VF Corporation chairman & CEO Mackey McDonald said the company is “clearly positioning” its Outdoor coalition and VF for “substantial growth” in a release last week and pointed to the results of the most recent quarter and its recent acquisition announcements as proof of that commitment.
VFC will add one more piece to its global puzzle, announcing last week the $396 million acquisition of Vans, Inc. VF picked up Nautica last year in a deal that closed in September, and was a rumored suitor for Fila before it eventually went to Cerberus Capital.
VFC, who will finance the deal initially through “available cash and short-term commercial paper borrowings”, will pay Vans shareholders $20.55 per share in cash.
Vans, which will join a growing Outdoor Coalition business reporting to Eric Wiseman that includes The North Face, Eastpak, and Jansport, will continue to be based in Santa Fe Springs, CA. VF Corp. just two weeks ago announced a deal to acquire Euro fashion outdoor brand Napapijri.
BOSS checked in with another key player in the Outdoor Coalition to better understand the thought behind Vans inclusion in the Outdoor group rather than Sportswear.
Mike Egeck, president of The North Face, suggested that the outdoor industry doesnt have a great track record bringing in the younger consumer, currently an item of discussion with executives in the outdoor industry. Egeck suggested that the kid that is surfing or skateboarding is also participating in other outdoor activities such as rock climbing. “We, as an industry just havent pulled it all together,” he explained. “Its all outdoor sports,” he said. Egeck said VF is taking a forward-looking “modern” approach to outdoor.
The TNF chief said that the addition of Vans is a very important third piece to the companys puzzle. He said TNF immediately benefited from VFs vast sourcing infrastructure when they were acquired in 2000, but VFC also left in place the TNF sourcing people that were more adept at the technical end of the business.
As a whole, VFC reported better-than-expected results for the first quarter, but those numbers relied heavily on acquisitions and exchange rate upside with the exception of the Outdoor Coalition and Licensed Apparel numbers.
Net sales rose 14.6% to $1.43 billion in the first quarter from $1.25 billion in the year-ago quarter, but would have been essentially flat without the inclusion of the Nautica numbers and FX rate benefits. Nautica added approximately $146 million in sales and three cents per share to first quarter results. Foreign currency translation added $42 million to the top line and five cents to the bottom line in the first quarter.
Net income increased 12.8% to $103.9 million, or 93 cents per share, compared to net income of $92.1 million, or 83 cents per share, in the year-ago period.
Sales in the Outdoor coalition increased 24.1% to $124.6 million in Q1 versus $100 million in Q1 last year. The North Face contributed a sales increase of more than 27% in the quarter and the Packs business, which includes Jansport and Eastpak, grew 19% for the period. Currency-neutral sales for The North Face grew almost 20% in Q1.
The owned-retail business for TNF, which makes up “about 10%” of total sales, had single-digit positive comps for the quarter.
At the end of the quarter, The North Face was showing a 30% increase in bookings for fall, with North America showing an increase in excess of 40% for the season. Fall bookings in the Footwear category jumped an impressive 75% versus last year.
In an exclusive interview with Sports Executive Weekly and The B.O.S.S. Report, TNF president Mike Egeck said that footwear is also one of the leading categories for spring sell through. He pointed to strength in the trail running segment — and the Ultra 102 Gore-Tex XCR in particular — as key drivers.
We also took the opportunity to get more insight on the recently announced Napapijri acquisition and Egeck said he saw nice upside for many VF brands with the deal, explaining that the Napapijri design team in Italy will benefit both TNF and Nautica on the European sportswear end of the business through styling and fit, while Nautica and The North Face will help grow the Napapijri business here by assisting with the same elements in the U.S. market.
Regarding the Napapijri U.S. business, which will sit under Egecks umbrella, he said the brand will use a separate sales force than TNF and is really focused on a different distribution channel. He said Saks Fifth Avenue is the brands largest retail customer in the U.S.
Egeck sees Napapijri focused on high-end department stores and owned-retail, with high-end ski resorts targeted for its technical offering.
Excluding the impact of the two recently announced acquisitions, VFC sees full year 2004 sales increasing “as much as” 8.0%, while earnings are estimated to grow “by at least” 5.0%. For Q2, VF Corp. is forecasting sales to increase in the 10% to 12% range, “primarily driven by the addition of Nautica and excluding the impact of the two acquisitions.” Earnings per share are expected to be flat to up slightly.
