VF Reports Q3 Fiscal 2022 Results; Reaffirms Full Year Fiscal 2022 Earnings Outlook

VF Corporation (NYSE: VFC) hasreported financial results for its third quarter ended January 1, 2022. All per share amounts are presented on a diluted basis. This release refers to “reported” and “constant dollar” amounts, terms that are described under the heading “Constant Currency - Excluding the Impact of Foreign Currency.” Unless otherwise noted, “reported” and “constant dollar” amounts are the same. This release also refers to “continuing” and “discontinued” operations amounts, which are concepts described under the heading “Discontinued Operations - Occupational Workwear Business.” Unless otherwise noted, results presented are based on continuing operations. This release also refers to “adjusted” amounts, a term that is described under the heading “Adjusted Amounts - Excluding Transaction and Deal Related Activities, Costs Related to Specified Strategic Business Decisions and Tax Items.” Unless otherwise noted, “reported” and “adjusted” amounts are the same. This release also refers to amounts "excluding acquisitions" or as "adjusted organic", which exclude the contribution from the Supreme brand.

"We delivered strong double-digit top and bottom line results and returned about $500 million in cash to shareholders in the third quarter, all of which has been achieved amidst continuing macro headwinds,” said Steve Rendle, VF's Chairman, President and CEO. "The broad-based momentum across our brands is testament to the resilience of our diversified portfolio model, which has enabled us to deliver a strong quarter and reaffirm our full year earnings outlook in a challenging environment. I am confident that VF remains well-positioned for continued, profitable, long-term growth.”

Constant Currency - Excluding the Impact of Foreign Currency

This release 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. This release also refers to “constant dollar” amounts, which exclude the impact of translating foreign currencies into U.S. dollars. Reconciliations of GAAP measures to constant currency amounts are presented in the supplemental financial information included with this release, which identifies and quantifies all excluded items, and provides management’s view of why this information is useful to investors.

Discontinued Operations - Occupational Workwear Business

On June 28, 2021, VF completed the sale of its Occupational Workwear business. The Occupational Workwear business was comprised primarily of the following brands and businesses: Red Kap, VF Solutions, Bulwark, Workrite, Walls, Terra, Kodiak, Work Authority and Horace Small. The business also included a license for certain Dickies® occupational workwear products that have historically been sold through the business-to-business channel. Accordingly, the company has reported the related held-for-sale assets and liabilities as assets and liabilities of discontinued operations and included the operating results and cash flows of the business in discontinued operations for all periods, through the date of sale.

Adjusted Amounts - Excluding Transaction and Deal Related Activities, Costs Related to Specified Strategic Business Decisions and Tax Items

The adjusted amounts in this release exclude transaction and deal related activities associated with the acquisition of the Supreme® brand. Total transaction and deal related activities include a decrease in the estimated fair value of the contingent consideration liability of $50 million in the third quarter of fiscal 2022 and $158 million in the first nine months of fiscal 2022, and integration costs of approximately $1 million in the third quarter of fiscal 2022 and $6 million in the first nine months of fiscal 2022.

The adjusted amounts in this release exclude costs related to VF's business model transformation, a transformation initiative for our Asia-Pacific regional operations and certain cost optimization activities and other charges indirectly related to the divestiture of the Occupational Workwear business. Total costs were approximately $14 million in the third quarter of fiscal 2022 and $38 million in the first nine months of fiscal 2022.

The adjusted amounts in this release exclude approximately $52 million net tax expense associated with certain discrete tax activities recognized during the third quarter and first nine months of fiscal 2022.

Combined, the above items negatively impacted earnings per share by $0.03 during the third quarter of fiscal 2022 and positively impacted earnings per share by $0.17 during the first nine months of fiscal 2022. All adjusted amounts referenced herein exclude the effects of these amounts.

Reconciliations of measures calculated in accordance with GAAP to adjusted amounts are presented in the supplemental financial information included with this release, which identifies and quantifies all excluded items, and provides management’s view of why this information is useful to investors.

COVID-19 Outbreak Update

To help mitigate the spread of COVID-19 and in response to public health advisories and governmental actions and regulations, VF has modified its business practices, including the temporary closing of offices and retail stores, instituting travel bans and restrictions and implementing health and safety measures including social distancing and quarantines.

The majority of VF's supply chain is currently operational. Suppliers are complying with local public health advisories and governmental restrictions which has resulted in isolated product delays. COVID-19 related manufacturing capacity constraints have continued during the third quarter, though the situation has improved over time. VF expects to be back to nearly full capacity in the coming weeks. Additionally, continued port congestion, equipment availability and other logistics challenges have contributed to ongoing product delays. VF is working with its suppliers to minimize disruption and is employing expedited freight as needed. VF's distribution centers are operational in accordance with local government guidelines while maintaining enhanced health and safety protocols.

