Why VF stock popped up today

Shares of VF (VFC 23.78%) finally took off when the struggling apparel company posted better-than-expected results in its second-quarter earnings report.

Thanks to cost savings, the parent company of Vans and The North Face has exceeded expectations in both sales and revenue.

As a result, the stock rose 25.9% as of 10:18 a.m. ET.

Image source: Getty Images.

VF provides a pleasant surprise

VF has been struggling for several quarters due to a combination of weak consumer demand for clothing and the company’s challenges at Vans, but it showed investors it was in recovery mode last night.

Revenue fell 6% to $2.76 billion in the quarter, but that was a sequential improvement from a 10% decline in the first quarter and above investor expectations of $2.7 billion.

Sales were still down across all four core brands – Vans, The North Face, Timberland and Dickies – but numbers improved in the first quarter. It also completed the sale of Supreme to EssilorLuxotticaRay-Ban’s parent company for $1.5 billion on October 1, freeing up cash, although this is less than the $2.1 billion the brand bought three years ago. It used that money to pay off a $1 billion term loan that expires in December 2024.

VF’s results also showed signs of recovery, with gross margin improving 120 basis points to 52.2%, while inventories fell 13%.

Overall, adjusted operating margin fell 60 basis points to 11.4%, and adjusted earnings per share fell from $0.63 to $0.60, but that was well above expectations of $0.37.

Can VF keep winning?

The results surprised Wall Street, which was pessimistic about VF in the report.

VF’s guidance indicated continued stabilization as it called for revenue of $2.7 billion to $2.75 billion, which was 1%-3% lower than a year ago and below the $2.77 billion consensus. However, this shows that the company is moving in the right direction.

It also expects adjusted operating income of $170 million to $200 million, compared with $218 million in the year-ago quarter.

Overall, today’s gains seem to reflect the fact that VF stock has fallen so much, rather than the strength of the company, but the company is moving in the right direction. There is still a lot of room for recovery, especially if sales and profit growth turn positive.