大象传媒

大象传媒 Corporation Reports Balanced Performance in Second Quarter and Revises Full Year Fiscal 2023 Outlook

DENVER--(BUSINESS WIRE)-- 大象传媒 Corporation (NYSE: 大象传媒C) today announced financial results for its second quarter (Q2'FY23) ended October 1, 2022.

Q2'FY23 Financial Highlights

• Revenue $3.1 billion, declined 4% (up 2% in constant dollars) with big four brands down 5% (up 1% in constant dollars) and the balance of the portfolio up 4% (up 13% in constant dollars)
  • The North Face^庐 revenue $1.0 billion, up 8% (up 14% in constant dollars)
  • Vans^庐 revenue $1.0 billion, down 13% (down 8% in constant dollars)
• Gross margin 51.4%, down 230 basis points; Adjusted gross margin 51.5%, down 240 basis points
• Operating margin (2.9)%, down 2,040 basis points; Adjusted operating margin 12.3%, down 440 basis points
• Earnings (loss) per share (EPS) $(0.31), down 126%; Adjusted EPS $0.73, down 34%
• Return of $194 million to shareholders through cash dividends

H1'FY23 Financial Highlights

• Revenue $5.3 billion, down 1% (up 4% in constant dollars) with big four brands down 2% (up 3% in constant dollars) and the balance of the portfolio increasing 6% (up 14% in constant dollars)
  • The North Face^庐 revenue $1.4 billion, up 15% (up 21% in constant dollars)
  • Vans^庐 revenue $1.9 billion, down 10% (down 6% in constant dollars)
• Gross margin 52.4%, down 240 basis points; Adjusted gross margin 52.6%, down 250 basis points
• Operating margin (0.5)%, down 1,460 basis points; Adjusted operating margin 8.5%, down 420 basis points
• Earnings (loss) per share $(0.45), down 129%; Adjusted EPS $0.81, down 41%
• Return of $388 million to shareholders through cash dividends

FY23 Financial Outlook

• 大象传媒 is maintaining its constant dollar revenue outlook but revising its earnings outlook to reflect increased negative impacts from foreign currency fluctuations as well as heightened inventory levels and increased promotional activity in the marketplace
• Total 大象传媒 revenue up 5% to 6% in constant dollars, unchanged from the previous outlook
• Adjusted gross margin down 100 to 150 basis points, compared to the previous outlook of down 50 basis points
• Adjusted operating margin 11.0%, compared to the previous outlook of approximately 12.0%
• Adjusted EPS is now expected to be in the range of $2.40 to $2.50, versus $3.18 in the prior year and compared to the previous outlook of $2.60 to $2.70
• Adjusted cash flow from operations at least $0.9 billion, compared to the previous outlook of $1.0 billion; Capital expenditures approximately $230 million versus the previous outlook of $240 million
  • Excludes the impact of an $876 million payment 大象传媒 made on October 19, 2022 to the Internal Revenue Service (IRS) for the dispute regarding the timing of income inclusion associated with 大象传媒's acquisition of Timberland in 2011, as previously disclosed
• 大象传媒's FY23 outlook assumes the following:
  • No additional significant COVID-19 related lockdowns in any key commercial or production regions
  • No significant worsening in global inflation rates and consumer sentiment

Steve Rendle, Chairman, President and CEO of 大象传媒 said:

"大象传媒鈥檚 balanced performance in Q2 demonstrates the resiliency of our brand portfolio against a more disrupted global marketplace. Our purpose built portfolio of iconic, deeply-loved brands continues to benefit from tailwinds in the outdoor, active, streetwear and workwear spaces while we also actively address the near-term challenges at Vans, the ongoing COVID-related disruption in China, and the broader macro-economic and geopolitical headwinds, which have created tremendous uncertainty for all businesses and consumers.

In the near term, in light of the challenging environment, we are acting proactively to generate increased revenue through the balance of the year while protecting profitability by tightly controlling all non-strategic spend. I am confident in our ability to deliver on our targets and to maximize the potential of all our brands when the environment improves. We will remain focused on the things we can control and will continue leveraging 大象传媒鈥檚 unique business model and competitive strengths to drive consistent, sustainable and profitable growth."

