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Outdoor brands boost VF’s Q3 bottom line
VF Corp. (NYSE: VFC) reported third-quarter profit jumped 17 percent as stronger sales of higher margin outdoor apparel offset declining sales of jeans and underwear.
The company posted a 17 percent increase in net income of $181.9 million, or $1.59 per share, compared with $155.4 million, or $1.38 per share, in last year’s quarter. Year-ago results include a charge of 8 cents per share related to the sale of its Playwear business.
Sales grew to $1.8 billion from $1.79 billion in the prior-year period. The Reef and Holoubek businesses, which were acquired during 2005, added $29 million to sales and were neutral to earnings. Analysts had predicted earnings of $1.56 per share on $1.87 billion in sales.
VF said its outdoor business had another outstanding quarter in both sales and profitability, and it’s excited about the growth prospects for all its outdoor brands. Sales rose 14 percent in the quarter to $521 million from $457 million, with newly acquired Reef contributing $18 million of the increase. Outdoor operating income rose 28 percent, with operating margins expanding to 21.5 percent from 19.1 percent, resulting from the strong volume gains and a sharp improvement in the profitability of its Vans business during the quarter.
The North Face brand continued its momentum, with sales up 23 percent in the quarter and increases across all product categories. Its own retail stores performed well, with comparable store sales in the United States running 17 percent above prior year levels. Spring 2006 bookings for the brand are up 30 percent.
Its Kipling and Napapijri brands also experienced solid sales growth in the quarter, with stable results across Vans, JanSport and Eastpak.
Contributions from those businesses helped offset a “disappointing” 4 percent decline in sales of jeanswear to $689 million. However, the business’s high level of profitability allowed operating profit to still rise 5 percent to $123 million despite the sales drop, VF said.
“The transformation of our company, with the addition of higher growth, higher margin lifestyle brands, is paying off,” said Mackey McDonald, VF’s chairman and CEO. “Our growth engines — including our outdoor and sportswear coalitions — are providing us with a platform that will ensure healthy top and bottom line performance. Strong volume gains in our higher margin outdoor business, combined with excellent operational efficiencies, enabled us to deliver stronger than expected bottom line performance despite a variety of factors pressuring retail sales and consumer spending.”
Additionally, VF’s board declared an increase in the quarterly cash dividend rate of $0.02 to $0.29 per share, marking the 15th consecutive year that it has increased its quarterly dividend rate. The cash dividend is payable on Dec. 19, 2005, to shareholders of record as of Dec. 9, 2005.
Rocky slashes ’05 outlook, receives $30 million military contract
Rocky Shoes & Boots (Nasdaq: RCKY) said it expects to report third-quarter profit well below analysts’ expectations and reduced its earnings outlook for the year, causing one brokerage to downgrade shares of the company.
Net income is expected to grow to between $1.13 and $1.15 per share from $0.98 per share a year ago. The company expects to report sales of $94 million. That is well short of the profit of $1.34 per share and $100.6 million in sales projected by analysts.
“Our core outdoor footwear business was negatively impacted during the third quarter, primarily due to warm, dry weather in several of our major markets, as well as weak consumer confidence and a challenging retail environment,” CEO Mike Brooks said. “With that said, we are confident about our product offering and merchandising strategy for the Rocky brand and we remain focused on expanding our leadership status in the industry. Importantly, our work, western, and duty footwear categories continued to perform on or above plan.”
For the year, Rocky said 2005 earnings would likely range from $2.25 to $2.29 per share on sales of $294 million to $296 million — a significant drop from an earlier forecast for per-share income between $2.55 to $2.65 on sales between $300 million and $305 million. Analysts were expecting earnings at $2.59 per share on $302.4 million in sales.
Rocky Shoes issued guidance for 2006 of profit between $3.05 and $3.15 on $313 million to $318 million in revenue — above the current consensus profit estimate of $2.78 per share on sales of $318.1 million.
Brean Murray downgraded shares of Rocky from “strong buy” to “accumulate” based on concerns about its outdoor division following the news. Brean Murray said many of Rocky’s large retail partners continue to sit on large amounts of inventory, leading it to believe that reorders will be slow until they deplete supplies. It did note that Rocky has many long-term growth opportunities that include additional distribution channels.
Based on its near-term concerns, Brean Murray reduced its 2005 earnings-per-share forecast by $0.34 to $2.29, at the high-end of management’s reduced guidance. It also cut its target price to $31 from $34, which assumes that the shares can trade to 10x its 2006 earnings-per-share forecast of $3.05.
Additionally, the boot-maker said it has received an order to fulfill a contract to the U.S. Military to produce “hot weather” boots for approximately $30 million. Shipment of the boots is expected to begin in the fourth quarter of fiscal 2005 with an estimated completion date of December 2006.
Rocky will report actual third-quarter results on Oct. 26.
