VF Corp. on Friday reported that second quarter revenue rose 15% year-over-year (16% currency neutral) to $3.9 billion, which included $324 million from its Williamson-Dickie, Icebreaker and Altra acquisitions. Excluding those, revenue rose 6% (7% currency neutral), driven by its largest brands, international and direct-to-consumer platforms, and active and work segments, according to a company press release.
By segment, the company's activewear revenue rose 19% (16% currency neutral) including a 26% increase from its Vans brand; outdoor revenue rose 6% (7% currency neutral) including a 5% rise (7% currency neutral) in The North Face brand and a five percentage-point increase from acquisitions. International revenue rose 13% (15% currency neutral), direct-to-consumer revenue rose 19% (20% currency neutral) and e-commerce revenue rose 48% (49% currency neutral), the company said. Wholesale revenue rose 3%.
Gross margins from continuing operations declined 10 basis points to 50.1%. Operating income reached $659 million, while adjusted operating income rose 19% to $690 million, including $40 million from acquisitions.
VF's strong results, which beat Wall Street expectations in a few measures, led it to boost its fiscal 2019 outlook.
The company now expects its full-year revenue to rise at least 11% to $13.7 billion, up from its previous forecast for between $13.6 billion and $13.7 billion and its direct-to-consumer revenue to rise between 12% and 14%, up from its previous expectation for between 11% and 13% increase. The company still expects e-commerce to increase more than 30%.
Vans and The North Face are the company's star brands these days, (Timberland not so much, with a revenue decline of 2%), but its workwear sales are also doing well, and, in that segment, its Williamson-Dickie brand is outperforming executives' expectations a year after that investment, executives said in a conference call with analysts Friday morning.
Wedbush analysts led by Christopher Svezia hailed VF's revenue beat and its outlook boost in comments emailed to Retail Dive, but said that its gross margin challenges and the deterioration in its jeans business, especially at Lee, "raise some questions around the story," especially in light of a customer bankruptcy (presumably Sears).
Executives on the call Friday asked for patience when it comes to jeans, saying that the company has a plan to split off its Wrangler and Lee business. The move brings the brands together, and "we're doing the work to position these brands for very good long-term success," CEO Steve Rendle said, adding that "Wrangler is further down the path."
The company was prepared for consolidation and possible bankruptcy among its retail customer base, he said. And he took pains to note that executives are keeping an eye on the impact of tariffs on goods from China and would adjust operations as needed. More importantly, he said, "geopolitical rhetoric and macro events," while causing some volatility, aren't getting in the way of the strong consumer sentiment that has prevailed for months now.
"Confidence is high as we enter the holiday season," Chief Financial Officer Scott Roe said. "Our portfolio is positioned for long-term growth."