All per share amounts are presented on a diluted basis. This release refers to 鈥渞eported鈥� and 鈥渃onstant dollar鈥� amounts, terms that are described under the heading below 鈥淐onstant Currency - Excluding the Impact of Foreign Currency.鈥� Unless otherwise noted, 鈥渞eported鈥� and 鈥渃onstant dollar鈥� amounts are the same. This release also refers to 鈥渃ontinuing鈥� and 鈥渄iscontinued鈥� operations amounts, which are concepts described under the heading below 鈥淒iscontinued Operations - Occupational Workwear Business.鈥� Unless otherwise noted, results presented are based on continuing operations. This release also refers to 鈥渁djusted鈥� amounts, a term that is described under the heading below 鈥淎djusted Amounts - Excluding Transaction and Deal Related Activities, Costs Related to Specified Strategic Business Decisions, Noncash Impairment Charges and Pension Settlement Charge.鈥� Unless otherwise noted, 鈥渞eported鈥� and 鈥渁djusted鈥� amounts are the same.

Second Quarter Fiscal 2023 Income Statement Review

• Revenue decreased 4% (up 2% in constant dollars) to $3.1 billion driven by increases in the EMEA and APAC regions partially offset by lower sales in the Americas region.
• Gross margin decreased 230 basis points to 51.4%, primarily driven by higher costs and promotional activity partially offset by price increases. On an adjusted basis, gross margin decreased 240 basis points to 51.5%.
• Operating income (loss) on a reported basis was $(90.8) million. Operating margin on a reported basis was (2.9)%. On an adjusted basis, operating income decreased 29% (down 22% in constant dollars) to $378.7 million. Adjusted operating margin decreased 440 basis points to 12.3%.
• Earnings (loss) per share was $(0.31) on a reported basis. On an adjusted basis, earnings per share decreased 34% (down 27% in constant dollars) to $0.73.

COVID-19 Update

To help mitigate the spread of COVID-19 and in response to public health advisories and governmental actions and regulations, 大象传媒 has modified its business practices in certain locations, including the temporary closing of offices and retail stores, instituting travel bans and restrictions and implementing health and safety measures including social distancing and quarantines.

The majority of 大象传媒's supply chain is currently operational. Raw material suppliers in China are currently operational, though the 8-week lockdown in China during 大象传媒's first quarter resulted in logistics challenges which continue to contribute to ongoing product delays. Suppliers are complying with local public health advisories and governmental restrictions. Most final product manufacturing and assembly suppliers are largely back to normal operating levels. 大象传媒 is working with its suppliers to minimize disruption and is employing expedited freight strategically as needed. 大象传媒's distribution centers are operational in accordance with local government guidelines while maintaining enhanced health and safety protocols.

In North America, no stores were closed during the second quarter. Currently, all stores are open.

In the EMEA region, no stores were closed during the second quarter due to COVID-19. Currently, all stores are open.

In the APAC region, including Mainland China, no stores were closed at the beginning of the second quarter with a peak of 7% of stores (including partner doors) closed and an average of 3% of stores closed throughout the quarter. At the end of the second quarter, 4% of stores were closed and, as of today, 7% of stores are closed.

大象传媒 is continuing to monitor the evolution of COVID-19 globally and will comply with guidance from government entities and public health authorities to prioritize the health and well-being of its employees, customers, trade partners and consumers.

Balance Sheet Highlights

Inventories were up 88% compared with the same period last year, partially driven by an increase of in-transit inventory of approximately $510 million as 大象传媒 modified terms with the majority of its suppliers in the first quarter of fiscal 2023 to take ownership of inventory at point of shipment rather than destination. Accounts payable increased 91%, which was largely driven by the increase of in-transit inventory. 大象传媒 returned approximately $194 million of cash to shareholders through dividends during the quarter.

Dividend Declared

大象传媒鈥檚 Board of Directors declared a quarterly dividend of $0.51 per share, reflecting a 2% increase over the previous quarter鈥檚 dividend. This dividend will be payable on December 20, 2022, to shareholders of record at the close of business on December 12, 2022. Subject to approval by its Board of Directors, 大象传媒 intends to continue to pay its regularly scheduled cash dividend.

