Monday, May 18, 2020

VF Corp Unable to Dress Up its FQ4 Print

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What’s happening: Shares of VF Corporation nosedived on Friday after the global apparel and footwear company reported weaker-than-expected results for its fiscal fourth quarter.

What happened: The impact of covid-19 on the apparel company’s business reflected clearly in its latest quarter earnings.

The Greenwood Village, Colorado-based company, which delivered upbeat results for most of fiscal 2020, was brought to its knees in the quarter. VF Corp swung to a net loss, missing the consensus estimate by a mile. Earnings per share tumbling 70% in the latest quarter. The company’s North American stores have been shut since March 16, adversely affecting its overall revenue.

Despite these grave concerns amid the pandemic, the company still sees a ray of hope for one its segments.

How were the results: The apparel, footwear and accessories firm reported a net loss for the latest quarter, while revenue contracted by double digits.

  • VF reported a quarterly net loss of $483.8 million, or $1.22 per share, versus a net profit of $128.8 million, or 32 cents per share, in the same quarter last year.
  • Revenues declined 11% to $2.10 billion, missing the consensus estimate of $2.36 billion.
  • Excluding non-recurring items, adjusted earnings came in at 10 cents per share, falling short of the consensus view of 18 cents per share.

Why it matters: VF Corp was among the first companies to be hit by the pandemic, as it has operations in countries around the world from Asia to North America. The company was well prepared to tackle the pandemic in Europe and the US because of its experience in China.

Most of the company’s retail stores in China are now open, with a revival, albeit slow, also seen in Singapore and Japan. Around 40% of its outlets in Europe have reopened, with restrictions easing. VF also plans to reopen its outlets in some American states starting this week.

The company’s CEO is optimistic about the outdoor recreation unit, despite the ongoing crisis as a sharp rise was witnessed in the sales of outdoor products during the previous recession, with people visiting public parks instead of other entertainment or relaxation options.

“The trends we see today would give us confidence,” VF’s chairman, president and CEO Steve Rendle said. He added, “We see consumers absolutely moving toward the outdoors and really appreciating activities that are accessible and close to home.”

VF has announced various initiatives to combat the coronavirus impact on the economy. The company announced the completion of a $3 billion bond offering to maintain liquidity and has temporarily suspended its buyback program. The company’s CEO also took a base salary cut of 50%, while that of other top executives has been reduced by 25%.

VF did not issue any financial outlook due to the uncertainties related to covid-19. Management did, however, declared a quarterly dividend of 48 cents per share.

How the shares responded: Shares of tanked 6.3% during the regular session on Friday, only to slip further by 0.2% in extended trading. The company’s shares have lost around 7% over the past month and more than 37% over the past three months.

What to watch: As the company reopens its European and US-based stores, investors look forward to a gradual revival in its overall business. Investors expect all stores to be reopened soon and hope that they can regain lost momentum. However, growth will take time as people hesitate from going out.

The Markets Today

     

US stocks will be in focus today, after posting losses last week.

Context: US stocks closed slightly higher on Friday, after posting losses earlier in the session. Stocks made a comeback later in the session on expectations of House preparing to vote on another massive package for covid-19.

Details: Markets fell initially in the session on Friday after data showed a higher-than-expected decline in US retail sales for April. The Commerce Department reported that US retail sales plunged 16.4% in April with most businesses being forced to pull their shutters across the country. Analysts had expected a decline, but the estimate was pinned at 12.5%. US industrial production posted its biggest monthly decline in history, falling 11.2% in April.

Investors soon shrugged off the disappointing economic reports to cheer news of a $3 trillion coronavirus stimulus package that was passed by the House of Representatives on Friday.

Also, there was a slight improvement in the University of Michigan’s consumer sentiment index, which rose to 73.7 in May, from 71.8 in April. The NY Fed’s Empire State business conditions index climbed 29.7 points in May to a reading of -48.5.

The Dow rose 61 points to settle at 23,685.42 on Friday, but was down 2.7% last week. The S&P 500 added 11.20 points to end the day at 2,863.70, while the Nasdaq 100 gained 0.8% to 9,014.56. The S&P 500 and the tech heavy index posted weekly losses of 2.3% and 1.2%, respectively.

In commodities news, WTI (West Texas Intermediate) crude for June climbed 6.8%, to settle at $29.43 per barrel on the NYMEX (New York Mercantile Exchange), while June gold rose 0.9%, to settle at $1,756.30 an ounce.

What to watch: Investors continue to monitor daily covid-19 cases, with the total number of infections exceeding 4,716,960 globally. The number of positive infections in the US has surpassed 1,486,740 with around 89,560 deaths.

US stocks are expected to open on a positive note today with stock futures trading higher in the European session. The economic calendar is light today, as the US is scheduled to report only the housing market index. The NAHB housing market index, which fell to 30 in April, is expected to rise to a reading of 33 in May.

Other Markets: European indices were trading higher at 9:00am GMT, with the FTSE 100, German 30 and French 40 up by 2.2%, 1.3% and 1.2%, respectively.

Support & Resistances
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Futures at 0400 (GMT)

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What else to watch today

     

Bill auctions by France and the US.