Despite posting steep declines in revenues and earnings for its first quarter ended on June 30, the management of VF Corp. insisted that the company is in a strong position to get through the coronavirus pandemic because of its “financial and operational rigor” and the progress it has made in recent years with its digital transformation plan. The company has been accelerating its investments in the digital channel in terms of marketing and sales.
The management said that it will work to maintain its strong cash and liquidity position in fiscal year 2021 and further accelerate its digital business worldwide, especially in China. VF still expects to generate free cash flow of $600 million during the current financial year, in spite of lower revenues, and anticipates that it will register a decline of less than 25 percent in the second quarter.
All of VF’s retail stores in the Asia-Pacific region, including Mainland China, have now re-opened. Over 90 percent of VF’s retail stores in the EMEA region re-opened during the first quarter, with most of the stores that remained closed located in the U.K. In North America, 75 percent of all retail stores were open at the end of the first quarter.
The majority of VF’s supply chain is currently operational, albeit with intermittent disruptions at distribution centers due to enhanced health and safety protocols.
VF’s revenues fell by 48 percent from the year-ago quarter to $1,076 million, with a drop of 47 percent in constant currencies, hampered by store closures and other Covid-19 related restrictions. It posted a net loss of $285.6 million, as compared to $49.2 million in the year-ago period.
The gross margin fell by 3.4 percentage point to 52.9 percent on an adjusted basis, due in part to strong inventory clearance activity.
On a currency-neutral basis, sales declined by 51 percent at Vans, by 44 percent at The North Face, by 43 percent at Timberland and by 15 percent at Dickies.
Regionally, the Americas, excluding the U.S.,d was hit the hardest, with group sales falling by 69 percent in constant currencies. The U.S. was down by 54 percent. In constant currencies, sales in the EMEA region fell by 47 percent, while they dropped by 9 percent in Asia-Pacific, including a 3 percent gain in China.
Overall, wholesale revenues declined by 55 percent, while direct-to-consumer sales fell by 37 percent. Online sales stood out, growing by 78 percent.
During the quarter, Vans performed best in Asia, where sales in local currencies grew by 1 percent, led by a 9 percent growth in Greater China. In EMEA, sales lost 46 percent, despite direct-to-consumer e-commerce growing by 41 percent. The Vans Family Loyalty program was launched in Germany in May. In the U.S., sales went down by 63 percent. The Pro Skate, Comfy Cush and MTE styles proved popular. Vans revenues were globally impacted by timing of inventory receipts and delays in product supply. This should normalize in the second quarter, the group said, with sales expected to decline by less than 15 percent.
Timberland’s sales declined by 42 percent in the U.S., by 50 percent in EMEA and by 26 percent in Asia-Pacific, with Timberland Pro and outdoor shoes performing better than other portions of its product portfolio. In the EMEA region, the brand’s wholesale revenues fell by 46 percent in constant currencies. DTC sales were off by 54 percent in Europe, but digital soared by 46 percent.
TNF’s wholesale revenues were down by 44 percent across the world in constant currencies, including a 57 percent drop in wholesale and a 29 percent fall in DTC. However, its digital sales soared by 124 percent. The brand’s total revenues suffered declines of 53 percent in the U.S., 40 percent in EMEA and 6 percent in Asia-Pacific, both on a constant currency basis. In Europe, DTC online sales surged by 165 percent, with consistent performance across products categories.