K2’s Q3 weathers storm, but nine-month earnings hit by weak paintball sales
After recently slashing its guidance for 2005, K2 Inc.’s (NYSE: KTO) nine-month earnings were hit by weak paintball sales, but did not cause a drop in third-quarter earnings, the company reported.
For the third quarter, K2 earned $16.7 million, or $0.32 a share, on sales of $340.4 million. For the third quarter of 2004, K2 earned $13.2 million, or $0.26 a share, on sales of $333.5 million. Net sales reflected a 2.1 percent increase, which would have been 4.2 percent for the quarter if the decline in the sale of paintball products is excluded from these results.
Third-quarter operating income was $32.0 million as compared to $27.6 million for the 2004 comparable period, and net income for the 2005 third quarter was $16.7 million, as compared to 2004’s $13.2 million.
“We generated strong results in the third quarter, with a 16 percent increase in operating income and a 23 percent increase in GAAP diluted earnings per share over the comparable 2004 period, despite the previously announced and continuing weakness in paintball,” Richard Heckmann, chairman and CEO, said in a statement.
“The biggest profit contributors in the third quarter were K2, Volkl and Marker winter products as we experienced significant profit growth in those product lines due to our ongoing integration efforts and back-office efficiencies,” he added. “Apparel and footwear continued their previous trend line of consistent growth in sales and operating income, and marine and outdoor and team sports segments, despite a seasonally slow quarter, also generated strong results.”
For the nine-month period, the company earned $20.5 million, or $0.42 a share, on sales of $960.1 million. For the same period a year ago, K2 earned $30.1 million, or $0.69 a share, on sales of $861.8 million. K2 said the drop-off in earning for the nine-month period is attributed to lagging sales in paintball equipment and the buyout of Volkl, Marker and Marmot in the third quarter of 2004.
This-quarter net sales of the action sports division’s skis, snowboards, in-line skates, bikes, snowshoes and paintball products totaled $163.2 million compared to $180.1 million in 2004. K2 branded alpine ski products generated significant growth in the quarter, which was offset by declines in paintball products as previously disclosed and sales of snowboards as well as a reduction in bike sales resulting from K2’s decision to license this business in the third quarter of 2005. Sales of Volkl branded ski products were down in the third quarter of 2005 versus 2004 due to softness in the premium end of the market.
The apparel and footwear division, made up of Earth Products, Ex Officio and Marmot, had net sales of $52.3 million in the third quarter of 2005, an increase of 16.0 percent over the 2004 period. Part of the increase was driven by significant growth in Marmot technical apparel and outerwear.
In the marine and outdoor segment, Shakespeare fishing tackle and monofilament, and Stearns marine and outdoor products generated net sales of $79.1 million in the third quarter of 2005, an increase of 16.0 percent from the comparable quarter in 2004.
Wolverine names company veteran as president
Merrell’s parent Wolverine World Wide (NYSE: WWW) has a new president and chief operating officer leading the ship: Blake Krueger. He has served as an executive vice president and officer of the company for 10 years with responsibilities during this time for the human resources, retail, business development, accessory licensing, acquisitions and legal areas. Most recently, Krueger was president of the Heritage Brands Group, one of the company’s four branded global operating units. In this role, he was reportedly instrumental in driving significant operational and profit improvements on a global basis for the Wolverine’s Harley-Davidson Footwear and CAT Footwear operations. Timothy O’Donovan continues as the company’s chairman and CEO.
Amer’s buyout of Salomon concludes, exercises its 2002 warrants
Amer Sports has completed its acquisition of Salomon and its brands from adidas. The transaction value for the Salomon business segment is expected to be approximately Euro 485 million based on year-end 2004 figures. According to the agreement, the final price will be set in accordance with net assets as at Sept. 30.
“The work to integrate the business functions of Amer Sports and Salomon can now begin. Our aim is to increase Salomon’s profitability to meet our group’s financial targets. The estimate of synergies made when the transaction was announced is realistic. These synergies are primarily generated by industrial operations in the winter sports business,” said Roger Talermo, president and CEO of Amer Sports.
The consolidation of Salomon’s financial figures into Amer Sports began on Oct. 1. The company said the transaction will have a significant effect on its net sales in the final quarter of the present year. The acquisition is estimated to have no significant impact on Amer Sports’ earnings per share in the current fiscal year.
Amer added that Salomon will comprise its own business area, the Salomon Group. Amer and adidas-Salomon will cooperate for a maximum period of three years to ensure support for the transferred business.
In other Amer news, the company said 16,950 of its shares have been subscribed for as a result of an exercise of its 2002 warrants. The corresponding increase in the company’s share capital amounting to Euro 67,800 (USD $81,109) was registered on Oct. 18. As a result of this increase, Amer’s share capital now totals Euro 285,747,240 (USD $341,839,423) and the total number of shares in issue is 71,436,810. Shareholder rights commenced from the registration date, and the new shares were listed on the Helsinki Exchanges on Oct. 19. The subscription period of Amer’s 2002 warrant scheme will end on Dec. 31, 2007.
