* Q2 EPS $1.00 vs est $0.77
* Sees FY EPS $6.10 vs est $5.97
* Sees 5 pct rise in H2 revenue
* Apparel prices to go up in 2011, says CFO
* Shares rise 7 pct
(Recasts; adds executive comments, updates share move)
By Nivedita Bhattacharjee
BANGALORE, July 22 VF Corp's (VFC.N) quarterly
profit beat Wall Street estimates on swelling margins and
better sales across segments, and despite some costing
pressures going forward, the world's largest apparel company
said it's margins will still grow.
Shares of the company were up 6 percent at $78.68 Thursday
afternoon on the New York Stock Exchange. They touched a high
of $79.42 in intra-day trade.
VF Corp said lower product costs and clean inventories,
which reduce the need for discounting, helped it rake up a 320
basis points jump in gross margins for the quarter.
Greensboro, North Carolina-based VF Corp owns more than 30
brands including Jansport, Vans, Wrangler and Lee.
Product costs will be down this year but could rise after
that, Chief Executive Eric Wiseman said on a conference call
"They (product costs) were down in the first half of the
year and they will be down in the second half ... as well, but
by a lesser amount," Wiseman said, adding that costs will be
more of a concern in 2011.
Apparel prices across the board are expected to rise as
prices of cotton, copper and labor in China go up, Chief
Financial Officer Bob Shearer told Reuters.
"Costs in apparel are going up and it's an overall trend to
be sure. Cotton-based products might be pressured more than the
other types," Shearer said.
The company's jeanswear segment would bear most of the
brunt, he said.
Rising cotton prices and labor costs in China have raised
questions on whether and how apparel makers can sustain
margins, and if the companies could look to raise prices as
they transfer the pressure to consumers.
"Clearly price increases will be part of the formula for
protecting our gross margins in 2011," CEO Wiseman said.
The company did not quantify the price rise, but CFO
Shearer said the hikes will come into effect in 2011.
VF Corp manufacturers about two-thirds of its jeans at its
own plants, and sources comparatively lesser amount of goods
from China, mitigating risks from higher product costs to some
"Less than 25 percent of our total goods come from China.
It's a good thing because many of our competitors have a good
40 to 50 percent of their product needs sourced from China,"
For the full year, VF Corp, whose peers include Nike Inc
(NKE.N) and Levi Strauss & Co among others, expects gross
margins to reach record levels of slightly above 46 percent.
"Margins will improve still because we also have other
factors to help us," the CFO said, adding that an expansion of
its high-margin retail business was an advantage.
"The same is true with our lifestyle businesses, like
action sports -- that's where the improvement is coming from in
the second half."
While global jeanswear sales saw a lukewarm rise of 2
percent, the outdoors and action sports segment rose 12 percent
with the Vans brand rising 24 percent. Global revenues of The
North Face and Vans brands -- which fall under it's outdoors
and action sports umbrella-- grew 12 percent and 24 percent
Shearer said jeans sales in the U.S. markets grew by 5
percent, but were offset by a 10 percent fall in its European
"We expect stronger increases as we go through the rest of
the year," he said.
For the second quarter, profit rose 47 percent to $110.8
million, or $1 a share, and topped estimates of 77 cents a
share. Revenue rose 7 percent to $1.59 billion.
Strong trends, boosted by better marketing spend, spurred
the company to forecast earnings of $6.10 a share for the full
year, above the $5.90 a share it expected before.
Revenue for the second half is expected to grow 5 percent
compared with a 4 percent rise in the first half.
Analysts on average were expecting a profit of $5.97 a
share for the year, according to Thomson Reuters I/B/E/S.
(Reporting by Nivedita Bhattacharjee; Editing by Anne
Pallivathuckal, Gopakumar Warrier)