V.F. Corporation — Fiscal 2021 Form 10-K
Reporting period: Fiscal year ended April 3, 2021 (53 weeks), compared with the 52-week year ended March 28, 2020. Although the request references 2020 Q4, this filing is an annual report; it reports fourth-quarter comparisons but does not provide a complete standalone quarterly financial statement here. Unless noted, annual operating results below are for continuing operations. Occupational Workwear and the previously spun-off Jeans business are presented as discontinued operations.
Business context and financial performance
VF is a global apparel, footwear and accessories company organized into Outdoor, Active and Work segments. Its strategy emphasizes portfolio optimization, investment in Asia, direct channels and a consumer-focused, digital business model. Direct-to-consumer sales represented 45% of annual revenue; e-commerce was approximately half of direct-to-consumer business.
| Metric | Fiscal 2021 | Fiscal 2020 |
|---|---|---|
| Revenue | $9.239 billion | $10.489 billion |
| Gross margin | 52.7% | 55.3% |
| Operating income / margin | $607.6 million / 6.6% | $927.8 million / 8.8% |
| Continuing-operations income | $354.9 million | $629.1 million |
| Diluted EPS, continuing operations | $0.91 | $1.57 |
| Operating cash flow, continuing operations | $1.233 billion | $800.4 million |
| Cash dividends paid | $756.8 million; $1.94 per share | $748.7 million; $1.90 per share |
Net income, including discontinued operations, was $407.9 million versus $679.4 million; diluted total EPS was $1.04 versus $1.70. Fiscal 2021’s effective tax rate was 22.3%, compared with 13.5% in Fiscal 2020.
Segments and channels
- Outdoor: revenue $4.128 billion, down 11%; segment profit $342.2 million, down 34%.
- Active: revenue $4.161 billion, down 15%; segment profit $648.5 million, down 43%. Results include $142 million of Supreme revenue after its December 2020 acquisition.
- Work: revenue $945.7 million, up 7%; segment profit $27.1 million, down 46%.
- Direct-to-consumer revenue fell 5%; e-commerce revenue rose 67%. International revenue fell 7%, while Greater China revenue increased 24%.
Liquidity, debt and other key metrics
- At April 3, 2021, cash and equivalents were $815.8 million and short-term investments were $598.8 million. Working capital was $2.113 billion; the current ratio was 2.0, up from 1.5.
- Debt was approximately $5.72 billion, including $5.71 billion of long-term debt and $11.1 million of short-term borrowings. Net debt to total capital was 68.2%, versus 53.4% a year earlier; VF’s measure includes operating lease liabilities and nets unrestricted cash.
- About $2.2 billion was available under the $2.25 billion revolving credit facility, subject to its terms and minimum-liquidity covenant. VF reported compliance with debt covenants.
- Cash used in investing activities was $2.892 billion, principally reflecting the $2.009 billion net cash acquisition of Supreme and $800 million of short-term investment purchases. Cash provided by financing activities was $1.053 billion.
Material changes, outlook and unusual items
- Annual revenue declined 12%, primarily because COVID-19 closures, reduced store traffic and weaker demand affected wholesale and owned retail. A favorable 2% currency effect, the Supreme acquisition and an extra fiscal week partially offset the decline. Fourth-quarter revenue increased 23% year over year, also including the extra week and Supreme contribution.
- Gross margin contracted 260 basis points amid elevated promotions to clear inventory and foreign-currency transaction timing; favorable mix partly offset these effects. Operating margin fell 220 basis points. SG&A dollars declined $307 million, including cost controls and $81.4 million of government payroll relief recorded as an SG&A reduction.
- VF paid $2.2 billion cash for Supreme, with $207 million of estimated contingent consideration (potential additional consideration ranges up to $300 million). The preliminary purchase accounting included a $1.2 billion indefinite-lived trademark and $1.25 billion of goodwill. Supreme contributed $21.5 million of net income during its period in VF’s results. The auditor identified valuation of the acquired trademark as a critical audit matter.
- Fiscal 2021 restructuring charges were $119.0 million. VF also recorded $20.4 million of intangible-asset impairment charges; Fiscal 2020 included a $323.2 million Timberland goodwill impairment.
- After year-end, VF agreed to sell Occupational Workwear for approximately $605 million net cash, subject to adjustments and closing conditions; completion was expected in the first quarter of Fiscal 2022. Management also cited a multi-year initiative targeting approximately $125 million in global cost savings over three years.
- VF stated it expected to continue its regular dividend and was not then contemplating suspension; a $0.49-per-share dividend was declared for Fiscal 2022’s first quarter. Share repurchases were paused during Fiscal 2021. No specific consolidated revenue or earnings guidance is provided in the supplied filing text.
Risks, contingencies and investor verification
Management described continuing uncertainty from COVID-19, including possible store closures, demand volatility, supply-chain and freight disruption, customer credit exposure and added costs. Other risks include competitive and promotional pressure, foreign exchange and input costs, reliance on third-party sourcing, cybersecurity and privacy, acquisition integration and potential impairment of goodwill or trademarks. VF reported no pending material legal proceedings beyond routine litigation.
A disputed IRS matter concerning the timing of income inclusion from the 2011 Timberland acquisition remains unresolved and is not reflected in the financial statements. VF said it is defending its position and does not expect a material adverse outcome; if the IRS prevails, the filing estimates up to $181 million of net interest expense and approximately $136.3 million of additional tax expense. The separate Belgium tax ruling matter also remained unresolved; approximately $37 million had already been paid and may not be recovered if resolved adversely.
Most important facts for investors to verify:
- Whether revenue, margins and e-commerce performance recover as store operations normalize, and how much fourth-quarter growth reflected the extra week and Supreme.
- Supreme’s continuing contribution, final purchase-price allocation, contingent-consideration outcome and support for the trademark and goodwill valuations.
- Debt reduction, covenant headroom, liquidity and the sustainability of dividends given the 186.5% Fiscal 2021 dividend payout ratio based on diluted EPS.
- Closing proceeds and timing for the Occupational Workwear sale, and delivery of the stated $125 million cost-savings target.
- Developments in the IRS and Belgium tax matters, and any changes in impairment assumptions or restructuring costs.
The auditor issued an unqualified opinion on the financial statements and internal control over financial reporting. Supreme was excluded from the internal-control assessment because of its recent acquisition.