VF Corp’s Revenues Climb 11% in Fourth Quarter

Reflecting solid organic growth in other coalitions, Jeanswear revenues grew 7%, Imagewear revenues rose 5% and Sportswear revenues increased 11%. Contemporary Brands revenues declined 9%.

Gross margins reached a record 46.6%, up from a previous high of 46.3% in the 2009 period. Operating margins on an adjusted basis declined to 12.9% from 13.6% in 2009, reflecting a disproportionately high level of incremental marketing investments made during the quarter.

Net income on an adjusted basis rose 8% to $196.1 million from $181.3 million, while adjusted earnings per share increased 10% to $1.78 per share from $1.62 per share. On a GAAP basis, net income was $54.2 million compared with $66.9 million in 2009, and earnings per share were $.49 compared with $.60 in the 2009 period.

“These results – in an economic environment that remains fragile – prove that VF has the right brands and strategies to win,” said Eric Wiseman, chairman and chief executive officer. “We're uniquely positioned for long-term success, driven by our exceptionally powerful and diverse brand portfolio, substantial growth opportunities both domestically and internationally, and the balance sheet and cash to fuel our expansion.”

Full Year Results Summary

Revenues increased 7% to $7.7 billion from $7.22 billion in 2009, with Outdoor & Action Sports revenues rising 14% during the year; Jeanswear revenues rose 1%, Imagewear and Contemporary Brands revenues each grew by 5%, and Sportswear revenues were flat.

Gross margins reached a record 46.7%, up 240 basis points from 44.3% in 2009. Exceptional growth in our high margin direct-to-consumer and lifestyle businesses, improved profitability in our retail operations, and lower product costs were the key factors contributing to the increase. Operating margins on an adjusted basis were 13.3% in 2010, expanding by 140 basis points including the aforementioned $100 million in additional marketing investments.

Net income on an adjusted basis rose 24% to $713.2 million from $575.7 million, while adjusted earnings per share increased 25% to $6.46 from $5.16. On a GAAP basis, net income also rose 24%, to $571.4 million in 2010 from $461.3 million in 2009 and earnings per share rose 25% to $5.18 in 2010 from $4.13 in 2009.

Adjusted Amounts – Excluding Noncash Impairment Charges

As a result of our review of goodwill and intangible assets that VF conduct during the fourth quarter of each year in connection with its strategic planning process and preparation of its annual financial statements, the company recorded a $201.7 million pre-tax noncash impairment charge in the fourth quarter of 2010 to reduce the carrying value of the goodwill and intangible assets related to our 7 For All Mankind brand. On an after-tax basis, the charge totaled $141.8 million, which decreased full year 2010 earnings per share by $1.29. Similarly, we recorded impairment charges of $122.0 million in 2009 related to other businesses. On an after-tax basis, these charges totaled $114.4 million, which decreased full year earnings per share in 2009 by $1.03.

Fourth Quarter Business Review

Outdoor & Action Sports: The momentum continues in its Outdoor & Action Sports businesses, which again achieved record revenues, operating income and operating margins in the current quarter. Total global revenues in Outdoor & Action Sports rose 20% in the quarter, with revenues of our Americas business rising 17% and international revenues up 32% on a constant currency basis. The strength of The North Face and Vans businesses led to growth in global revenues for these brands of 25% and 18%, respectively. Our international Kipling and Napapijri businesses also achieved outstanding 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.

Operating income rose by 27%, with operating margins increasing by one full percentage point to 20.1% in the quarter. The strong top and bottom line growth was fueled in part by a nearly 60% increase in brand-building investments and initiatives during the quarter, particularly in The North Face and Vans brands.

Jeanswear: Our Global Jeanswear business experienced healthy top line growth and higher operating margins during the quarter. Global Jeanswear revenues grew 7% in the quarter. The exit of our European mass market business in 2009 negatively impacted the revenue comparisons by 1%. Domestic revenues rose 6% with growth in all three major businesses: Mass Market revenues grew 5% in the quarter, and revenues in our Lee® and Western businesses rose 8% and 7%, respectively. International jeans revenues rose 9%, despite a 5% negative impact from the exit of our European mass market business. Jeanswear revenues in Asia increased 42%; strong growth was also achieved in Mexico, Latin America and Canada.

Operating income increased 10%, with operating margins rising to 16.4% from 15.9% in the quarter reflecting improved profitability in our international jeans businesses.

Imagewear: Its Imagewear business achieved another quarter of solid performance, with a 5% increase in revenues and a 14% increase in operating income. Fueling coalition revenue and profit growth in the quarter was a 14% increase in Image (uniform) revenues. Growth in its  flame-resistant apparel business under its highly profitable Bulwark brand contributed to the quarter's results and should be a source of growth in future periods as well.

