VF Announces Record Third Quarter Earnings Per Share and Revenues, Raises Guidance and Increases Dividend
-- 3Q EPS increases 14% to record $2.22
-- 3Q revenues up 7% to record $2.2 billion
-- 3Q gross margins reach record 46.5%
-- Raising 2010 EPS guidance from $6.10 to $6.25-6.30 on continued strong
organic revenue growth
-- 4Q incremental marketing investments expected to reach $45 million
-- Raising quarterly dividend to $.63 per share, marking 38thconsecutive
year of higher dividend payments to shareholders
Information regarding VF's third quarter conference call webcast today at 8:30 a.m. ET can be found at the end of this release.
GREENSBORO, N.C.-- VF Corporation (NYSE: VFC), a global leader in branded lifestyle apparel, today announced record results for the third quarter of 2010. All per share amounts are presented on a diluted basis.
Third quarter revenues rose 7% to $2,232.4 million from $2,093.8 million in the third quarter of 2009. On a constant currency basis, revenues increased 8%. Net income rose 11% to $242.8 million, while earnings per share increased 14% to $2.22. Foreign currency translation rates negatively impacted earnings per share by $.06 in the quarter.
For the first nine months of 2010, revenues increased 5% to $5,576.4 million from $5,304.9 million in the 2009 period. Net income rose 31% to $517.1 million, while earnings per share increased 32% to $4.68.
"This quarter's strong organic revenue growth and record gross margins are a testament to VF's diverse business model and powerful brands," said Eric Wiseman, Chairman and Chief Executive Officer. "The investments we're making this year to drive growth in our strongest and most profitable businesses are clearly paying off."
Third Quarter Business Review
Outdoor & Action Sports: The momentum continues in our Outdoor & Action Sports businesses, which again achieved record revenues, operating income and operating margins in the current quarter. The strength of The North Face(R) and Vans(R) businesses was clearly evidenced by another quarter of double-digit growth for each, with global revenues of these brands rising by 17% and 19%, respectively. Total global revenues in our Outdoor & Action Sports businesses rose 14% in the third quarter with strong increases in both our Americas and international businesses. On a constant currency basis, total Outdoor & Action Sports revenues grew 17%. Revenue growth in Asia was particularly strong, rising 38% in the quarter. Our international Kipling(R) and Napapijri(R) businesses also achieved healthy revenue growth in constant dollars in the quarter, and lucy(R) brand revenues grew 20%. Total direct-to-consumer revenues for our Outdoor & Action Sports businesses rose 18% in the quarter, reflecting exceptional growth in The North Face(R), Vans(R) and lucy(R) brands.
Operating income rose by 21%, with operating margins increasing by more than one full percentage point to nearly 24% in the quarter. We continued to invest heavily behind focused marketing and other brand-building initiatives for both The North Face(R) and Vans(R) brands to support our expectations for continued strong global growth.
Jeanswear: Our Global Jeanswear business also achieved both top and bottom line growth in the quarter. Global Jeanswear revenues grew 1% in the quarter, or 2% on a constant currency basis. The exit of our European mass market business impacted the revenue comparisons by 2%. Domestic revenues rose 5% with growth in all three major businesses: Mass Market revenues grew 7% in the quarter, and revenues in our Lee and Western businesses rose 1% and 5%, respectively. International jeans revenues decreased 7%, with 2 percentage points of the decline due to foreign currency translation and the rest due primarily to the exit of our mass business in Europe. Jeanswear revenues in Asia increased 44%, with growth also achieved in Mexico, Latin America and Canada.
Operating income increased 6%, with operating margins rising by nearly one full percentage point to 17.6% in the quarter reflecting improved profitability in our international jeans businesses.
Imagewear: Our Imagewear business delivered excellent results in the quarter, with a 10% increase in revenues and a 68% increase in operating income. The Licensed Sports and Image Apparel businesses both generated solid growth for the second consecutive quarter. Growth in the Image business resulted from improved business conditions and increased market share with our key industrial customers. Image's flame-resistant apparel business performed particularly well in the quarter. The Licensed Sports apparel business is also gaining market share, helped by our quick response retail replenishment capabilities during the Major League Baseball divisional playoff races and strong retail response to new women's programs.
