VF Corporation reported revenues rose 36.9 percent to $2.91 billion from $2.13 billion in 2010, with the Timberland acquisition adding $549 million to revenues. Organic revenue growth in the quarter was 11 percent. All VF coalitions achieved higher revenues in the quarter, with the strongest growth in Outdoor & Action Sports, where total revenues rose 81 percent and organic growth was 19 percent.
Gross margin in the quarter continued to reflect the impact of higher product costs, declining to 45.2 percent from 46.6 percent in the 2010 period. Operating income was $358 million on an adjusted basis in the fourth quarter. This included earnings from the Timberland acquisition of $50 million, excluding acquisition-related expenses of $6.7 million. On a GAAP basis, fourth quarter operating income was $351 million. Operating margin on an adjusted basis was 12.3 percent in the fourth quarter of 2011 versus 12.9 percent in the 2010 period. Excluding Timberland, the fourth quarter operating margin increased 10 basis points to 13.0 percent compared with 12.9 percent in the 2010 period. Operating margin on a GAAP basis was 12.1 percent and 3.5 percent in the fourth quarters of 2011 and 2010, respectively.
Net income on an adjusted basis rose 34 percent to $262 million from $196 million, while adjusted earnings per share increased 30 percent to $2.32 per share from $1.78 per share. The Timberland acquisition was accretive to adjusted earnings by 34 cents per share in the quarter. On an organic basis, earnings per share grew 11 percent to $1.98. On a GAAP basis, net income and earnings per share were $257 million and $2.28, respectively, in the fourth quarter of 2011.
Full year results
Revenues increased 23 percent to $9,459 million from $7,703 million in 2010. Timberland added $713 million to revenues in 2011. Organic revenue growth was 14 percent (12 percent in constant dollars), with strong growth across all coalitions. Outdoor & Action Sports revenues rose 42 percent during the year, with organic growth of 20 percent. Jeanswear revenues rose 8 percent; Imagewear revenues grew 13 percent; Sportswear revenues were up 9 percent; and Contemporary Brands revenues grew by 11 percent.
Gross margin was in line with company guidance for the year, declining to 45.8 percent in 2011 from 46.7 percent in 2010 due to higher product costs. Operating marginon an adjusted basis was 13.5 percent in 2011 versus 13.3 percent in the prior year. Excluding Timberland, the operating margin increased 30 basis points to 13.6 percent.
Net income on an adjusted basis rose 28 percent to $913 million from $713 million, while adjusted earnings per share increased 27 percent to $8.20 from $6.46. The Timberland acquisition was accretive to adjusted earnings by $0.60 per share. Organic earnings per share growth in 2011 was 18 percent. On a GAAP basis, net income and earnings per share in 2011 were $888 million and $7.98, respectively.
This release refers to adjusted amounts that exclude 1) transaction and restructuring costs related to the acquisition of Timberland, which approximated $6.7 million ($0.04 per share) in the fourth quarter and $33 million ($0.22 per share) for the full year, respectively; and 2) a $202 million pre-tax noncash impairment charge taken in the fourth quarter of 2010. On an after-tax basis, the impairment charge totaled $142 million, which decreased full year 2010 earnings per share by $1.29. Please see the reconciliation of GAAP to adjusted amounts later in this release.
Outdoor & Action Sports reports 18 percent organic growth Outdoor & Action Sports reported total global revenues rose 81 percent in the quarter, reflecting strong organic growth of 19 percent and the addition of the Timberland®and Smartwool brands, which contributed $549 million to revenues. The North Face brand’s momentum continued in the quarter despite unusually warm weather conditions in both the U.S. and Europe, with global revenues rising 22 percent and comparable growth in both the Americas and international businesses. In Asia, the brand’s revenues increased 41 percent in constant dollars. Momentum continued in The North Face brand’s direct-to-consumer business, where revenues grew over 20 percent in the quarter.
The Vans brand achieved another quarter of exceptional growth, with global revenues rising 24 percent and double-digit growth across its Americas, European and Asia businesses. Vans® direct-to-consumer business generated healthy growth in the quarter, with revenues rising by 21 percent.
Timberland achieved solid revenue growth, both domestically and internationally, as well as in its direct-to-consumer and wholesale channels, driven by the continued success of the Timberland Earthkeepers collection, the Timberland PRO® Series and the Smartwool brand.