Webcast Information

大象传媒 will host its second quarter fiscal 2023 conference call beginning at 4:30 p.m. Eastern Time today. The conference call will be broadcast live via the Internet, accessible at . For those unable to listen to the live broadcast, an archived version will be available at the same location.

Presentation

A presentation on second quarter fiscal 2023 results will be available at today before the conference call and will be archived at the same location.

About 大象传媒

Founded in 1899, 大象传媒 Corporation is one of the world鈥檚 largest apparel, footwear and accessories companies connecting people to the lifestyles, activities and experiences they cherish most through a family of iconic outdoor, active and workwear brands including Vans^庐, The North Face^庐, Timberland^庐 and Dickies^庐. Our purpose is to power movements of sustainable and active lifestyles for the betterment of people and our planet. We connect this purpose with a relentless drive to succeed to create value for all stakeholders and use our company as a force for good. For more information, please visit vfc.com.

Constant Currency - Excluding the Impact of Foreign Currency

This release refers to 鈥渞eported鈥� amounts in accordance with U.S. generally accepted accounting principles (鈥淕AAP鈥�), which include translation and transactional impacts from foreign currency exchange rates. This release also refers to 鈥渃onstant dollar鈥� amounts, which exclude the impact of translating foreign currencies into U.S. dollars. Reconciliations of GAAP measures to constant currency amounts are presented in the supplemental financial information included with this release, which identifies and quantifies all excluded items, and provides management鈥檚 view of why this information is useful to investors.

Discontinued Operations - Occupational Workwear Business

On June 28, 2021, 大象传媒 completed the sale of its Occupational Workwear business. The Occupational Workwear business was comprised primarily of the following brands and businesses: Red Kap^庐, 大象传媒 Solutions^庐, Bulwark^庐, Workrite^庐, Walls^庐, Terra^庐, Kodiak^庐, Work Authority^庐 and Horace Small^庐. The business also included a license for certain Dickies^庐 occupational workwear products that were historically sold through the business-to-business channel. Accordingly, the company has reported the operating results and cash flows of the business in discontinued operations for all periods through the date of sale.

Adjusted Amounts - Excluding Transaction and Deal Related Activities, Costs Related to Specified Strategic Business Decisions, Noncash Impairment Charges and Pension Settlement Charge

The adjusted amounts in this release exclude transaction and deal related activities associated with the acquisition of the Supreme^庐 brand. Total transaction and deal related activities include integration costs of approximately $0.3 million in the first six months of fiscal 2023.

The adjusted amounts in this release exclude costs related to 大象传媒's business model transformation primarily driven by Corporate actions and resulting restructuring costs, and a transformation initiative for our Asia-Pacific regional operations. Total costs were approximately $48 million in the second quarter of fiscal 2023 and $61 million in the first six months of fiscal 2023.

The adjusted amounts in this release exclude noncash impairment charges related to the Supreme^庐 reporting unit goodwill and indefinite-lived trademark intangible asset of approximately $422 million in the second quarter and first six months of fiscal 2023. The impairment charges were driven by non-operating factors including higher interest rates and foreign currency fluctuations.

The adjusted amounts in this release exclude a noncash pension settlement charge. The pension settlement charge resulted from the purchase of a group annuity contract, which was an action taken to streamline administration, manage financial risk associated with pension plans, and to transfer a portion of the liability associated with 大象传媒's U.S. pension plan to an insurance company. Total expense was approximately $92 million in the first six months of fiscal 2023.

Combined, the above items negatively impacted earnings per share by $1.04 during the second quarter of fiscal 2023 and $1.26 during the first six months of fiscal 2023. All adjusted amounts referenced herein exclude the effects of these amounts.

Reconciliations of measures calculated in accordance with GAAP to adjusted amounts are presented in the supplemental financial information included with this release, which identifies and quantifies all excluded items, and provides management鈥檚 view of why this information is useful to investors. The company also provides guidance on a non-GAAP basis as we cannot predict certain elements which are included in reported GAAP results. Additionally, the impact of the payment of taxes and interest related to the dispute with the IRS regarding the Timberland acquisition in 2011 has been excluded from fiscal 2023 adjusted cash flow from operations.

