VF Corporation — Q1 Fiscal 2022 Form 10-Q
Reporting period: First quarter of Fiscal 2022, ended July 3, 2021; comparative quarter ended June 27, 2020. Amounts below are in U.S. dollars. Unless noted, operating results exclude Occupational Workwear, which was classified as discontinued operations in both periods and sold on June 28, 2021.
Financial performance
| Metric | Q1 FY22 | Q1 FY21 |
|---|---|---|
| Continuing-operations revenue | $2.195 billion | $1.076 billion |
| Gross margin | 56.5% | 52.9% |
| Operating income (loss) | $202.9 million | $(246.8) million |
| Continuing-operations income (loss) | $154.0 million | $(277.7) million |
| Diluted EPS from continuing operations | $0.39 | $(0.71) |
| Net income (loss), including discontinued operations | $324.2 million | $(285.6) million |
Revenue rose 104%, reflecting recovery from COVID-19 disruption in the prior-year quarter, $145.7 million from the Supreme acquisition, and an $83.0 million favorable foreign-exchange effect. Management reported gross-margin expansion of 360 basis points, primarily from less promotional activity, partly offset by expedited freight costs and an unfavorable mix shift toward wholesale.
- Segments: Outdoor revenue was $617.8 million and segment loss was $71.7 million; Active revenue was $1.302 billion and segment profit was $270.9 million; Work revenue was $274.7 million and segment profit was $41.0 million. The comparison was strongly affected by the prior-year COVID-19 downturn; Active also included Supreme.
- Cash flows: Continuing-operations operating cash flow was $74.9 million, investing cash flow was $509.4 million, and financing cash flow was $(174.4) million. Investing cash flow included $616.5 million of net proceeds from the Occupational Workwear sale. Capital expenditures were $93.2 million and software purchases were $21.0 million.
- Debt and liquidity: Reported borrowings totaled approximately $5.735 billion, including $1.001 billion of current long-term debt, reclassified because $1.0 billion of notes mature in April 2022. Cash and equivalents were $1.275 billion and short-term investments were $598.8 million. Working capital was $1.493 billion, the current ratio was 1.5:1, and net debt to total capital was 64.9%. VF reported about $2.2 billion available under its Global Credit Facility and compliance with its covenants.
- Shareholder returns: VF paid a $0.49-per-share dividend and declared another $0.49 dividend. It made no share repurchases and said the program remained temporarily paused.
Material changes and unusual items
- VF completed the Occupational Workwear divestiture for $616.5 million net proceeds and recorded an estimated $145.6 million after-tax gain. Discontinued operations contributed $170.3 million of income for the quarter, including that gain.
- Supreme contributed $145.7 million of revenue and $26.3 million of net income. Its contingent consideration liability was remeasured down by $73.0 million to $134.0 million, with the change benefiting SG&A; potential additional payment ranges from zero to $300 million.
- Year-over-year results also reflect prior-year cost controls and government payroll relief, alongside current investment in digital and direct-to-consumer initiatives.
Outlook, commentary and risks
The filing provides no quantified revenue or earnings guidance. Management said it believed VF had sufficient liquidity and flexibility to meet obligations and continue executing its strategy, while emphasizing that COVID-19’s duration and severity remained uncertain. Management described a multi-year business-model transformation intended to generate global cost savings over three years and support growth priorities.
COVID-19-related risks included possible store closures, supplier capacity constraints in sourcing countries, port and equipment delays, and resulting product delays; VF used expedited freight as needed. Other disclosed risks include consumer demand and fashion shifts, margin pressure, foreign exchange, supply-chain disruption, cybersecurity, and execution and integration of acquisitions. A pending IRS dispute over the timing of income inclusion related to Timberland’s 2011 acquisition is not reflected in the financial statements; VF stated that, if the IRS prevailed, net interest expense could be up to $186.2 million and the tax-rate differential could increase tax expense by approximately $136.3 million. Management said it did not expect a material adverse impact from resolution.
Important facts for investors to verify
- How much of revenue and margin growth reflects sustainable demand versus the prior-year COVID-19 comparison, foreign exchange, and Supreme.
- Whether supply-chain constraints, expedited freight, and renewed COVID-19 disruptions affect inventory availability, costs, and margins.
- The April 2022 $1.0 billion debt maturity and VF’s plans to refinance or repay it, alongside covenant and liquidity headroom.
- Final Occupational Workwear sale adjustments and the outcome of the Supreme earn-out; also monitor the IRS dispute and Belgium tax matter described in the filing.
- Whether the dividend remains supported as VF continues its transformation spending and keeps share repurchases paused.