Organic revenue growth in the coalition’s Americas and international businesses continued at double-digit rates of 19 percent and 20 percent, respectively. Organic growth in direct-to-consumer revenues for Outdoor & Action Sports was 20 percent in the quarter, with double-digit increases in The North Face, Vans and Kipling direct-to-consumer businesses.
Operating income for the coalition rose by 52 percent. Operating income of $274 million included earnings from Timberland of $43 million, including acquisition-related expenses of $6.7 million. Operating margin was 16.9 percent compared with 20.1 percent in the 2010 period, with a negative impact of 40 basis points from acquisition-related expenses. Excluding Timberland, operating income increased 24 percent and the coalition operating margin was 20.9 percent.
Imagewear: Imagewear finished 2011 on a strong note, with fourth quarter revenues rising 10 percent and growth in both the Image and Licensed Sports Group businesses. Image revenues maintained its trend of double-digit top line growth, with revenues rising by 14 percent in the quarter, fueled by continued strength in both its Protective Apparel and Industrial uniform businesses. Licensed Sports revenues grew 5 percent, driven by new women’s products and differentiated graphics.
Fourth quarter operating income remained relatively stable with the prior year period, with lower operating margin reflecting higher product costs.
Sportswear: Total Sportswear revenues rose 1 percent in the fourth quarter, driven by a 49 percent increase in Kipling® brand revenues in the U.S. Nautica® brand revenues declined slightly. The Nautica® direct-to-consumer business performed well in the quarter, with revenues up 7 percent and strong comparable sales performance, and the brand’s licensing business also experienced solid growth. The Nautica® wholesale business posted a decline in revenues during the quarter primarily due to a shift in timing of shipments from the fourth quarter into the third.
Sportswear operating income and margin both declined in the quarter, due to the impact of higher product costs.
European revenues up 14 percent in fourth quarter
International revenues increased 68 percent in the fourth quarter, with 50 percentage points of the growth attributable to the Timberland acquisition. Organic revenue growth in Europe was 14 percent. In Asia, organic revenue growth was 22 percent with The North Face and Vans businesses each growing in excess of 30 percent in the quarter, and Jeanswear revenues rising by 13 percent. Solid growth also continued in India, where revenues increased 14 percent during the quarter.
For the full year 2011, international revenues grew 37 percent and accounted for 34 percent of total revenues compared with 30 percent in 2010. With more than half its revenues derived from international markets, the Timberland acquisition accounted for 17 percentage points of the total international growth in 2011.
Direct-to-consumer revenues reach 19 percent in 2011
Direct-to-consumer revenues increased 53 percent in the quarter, with 37 percentage points of the growth attributable to the Timberland acquisition. Direct-to-consumer revenues of The North Face, Vans, and 7 For All Mankind brands each achieved growth in excess of 20 percent in the period. A total of 46 stores were opened across our brands in the quarter and 122 stores during the year, bringing the total number of owned retail stores to 1,068 at the end of 2011 (including 215 Timberland stores). At year-end 2011, direct-to-consumer revenues accounted for 19 percent of VF’s total revenues compared with 18 percent in 2010.
Cash flow from operations reaches record level
Cash flow from operations reached a record $1.08 billion in 2011. The increase in long-term debt reflects the financing of the Timberland acquisition. During the quarter, the incremental short-term borrowings related to the Timberland acquisition were repaid, and at year-end the debt-to-total capital ratio was 32 percent. Inventories excluding Timberland rose 12 percent, with 9 percent of the increase due to higher product costs.
Timberland to be big focus in 2012
“In 2012, our Outdoor & Action Sports business should exceed 50 percent of total revenues a new milestone for VF, achieved by a combination of consistent, outstanding organic growth and a track record of successful acquisitions,” said Wiseman. “A big focus for us this year will be on building the foundation to support Timberland’s future growth and to strengthen its profitability. We look forward to a year of healthy growth across our coalitions and to delivering another year of record revenues and earnings to our shareholders.”
2012 revenues should increase by approximately 15 percent (17 percent in constant dollars), with Timberland accounting for about $1 billion of the growth. Excluding Timberland, revenues should rise by approximately 6 percent (8 percent in constant dollars).
