VF Corporation exceeded low expectations in its second-quarter earnings report, leading to a significant increase in its stock value. The apparel company, which owns brands such as Vans and The North Face, managed to surpass forecasts through strategic cost-cutting measures. Following the announcement, VF’s stock rose by 25.9% by 10:18 a.m. ET.
For several quarters, VF had faced difficulties due to declining consumer demand for apparel and challenges within its Vans brand. However, the recent report indicated a possible recovery. Although quarterly revenue decreased by 6% to $2.76 billion, this represented a sequential improvement from the previous quarter’s 10% decline and exceeded market expectations of $2.7 billion. Sales declined across its core brands, including Vans, The North Face, Timberland, and Dickies, but showed improvement from earlier figures.
Additionally, VF completed the sale of Supreme to EssilorLuxottica for $1.5 billion on October 1, thereby increasing liquidity, despite the sale amount being lower than the $2.1 billion purchase price three years prior. The capital was utilized to reduce a $1 billion term loan due in December 2024. In terms of profitability, VF saw a recovery with a gross margin increase of 120 basis points to 52.2% and a 13% decrease in inventory levels.
The adjusted operating margin fell by 60 basis points to 11.4%, while adjusted earnings per share decreased from $0.63 to $0.60 but still surpassed estimates of $0.37.
The recent results came as a positive surprise to Wall Street analysts who had been pessimistic about VF. The company’s guidance hinted at further stabilization, with projected revenue of $2.7 billion to $2.75 billion, representing a 1%-3% year-over-year decline and slightly below the consensus estimate of $2.77 billion. Nevertheless, this guidance suggested progress in the company’s trajectory.
VF also projected adjusted operating income between $170 million and $200 million, compared to $218 million from the same quarter the previous year. The stock’s gains largely reflect its prior declines rather than strong business performance, but the company appears to be on a path toward recovery. Further improvements, particularly in sales and profit growth, could enhance its recovery potential.