VF Corp. on Monday unveiled new five-year financial targets with a goal of adding $5 billion in revenues and $5 in earnings per share growth from 2010 levels. Not surprisingly, its Outdoor & Action Sports coalition is expected to fuel that expansion.


At an investor meeting held in New York City, Eric Wiseman, chairman, president and CEO, said that although VF will also expand through acquisitions, the $5 billion will all come from existing brands.

 

“Our business has momentum that we have never had before,” said Wilson. “It's been building over time; it didn't just arrive, it's been building. That's why we are so confident, because it has been coming at us predictably and we expect that momentum to continue and we do not need acquisitions to get there.”
Key components of the $5 billion in expected revenue growth include:


  • $3 billion growth from its Outdoor & Action Sports coalition, where revenues have grown on average by 17% over the past five years. North Face and Vans, which account for 75% of coalition revenues, are targeting annual growth of 16% and 13%, respectively;
  • $1 billion in additional growth in its Jeanswear coalition through its Wrangler and Lee brands, led by expansion in international markets such as Asia, Europe and Latin America;
  • $1 billion from higher revenues across Sportswear, Imagewear and Contemporary Brands, combined, over the next five years. The highest growth rate in the coalition is expected from Contemporary brands (7 for all Mankind, John Varvatos, Ella Moss and Splendid.)


Also speaking at the meeting, Steve Rendle, group president, Outdoor & Action Sports Americas, first noted that the former Outdoor Coalition had represented 9% of revenues in 2001 when it consisted of JanSport, Eastpak and North Face. Now, the Outdoor & Action Sports Americas coalition also includes Vans, Lucy, Reef, Napapijri, Kipling and accounts for 42% of sales.  By 2015, the coalition will contribute at least half of revenues and likely more since it's the one coalition being targeted for more acquisitions.

Of the projected growth in the Outdoor & Action Sports segment over the next five years, 13% is expected to come from the Americas, 13% also at its EMEA region and 30% in Asia-Pacific.


 

Detailing growth potential among key brands:


  • The North Face is expected to grow at a compounded growth rate of 16%, adding $1.5 billion over the next five years and achieving $3 billion in sales by 2015. (The North Face's five-year projections were first provided at an analyst meeting held last December.)

  • Vans is projected to grow at a rate of 13% per year for the next five years, adding $900 million in revenues in total.

  • Napapijri is expected to expand at a rate of 11% over the next five years, and Kipling will grow at a rate of 16%. Combined, Napapijri and Kipling are expected to add $300 million over the next five years.

  • The rest of the portfolio (JanSport, Eastpak, Lucy and Reef) will add $300 million over the five-year period.


At The North Face, the North America business is expected to grow at a compound annual growth rate of 14%, Europe at a rate of 16% per year, and Asia-Pacific at 30%. This will take North Face's regional mix to 65% Americas and 35% International. Its store count will grow from 63 owned stores and 133 partner stores currently to 179 owned stores and 185 partner stores by the end of 2015.


Internationally, the focus will be on continuing to grow in its “strong” European markets, and in the emerging markets of Eastern Europe and Turkey, in Latin America, and across Asia-Pacific, most importantly China. But Rendle said the overall focus will continue to be to differentiate the brand through technology and innovation. A particular effort will be to “authentically reach the brand in new activities” to reach new consumers.


“We will leverage the strength of our outdoor position to invite new consumers to become outdoor enthusiasts and to become passionate about the outdoors and the environment that our business has lived to play in,” said Rendle. It will extend to reach of the brand across four distinct activity consumer groups: Action Sports, Outdoor, Performance and Youth.


“We will become the leader in the global winter action sports business, focusing on skiing and snowboarding, but also focusing on the spring in summer around mountain biking and adventure water sports, apparel and equipment,” said Rendle.


The brand will also use its digital network to deploy its athlete-driven content across multiple channels and platforms.


At Vans, a 10% five-year compounded growth rate is expected in the Americas; 15% in Europe; and a 40% rate in Asia-Pacific, driven primarily from China. Its store count is expected to climb from 275 owned and 273 partner currently to 425 owned and 970 partner stores across the globe by 2015. The majority of partner stores will come from China.


Kipling and Napapijri are among VF's fastest-growing brands in Europe and Rendle said both have “great potential in their core markets as well as here in the Americas and in Asia,” according to Rendle. Kipling is finding strong growth in Europe, Asia and Brazil. In the U.S.. Kipling recently signed an exclusive partnership with Macy's for a handbag line. Napapijri will particularly build on its “strength in Italy, France and Germany to extend the brand internationally, focusing Europe and in the Asia-Pacific.”


Companywide, VF's international business is forecast to double from $2.3 billion to $4.6 billion, growing at a compound annual growth rate of 15% and representing 40% of overall sales by 2015. It expects growth of 11% in the Americas (excluding U.S.), 11% also in Europe, and 28% in Asia.


VF's direct-to-consumer business companywide is expected to double in size, from $1.4 billion to $2.8 billion, growing 15% a year. The growth is expected to be driven by new stores, comp growth and a tripling of its e-commerce business. Overall direct-to-consumer is expected account for 22% of sales by 2015, up from 18% in 2010.


Higher growth in the Outdoor & Action Sports, international and direct-to-consumer businesses – which all carry margins substantially above the corporate average – are expected to fuel the expansion in both gross margins and operating margins. By 2015 operating margins are expected to rise to 15% from 13.3% in 2010.


Bob Shearer, VF's SVP and CFO, noted that gross margins in its Outdoor & Action Sports businesses are 750 basis points above VF averages. International gross margins were over 400 basis points above average in 2010.


VF’s full-price stores, which are becoming an ever-increasing part of its total DTC business, carries gross margins 20 percentage points above average. But Europe's DTC gross margins improved by 500 basis points n 2010 basis points and are expected to become a higher percentage of its direct-to-consumer business going forward. Companywide, gross margins are expected to decline nearly 100 basis points in 2011 but are overall expected to expand to 48% of sales by 2015 from 46.7% in 2010.


The operating margin gains are expected to come despite an increase in marketing spend from 6.6% of revenues last year to the 7.5% range by 2015 to support its Outdoor Sports and Action brands.


Shearer said VFC should net about $3.5 billion of cash available for investment over the five-year period and stated that the number one priority for cash remains acquisitions in the outdoor and action sports space.


“We know we don't have a lot to show for our efforts over the past couple of years,” said Shearer. “We really do hope that you chalk that up to being prudent rather than a lack of effort. We have demonstrated our ability to bring brands on to our platform and make them work for our shareholders.”