Sportswear: As anticipated, a shift in the timing of Nautica(R) shipments for special programs from the third quarter to the fourth resulted in a decline in Sportswear revenues of 13%. Sales of Nautica(R) men's sportswear at our major wholesale partners are running up over 20% season to date versus last year. This trend, along with higher shipments resulting from the aforementioned shift in timing, should drive a mid-teen increase in Nautica(R) brand revenues in the fourth quarter. Kipling(R) brand revenues in the U.S. increased 42% in the quarter, reflecting the successful launch earlier this year of a new program that is exclusive with Macy's.
The shift in third quarter revenues, combined with higher spending to support a new Nautica(R) marketing campaign, resulted in lower Sportswear operating income and margins in the quarter. Substantially better comparisons are anticipated in the fourth quarter.
Contemporary Brands: Revenues of our Contemporary Brands coalition, which consists of the 7 For All Mankind(R), John Varvatos(R), Splendid(R) and Ella Moss(R) brands, rose 1% in the quarter. On a constant currency basis, revenues increased 3%. 7 For All Mankind(R) brand global revenues declined slightly in the quarter, reflecting soft conditions in the U.S. premium denim market. In Europe, 7 For All Mankind(R) brand revenues expanded 8% on a constant currency basis. Our Splendid(R) and Ella Moss(R) brands had an excellent quarter, with a combined revenue increase of 16%. John Varvatos(R) brand revenues also grew in the quarter. Building our contemporary brands through direct-to-consumer initiatives, including both new stores and e-commerce, is an important component of our growth strategy for these businesses, and during the quarter direct-to-consumer revenues for our Contemporary Brands coalition grew 40%.
Operating income and margins declined in the quarter, due in part to continued investments in new 7 For All Mankind(R) retail stores and marketing programs to support future growth globally.
Marketing Investments Driving Organic Growth
Marketing spending increased 35% in the quarter as we continued to launch marketing and other programs to support our brands' growth. Year-to-date, we spent an additional $50 million on these programs over prior year levels, and expect to spend an incremental $45 million in the fourth quarter. Over half of this total spending is behind The North Face(R) and Vans(R) brands. Heavy investments are also being made this year to support our rapidly-growing and highly profitable businesses in China. Examples of marketing investments underway include:
-- Adding top freeride and slopestyle skiers, and halfpipe snowboarders to
our athlete team to extend the reach of The North Face(R) as a
snowsports brand during the upcoming winter X Games.
-- Launching Offthewall.tv, a virtual Vans(R) TV network with original
action sports, music and art-related content.
-- Continuing Vans(R) media campaign encompassing outdoor advertising, PR,
print, online and in-store to increase the brand's awareness in all key
European markets.
-- Investing in print, digital and PR campaigns behind our brands in key
cities in China.
-- Using national television, print, and digital advertising featuring
celebrity spokesman Mike Rowe to reinvigorate our Lee(R) men's jeans
business.
-- More than doubling our marketing spending behind the 7 For All Mankind
(R) brand, including the launch of a new print campaign and events
celebrating the brand's 10 year anniversary.
-- Extending the Nautica(R) brand's TV and radio advertising partnership
with Macy's into San Francisco and Chicago.
Gross Margins Reach Record Third Quarter Level
Continuing the trend of the last several quarters, gross margins were substantially above prior year levels. Third quarter gross margins reached a record level for the period, rising over 200 basis points to 46.5%. This substantial improvement was driven by three primary factors: 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 15.9% in the current quarter from 15.2% in last year's period.
Expansion in International and Direct-to-Consumer Businesses
Our international and direct-to-consumer businesses remain important long-term drivers of both organic growth and margin expansion. During the quarter, international revenues increased 10% on a constant currency basis driven by strong growth in our Outdoor & Action Sports businesses. Our momentum in Asia continued in the quarter, with revenues rising 37% reflecting exceptional growth in our jeanswear business and in The North Face(R), Vans(R) and Kipling(R) brands.
