October 19, 2018 / 2:48 PM / a month ago

Lee, Wrangler owner's shares fall 9 percent on fading jeans business

(Reuters) - VF Corp (VFC.N) shares fell 9 percent on Friday after the apparel maker lowered revenue forecasts for its jeans business and reported slow outdoor wear sales even as its popular Van sneakers lifted quarterly profit.

FILE PHOTO: A company logo is pictured outside a Timberland shop in Vienna, Austria, April 21, 2016. REUTERS/Leonhard Foeger/File Photo

In August, VF said it would spin off its less profitable Wrangler and Lee jeans into a publicly traded company, allowing it to focus on Vans and its outdoor wear businesses to help improve profit margins.

On Friday, it said revenue for the year from its jeans business will fall in a range of 1 to 2 percent, compared with previous forecasts for flat revenue growth.

Its shares were down as much as 9.1 percent at $79.09 in midday trading. They have risen roughly 18 percent year to date.

Second-quarter revenue at Timberland, part of the company’s outdoor wear business, fell 2 percent, Wrangler was down 5 percent and Lee was off 9 percent. Gross margin from continuing operations decreased 10 basis points to 50.1 percent.

“There is noise in this quarter, but when you zoom out and click and look at the big picture, we’re in fundamentally the same place that we thought we were,” VF Chief Financial Officer Scott Roe said when asked about the jeans business, whose spinoff will be completed in April next year.

Still, its high-margin Vans business revenues rose 26 percent, and online sales for the brand grew 55 percent, lifting its second-quarter profit by a better than expected 7.5 percent. Overall, its active business revenue rose 19 percent. It also raised its full-year forecasts and increased its quarterly dividend by 11 percent.

“While the results were generally strong, the lack of upside on gross margin and the deterioration in the jeans business, led by Lee ... raise some questions around the story,” Wedbush Securities analyst Christopher Svezia wrote in a note.

VF has kept its inventories flowing, selling its clothes and shoes at full price and providing fresh styles to lure millennials as it tackles rising competition from the likes of Nike Inc (NKE.N).

It raised its full-year adjusted earnings forecast to $3.65 per share from the previous expected range of $3.52 to $3.57. It expects revenue for the year to be above or equal to $13.7 billion.

Income from continuing operations rose to $507.1 million, or $1.26 per share, in the second quarter ended Sept. 29, from $473.8 million, or $1.19 per share, a year earlier.

Excluding certain items VF earned $1.43 per share, beating analysts’ average estimate of $1.33, according to Refinitiv estimates.

Net revenue rose 15 percent to $3.91 billion, above the market expectation of $3.87 billion.

Reporting by Aishwarya Venugopal in Bengaluru and Melissa Fares in New York; Editing by David Gregorio and Susan Thomas

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