Adjusted earnings per share is expected to rise to approximately $9.30. Included in this guidance is the anticipated negative impact from; 1) foreign currency translation, which is expected to reduce earnings by 41 cents per share, and 2) higher pension expense, which will negatively impact earnings by 19 cents per share. Timberland should earn approximately $1.10 per share in 2012 (excluding acquisition-related expenses estimated at 20 cents per share). On a GAAP basis, earnings per share are expected to increase to approximately $9.10.
Gross margin in 2012 should expand by approximately 70 basis points over the 45.8 percent reported in 2011, as the headwinds posed by higher product costs subside, with all of the improvement occurring in the second half of the year. Operating margin should expand by approximately 20 basis points, which is net of a 30 basis point negative impact from higher pension expense. Timberland’s operating margin should exceed 11 percent in 2012. Excluding Timberland in both 2011 and 2012, the operating margin in 2012 is expected to improve 40 basis points from 13.6 percent to 14.0 percent, including a 40 basis point negative impact from higher pension expense.
Key points related to our 2012 outlook include:
- Solid revenue growth across all coalitions, highlighted by 25-to-30 percent growth in Outdoor & Action Sports including a full year of revenues from Timberland. On an organic basis, Outdoor & Action Sports revenues are expected to rise at a low-teen percentage rate in constant dollars. The North Face and Vansbrands look forward to another year of strong growth, with both brands anticipating mid-teen revenue growth in constant dollars. Jeanswear, Imagewear, Sportswear and Contemporary Brands are each planning for mid-single-digit revenue growth in 2012.
- 25-to-30 percent growth (constant dollars) in international revenues, with Timberland accounting for about half of the growth. International revenues as a percent of total revenues should approach 37 percent in 2012.
- 25-to-30 percent growth in direct-to-consumer revenues, with Timberland accounting for about half of the growth. Growth will be driven by approximately 130 store openings in 2012 and low-single-digit comp store growth, in addition to continued rapid growth in e-commerce revenues. Direct-to-consumer revenues should exceed 20 percent of total revenues this year.
- Strong cash flow from operations, which could exceed $1.1 billion.
- Capital expenditures of approximately $375 million. 2012 will mark a year of investments to support VF’s continued growth, including new headquarters for the Outdoor & Action Sports businesses in the U.S. and Europe, new distribution centers in the U.S., Europe and Asia, and a higher number of new retail store openings.
Dividend Declared
The Board of Directors declared a quarterly cash dividend of $0.72 per share, payable on March 19, 2012, to shareholders of record as of the close of business on March 9, 2012.
|
VF CORPORATION
|
|||||||||||||||||
|
Supplemental Financial Information
|
|||||||||||||||||
|
Business Segment Information
|
|||||||||||||||||
|
(In thousands)
|
|||||||||||||||||
| Three Months Ended December | Year Ended December | ||||||||||||||||
| 2011 | 2010 | 2011 | 2010 | ||||||||||||||
| Coalition Revenues | |||||||||||||||||
| Outdoor & Action Sports | $ | 1,619,023 | $ | 896,537 | $ | 4,561,998 | $ | 3,204,657 | |||||||||
| Jeanswear | 711,565 | 688,487 | 2,731,770 | 2,537,591 | |||||||||||||
| Imagewear | 256,768 | 233,804 | 1,025,214 | 909,402 | |||||||||||||
| Sportswear | 159,523 | 157,511 | 543,515 | 497,773 | |||||||||||||
| Contemporary Brands | 128,941 | 115,266 | 485,142 | 438,741 | |||||||||||||
| Other | 34,419 | 34,634 | 111,593 | 114,425 | |||||||||||||
| Total coalition revenues | $ | 2,910,239 | $ | 2,126,239 | $ | 9,459,232 | $ | 7,702,589 | |||||||||
| Coalition Profit | |||||||||||||||||
| Outdoor & Action Sports | $ | 273,975 | $ | 180,337 | $ | 828,228 | $ | 636,720 | |||||||||
| Jeanswear | 86,005 | 111,903 | 413,187 | 431,942 | |||||||||||||
| Imagewear | 28,758 | 29,623 | 145,655 | 111,174 | |||||||||||||
| Sportswear | 18,930 | 21,657 | 56,312 | 52,354 | |||||||||||||
| Contemporary Brands | 7,411 | (7,820 | ) | 35,860 | 14,046 | ||||||||||||
| Other | 979 | 1,004 | (1,024 | ) | (61 | ) | |||||||||||
|
Total coalition profit
|
416,058 | ||||||||||||||||
