V.F. Corporation (VFC - Analyst Report) ended 2014 with mixed results as top and bottom line for both fourth-quarter and full-year 2014 came in below expectations, but improved year over year.

The year-over-year improvement was driven by the solid performance of its Vans, Timberland, The North Face and Wrangler brands across all regions worldwide.

V.F. Corp.'s fourth-quarter 2014 adjusted earnings of 98 cents a share were up 19.5% year over year but fell short of the Zacks Consensus Estimate by a penny. Total revenue of $3,578.9 million grew 9% year over year but missed the Zacks Consensus Estimate of $3,591 million. On a currency neutral basis, revenues were up 11% year over year.

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The year-over-year increase in revenues was attributable to strength witnessed in the company’s Outdoor & Action Sports brand, along with the international and direct-to-consumer businesses.

On a reported basis, quarterly earnings slumped 66% year over year to 28 cents a share.
 
Looking at full-year 2014, the company’s earnings came in at $3.08 per share, which rose 13.7% from 2013, missing the Zacks Consensus Estimate of $3.09 per share. Further, total revenue for the year advanced 8% from the year-ago level to $12,282.2 million, coming below the Zacks Consensus Estimate of $12,294 million.

Quarter in Detail

The company’s gross margin in the reported quarter expanded 80 basis points (bps) to 49%, marking a record high. Gross margin gained from the ongoing mix shift to higher-margin businesses.

Selling, general and administrative expenses, as a percentage of sales, shot up 20 bps to 32.9%.

However, the impact of gross margin was stronger, leading the adjusted operating income to soar 14% to $578 million, on a year-over-year basis. Moreover, adjusted operating margin expanded 70 bps to 16.2% during the quarter.

Segment Details

Revenues at Outdoor & Action Sports rose 13% from the year-ago quarter to $2,164.3 million, driven by solid growth witnessed in the Americas and Asia-Pacific regions.

The increased revenues are attributable to a respective 12%, 17% and 11% rise in sales in The North Face, Vans and Timberland brands. Segment operating income increased 21% year over year to $432 million, while operating margin expanded 130 bps to 20%.

Jeanswear revenues of $755.1 million were up 3% from $734 million in the prior-year quarter. During the quarter, the segment’s performance benefited from low single-digit percentage growth in both the American and European regions, coupled with mid single-digit growth in the Asia-Pacific region. Global Jeanswear revenues were in line with the year-ago level.

Moreover, segment revenues gained from respective increases of 3% and 5% in the company’s Wrangler and Lee brand revenues. Segment operating income ascended 5% to $142 million, while operating margin contracted 40 bps to 18.7% in the quarter.

Imagewear revenues increased 4% year over year to $298.3 million on the back of strong Licensed Sports Group revenues. Operating income jumped 8% to $48 million, while operating margin at the segment expanded 60 bps to 16.2%.

Revenues at Sportswear rose 4% to $215 million, owing to strong performance at the Kipling brand that delivered a 25% increase in the U.S. On the other hand, revenues of the Nautica brand remained flat in the quarter.

However, segment operating income fell 10% year over year to $32 million. Operating margin came in at 15%, contracting 220 bps year over year, adversely affected by the headwinds in the country’s departmental stores network.

Contemporary Brands’ revenues slipped 1% to $107.7 million due to the challenges faced by the women’s contemporary apparel and premium denim categories. Operating income in the quarter slumped 80% to $1.8 million, while operating margin contracted 20 bps to 0.3%.

The company’s International revenues advanced 5% year over year. The improvement was largely driven by strong performances at almost all brands in the Asia-Pacific (up 17%) and Americas (Non-U.S.) (up 9%), partly offset by Europe (down 1%).

Notably, within the Asia-Pacific region, the company witnessed strong growth in China, where revenues were up 20%. International revenues represented 33% of V.F. Corp.’s total revenue in the fourth quarter, compared with 34% in the year-ago quarter.

Direct-to-Consumer revenues surged 22% year over year, primarily driven by robust double-digit revenue growth in every region across the globe and upside in almost every brand. During the quarter, the company added 75 new stores, including various brands, bringing the store count to 1,401. Overall, direct-to-consumer revenues contributed 32% to V.F. Corp.’s fourth-quarter revenues, higher than the 29% contribution in the year-ago quarter.

Financial Details

V.F. Corp. ended the year with cash and cash equivalents of $971.9 million and long-term debt of $1,423.6million. The company’s shareholders’ equity came in at $5,630.9 million as of the end of Dec 2014.

Inventories improved nearly 6% year over year, indicating the company’s emphasis on operational efficacy.

Moreover, during 2014, the company generated cash flow from operations of about $1,697.6 million and returned more than $1.2 billion to stockholders through share buybacks and dividends.

In fact, even for 2015, management expects to return over $1.2 billion to its shareholders, which is anticipated to include $700 million allocated towards the company’s share buyback plan.

Along with its results, the company announced a quarterly dividend of 32 cents per share, payable on Mar 20, 2015 to stockholders of record as of Mar 10.

Outlook

Management remains pleased with its 2014 results which were backed by V.F. Corp’s solid brand portfolio, teamed up with the company’s constant focus on achieving operational efficacy. The company ended the year on a solid note with its Vans brand crossing the $2 billion mark. With this, management believes it is well placed to achieve its goals set for 2017.

As we enter 2015, management anticipates an 8% increase in revenues, on a currency neutral basis. On a reported basis, revenues are expected to climb 3%.

Brand wise, on a currency neutral basis, Outdoor & Action Sports revenues are expected to increase by 8%, Imagewear and Sportswear brands are anticipated to generate mid single-digit growth, Jeanswear is expected to grow at a low single-digit rate in 2015, while revenues from Contemporary Brands are expected to remain flat year over year.

Additionally, the company envisions International and Direct-to-Consumer revenues to improve at a low double-digit and a mid-teen percentage rate, respectively.

Further, the company expects its gross margin and operating margin for 2015 at 49.2% and 15%, respectively.

The company projects adjusted earnings for 2015 to rise 12% year over year, on a currency neutral basis, compared with $3.08 per share reported in 2014. On a reported basis, earnings per share are expected to jump 4%.

This North Carolina-based retailer currently has a Zacks Rank #3 (Hold).

Other Stocks to Consider

Better-ranked stocks in the textile-apparel industry include Gildan Activewear Inc. (GIL - Snapshot Report), with a Zacks Rank #1 (Strong Buy), Crocs, Inc. (CROX -Snapshot Report) and Lululemon Athletica Inc. (LULU - Analyst Report), each with a Zacks Rank #2 (Buy).