage rate decrease in the Americas region; a low double-digit percentage rate increase in Europe (up high single-digit currency neutral); and, a high single-digit decline in Asia-Pacific.

Second quarter operating income for Outdoor & Action Sports declined 9 percent to $123 million (down 5 percent currency neutral). Operating margin was 8.7 percent compared to 9.7 percent in the same period last year.

Jeanswear second quarter revenue was up 3 percent (up 6 percent currency neutral) to $629 million.

• Wrangler® brand revenue was up 2 percent (up 4 percent currency neutral) with a low single-digit percentage rate increase in the Americas business (up mid-single-digit currency neutral); a low single-digit percentage rate increase in Europe (up mid-single-digit currency neutral); and, a low double-digit decline in the Asia-Pacific region (down high single-digit currency neutral).
• Revenue for the Lee® brand was up 8 percent (up 10 percent currency neutral) including a high single-digit percentage rate increase in the Americas region (up low double-digit currency neutral); a mid-teen percentage rate increase in Europe; and, a low single-digit percentage rate increase in the Asia-Pacific region (up mid-single-digit currency neutral).

Operating income for Jeanswear in the second quarter was up 4 percent to $109 million (up 7 percent currency neutral) and operating margin was up 10 basis points to 17.3 percent.

Imagewear second quarter revenue was up 3 percent to $255 million with a mid-teen percentage rate increase in the Licensed Sports Group business partially offset by a high single-digit decline in the workwear business (down mid-single-digit currency neutral), which continues to be impacted by oil and gas exploration declines. Second quarter operating income for Imagewear was up 3 percent (up 1 percent currency neutral) to $36 million, with operating margin at 14.3 percent compared with 14.2 percent in the same period last year.

Sportswear second quarter revenue declined 19 percent to $115 million including a 20 percent decrease in Nautica® brand revenue and a mid-teen decrease in the Kipling® brand’s North American business compared with the same period last year, reflecting ongoing challenges in the U.S. department store and outlet channels, and general category demand. Operating income for Sportswear decreased 56 percent to $6 million with a 470 basis point decrease in operating margin to 5.5 percent.

International Review

International revenue in the second quarter was up 5 percent (up 7 percent currency neutral). Revenue in Europe was up 5 percent (up 3 percent currency neutral) and in the Asia-Pacific region was up 4 percent (up 6 percent currency neutral). Revenue in the Americas (non-U.S.) region was up 7 percent (up 20 percent currency neutral). The international business represented 35 percent of total VF second quarter sales, compared with 34 percent in last year’s same period.

Direct-to-Consumer Review

Direct-to-consumer revenue was up 6 percent (up 7 percent currency neutral) in the second quarter driven by a low double-digit percentage rate increase in the Outdoor & Action Sports business, which was partially offset by a mid-teen decline in Sportswear. The company’s e-Commerce business continued its strong momentum with a nearly 30 percent increase in revenue. Excluding the Contemporary Brands coalition, there were 1,461 VF-owned retail stores at the end of the quarter compared with 1,319 for last year’s same period. Direct-to-consumer revenue reached 27 percent of total revenue in the second quarter compared with 26 percent in last year’s same period.

Balance Sheet Review

• Inventories were up 6 percent compared with the same period of 2015. Consistent with the 2015 year-end report in February and the first quarter report in April, about half of this amount is related specifically to core styles of cold-weather product expected to fill demand in the second half of 2016.
• During the second quarter, the company purchased 1.9 million shares of its own stock for $120 million under a program authorized by its Board of Directors. In 2016, the company has purchased a total of 13.2 million shares for $834 million, well on track to achieve its $1 billion target for the full year. There are approximately 17 million remaining shares authorized for purchase.

2016 Outlook Highlights

The following adjusted outlook is presented on a continuing operations basis and excludes the Contemporary Brands businesses, which has been presented as discontinued operations for fiscal years 2016 and 2015.

• Revenue is expected to increase 3 to 4 percent versus the previous outlook of a mid-single-digit percentage rate increase. Revenue for the Outdoor & Action Sports coalition is now expected to increase at a mid-single-digit percentage rate compared with previous expectations of a high single-digit percentage rate increase. Jeanswearrevenue is still expected to grow at a mid-single-digit currency neutral percentage rate and expectations for Imageweargrowth remains the same at a low single-digit percentage rate increase. Sportswear coalition revenue is now expected to decline at a low double-digit percentage rate versus the previous expectation of a slight decline.
• The exclusion of Contemporary Brands from continuing operations results in a reduction of gross margin by about 10 basis points in 2015. The company expects gross margin to improve by about 50 basis points to 48.7 percent, which includes about 70 basis points of headwind from changes in foreign currency.
• The exclusion of Contemporary Brands from continuing operations results in an improvement of operating margin of about 10 basis points in 2015. Operating margin is expected to reach 14.5 percent, including about 60 basis points of negative impact from changes in foreign currency.
• The exclusion of Contemporary Brands in continuing operations results in a reduction of earnings per share by $0.03 from our previous outlook for 2016. Accordingly, reported earnings per share is expected to increase 5 percent to $3.20 (up 11 percent currency neutral) compared to EPS from continuing operations of $3.04 in 2015 as presented in the financial tables below.
• Other full year assumptions include an approximate 21 percent effective tax rate versus the previous 23 percent expectation and cash flow from operations, which is unchanged at $1.3 billion.

Dividend Declared

VF’s Board of Directors declared a quarterly dividend of $0.37 per share, payable on September 19, 2016, to shareholders of record on September 9, 2016.

Currency Neutral – Excluding the Impact of Foreign Currency

This release refers to “currency neutral” amounts, which exclude both the impact of translating foreign currencies into U.S. dollars and the impact of currency rate changes on foreign currency denominated transactions. This release also refers to “reported” amounts in accordance with U.S. generally accepted accounting principles (“GAAP”), which include translation and transactional impacts from foreign currency exchange rates. Reconciliations of GAAP measures to currency neutral amounts are presented in the supplemental financial information included with this release, which identify and quantify all excluded items.

About VF

VF Corporation (NYSE: VFC) is a global leader in the design, manufacture, marketing and distribution of branded lifestyle apparel, footwear and accessories. The company’s highly diversified portfolio of powerful brands spans numerous geographies, product categories, consumer demographics and sales channels, giving VF a unique industry position and the ability to create sustainable, long-term growth for our customers and shareholders. The company’s largest brands are The North Face®, Vans®, Timberland®, Wrangler®, Lee®and Nautica®. For more information, visit www.vfc.com.