"Asia represents a billion dollar opportunity for VF, and we are investing accordingly," said Mr. Wiseman. "In China, our diversified portfolio provides consumers with a variety of compelling brands, including Lee(R), Wrangler(R), The North Face(R), Vans(R), Kipling(R) and 7 For All Mankind(R). We're particularly excited about the unique opportunities that The North Face(R) and Vans(R) brands give us to build new categories - outdoor and action sports - in this dynamic market."
Our direct-to-consumer revenues increased 10%, driven by new store openings and comp store growth in the quarter. The direct-to-consumer businesses of The North Face(R), Vans(R), 7 For All Mankind(R) and lucy(R) brands each achieved double-digit revenue gains in the period. We opened a total of 21 stores across our brands in the quarter and 62 stores year-to-date, bringing the number of owned retail stores to 779 at the end of the quarter. We remain on track to open approximately 85 stores this year.
Strong Balance Sheet
Cash and equivalents were $403 million at the end of the quarter. Reflecting strengthening revenue trends, inventories rose by 3% from prior year levels. We continue to expect a very strong year of cash flow generation, which is expected to approximate $850 million. Year-to-date we have spent $322 million to repurchase 4 million shares. During the quarter we paid down $200 million of long-term debt that carried an interest rate of 8.5%.
Outlook: Raising 2010 Guidance and Expecting Strong Results in 2011
We expect continued strong revenue growth in the fourth quarter. Gross margins should be comparable to the record level achieved in the 2009 period. We are continuing to invest in building our brands globally to fuel strong organic growth next year and beyond. As noted above, $45 million in incremental brand investment spending is planned in the fourth quarter.
For the full year, we now expect 2010 revenues to increase by more than 5% to approximately $7.6 billion, versus our prior guidance of an increase of 4 to 5%.
We are also raising our earnings per share guidance to a range of $6.25 to $6.30 per share, versus our previous guidance of $6.10 per share. The new guidance represents an increase of over 20% from 2009 earnings per share of $5.16 (before impairment charges). On a GAAP basis, earnings per share are now expected to increase over 50% from the $4.13 reported in 2009.
"We look forward to wrapping up a very strong 2010, with revenues near record levels and all-time highs in gross margins and earnings," concluded Mr. Wiseman. "Looking ahead, we are confident that the investments made this year will drive another year of solid top and bottom line growth in 2011."
Dividend Increased
The Board of Directors declared a quarterly cash dividend of $.63 per share, an increase of $.03 per share. The dividend is payable on December 20, 2010 to shareholders of record as of the close of business on December 10, 2010. This marks the 38th consecutive year of higher dividend payments to shareholders.
Non-GAAP Financial Measures
This press release contains constant currency financial information, which is a measure of financial performance that is not prepared in accordance with generally accepted accounting principles ("GAAP"). An explanation of management's use of this non-GAAP financial information is described in the supplemental financial information beginning on page 10.
Statement on 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 VF and therefore involve a number of risks and uncertainties. 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. Potential risks and uncertainties that could cause the actual results of operations or financial condition of VF to differ materially from those expressed or implied by forward-looking statements in this release include the overall level of consumer spending on apparel; general economic conditions and other factors affecting consumer confidence; disruption and volatility in the global capital and credit markets; VF's reliance on a small number of large customers; the financial strength of VF's customers; changing fashion trends and consumer demand; increasing pressure on margins; VF's ability to implement its growth strategy; VF's ability to grow its international and direct-to-consumer businesses; VF's ability to successfully integrate and grow acquisitions; VF's ability to maintain the strength and security of its information technology systems; stability of VF's manufacturing facilities and foreign suppliers; continued use by VF's suppliers of ethical business practices; VF's ability to accurately forecast demand for products; continuity of members of VF's management; VF's ability to protect trademarks and other intellectual property rights; maintenance by VF's licensees and distributors of the value of VF's brands; fluctuations in the price, availability and quality of raw materials and contracted products; foreign currency fluctuations; and legal, regulatory, political and economic risks in international markets. More information on potential factors that could affect VF's financial results is included from time to time in VF's public reports filed with the Securities and Exchange Commission, including VF's Annual Report on Form 10-K and Quarterly Reports on Form 10-Q.
