VF shares dive as investors worry jeans still a 'pain point'

VF Corp shares slid as much as 4.5 percent on Friday as Wall Street worried about profit margins for the jeans business, with major customer Walmart Inc turning more toward private labels.

VF Corp shares slid as much as 4.5 percent on Friday as Wall Street worried about profit margins for the jeans business, with major customer Walmart Inc turning more toward private labels.

One analyst on the company’s earnings call voiced concern about an 11 percent drop in global business for VF’s Lee jeans brand.

“What needs to change there to see a more steady rate of growth?” asked Piper Jaffray analyst Erinn Elisabeth Murphy.

“I know you’re reworking to kind of restructure the cost basis... How should the operating margin opportunity shape over the next couple of years?”

VF quarterly revenues jumped 22 percent from a year earlier due to a booming Vans shoes business, demand for North Face apparel and higher online sales, while profits excluding items just edged past Wall Street estimates. Executives said margin expansion and restructuring investments are a priority.

“I know one of the primary culprits there has been Walmart,” said KeyBanc Capital Markets’ managing director Ed Yruma. “They’ve leaned more into private label, so that’s been kind of a chronic pain point for them.”

Chief Executive Officer Steve Rendle told analysts on the call that VF expects relatively flat jeans wear revenue for fiscal year 2019. He said VF has ramped up efforts to elevate its most powerful brands. 

“We’re intensely focused on protecting and enabling the explosive growth in Vans, shepherding the positive momentum of The North Face while focusing on re-energising growth in Timberland North America,” Rendle said.

Excluding items, VF earned 67 cents per share in the quarter, beating estimates by 1 cent, according to Thomson Reuters I/B/E/S. Revenue jumped 22 percent from a year earlier to $3.05 billion, surpassing analysts’ average estimate of $2.92 billion.

The Greensboro, North Carolina-based company said it has been selling more products through Amazon.com Inc specifically for the North Face brand.

The company said net income rose to $252.8 million, or 63 cents per share, from $209.2 million, or 50 cents per share, a year earlier.
Shares fell as much as 4.5 percent after the earnings report, and were down 3.2 percent at $75.92 by 12:58 p.m. EDT (1658 GMT).

VF aims to boost direct-to-consumer and digital businesses and direct investment to Asia, with a focus on China.

“I’ve seen evidence that some of the initiatives are starting to pay off, but fundamentally, jeans has not changed. The story that we’ve been talking about for the last 12 months is still in place,” said Scott Roe, chief financial officer.

For full-year fiscal 2019, the company expects revenue of $13.45 billion to $13.55 billion and adjusted earnings per share of $3.48 to $3.53. Analysts on average expect earnings of $3.48 per share and sales of $13.30 billion, according to Thomson Reuters I/B/E/S.