Details Of Vans 24% Q2 Growth And VF’s Direct Sales Strategy

　　

　　When reading through VF’s release of its second quarter earnings, there were several very impressive figures that jumped out. The first was that revenues had climbed 7% - Okay, so that’s not that mind blowing normally, but what is eye opening is the fact that this translated into a 47% increase in earnings per share to a record $1.00 per share. This type of improvement at the best of economic times is very impressive, but given the current economic climate, it’s little short of amazing, and is the result of sound business practices, spot on marketing, product development, and drastic reductions in COGS and operating expenses.

　　Another impressive number, which helped VF reach that $1.00 EPS mark, was a record 47.1% gross margin rate on the company’s products which it attributed to: 1) lower product costs; 2) continued expansion and improved gross margins in our retail stores; and 3) generally clean inventories across our businesses. Operating margins rose to 10.6% from 8.1%, while marketing spending increased 19% as we continued to implement a focused program of investment spending behind our strongest and most profitable brands.

　　This means that VF is making its money by improving the perception of its products as premium items, not dumping them for short term gains. In fact, they are now predicting 2010 profits will reach record levels and have upped their 2010 guidance to $6.10 per share, versus $5.90 per share—an 18% improvement over 2009, and the company’s stock has jumped over 8% since Wednesday night to nearly $81.00 per share.

　　In listening to the company’s Q2 earnings call, the most profitable brands for the massive conglomerate were Vans and The North Face, which posted 24% and 12% increases in revenues respectively over the same period last year.

　　Here’s what CFO Bob Shearer had to say about the company’s Outdoor and Action Sports Coalitions during the earnings call:

　　Outdoor and action sports business continued to power our top line with revenues up 12%. Revenues of The North Face and Vans were up 12% and 24% respectively, which is even stronger than the performance in the first quarter. The North Face brand experienced strong growth domestically as well as in Europe and in Asia and the brand’s direct to consumer revenues rose by 13% in the quarter. The growth is very well balanced across geographies and across the brand’s wholesale and retail businesses.

　　Vans revenues were driven by 20%-plus domestically and a near doubling of revenues in Asia. Clearly the investments we’ve been making behind these brands are really paying off and we expect that they’ll continue to do so. Our Outdoor and Action Sports businesses experienced another quarter of very strong profitability with operating margins expanding by more than two full percentage points to nearly 14% in the quarter.

　　Operating income for these sections of the business were also up 35% and direct-to-consumer sales increased by 13%, making it clear that VF’s strategy is increasingly focused on direct sales both through branded stores and the Internet. In fact, the company opened a total of 25 stores across its brands in the quarter and 41 stores year-to-date. It now owns 768 stores in total and expects to open as many as 90 more by year’s end.

　　Lacking from the call were details about Reef’s performance, and what surely isn’t lacking from many retailers’ minds is how the deepening focus on direct sales will affect sales of Vans, TNF, and Reef in their stores.