Outdoor Coalition Accounts for 69% of VF Corp. Q3 Sales Gain

VF Corporation reported that third quarter sales rose 25% to $1,792.6 million from $1,435.4 million in the prior year's third quarter. Net income increased 24% to $155.4 million from $125.3 million, with diluted earnings per share rising 21% to $1.38 from $1.14.

The Company saw solid growth in most of its core businesses, while the recent acquisitions of the Vans, Napapijri, and Kipling brands added $183.6 million to sales in the quarter and $.12 to earnings per share. As anticipated, earnings reflect a $15.0 million or $.08 per share impact from the recognition of certain costs related to the disposition of the Company's Playwear business.

“We are aggressively driving integration and growth plans for all of our acquired businesses, both in Outdoor and Sportswear, and are very pleased by the benefits we've seen to date,” commented Mr. McDonald. “We are on or ahead of schedule in meeting our sales and operating margin goals, and remain extremely excited at the future growth prospects for all these brands.”

Combined sales of the Outdoor businesses, which include The North Face, Vans, JanSport, Eastpak, Napapijri and Kipling brands, jumped 116% in the quarter to $457 million from $212 million. The North Face brand continued to show powerful momentum, with sales up 44%.

The North Face experienced growth across all product categories — outerwear, sportswear, footwear and equipment. During the quarter a new store was added in Boston, with stores in Paris, Munich, Copenhagen, Innsbruck, Antwerp and Turin opened in conjunction with our retail customers. Spring bookings for the brand are up 22% in the U.S. and 23% in Europe.

Sales in the Packs business also rose strongly in the quarter, with growth driven by travel and apparel products. Vans business was said to be performing above expectations, with double-digit sales growth in its core footwear business in the quarter. The Vans, Napapijri and Kipling brand acquisitions contributed $184 million to Outdoor sales in the quarter.

Sales in the Imagewear coalition also rose in the quarter, up 5% to $192 million from $183 million last year. Continuing the positive trend from the second quarter, occupational apparel sales rose 3% to $107 million from $104 million in 2003, with growth coming from new apparel programs with large multinational companies and government agencies.

Total Jeanswear sales, which include the Lee(R), Wrangler(R), Riders(R) and Rustler(R) brands, were $710 million, down slightly from $716 million in last year's third quarter. Sportswear sales, which include the Nautica(R), Earl Jean(R) and John Varvatos(R) brands, were $167 million in the quarter and were $72 million in last year's third quarter. Global Intimate apparel sales rose 12% to $235 million from $210 million in the prior year's third quarter.

Overall profitability was strong in the quarter, with improvements in operating margins across most of the core businesses. Gross margins are benefiting from the acquisitions of strong lifestyle brands, where gross margins tend to be higher than in some of the category-driven businesses. Gross margins in the quarter improved by nearly 300 basis points, rising to 40.2% from 37.4%. Royalty income increased, primarily due to the full quarter contribution of licensing income from Nautica.

Inventories actually declined 1%, despite the addition of $58 million of inventories from the acquisitions of Vans, Napapijri and Kipling. Inventories in the core businesses declined 6% in the quarter from the third quarter of 2003.

Outlook

VFC continues to expect a record year in sales and earnings in 2004. Full year sales are expected to increase 15%, approaching the $6 billion mark for the year. Earnings per share are expected to rise approximately 12% over prior year levels. The acquisitions of the Vans, Napapijri and Kipling brands are now expected to contribute approximately $285 million to sales and $.14 to earnings per share this year, above previous expectations.

For the fourth quarter, VFC now expects a sales increase of approximately 8%, with earnings per share about flat with last year's fourth quarter. Growth plan spending could approximate $20 million in the quarter. Areas of continued investment include brand marketing, new customer team initiatives and supply chain projects. In addition, results in the fourth quarter of 2003 included a favorable tax settlement, which benefited earnings by $.07 per share.

Commented Mackey J. McDonald, chairman and chief executive officer, “Our position has never been stronger. Our core businesses are in great shape — most are growing, and they are highly profitable and generating healthy levels of cash flow. At the same time, we've identified and successfully completed several acquisitions of powerful lifestyle brands that offer terrific potential for future growth. We believe we have established a platform that will enable us to generate sales growth of 8% annually. Through our growth plan, we also have identified ways to more effectively leverage our global supply chain capabilities that could generate $100 million in cost savings over the next five years.”

Based on the current momentum within the businesses and the variety of initiatives underway within the growth plan, VFC currently anticipates that both sales and earnings could increase at high single-digit rates in 2005. Margins should benefit as the profitability of recent acquisitions continues to improve and supply chain initiatives take hold.