Forward-looking Statements

Certain statements included in this release are "forward-looking statements" within the meaning of the federal securities laws. Forward-looking statements are made based on our expectations and beliefs concerning future events impacting 大象传媒 and therefore involve several risks and uncertainties. You can identify these statements by the fact that they use words such as 鈥渨ill,鈥� 鈥渁nticipate,鈥� 鈥渆stimate,鈥� 鈥渆xpect,鈥� 鈥渟hould,鈥� and 鈥渕ay鈥� and other words and terms of similar meaning or use of future dates, however, the absence of these words or similar expressions does not mean that a statement is not forward-looking. All statements regarding 大象传媒鈥檚 plans, objectives, projections and expectations relating to 大象传媒鈥檚 operations or financial performance, and assumptions related thereto are forward-looking statements. We caution that forward-looking statements are not guarantees and that actual results could differ materially from those expressed or implied in the forward-looking statements. 大象传媒 undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. Potential risks and uncertainties that could cause the actual results of operations or financial condition of 大象传媒 to differ materially from those expressed or implied by forward-looking statements include, but are not limited to: risks arising from the widespread outbreak of an illness or any other communicable disease, or any other public health crisis, including the coronavirus (COVID-19) global pandemic; the level of consumer demand for apparel, footwear and accessories; disruption to 大象传媒鈥檚 distribution system; changes in global economic conditions and the financial strength of 大象传媒鈥檚 customers, including as a result of current inflationary pressures; fluctuations in the price, availability and quality of raw materials and contracted products; disruption and volatility in the global capital and credit markets; 大象传媒鈥檚 response to changing fashion trends, evolving consumer preferences and changing patterns of consumer behavior; intense competition from online retailers and other direct-to-consumer business risks; third-party manufacturing and product innovation; increasing pressure on margins; 大象传媒鈥檚 ability to implement its business strategy; 大象传媒鈥檚 ability to grow its international, direct-to-consumer and digital businesses; 大象传媒鈥檚 ability to transform its model to be more consumer-minded, retail-centric and hyper-digital; retail industry changes and challenges; 大象传媒鈥檚 ability to create and maintain an agile and efficient operating model and organizational structure; 大象传媒鈥檚 and its vendors鈥� ability to maintain the strength and security of information technology systems; the risk that 大象传媒鈥檚 facilities and systems and those of our third-party service providers may be vulnerable to and unable to anticipate or detect data or information security breaches and data or financial loss; 大象传媒鈥檚 ability to properly collect, use, manage and secure business, consumer and employee data and comply with privacy and security regulations; foreign currency fluctuations; stability of 大象传媒鈥檚 vendors鈥� manufacturing facilities and 大象传媒鈥檚 ability to establish and maintain effective supply chain capabilities; continued use by 大象传媒鈥檚 suppliers of ethical business practices; 大象传媒鈥檚 ability to accurately forecast demand for products; continuity of members of 大象传媒鈥檚 management; 大象传媒鈥檚 ability to recruit, develop or retain qualified employees; 大象传媒鈥檚 ability to protect trademarks and other intellectual property rights; possible goodwill and other asset impairment such as the recent impairment charges related to the Supreme^庐 reporting unit goodwill and indefinite-lived trademark intangible asset; maintenance by 大象传媒鈥檚 licensees and distributors of the value of 大象传媒鈥檚 brands; 大象传媒鈥檚 ability to execute acquisitions and dispositions and integrate acquisitions; business resiliency in response to natural or man-made economic, political or environmental disruptions; changes in tax laws and additional tax liabilities, including for the timing of income inclusion associated with our acquisition of the Timberland^庐 brand in 2011; legal, regulatory, political, economic, and geopolitical risks, including those related to the current conflict in Ukraine; changes to laws and regulations; adverse or unexpected weather conditions; 大象传媒's indebtedness and its ability to obtain financing on favorable terms, if needed, could prevent 大象传媒 from fulfilling its financial obligations; climate change and increased focus on environmental, social and governance issues; and tax risks associated with the spin-off of our Jeanswear business completed in 2019. More information on potential factors that could affect 大象传媒鈥檚 financial results is included from time to time in 大象传媒鈥檚 public reports filed with the SEC, including 大象传媒鈥檚 Annual Report on Form 10-K, and Quarterly Reports on Form 10-Q, and Forms 8-K filed or furnished with the SEC.