VF Corp sees cooling North America demand

VF Corp cut its annual revenue forecast on 1 August, signalling a slowdown in demand for its apparel and sneakers from price-conscious consumers, especially in North America.

With the Federal Reserve further raising interest rates to combat high inflation, already shrinking consumer wallets have resulted in shoppers moving away from pricier products and spending their dollars mainly on essentials.

This has also forced companies like Foot Locker and Hibbett to cut orders, as they continue to struggle with excess inventory and are offering heavy discounts to attract customers.

Sales in the Americas, VF Corp’s biggest market, fell 15% in the reported quarter. However, in Greater China, sales rose 24% as a rebound in demand boosted consumer spending after Covid-19 restrictions were lifted.

“There are issues with the branding itself in wholesale and there seem to be issues with the direct-to-consumer segment as well,” said Jane Hali & Associates senior analyst Jessica Ramirez.

The company’s sneakers are not really resonating with consumers as they used to and it feels like its overall strategy has lagged, she said.

Denver, Colorado-based VF Corp reported a 6% and 22% fall in its Timberland and Vans brands respectively, while The North Face brand saw a 12% increase.

It has increased promotional activity in an attempt to offload excess inventory and spur demand. This resulted in its adjusted gross margin for the first quarter coming in at 52.8%, down 130 basis points.

The company forecast annual revenue to be down-to-flat for the year, compared to a previous expectation of flat-to-slightly up.

VF Corp maintained its annual profit forecast of $2.05 to $2.25 per share. It also posted a bigger-than-expected adjusted first-quarter loss per share of 15 cents, compared to an estimate of 11 cents.

Revenue in the first quarter fell 8%, to $2.09 billion in the quarter ended July 1, beating analysts’ average estimate of $2.07 billion, according to Refinitiv data.