VF Corporation recorded a 12% jump in second quarter revenues to a record $1.52 billion from $1.35 billion in the same period last year. Income from continuing operations in the current quarter increased 18% to a record $105.8 million, compared with $89.6 million in the prior year's quarter. Earnings per share from continuing operations rose 16%, to a record 93 cents from 80 cents last year and included a 4 cents per share gain from the sale of the H.I.S trademarks and related intellectual property in Europe. Reflecting the impact of the discontinued intimate apparel business, the sale of which was concluded in the second quarter, net income was $81.7 million, or 72 cents per share, compared with $99.0 million, or 88 cents per share in the prior year quarter.
For the first half of 2007, revenues rose 14% to a record $3.19 billion from $2.81 billion. Income from continuing operations increased 15% to $239.9 million, compared with $207.7 million in the prior year period. Earnings per share from continuing operations rose 14% to $2.10. Net income, including the effects of discontinued operations in both periods, was $220.0 million, or $1.93 per share, compared with $227.2 million, or $2.02 per share in the prior year period. Year-to-date, the impact from discontinued operations was a net loss of $19.9 million, or 17 cents per share. Considering the anticipated gain on assets yet to be sold throughout the remainder of the year, the projected impact from discontinued operations for the full year is an estimated loss of 7 cents per share.
“The success of our brand portfolio management strategy is evidenced by another record quarter. Our core businesses, which remain strong and healthy, and the brands we have acquired over the last several years continue to drive tremendous shareholder value. Most importantly, we continue to see substantial opportunities for growth, particularly across our lifestyle brands,” said Mackey J. McDonald, Chairman and Chief Executive Officer. “Our two most recent acquisitions, the Eagle Creek® and Majestic® businesses, are performing very well, and we remain confident in our ability to successfully identify, acquire and integrate additional brands with strong growth potential.”
Second Quarter Business Review
Outdoor
Total revenues grew strongly in the quarter, up 20% to $446.8 million. Domestic revenues grew 10% in the quarter, driven by double-digit growth in The North Face and Reef brands and continued strong growth in our Vans brand. JanSport brand revenues declined in the quarter, due primarily to a shift in the timing of product shipments into the third quarter. The acquisition of the Eagle Creek brand of adventure travel gear added $10 million to revenues in the quarter. International revenues rose 48%, with The North Face, Vans, Kipling, Napapijri, Eastpak and Reef brands each growing in excess of 35%. Outdoor operating income grew 25% in the quarter, reflecting the strong increase in revenues.
Jeanswear
Revenues in the Jeanswear coalition, which includes the Wrangler, Lee and Riders brands, rose 3%. The increase was driven by a 14% increase in international revenues in the quarter, led by continued strong performance of the Lee brand and rapid growth in emerging markets such as China, Russia and India. Foreign currency translation also contributed to the international revenue gain, accounting for about half of the increase. Domestic revenues were flat in the quarter, with revenues in the Lee, Mass Market and Western Specialty businesses each approximately even with prior year levels. Jeanswear operating income rose 14%, with a strong increase in operating margins resulting from restructuring actions taken in prior periods.
Sportswear
Total revenues of the Sportswear coalition, which includes the Nautica and John Varvatos brands as well as the Kipling brand in North America, rose 9% in the quarter. The Kipling and John Varvatos businesses each posted revenue gains in excess of 25%, and revenues of Nautica branded business grew 6%. Operating income rose 5% in the quarter, with operating margins slightly below prior year levels due to continued investments to build the women's sportswear business.
Imagewear
Total revenues of our Imagewear coalition rose 22% due to the February 2007 acquisition of the Majestic Athletic business, which contributed $45 million to revenues in the quarter. Imagewear operating income and margins declined in the quarter compared with the very strong results in last year's second quarter, reflecting business and product mix changes in the current quarter. Operating income and margin comparisons for the second half of the year are expected to improve substantially.
Operating income, which includes a $7.5 million gain from the H.I.S sale, rose 16% in the quarter. Including this gain, operating margins rose to 11.1% from 10.8%.
During the quarter VFC concluded the share repurchase that utilized the proceeds from the sale of its Intimates business. The company repurchased 2.1 million shares in the second quarter, bringing the total number of shares repurchased this year to 4.1 million.
On the balance sheet, debt as a percent of total capital was 20% at June 2007, compared with 25% at June 2006.
A key growth strategy for VF is to expand its direct-to-consumer business primarily through retail store expansion. The company continues to grow its retail store base, ending the quarter with 544 owned retail stores, up from 533 at the end of the first quarter. Retail revenues grew 22% in the quarter, with strong growth in our Vans, Nautica and The North Face brand stores.