(Conversion of Euros into U.S. dollars is for information only, is not necessarily relative to earnings, and is based on the currency rate as of Oct. 20.)
adidas-Salomon estimates $12 million book loss from sale of Salomon
adidas-Salomon AG (ADS.DE) said it expects to record a book loss of around Euro 10 million (USD $12 million) from the sale of its Salomon division to Amer Sports (AMEAS.HE).
CFO Robin Stalker said this during an analyst conference in May and his comments are still valid, adidas said. However, it added that it doesn’t yet exactly know the book loss resulting from the sale. The final evaluation is continuing and it is unclear when this process will be concluded, it said.
Despite the sale, the company’s name will remain adidas-Salomon until shareholders vote on a new company name. Legally its company name will remain adidas-Salomon until its next annual general meeting next May, it said.
adidas acquired Salomon, including its Golf division which Adidas will keep, in 1997 for around Euro 1.2 billion (USD $1.44 billion).
(Conversion of Euros into U.S. dollars is for information only, is not necessarily relative to earnings, and is based on the currency rate as of Oct. 20.)
NRF gauges consumer ‘intentions’ this holiday season
The National Retail Federation “2005 Holiday Consumer Intentions and Actions Survey,” conducted by BIGresearch, found that the average consumer plans to spend $738.11 this holiday season, up 5.1 percent from the previous year. Furthermore, consumers will spend an additional $86.62 on themselves. The survey is in line with NRF’s holiday sales forecast, announced last month, which expects total holiday retail sales to increase 5.0 percent over last year to $435.3 billion.
According to the survey, consumers will be dedicating the majority of their holiday spending to gifts for family ($421.30) and friends ($78.99). They’ll also spend $21.05 on co-workers and $44.16 on gifts for other people, including babysitters, teachers and clergy. Consumers will spend an additional $17.68 billion on non-gift purchases for themselves or their families this holiday season, the survey said. Men will be the most generous when it comes to treating themselves, with the average male spending $108.87.
More than one-third of consumers (37.9 percent) said that sales or price discounts are the most important factor in their decision to purchase from a particular store. Selection is also important, with nearly a quarter (23.1 percent) of consumers polled ranking selection of merchandise as a top factor, while other consumers chose where to shop based on quality of merchandise (11.0 percent) or location (6.5 percent). Consumers also appreciate good, knowledgeable customer service, with 3.7 percent saying it was the most important factor when choosing where to shop.
The survey also found that consumers plan to shop at a variety of stores for their holiday shopping this year, with discounters (71.4 percent) and department stores (59.4 percent) once again remaining top shopping destinations. Other popular stores include specialty stores, such as clothing, toy or electronics (46.5 percent) and grocery stores (47.4 percent). The popularity of online shopping continues to grow, with almost half (42.6 percent) of consumers planning to purchase gifts online, up from 38.3 percent the previous year.
The NRF 2005 “Holiday Consumer Intentions and Actions Survey” was designed to gauge consumer behavior and shopping trends related to the winter holidays. The survey, which polled 7,726 consumers, was conducted for NRF by BIGresearch from Oct. 5-12, 2005. The consumer poll has a margin of error of plus or minus 1.0 percent.
The Sportsman’s Guide ups Q3 estimates
The Sportsman’s Guide (Nasdaq NM:SGDE) said its net sales and fully diluted earnings per share for the third quarter will be higher than current average estimates and well above the levels reported one year ago. The boost is a result of increasing Internet-related sales and the strong performance from its golf business at The Golf Warehouse.
Net sales for the quarter are now expected to be in the range of $61 million to $62 million, compared with net sales of $57 million last year and current average estimates of $61 million. Fully diluted earnings per share are now expected to be in a range from $0.23 to $0.25 per share, compared to earnings per share of $0.17 for the same period one year ago and current average estimates of $0.21 per share.
It will release full third-quarter results on Oct. 31.
Wellman plant be to be online by November, insurance to cover damage costs
Wellman’s (NYSE: WLM) Pearl River facility, located in Hancock County, Miss., is expected to resume PET resin production the week of Oct. 31, after its temporary shut down due to Hurricane Katrina. The facility will re-start in two phases. One production line, which has an annual capacity of 260 million pounds, is expected to resume production the week of Oct. 31. The second production line, with the same annual capacity, is expected to resume production at the end of November.
Wellman expects to incur total costs in the third and fourth quarter of approximately $22 million to $25 million which includes damage to inventory, costs to clean up the site, costs to repair damaged equipment and costs incurred at the site until normal operations are restored. Approximately $7 million of these costs were incurred in the third quarter with the remaining $15 million to $18 million expected to be incurred in the fourth quarter. The company expects to be reimbursed by insurance for substantially all of these costs and lost profits resulting from the hurricane in excess of its $20 million deductible.
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