VF Corp’s Outdoor & Action Sports Coalition again achieved record revenues, operating income and operating margins in the fourth quarter ended Dec. 31, 2010 and executives reported spring bookings in the Americas are up 17% at year-end.
Global revenues in the coalition rose 19.9% in the quarter to $896.5 million, including 17% growth in the Americas business and 32% growth internationally. In Europe, Outdoor & Action Sports Coalition sales rose 35% on a constant-currency basis. Global revenues at The North Face and Vans grew 25% and 18%, respectively.
The coalition’s other brands include JanSport, Lucy, Reef and Eagle Creek. The international Kipling and Napapijri businesses also achieved strong results in the quarter, with revenues up 23% and 38%, respectively, in constant dollars. Total direct-to-consumer revenues for Outdoor & Action Sports rose 21% in the quarter, with double-digit increases in The North Face, Vans, Kipling and Napapijri direct-to-consumer businesses.
“A year ago at this time, with the world struggling to emerge from the recession, we viewed the outlook for 2010 cautiously and we planned accordingly,” said Eric Wiseman, chairman and CEO for VF Corp. “The plans we put in place and built upon as the year progressed yielded results far surpassing our expectations.”
The strong earnings were largely overshadowed in the company’s earnings call, when analysts focused exclusively on rising costs in the company’s Jeanswear Coalition and how that might affect sales this year.
The growth of the Outdoor and Action Sports business corresponded with a 48% increase in marketing spending, which reached $45 million in the fourth quarter. More than half of the increase was behind The North Face and Vans brands, where brand investments doubled during 2010. The company also made “heavy investments” during 2010 to support its rapidly-growing and highly profitable businesses in China.
The spending helped drive a record-breaking number of unique visitors to vans.com in December, when the number of the brand's Facebook fans grew by more than five-fold to 1.8 million, said Steve Rendle, president of the Outdoor & Action Sports Coalition. That helped drive solid year-over-year comps in the company’s brick-and-mortar and e-commerce stores. Overseas, comp store sales for The North Face, Vans and Napapijri rose 30%, 19% and 9%, respectively. Management said 2010 marked a turnaround for Lucy, the yoga-inspired apparel brand for women, where sales grew 16% on the strength of high double-digit comps growth in the direct-to-consumer channel, which includes 65 stores.
The Coalition’s operating income reached $180.4 million, up 26.5% versus the prior-year quarter, with operating margins increasing by one full percentage point to 20.1% in the quarter.
In the company’s Imagewear Coalition business, which includes Majestic and other sports licensing products and uniform products, sales grew 5.2% to $233.8 million for the fourth quarter, while operating profits improved 13.9% to $29.6 million.
Strong growth in its European Outdoor & Action Sports businesses helped drive a 22% increase in VFC’s international revenues on a constan- currency basis during the quarter.
Total revenues in Asia were up 31% in the quarter, with the Jeanswear, The North Face and Vans businesses each growing in excess of 40% in the quarter.
For the full year, the Outdoor & Action Sports Coalition generated $3.20 billion in sales, up 14.2% from 2009. Operating income reached $642.4 million, up 30.3% from a year earlier.
In 2011, revenues at the Outdoor and Action Sports Coalition are expected to increase in the mid-teen range in 2011, or nearly twice the 8% to 9% rate for VFC as a whole. The company expects the coalition’s gross margins to remain flat or rise slightly in 2011.
Rising costs will likely cause corporate gross margin to decline about 100 basis points in 2011 due to the impact of rising cotton prices on the company’s domestic Jeanswear business, which competes at lower price points. Product costs there are expected to rise in the mid-teens to 20% range and Wiseman said he expects price increases and $4 a gallon gas will cut into sales.
VFC threw off an all-time high of $1 billion in cash flow from operations in 2010, closing out the year with $792 million in cash. Inventories rose 12%, as expected, to support strengthening revenue trends and accelerate jeans deliveries to mitigate rising cotton costs.
International revenues for all VFC businesses combined grew 7% (8% in constant dollars) in 2010, accounting for 30% of total revenues. Revenues in Asia increased 31% in 2010. Executives called out India as an important new growth market. Sales there nearly doubled in the fourth quarter and rose 60% for the full year.
VFC will sustain its current ratio of marketing spending to revenues at 5.5%, or approximately the same level as in 2010. At Vans, marketing will continue to focus on establishing an East Coast beachhead in New York City and building the brand in Mexico, where VFC recently bought out its joint venture partner.
The company’s guidance assumes solid revenue across all coalitions, highlighted by mid-teens percentage growth in Outdoor & Action Sports, where Spring ‘11 bookings are up 17%. That compares to mid-single-digit revenue growth in the Jeanswear, Imagewear, Sportswear and Contemporary Brands coalitions. International revenues are expected to grow 15%, with low-double-digit growth expected in both Europe and the Americas, and exceptionally strong growth in Asia.
Direct-to-consumer sales growth in the 10% to 15% range will be driven by approximately 100 store openings in 2011 the highest number in the company’s history and low-single-digit comp store growth, in addition to the continued rapid growth in the e-commerce business. Management said over half of new store openings will be outside the U.S. to support international growth. Direct-to-consumer revenues are expected to growth to 20% of total revenues in 2011.
