VF Corporation announced better than anticipated results for the first quarter. In a separate release made earlier today, VF also announced its plans to acquire Vans, Inc. for a total of approximately $396 million in cash, including the cashout of stock options.
Commented Mackey J. McDonald, chairman and chief executive officer, “We are very pleased by the strength in sales across our businesses this quarter, and by the momentum we are building for the future, as evidenced by today's exciting announcement. Together with our recently announced plans to acquire the Napapijri(R) brand, we are clearly positioning our Outdoor coalition and VF for substantial growth.” He noted that sales in most of the Company's businesses were better than anticipated. “And, we stand to benefit from our exceptionally strong financial position, which will enable us to support our growth plans.”
First quarter sales rose 15%, to $1,432.7 million from $1,250.0 million in the prior year's first quarter. Net income increased 13% to $103.9 million from $92.1 million, with earnings per share rising 12% to $.93 from $.83. Foreign currency translation benefited sales and earnings per share by $42 million and $.05, respectively, in the quarter.
Business Review
Total sales in the quarter rose 15%, a result of strong performance in our Outdoor businesses, solid growth in Jeanswear and Intimates, and the acquisition of Nautica. Sales in the Company's Outdoor coalition, which includes The North Face(R), JanSport(R) and Eastpak(R) brands, rose to $125 million in the first quarter of 2004 from $100 million in 2003, an increase of 24%. These results were driven by a sales increase of more than 27% in The North Face(R) branded products globally and a 19% increase in our Packs business globally.
The contribution to sales and earnings by Nautica was substantially better than anticipated, due largely to a shift in sales from the second quarter to the first. Nautica added approximately $146 million in sales and $.03 per share to first quarter results. Nautica's men's sportswear and jeanswear, retail and licensing businesses all exceeded our plans and fall 2004 bookings remain on plan.
Total Jeanswear sales rose 2% to $704 million from $689 million, with particular strength in our U.S. mass market jeans business where sales rose 7%. International jeans sales rose slightly from the prior year level due to favorable currency translations.
Global intimate apparel sales increased 8%, to $249 million in the 2004 quarter from $232 million. Domestic intimate apparel sales rose 9%, due to strength in our mass market and private brands businesses. Sales in our Imagewear coalition declined 8%. Occupational apparel sales declined 9%, while licensed sports apparel sales continued its momentum, climbing 9%.
Profitability was strong in the quarter, with improvements in operating margins across most of our core businesses. Overall operating margins in the quarter reflect the effects of changes in our business mix, for example the addition of Nautica where margins are seasonally lower in the first half of the year. Gross margins in the quarter improved by more than 100 basis points, rising to 38.7% from 37.5%. Reflecting higher operating expenses as a percent of sales, operating margins were 12.0% in the quarter versus 12.2% in the 2003 period.
VF's balance sheet, liquidity and cash flow remain very strong. Inventories declined 2% during the quarter, despite the addition of Nautica, which added $69 million to inventories. Cash on the balance sheet totaled $552 million versus $515 million at year-end. We plan to initially fund our acquisition of the Vans(R) and Napapijri(R) brands using existing cash balances and commercial paper borrowings. Debt as a percent of total capital was 31.8% at the end of the quarter; net of cash, debt was 17.2% of total capital.
Outlook
We continue to expect another record year in sales and earnings in 2004. Excluding the impact of the two acquisitions, we expect sales to rise by as much as 8% and earnings to increase by at least 5%. The Vans and Napapijri(R) brand acquisitions could add $230 million to 2004 sales and are currently expected to be neutral to earnings per share this year. “We are very encouraged by our strong first quarter performance, but we hesitate to take a more aggressive stance toward our guidance at this point, as it is still early in the year,” said Mr. McDonald. “In addition, we expect to continue to invest in a variety of additional activities related to executing and fueling our growth plan.”
In terms of the second quarter, we currently expect sales could increase by 10 to 12%, 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, due to the dilutive impact expected from Nautica in the quarter, which could amount to $.04 per share. This is in line with our previous guidance that Nautica would be essentially neutral to earnings in the first half of the year, with accretion occurring in the second half of the year.
Dividend Declared
The Board of Directors declared a regular quarterly cash dividend of $.26 per share, payable on June 21, 2004 to shareholders of record as of the close of business on June 11, 2004.
VF CORPORATION
Consolidated Statements of Income
(In thousands, except per share amounts)
Three Months Ended
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April 3 April 5
2004 2003
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Net Sales $1,432,669 $1,250,055
Costs and Operating Expenses
Cost of goods sold 878,393 781,292
Marketing, administrative
and general expenses 394,957 322,334
Royalty income and other (13,240) (6,330)
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1,260,110 1,097,296
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Operating Income 172,559 152,759
Other Income (Expense)
Interest, net (16,781) (12,068)
Miscellaneous, net 1,607 731
-------------- -----------
(15,174) (11,337)
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Income Before Income Taxes 157,385 141,422
Income Taxes 53,511 49,356
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Net Income $103,874 $92,066
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Earnings Per Common Share
Basic $0.95 $0.84
Diluted 0.93 0.83
Weighted Average Shares Outstanding
Basic 108,730 108,356
Diluted 111,515 110,943
Cash Dividends Per Common Share $0.26 $0.25
VF CORPORATION
Supplemental Financial Information
Sales by Product Category
(In thousands)
Three Months Ended
-----------------------
April 3 April 5
2004 2003
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Jeans and related apparel $703,784 $688,933
Intimate apparel 249,420 231,789
Sportswear 146,148 -
Outdoor products 124,579 100,385
Occupational apparel 111,510 122,855
Other apparel 97,228 106,093
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Total $1,432,669 $1,250,055
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