• In North America, no stores were closed during the third quarter. Currently, all stores are open.
• In the EMEA region, 6% of stores were closed during third quarter. Currently, only one store is closed.
• In the APAC region, including Mainland China, nearly all stores were open at the beginning of the third quarter. No stores were closed at the end of the quarter. Currently, 1% of stores are closed.

VF is continuing to monitor the COVID-19 outbreak globally and will comply with guidance from government entities and public health authorities to prioritize the health and well-being of its employees, customers, trade partners and consumers. As COVID-19 uncertainty continues, VF expects ongoing disruption to its business operations.

Third Quarter Fiscal 2022 Income Statement Review

• Revenue increased 22 percent (up 22 percent in constant dollars) to $3.6 billion. Excluding the impact of acquisitions, revenue increased 15 percent (up 16 percent in constant dollars) driven by the EMEA and North American regions, which experienced a negative impact from COVID-19 in the prior year period.

• Gross margin increased 140 basis points to 56.1 percent, primarily driven by reduced promotional activity and offsetting incremental freight costs. On an adjusted basis, gross margin increased 60 basis points, including a 20 basis point positive impact from acquisitions, to 56.3 percent.

• Operating income on a reported basis was $678 million. On an adjusted basis, operating income increased 40 percent (40 percent in constant dollars) to $643 million, including a $54 million contribution from acquisitions. Operating margin on a reported basis was 18.7 percent. Adjusted operating margin increased 230 basis points, including a 50 basis point positive impact from acquisitions, to 17.7 percent.

• Earnings per share was $1.32 on a reported basis. On an adjusted basis, earnings per share increased 45 percent (up 44 percent in constant dollars) to $1.35, including an $0.11 contribution from acquisitions.

Balance Sheet Highlights

Inventories were up 20 percent compared with the same period last year. During the quarter, VF returned approximately $195 million of cash to shareholders through dividends. The company also repurchased approximately $300 million of shares and has $2.5 billion remaining under its current share repurchase authorization.

Full Year Fiscal 2022 Outlook

VF's full year outlook assumes no material deterioration to the company's current business operations as a result of COVID-19 and related governmental actions and regulations. VF's full year fiscal 2022 outlook includes the following:

• Revenue is expected to be approximately $11.85 billion, reflecting growth of around 28 percent, including an approximate $600 million contribution from the Supreme® brand. By segment, revenue for Outdoor is now expected to increase between 26 percent and 28 percent versus the previous expectation of a 25 to 27 percent increase; revenue for Active is now expected to increase between 31 percent and 33 percent versus the previous expectation of a 35 to 37 percent increase; revenue for Work is still expected to increase between 19 and 21 percent.

• International revenue is expected to increase between 22 percent and 24 percent. By geographic region, in the EMEA region, revenue is expected to increase between 28 percent and 30 percent. In the Asia Pacific region, revenue is expected to increase between 7 percent and 9 percent. And, in the Americas (non-U.S.) region, revenue is expected to increase between 33 percent and 35 percent.

• Direct-to-consumer revenue is now expected to increase between 32 percent and 34 percent versus the previous expectation of 34 percent and 36 percent, including Digital revenue growth of greater than 15 percent versus the previous expectation of about 20 percent.

• Adjusted gross margin is expected to be at least 55.0 percent, which represents an estimated increase of at least 170 basis points.

• Adjusted operating margin is expected to increase at least 500 basis points to at least 13.0 percent.

• Adjusted earnings per share is expected to be around $3.20, including an approximate $0.25 contribution from the Supreme brand.

• Adjusted cash flow from operations is expected to be approximately $1.0 billion.

• Other full year assumptions include an effective tax rate of approximately 14 percent and capital expenditures of approximately $350 million.

Dividend Declared

VF’s Board of Directors declared a quarterly dividend of $0.50 per share, payable on March 21, 2022, to shareholders of record on March 10, 2022. Subject to approval by its Board of Directors, VF intends to continue to pay its regularly scheduled dividend and is not currently contemplating the suspension of its dividend

Supplemental Information

VF has made available supplemental investor information related to historical quarterly and annual revenues for the top 4 brands for fiscal 2020 and fiscal 2021. The information provided is in accordance with U.S. generally accepted accounting principles (“GAAP”). VF believes this provides investors with useful supplemental financial information regarding VF’s underlying business trends and the performance of VF’s consolidated operations. The supplemental financial information is accessible at ir.vfc.com.