Shares of VF (NYSE: VFC) finally got off the schneid as the struggling apparel company posted better-than-expected results in its fiscal second-quarter earnings report.
With the help of cost-cutting, the parent company of Vans and The North Face topped estimates on both the top and bottom lines.
As a result, the stock was up 25.9% as of 10:18 a.m. ET.
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VF delivers a pleasant surprise
VF has been struggling for several quarters due to a combination of weak consumer demand for apparel and the company's challenges at Vans, but it showed investors that it was in recovery mode last night.
Revenue in the quarter fell 6% to $2.76 billion, but that was a sequential improvement from a 10% decline in the first quarter and ahead of investor expectations at $2.7 billion.
Sales still fell at all four of its core brands -- Vans, The North Face, Timberland, and Dickies -- but the numbers improved in the first quarter. It also completed the sale of Supreme to EssilorLuxottica, the Ray-Ban parent company, for $1.5 billion on Oct. 1, which frees up cash, though it's less than the $2.1 billion it bought the brand for three years ago. It used that cash to pay down a $1 billion term loan due in December 2024.
VF's bottom-line results also showed signs of recovery, as gross margin improved 120 basis points to 52.2% while inventories fell 13%.
Overall, adjusted operating margin fell 60 basis points to 11.4%, and adjusted earnings per share dipped from $0.63 to $0.60, but that was well ahead of estimates at $0.37.
Can VF keep gaining?
The results surprised Wall Street, which was pessimistic about VF heading into the report.
VF's guidance indicated a continued stabilization, as it called for revenue of $2.7 billion-$2.75 billion, which was down 1%-3% from a year ago and below the consensus at $2.77 billion. However, that shows the company moving in the right direction.
It also expects adjusted operating income of $170 million-$200 million, compared to $218 million in the quarter a year ago.
Overall, today's gains seem to reflect the fact that VF stock has fallen so much, rather than the strength of the business, but the company is moving in the right direction. There's still a lot of room for recovery, especially if sales and profit growth turn positive.
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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
