Industry companies hit the road last week in hopes of drumming up some new investment dollars during a time of difficult trading conditions. The two big conferences for the active sports lifestyle market were the ICR Xchange Conference in Dana Point, CA and the Cowen & Co. Consumer Conference in New York City. Generally, presentations focused on managing the business towards profitability on flat to down sales while maximizing each dollar invested.

There were two key takeaways from this years ICR Xchange.  First, it is clear than senior management, for the most part, does not have any visibility on short term business trends as the consumer and market prove to volatile to gauge future actions accurately.  Management of companies presenting had little vision for how 2009 will materialize. 
Sports Executive Weekly expects this lack of vision will assist in companies maintaining the bunker mentality, with retailers planning sales down and inventories down further, resulting in a little to no excitement at retail.  When the business does begin to stabilize, retailers will not be prepared and inventories will be too tight, further slowing the recovery, resulting in a recession that will be long and deep.

Secondly, it was formerly taboo for retailers to open up discussions with landlords about rent agreement until the leases were near termination.  Based on the presentations last week it now appears retailers are talking about opening discussions about rent regardless of when the lease expires.  It is clear the retailers are in the driver’s seat when it comes to lease negotiations. This is also having a retailer positive impact on CAM charges and required upgrades. 

SEW expects a positive effect on retailer SG&A, as rents and other costs come down.  The market should also expect retailers to shutter more underperformers, further reducing retail square footage and contributing to the consolidation.  Smaller undercapitalized malls will have to close in this environment, but retailers can improve the bottom line.             


There is little appetite for risk, so any expected moves by retailers to snatch up real estate or vendors grabbing the spoils may meet with disappointment.  It is the year of safe.  And safe rarely leads to growth.

The presentations were, for the most part, about tightening the belt.  SEW can only hope the belt doesn’t become a noose, strangling the life left in this formally recession-proof environment.

VF Corp. said at the ICR conference it had recently made several moves to reduce its going-forward cost structure by $100 million a year beginning next year.  These cost cutting moves will help offset an expected increase in pension expenses of approximately $90 million in 2009 due to the deterioration in global securities markets in 2008. Company CEO Eric Wiseman added that VFC's balance sheet and liquidity remain strong, with year-end cash of about $350 million and no long-term debt repayments due until October 2010.

Regarding consumer spending, Wiseman said what's really impacting VFC's business has been the erosion in consumer confidence.
“When it comes right down to it, this situation in the apparel space is much less about an inability to spend than it is about an unwillingness to spend,” said Wiseman. He noted that consumers are trading down across the board and “absolutely shifting” more to buying what they need rather than what they want.

“Thrift is reacquiring virtue,” said Wiseman. “That's not all a bad thing.  And conspicuous consumption and flash are moving out of style a little bit.”

Nonetheless, he noted that “value absolutely does not mean lower price, necessarily…. Some of our brands are getting terrific growth in products that they've added value to the product and increased the price.”

Regarding the Outdoor Coalition, Wiseman said the division, in 2008, for the first time matched in size its heritage Jeanswear business that includes Lee and Wrangler. Overall, the Outdoor Coalition has grown from 3% of its overall sales in 1999, when only Jansport was in the group, to about 36% of the business today.

Going forward, VF said it will continue to grow by acquiring global lifestyle brands, expanding existing brands to new markets, and expanding its direct-to-consumer business.

“Now, we're going to invest in those three activities at different levels than we had originally assumed,” Wiseman said.  “But we are not going to jump into a hole and wait this out. We're going to pick our spots to grow. We'll pick the brands and the markets, and the e-commerce and the stores to open. And it will not be as ambitious a plan as we had a year ago, but we will continue to move forward. And at the same time, we will continue to leverage our global cost structure and our global supply chain.”

At the same time, the company announced “aggressive” expense reductions as it lowered fourth quarter expectations a second time due to the stronger U.S. dollar and weaker consumer spending. VF officials projected fourth quarter earnings, excluding restructuring charges, to be down 7% to 11% on a 2% revenue drop, including a negative 2% impact from foreign currency translation. In October, VF had forecast that fourth quarter revenue would rise 3% to 4%, with earnings per share increasing 1% to 5% for the period.

Cost reduction actions have been initiated that should result in annualized savings of approximately $100 million, beginning in 2009. These actions will result in a charge to fourth quarter 2008 earnings of approximately $42 million, or 30 cents per share.                                                  

Excluding this charge, VFC said fourth quarter earnings are expected to range between $1.30 and $1.35 per share, a decline of 7% to 11% from the $1.46 per share reported in the fourth quarter of 2007.  On a reported basis, including the charge, fourth quarter earnings should be $1.00 to $1.05 per share.

For the full year 2008, revenues are expected to rise about 6%. Including the aforementioned 30 cents charge, earnings per share are expected to be about flat compared with 2007 levels. Excluding the charge, earnings per share would be up approximately 5% to 6%. In October, VF said it expected full-year revenue to grow 7% to 8% while earnings were forecast to increase 8% to 9% for the year.

For full-year 2009, VFC forecasted per-share earnings above the company's long-term growth target of 10% to 11%, excluding impacts from higher pension costs and the stronger dollar. Revenue is expected to be “down slightly.”