What economic slow down? That might as well be the slogan at VFC Corp., which broke the $7 billion barrier in 2007 and reported its fifth consecutive year of record results. At a time when many apparel companies are backpedaling, VFC surpassed its own bullish guidance, which had included revenue growth of 18% and earnings per share growth of 13%.

 

The company exceeded its cash flow estimate by 33%, or $209 million, during the quarter. VFC fourth quarter revenues increased 22.3% to a record $1.96 billion, compared with $1.60 billion in the fourth quarter of 2006. The increase was driven by 12% organic growth and 10% growth from the $1 billion worth of acquisitions it made last year. Gross margins in the quarter improved 30 basis points to 43.5% due primarily to lifestyle businesses comprising a higher percentage of total sales.

 

Income from continuing operations in the quarter increased 16.0% to a record $164.0 million, compared with $141.4 million in the prior year’s quarter. Net income grew 51.4% to $164.4 million from $108.6 million in the year-ago quarter. Earnings per share from continuing operations rose 17.7%, to a record $1.46 from $1.24 last year.

 

For the full year 2007, revenues increased 16.1% to $7.22 billion from $6.22 billion in 2006, with healthy growth across most of the company's businesses. Organic growth in 2007 was 10%, with 6% growth from acquisitions. Income from continuing operations rose 14.6%, to $613.2 million from $535.1 million, while earnings per share from continuing operations increased 14.4% to $5.41 from $4.73.

 

Reported net income grew 10.9% to $591.6 million from $533.5 million, or $5.22 per share. International revenues rose 30% in the quarter, accounting for 28% of the company’s total revenues in 2007, up from 26% in 2006.

 

Likewise, VFC's direct-to-consumer business continues to expand. Retail revenues increased 22% during the quarter with revenues of the Vans, The North Face, Kipling, Napapijri and John Varvatos brands growing by more than 25%.

 

CEO Eric Wiseman said he saw no evidence that U.S. economic problems were spilling over into Europe or other overseas markets. Still, he acknowledged that even VFC was encountering headwinds and had dialed back its expectations for organic growth in 2008 to 5%.

 

“We're coming off a highly promotional holiday season and our customers are planning very cautiously for 2008, but we're not seeing any unusual amounts of order delays or cancellations,” Wiseman told analysts in a conference call.

 

The Outdoor coalition continued to lead the charge. Sales actually grew faster domestically than overseas, something rarely seen among U.S. companies in recent quarters due to the weaker U.S. dollar. Revenues at the Outdoor coalition rose 31.4% to $595.5 million in the quarter and 27.8% to $2.39 billion for the year, which included 11 months of sales at Eagle Creek. Domestic revenues grew 34% in the quarter, while international revenues rose 28%. International revenues were up 35% for all of 2007.

 

Operating income rose 42.6% to $94.7 million for the quarter and 31.4% to $298.9 for the year. The North Face grew faster than the group as a whole in both wholesale and retail channels, said Dave Gatto, president of VF's Outdoor America Coalition. “The North Face product sell throughs and our inventory positions are very good,” Gatto said. “Moreover, our backlogs for spring, summer and fall are up solid digit double growth and are in line with our expectation.” Five new, full-priced TNF retail stores that opened during the quarter are exceeding plan. VFC will launch a TNF website in early fall, but expects to grow its door count primarily through existing accounts like Dick's SG, REI and Nordstom rather than adding new retailers.

 

Gatto said a few specialty running stores would pick up TNF footwear and apparel this year.

 

At Vans, sales grew by more than 20%. The company will open more than 20 full-priced and two outlets stores in 2008.

 

Total revenues of the Imagewear coalition, which sells work place uniforms, rose 20.6% to $277.3 million in the quarter. Operating income for the division for the quarter rose 5.9% to $43.8 million, but operating margin declined 200 basis points to 15.8% of sales. The decline reflected lower seasonal margins at Majestic Athletic, the exclusive on-field provider of all major league baseball uniforms and apparel. Without Majestic Athletic, which was acquired last year and contributed $40 million to fourth quarter sales, margins at the Imagewear business would have been flat. For the full year, the segment saw revenues increase 19.3% to $988.3 million with operating profit improving 5.7% to $141.9 million.

 

The Contemporary Brands coalition, which consists of the 7 For All Mankind and lucy brands, added $110 million to fourth quarter revenues and $20 million to operating income. The 7 For All Mankind brand experienced strong double-digit revenue growth, ahead of the initial expectations for the brand. VFC affirmed its guidance for another record year in 2008. Revenues are expected to rise 9%, with Outdoor and Imagewear again leading the charge. Outdoor revenues should grow at a mid-teens rate, with mid-single-digit revenue growth in Imagewear and slightly lower growth in both Sportswear and Jeanswear. Earnings per share from continuing operations should increase 10% in 2008, driven by top line growth and margin expansion.