VF Corporation saw fourth quarter revenues increase 22% to a record $1.96 billion, compared with $1.60 billion in the fourth quarter of 2006, driven by 12% organic growth and 10% growth from the 2007 acquisitions, including, most recently, Seven For All Mankind and lucy activewear. Income from continuing operations in the current quarter increased 16% to a record $164.0 million, compared with $141.4 million in the prior years quarter. Income in the quarter reflects two unusual items: a $12.0 million (11 cents per share) benefit from a favorable tax resolution, substantially offset by $13.3 million (9 cents per share) in special spending initiatives, more than half of which were related to the Jeanswear business, to enhance future growth and profitability. Last years fourth quarter results also included a favorable tax resolution and unusual expenses of $16.9 million (15 cents per share) and $14.7 million (12 cents per share), respectively, which resulted in a net benefit to earnings per share of 3 cents.
For the full year 2007, revenues increased 16% 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 15%, to $613.2 million from $535.1 million, while earnings per share from continuing operations increased 14% to $5.41 from $4.73. Reflecting the net effect of discontinued operations, net income was $591.6 million, equal to $5.22 per share. Reported net income grew 10.9% to $591.6 million from $533.5 million.
“2007 marked our fifth consecutive year of record results, with revenues topping the $7 billion mark for the first time in our company's history. Our coalitions performance, particularly given the economic difficulties faced in the last quarter of the year, is an extraordinary achievement,” said Eric Wiseman, President and Chief Executive Officer. “These results point clearly to the strength and diversity of our business model and give us confidence that we can continue the momentum and deliver another record year in 2008.”
Fourth Quarter Business Review
Outdoor
The Outdoor coalition had another outstanding quarter, with total revenues up 32%. Domestic revenues grew 34% in the quarter while international revenues rose 28%. The North Face, Vans, Kipling, Eastpak and Napapijri brands each posted double-digit revenue gains in the quarter. The acquisition of the Eagle Creek brand of adventure travel gear added $7 million to revenues in the quarter. Operating income rose 43%, with operating margins rising to 15.9%.
Jeanswear
The Jeanswear coalition, which includes the Wrangler, Lee and Riders brands, posted a 3% gain in revenues during the quarter. The international jeans business rose 13%, including a substantial contribution from foreign currency translation. Domestic revenues were about flat and the company was especially pleased with the performance of its mass market business, where revenues rose 5% in the quarter. Jeanswear operating income rose 13% with margins above prior year levels. Operating results in the 2007 quarter include $8 million in expenses to realign the sales and marketing efforts and rationalize the distribution infrastructure, primarily in the international Jeanswear business. Operating results in the prior years quarter also included charges, totaling $14 million.
Sportswear
Total revenues for the Sportswear coalition, which includes the Nautica and John Varvatos brands as well as the Kipling brand in North America, increased 6% in the quarter. Each brand achieved higher revenues, with growth in our Kipling and John Varvatos brands both exceeding 35% in the quarter as we continue to expand these businesses in the U.S. Operating income and margins declined sharply in the quarter, primarily due to high levels of promotional activity that impacted the Nautica brand, particularly in the retail outlet stores.
Contemporary Brands
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.
Imagewear
Total revenues of the Imagewear coalition rose 21% in the quarter. Both the Image and Activewear businesses achieved organic growth in the quarter, and the acquisition of Majestic Athletic added $40 million to revenues. Imagewear operating income rose 6% in the quarter. As anticipated, operating margins were lower in the quarter, reflecting the Majestic acquisition.
VFs international and direct-to-consumer businesses continue to be strong contributors to our performance. The international business continues to expand rapidly, with revenues up 30% in the quarter. International revenues accounted for 28% of our total revenues in 2007, up from 26% in 2006. VFC continues to grow its retail revenues, which increased 22% in the quarter. Retail revenues of the Vans, The North Face, Kipling, Napapijri and John Varvatos brands each grew by more than 25%.
“Our international business is expanding rapidly and will continue to account for an increasing percentage of our revenue base, making us less vulnerable to adverse economic conditions in the U.S.,” Wiseman said.
In 2007, cash flow from operations hit an all-time record of $834 million, well above prior guidance of $625 million. During the year, VFC repurchased 4.1 million shares. Inventories rose proportionately to the increase in revenues, with the increase before considering the impact of acquisitions well below the organic growth rate in revenues in the quarter. The company ended 2007 with $322 million in cash and a debt-to-total capital ratio of 26.4%.
Outlook
As previously announced on January 9, VFC expects another record year in 2008. Revenues are expected to rise 9%, with organic growth in all our coalitions. Outdoor revenues should grow at a mid-teen percentage rate, with mid single-digit revenue growth in Imagewear and slightly lower growth in both Sportswear and Jeanswear. VFC continues to be excited about the growth prospects for the Contemporary Brands coalition, where revenues are expected to exceed $415 million in 2008.
Earnings per share from continuing operations should increase 10% in 2008, driven by top line growth and margin expansion, particularly in our Outdoor and Jeanswear coalitions. Sportswear margins are expected to remain relatively stable with 2007 levels, reflecting investments in marketing, eCommerce and retail store expansion. The companyh expects another strong year of cash flow from operations, which could exceed $700 million.
The company also is looking forward to record performance in the first quarter. It expects an 8% to 10% increase in both revenues and earnings per share, driven by our Outdoor, Imagewear and Contemporary Brands coalitions.
Dividend Declared
The Board of Directors declared a cash dividend of 58 cents per share, payable on March 19, 2008 to shareholders of record as of the close of business on March 9, 2008
VF CORPORATION Consolidated Statements of Income (In thousands, except per share amounts) | ||||||||||||||||||
| Three Months Ended December | Year Ended December | |||||||||||||||||
| 2007 | 2006 | 2007 | 2006 | |||||||||||||||
| Net Sales | $ | 1,933,636 | $ | 1,576,841 | $ | 7,140,811 | $ | 6,138,087 | ||||||||||
| Royalty Income | 21,552 | 21,920 | 78,548 | 77,707 | ||||||||||||||
| Total Revenues | 1,955,188 | 1,598,761 | 7,219,359 | 6,215,794 | ||||||||||||||
| Costs and Operating Expenses | ||||||||||||||||||
| Cost of goods sold | 1,105,013 | 907,449 | 4,080,022 | 3,515,624 | ||||||||||||||
| Marketing, administrative and general expenses | 599,560 | 486,094 | 2,173,896 | 1,874,026 | ||||||||||||||
| 1,704,573 | 1,393,543 | 6,253,918 | 5,389,650 | |||||||||||||||
| Operating Income | 250,615 | 205,218 | 965,441 | 826,144 | ||||||||||||||
| Other Income (Expense) | ||||||||||||||||||
| Interest income | 1,816 | 1,845 | 9,310 | 5,994 | ||||||||||||||
| Interest expense | (25,749 | ) | (14,889 | ) | (72,122 | ) | (57,259 | ) | ||||||||||
| Miscellaneous, net | (642 | ) | (881 | ) | 2,941 | 2,359 | ||||||||||||
| (24,575 | ) | (13,925 | ) | (59,871 | ) | (48,906 | ) | |||||||||||
| Income from Continuing Operations before Income Taxes | ||||||||||||||||||
| 226,040 | 191,293 | 905,570 | 777,238 | |||||||||||||||
| Income Taxes | 61,994 | 49,900 | 292,324 | |||||||||||||||