About VF
VF Corporation is a global leader in branded lifestyle apparel with more than 30 brands, including Wrangler(R), The North Face(R), Lee(R), Vans(R), Nautica(R), 7 For All Mankind(R), Eagle Creek(R), Eastpak(R), Ella Moss(R), JanSport(R), John Varvatos(R), Kipling(R), lucy(R), Majestic(R), Napapijri(R), Red Kap(R), Reef(R), Riders(R) and Splendid(R).
Webcast Information
VF will hold its third quarter conference call and webcast today at 8:30 a.m. ET. Interested parties should call 1-877-719-9795 domestic, or 1-719-325-4802 international, to access the call. You may also access this call via the Internet at www.vfc.com. A replay will be available through October 28, 2010 and can be accessed by dialing 1-888-203-1112 domestic, and 1-719-457-0820 international. The pass code is 3760514. A replay also can be accessed at the Company's web site at www.vfc.com.
VF CORPORATION
Consolidated Statements of Income
(In thousands, except per share amounts)
Three Months Ended September Nine Months Ended September
2010 2009 2010 2009
Net Sales $ 2,213,151 $ 2,075,510 $ 5,520,184 $ 5,249,619
Royalty Income 19,216 18,296 56,166 55,298
Total Revenues 2,232,367 2,093,806 5,576,350 5,304,917
Costs and Operating
Expenses
Cost of goods sold 1,195,379 1,165,843 2,970,084 2,996,176
Marketing,
administrative and 682,443 610,072 1,858,937 1,709,664
general expenses
1,877,822 1,775,915 4,829,021 4,705,840
Operating Income 354,545 317,891 747,329 599,077
Other Income
(Expense)
Interest income 610 420 1,600 1,750
Interest expense (20,557 ) (21,325 ) (61,550 ) (65,159 )
Miscellaneous, net 599 505 8,945 3,148
(19,348 ) (20,400 ) (51,005 ) (60,261 )
Income Before Income 335,197 297,491 696,324 538,816
Taxes
Income Taxes 91,943 79,430 178,121 145,343
Net Income 243,254 218,061 518,203 393,473
Net (Income) Loss
Attributable to
Noncontrolling (467 ) (141 ) (1,065 ) 913
Interests in
Subsidiaries
Net Income
Attributable to VF $ 242,787 $ 217,920 $ 517,138 $ 394,386
Corporation
Earnings Per Share
Attributable to VF
Corporation Common
Stockholders
Basic $ 2.25 $ 1.97 $ 4.74 $ 3.57
Diluted 2.22 1.94 4.68 3.54
Weighted Average
Shares Outstanding
Basic 107,881 110,881 109,093 110,372
Diluted 109,190 112,145 110,492 111,471
Cash Dividends Per $ 0.60 $ 0.59 $ 1.80 $ 1.77
Common Share
Fiscal Periods:VF operates and reports using a 52/53 week fiscal year ending on
the Saturday closest to December 31 of each year. Similarly, the fiscal third
quarter ends on the Saturday closest to September 30. For presentation purposes
herein, all references to periods ended September 2010, December 2009 and
September 2009 relate to the fiscal periods ended as of October 2, 2010, January
2, 2010 and October 3, 2009, respectively.