Outlook
The company continues to expect a fifth consecutive year of record results, with healthy organic growth. VFC is taking a cautious outlook regarding retail and consumer trends for the second half of the year by maintaining guidance for a 12% increase in both revenues and EPS. For the third quarter, revenues are expected to rise approximately 12%, while earnings per share from continuing operations should increase 10%. Operating margins should be strong and stable in the quarter, while the tax rate will be slightly higher, reflecting credits recorded in the prior year period. VFC also continues to expect a very strong year of cash flow from operations of approximately $625 million.
VF CORPORATION
Consolidated Statements of Income
(In thousands, except per share amounts)Three Months Six Months
Ended June Ended June
———————– ———————–2007 2006 2007 2006
———– ———– ———– ———–Net Sales $1,500,431 $1,332,892 $3,154,039 $2,769,598
Royalty Income 16,962 18,421 36,973 37,337
———– ———– ———– ———–Total Revenues 1,517,393 1,351,313 3,191,012 2,806,935
———– ———– ———– ———–Costs and Operating
Expenses
Cost of goods sold 865,727 765,554 1,811,610 1,590,154
Marketing,
administrative and
general expenses 483,204 439,970 995,615 883,679
———– ———– ———– ———–
1,348,931 1,205,524 2,807,225 2,473,833
———– ———– ———– ———–Operating Income 168,462 145,789 383,787 333,102
Other Income (Expense)
Interest income 2,848 1,292 5,292 2,710
Interest expense (13,101) (13,856) (27,024) (26,535)
Miscellaneous, net 1,483 542 1,749 1,371
———– ———– ———– ———–
(8,770) (12,022) (19,983) (22,454)
———– ———– ———– ———–Income from Continuing
Operations Before
Income Taxes 159,692 133,767 363,804 310,648Income Taxes 53,887 44,208 123,921 102,947
———– ———– ———– ———–Income from Continuing
Operations 105,805 89,559 239,883 207,701Discontinued Operations
Income from operations 171 9,473 4,437 19,516
Loss on disposal (24,314) – (24,314) –
———– ———– ———– ———–
(24,143) 9,473 (19,877) 19,516
———– ———– ———– ———–Net Income $ 81,662 $ 99,032 $ 220,006 $ 227,217
=========== =========== =========== ===========Earnings Per Common
Share – Basic
Income from continuing
operations $ 0.96 $ 0.81 $ 2.16 $ 1.88
Discontinued
operations – income
from operations 0.00 0.09 0.04 0.18
Discontinued
operations – loss on
disposal (0.22) – (0.22) –
Net income 0.74 0.90 1.98 2.06Earnings Per Common
Share – Diluted
Income from continuing
operations $ 0.93 $ 0.80 $ 2.10 $ 1.85
Discontinued
operations – income
from operations 0.00 0.08 0.04 0.17
Discontinued
operations – loss on
disposal (0.21) – (0.21) –
Net income 0.72 0.88 1.93 2.02Weighted Average Shares
Outstanding
Basic 110,504 109,854 111,199 109,867
Diluted 113,473 112,539 114,146 112,440Cash Dividends Per
Common Share $ 0.55 $ 0.55 $ 1.10 $ 0.84
VF CORPORATION
Supplemental Financial Information
Business Segment Information
(In thousands)Three Months Six Months
Ended June Ended June
———————– ———————–2007 2006 2007 2006
———– ———– ———– ———–Coalition Revenues
Jeanswear $ 655,402 $ 638,170 $1,416,206 $1,341,990
Outdoor 446,745 371,047 985,498 756,692
Imagewear 229,885 188,496 443,576 382,461
Sportswear 153,651 141,210 302,091 304,231
Other 31,710 12,390 43,641 21,561
———– ———– ———– ———–Total coalition
revenues $1,517,393 $1,351,313 $3,191,012 $2,806,935
=========== =========== =========== ===========Coalition Profit
Jeanswear $ 101,437 $ 88,850 $ 230,890 $ 211,873
Outdoor 52,962 42,355 136,707 92,947
Imagewear 26,052 29,107 56,506 59,158
Sportswear 18,834 17,885 28,808 38,338
Other 3,670 283 2,458 (927)
———– ———– ———– ———–Total coalition
profit 202,955 178,480 455,369 401,389Corporate and Other
Expenses (33,010) (32,149) (69,833) (66,916)
Interest, net (10,253) (12,564) (21,732) (23,825)
———– ———– ———– ———–Income from Continuing
Operations Before
Income Taxes $ 159,692 $ 133,767 $ 363,804 $ 310,648
=========== =========== =========== ===========
