V.F. Corporation — Fiscal 2022 Form 10-K
Reporting period: Fiscal year ended April 2, 2022 (52 weeks). Although the request identifies 2021 Q4, this filing reports the full fiscal year, not a standalone quarter. Comparisons are primarily with Fiscal 2021, a 53-week year. Results reflect continuing operations unless noted; Occupational Workwear was sold June 28, 2021 and is reported as discontinued operations.
Business context
VF designs, sources, markets and distributes apparel, footwear and accessories through Outdoor, Active and Work segments. Its major brands include The North Face, Vans, Timberland and Dickies. Direct-to-consumer (DTC) represented 46% of revenue; e-commerce was approximately 20% of total revenue. Revenue mix was 57% Americas, 29% Europe and 14% Asia-Pacific.
Financial performance
| Metric | Fiscal 2022 | Fiscal 2021 |
|---|---|---|
| Revenue | $11.84 billion | $9.24 billion |
| Gross margin | 54.5% | 52.7% |
| Operating margin | 13.8% | 6.6% |
| Income from continuing operations | $1.22 billion | $354.9 million |
| Diluted EPS from continuing operations | $3.10 | $0.91 |
| Cash from continuing operating activities | $858.2 million | $1.23 billion |
| Capital expenditures | $245.4 million | $198.7 million |
Total net income was $1.39 billion, including $170.7 million from discontinued operations. That discontinued-operations result included an estimated $146.0 million after-tax gain on the Occupational Workwear sale. Fiscal 2022 advertising expense was $840.6 million, or about 7% of revenue.
- Revenue growth: 28%, including $438.5 million (5%) from Supreme through its acquisition anniversary and a 1% favorable currency effect. Growth primarily reflected recovery from prior-year COVID-19 disruption; supply-chain constraints affected current-year shipments.
- Segment revenue / profit: Outdoor $5.33 billion / $795.5 million; Active $5.38 billion / $979.7 million; Work $1.13 billion / $193.5 million. Segment revenue grew 29%, 29% and 20%, respectively. Supreme contributed $438.5 million of Active revenue.
- Margins and expenses: Gross margin expanded 180 basis points, reflecting fewer promotions and more full-price sales, partly offset by expedited freight. SG&A was 40.7% of revenue versus 45.9%; expense dollars rose $583.2 million, partly because the prior year included cost controls and $81.4 million of government payroll relief. Fiscal 2022 also benefited from a $150.0 million reduction in the estimated Supreme contingent-consideration liability.
- Cash flow and balance sheet: Operating cash flow fell year over year, primarily because of working-capital movements, including a $380.9 million cash use from inventory. Working capital was $1.27 billion versus $2.11 billion; the current ratio was 1.4 versus 2.0.
- Debt and liquidity: Debt was approximately $5.4 billion, including short-term borrowings; cash and equivalents were $1.28 billion. Net debt to total capital, a company-defined measure that includes operating lease liabilities and nets unrestricted cash, was 61.0% versus 68.2%. Approximately $1.9 billion remained available under the $2.25 billion revolving facility; VF reported covenant compliance.
- Capital returns: VF repurchased $350.0 million of shares and paid $773.2 million in dividends. Fiscal 2022 dividends were $1.98 per share; a $0.50 quarterly dividend was declared for Fiscal 2023.
Material changes versus the prior period
- Revenue and profitability rebounded from Fiscal 2021, which was more affected by pandemic-related store closures and demand disruption; the prior year also had an extra week.
- DTC revenue increased 31% and reached 46% of revenue, while e-commerce increased 14%. Excluding Supreme, e-commerce revenue decreased 1% as stores reopened and consumer activity shifted back toward physical retail.
- Cash from continuing operating activities declined to $858.2 million from $1.23 billion despite higher earnings, primarily due to less favorable working-capital movements.
- VF sold Occupational Workwear for $616.9 million net proceeds. It also redeemed $500 million of 2.050% notes early in December 2021 and repaid the remaining $500 million on April 25, 2022.
- VF reinstated share repurchases during the third quarter after a temporary pause and repurchased $350.0 million during the year.
Outlook, commentary, risks and contingencies
- Outlook: The filing provides no quantified revenue, earnings or margin guidance. Management said it expected sufficient liquidity and flexibility to meet obligations and continue its strategy. A multi-year transformation initiative is intended to generate global cost savings over three years; the filing does not state a savings amount and says the initiative was on track.
- Operating environment: COVID-19 resurgence, especially in Asia and Greater China, supplier constraints, port congestion, longer transit times, freight costs and product delays remained significant issues. Inflation and higher material, labor and logistics costs could pressure margins. Russia and Ukraine together represented less than 1% of Fiscal 2022 revenue; stores in Russia were closed and shipments to both countries suspended.
- Tax dispute: The U.S. Tax Court ruled for the IRS in a dispute over the timing of income inclusion related to VF’s 2011 Timberland acquisition. VF intended to appeal and anticipated paying or bonding approximately $845 million of disputed tax and interest in Fiscal 2023. The company had not recorded the court opinion’s impact; if upheld, the estimated net tax-expense impact could be as much as $700 million.
- Supreme valuation: No goodwill or indefinite-lived trademark impairment was recorded, but estimated fair values exceeded carrying values by only 5% and 3%, respectively. Management’s sensitivity analysis indicated that specified reductions in growth or a 50-basis-point increase in discount rates could result in impairment.
- Other risks: Consumer demand and retail conditions, brand relevance and competition, customer credit, reliance on global contract manufacturing, currency movements, cybersecurity and privacy, climate and regulatory changes, and VF’s debt and refinancing access could affect results. A separate European tax ruling matter remained unresolved.
- Unusual items: Fiscal 2022 included a $3.6 million debt-extinguishment loss, a $150.0 million favorable Supreme contingent-consideration remeasurement, and $104.7 million of net discrete tax expense. Fiscal 2021 included $20.4 million of trademark and customer-relationship impairment and government payroll relief.
Most important facts for investors to verify
- Updates and cash-flow consequences of the Timberland-related IRS dispute, including appeal status, payment or bond, and any eventual tax recovery.
- Supreme’s progress against the revenue and profitability assumptions supporting its goodwill and trademark valuations.
- Inventory levels, working-capital conversion, freight and sourcing costs, and whether product delays ease or persist.
- Debt maturities, liquidity availability, covenant headroom, and the sustainability of dividends and share repurchases.
- Execution and disclosed savings from VF’s three-year transformation initiative, alongside the performance of Vans, The North Face and Greater China.