VF CORPORATION
Consolidated Balance Sheets
(In thousands)
September December September
2010 2009 2009
ASSETS
Current Assets
Cash and equivalents $ 402,863 $ 731,549 $ 379,148
Accounts receivable, net 1,098,858 776,140 1,102,878
Inventories 1,211,307 958,639 1,171,151
Other current assets 161,345 163,028 275,556
Total current assets 2,874,373 2,629,356 2,928,733
Property, Plant and Equipment 1,639,271 1,601,608 1,586,713
Less accumulated depreciation 1,041,097 987,430 956,633
598,174 614,178 630,080
Intangible Assets 1,515,261 1,535,121 1,566,640
Goodwill 1,370,262 1,367,680 1,472,150
Other Assets 321,623 324,322 308,563
$ 6,679,693 $ 6,470,657 $ 6,906,166
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Short-term borrowings $ 49,022 $ 45,453 $ 252,175
Current portion of long-term debt 2,751 203,179 203,147
Accounts payable 482,082 373,186 362,010
Accrued liabilities 613,104 470,765 537,725
Total current liabilities 1,146,959 1,092,583 1,355,057
Long-term Debt 936,511 938,494 939,143
Other Liabilities 657,914 626,295 754,398
Commitments and Contingencies
Stockholders' Equity
Common Stock 108,144 110,285 110,814
Additional paid-in capital 2,002,160 1,864,499 1,842,147
Accumulated other comprehensive (229,199 ) (209,742 ) (201,708 )
income (loss)
Retained earnings 2,057,965 2,050,109 2,105,758
Noncontrolling interests in (761 ) (1,866 ) 557
subsidiaries
Total stockholders' equity 3,938,309 3,813,285 3,857,568
$ 6,679,693 $ 6,470,657 $ 6,906,166
VF CORPORATION
Consolidated Statements of Cash Flows
(In thousands)
Nine Months Ended September
2010 2009
Operating Activities
Net income $ 518,203 $ 393,473
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation 81,618 78,616
Amortization of intangible assets 29,621 29,953
Other amortization 12,141 12,346
Stock-based compensation 47,591 26,998
Pension funding under (over) expense 39,837 (35,420 )
Other, net 54,447 80,601
Changes in operating assets and liabilities, net
of acquisitions:
Accounts receivable (332,006 ) (237,209 )
Inventories (249,593 ) (1,945 )
Other current assets (6,584 ) (1,635 )
Accounts payable 110,382 (79,225 )
Accrued compensation 24,675 17,128
Accrued income taxes (1,890 ) 3,598
Accrued liabilities 116,654 3,594
Other assets and liabilities 3,528 (26,999 )
Cash provided by operating activities 448,624 263,874
Investing Activities
Capital expenditures (73,592 ) (57,746 )
Business acquisitions, net of cash acquired (38,446 ) (207,219 )
Software purchases (5,825 ) (9,349 )
Other, net (6,842 ) 4,175
Cash used by investing activities (124,705 ) (270,139 )
Financing Activities
Increase in short-term borrowings 1,794 196,799
Payments on long-term debt (202,384 ) (2,582 )
Purchase of Common Stock (322,206 ) (52,988 )
Cash dividends paid (195,999 ) (195,550 )
Proceeds from issuance of Common Stock, net 80,680 47,418
Tax benefits of stock option exercises 3,280 4,648
Cash used by financing activities (634,835 ) (2,255 )
Effect of Foreign Currency Rate Changes on Cash (17,770 ) 5,824
Net Change in Cash and Equivalents (328,686 ) (2,696 )
Cash and Equivalents - Beginning of Year 731,549 381,844
Cash and Equivalents - End of Period $ 402,863 $ 379,148
VF CORPORATION
Supplemental Financial Information
Business Segment Information
(In thousands)
Three Months Ended September Nine Months Ended September
2010 2009 2010 2009
Coalition Revenues
Outdoor & Action $ 1,045,111 $ 916,409 $ 2,308,120 $ 2,058,228
Sports
Jeanswear 671,023 664,801 1,849,104 1,877,605
Imagewear 243,075 221,246 675,598 643,203
Sportswear 129,011 149,050 340,262 356,935
Contemporary Brands 113,303 112,225 323,475 291,478
Other 30,844 30,075 79,791 77,468
Total coalition $ 2,232,367 $ 2,093,806 $ 5,576,350 $ 5,304,917
revenues
Coalition Profit
Outdoor & Action $ 247,768 $ 204,450 $ 461,995 $ 353,431
Sports
Jeanswear 118,155 111,283 319,372 268,244
