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Reuters
Published
Jul 20, 2014
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VF Corp second-quarter profit beats, but forecast misses Street

By
Reuters
Published
Jul 20, 2014

VF Corp, which owns brands such as Timberland and The North Face, reported a fall in gross margins for the first time in nine quarters and forecast a full-year profit below the analysts' average estimate. The company's shares fell as much as 2.4 percent on Friday.



The apparel retailer also said it expects third-quarter revenue to increase by about 8 percent, which translates to around $3.53 billion, below the analysts' average expectation of $3.60 billion, according to Thomson Reuters I/B/E/S. Gross margins fell 10 basis points to 48.4 percent in the second quarter ended June 28, hurt by unfavorable foreign exchange rates and the company's efforts to lower its jeanswear inventories. The gross margin decline was "a disappointment", Credit Suisse analyst Christian Buss wrote in a note.

"We had expected accelerated investments in international markets as well as owned retail to support margins," he said.

Buss had expected second-quarter gross margins of 49.4 percent — the same figure the company reported in the previous quarter.

VF Corp said it expects gross margins to return to historical levels of about 49 percent as it shifts focus away from jeanswear — a category that saw low demand.

The company, which also owns the Lee and Wrangler brands, said jeans sales fell 1 percent, primarily in the Lee brand, as fewer women shopped for denim clothes in the quarter.

The company's rivals are also struggling in the volatile North American retail environment as stagnant wage growth and rising taxes force consumers to keep a lid on discretionary spending. Gap Inc said last week that sales at stores open at least a year fell 2 percent in June, hurt by declines at its Gap and Banana Republic brands.

VF Corp's net profit rose to $157.7 million, or 36 cents per share, in the quarter, from $138.3 million, or 31 cents per share a year ago. Total revenue rose 8 percent to $2.40 billion.

Analysts on average had estimated a profit of 35 cents per share on revenue of $2.36 billion, according to Thomson Reuters I/B/E/S.

The company expects full-year earnings of $3.06 per share, compared with Wall Street's estimate of $3.09 per share.Sales in its outdoor and action sports business rose 16 percent to $1.27 billion, accounting for more than half its total revenue.

Shares of Greensboro, North Carolina-based VF Corp were down 1.2 percent at $60.89 at 14:30 ET on the New York Stock Exchange.

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