Imagewear 32,719 19,521 81,551 61,476
Sportswear 13,789 23,576 30,697 35,003
Contemporary Brands 5,198 12,255 22,122 35,232
Other 170 912 (1,065 ) 283
Total coalition 417,799 371,997 914,672 753,669
profit
Corporate and Other (62,655 ) (53,601 ) (158,398 ) (151,444 )
Expenses
Interest, net (19,947 ) (20,905 ) (59,950 ) (63,409 )
Income Before Income $ 335,197 $ 297,491 $ 696,324 $ 538,816
Taxes
VF CORPORATION
Supplemental Financial Information
Business Segment Information - Constant Currency Basis
(In thousands)
Three Months Ended September 2010
Impact of
Foreign
As Currency Constant
Reported Exchange Currency
Coalition Revenues
Outdoor & Action Sports $ 1,045,111 $ (27,865 ) $ 1,072,976
Jeanswear 671,023 (5,490 ) 676,513
Imagewear 243,075 994 242,081
Sportswear 129,011 - 129,011
Contemporary Brands 113,303 (1,998 ) 115,301
Other 30,844 - 30,844
Total coalition revenues $ 2,232,367 $ (34,359 ) $ 2,266,726
Coalition Profit
Outdoor & Action Sports $ 247,768 $ (6,225 ) $ 253,993
Jeanswear 118,155 245 117,910
Imagewear 32,719 10 32,709
Sportswear 13,789 - 13,789
Contemporary Brands 5,198 (415 ) 5,613
Other 170 - 170
Total coalition profit 417,799 (6,385 ) 424,184
Corporate and Other Expenses (62,655 ) - (62,655 )
Interest, net (19,947 ) - (19,947 )
Income Before Income Taxes $ 335,197 $ (6,385 ) $ 341,582
Constant Currency Financial Information
VF is a global company that reports financial information in U.S.
dollars in accordance with generally accepted accounting principles.
Foreign currency exchange rate fluctuations affect the amounts reported
by VF from translating its foreign revenues and expenses into U.S.
dollars. These rate fluctuations can have a significant effect on
reported operating results. As a supplement to our reported operating
results, we present constant currency financial information, which is a
non-GAAP financial measure. We use constant currency information to
provide a framework to assess how our businesses performed excluding
the effects of changes in foreign currency translation rates.
Management believes this information is useful to investors to
facilitate comparisons of operating results and better identify trends
in our businesses.
To calculate coalition revenues and profits on a constant currency
basis, operating results for the current year period for entities
reporting in currencies other than the U.S. dollar are translated into
U.S. dollars at the average exchange rates in effect during the
comparable period of the prior year (rather than the actual exchange
rates in effect during the current year period).
These constant currency performance measures should be viewed in
addition to, and not in lieu of or superior to, our operating
performance measures calculated in accordance with GAAP. The constant
currency information presented may not be comparable to similarly
titled measures reported by other companies.
VF CORPORATION
Supplemental Financial Information
Business Segment Information - Constant Currency Basis
(In thousands)
Nine Months Ended September 2010
Impact of
Foreign
As Currency Constant
Reported Exchange Currency
Coalition Revenues
Outdoor & Action Sports $ 2,308,120 $ (16,006 ) $ 2,324,126
Jeanswear 1,849,104 9,888 1,839,216
Imagewear 675,598 3,765 671,833
Sportswear 340,262 - 340,262
Contemporary Brands 323,475 (2,796 ) 326,271
Other 79,791 - 79,791
Total coalition revenues $ 5,576,350 $ (5,149 ) $ 5,581,499
Coalition Profit
Outdoor & Action Sports $ 461,995 $ (2,721 ) $ 464,716
Jeanswear 319,372 4,607 314,765
Imagewear 81,551 563 80,988
Sportswear 30,697 - 30,697
Contemporary Brands 22,122 (765 ) 22,887
Other (1,065 ) - (1,065 )
Total coalition profit 914,672 1,684 912,988
Corporate and Other Expenses (158,398 ) - (158,398 )
Interest, net (59,950 ) - (59,950 )
Income Before Income Taxes $ 696,324 $ 1,684 $ 694,640
Source: VF Corporation
Released October 21, 2010