Sportswear: Sportswear revenues increased 11%, with double-digit increases in both its Nautica and Kipling brands. Nautica brand revenues grew by 10% in the quarter, with strong growth in the brand's core wholesale men's sportswear business. A 30% increase in Kipling brand revenues resulted from the successful launch earlier this year of a new program that is exclusive to Macy's.

Sportswear profitability continued to improve, with operating income rising 27% in the quarter and operating margins reaching nearly 14%.

Contemporary Brands: Revenues of its Contemporary Brands coalition, which consists of the 7 For All Mankind, John Varvatos, Splendid and Ella Moss brands, declined 9% in the quarter, with foreign currency translation accounting for 2 percentage points of the decline. Conditions in the U.S. premium denim market remain soft, contributing to a decline in 7 For All Mankind brand revenues in the quarter. Its Splendid, Ella Moss and John Varvatos brands each grew revenues at a mid-teen rate during the quarter. Building its contemporary brands' direct-to-consumer businesses, including new stores and e-commerce, continues to be an important component of our growth plans for these businesses, and during the quarter direct-to-consumer revenues for its Contemporary Brands coalition grew 42%.

The coalition recorded an operating loss of $8 million in the quarter, reflecting inventory reduction initiatives as well as continued investments in new 7 For All Mankind retail stores and marketing programs to support future growth globally.

Expansion in International Revenues

Its international businesses remain an important long-term driver of both organic growth and margin expansion. During the quarter, international revenues increased 22% on a constant currency basis driven by strong growth in its European Outdoor & Action Sports businesses, and across our biggest brands in Asia. Total revenues in Asia were up 31% in the quarter, with its jeanswear, The North Face and Vans businesses each growing in excess of 40% in the quarter. For the full year in 2010, international revenues grew 7% (8% in constant dollars) and accounted for 30% of total revenues. Revenues in Asia increased 31% in 2010. With an established infrastructure now in place, India has emerged as an important new market for future growth. Revenues in India nearly doubled in the fourth quarter and rose 60% for the full year.

Given their strong profitability and efficient tax structure, VF said its  international businesses continue to be a key driver to both operating income and earnings per share growth.

Growth in Direct-to-Consumer Revenues

Its direct-to-consumer revenues increased 13% in the quarter, driven by new store openings and comp store growth. The direct-to-consumer businesses of The North Face, Vans, 7 For All Mankind, Kipling and Napapijri brands each achieved double-digit revenue gains in the period. VF opened a total of 23 stores across its brands in the quarter and 85 stores during the year, bringing the total number of owned retail stores to 786 in 2010. Its direct-to-consumer revenues grew 13% in 2010, rising to 18% of total revenues.

Marketing Investments Driving Organic Growth

As noted above, marketing spending increased 48% ($45 million) in the fourth quarter and 30% ($100 million) for the full year. Marketing spending as a percent of total revenues reached a high of 5.5% in 2010 compared with 4.6% in 2009. While over half of this increase in total spending was behind The North Face and Vans brands, where brand investments doubled during the year, nearly every brand in its portfolio received additional marketing support in 2010. Heavy investments were also made this year to support its rapidly-growing and highly profitable businesses in China.

Cash Flow from Operations Rises to a Record $1 Billion

Cash flow from operations reached an all-time high of $1 billion in 2010. Cash rose to $792 million at the end of the year. Inventories rose 12%, as expected, to support strengthening revenue trends. During 2010 we spent $412 million to repurchase 5.1 million shares, made $264 million in dividend payments, paid down $200 million of long-term debt, and contributed $100 million to our pension plan.

2011 Guidance: Strong Top and Bottom Line Growth and Stable Operating Margins

“We enter 2011 with excellent top and bottom line momentum, and our brands very well-positioned to grow and capture additional market share,” said Wiseman. “2011 should mark the highest rate of organic revenue growth since 2007. The investments made last year to drive organic growth were successful and will continue this year, further strengthening our foundation for delivering solid, sustainable growth in 2011 and beyond.”

Revenues in 2011 are expected to increase by 8 to 9%, and we anticipate earnings per share rising to $7.00 to $7.10 this year.

Operating margins are expected to be comparable to the 13.3% achieved in 2010. Reflecting higher product costs, gross margins are expected to decline, but by less than one percentage point, as margins will also continue to benefit from our changing business mix. We will continue to invest strongly in our brands, with the ratio of marketing spending to revenues remaining at approximately the same level in 2011 as in 2010. However, our overall SG&A spending will represent a lower percentage of revenues in 2011, reflecting the leverage from strong revenue growth.

Key points related to its 2011 outlook include:

    * Solid revenue growth across all coalitions, highlighted by mid-teen percentage growth in Outdoor & Action Sports and supported by continued healthy levels of marketing spending. Our Jeanswear, Imagewear, Sportswear and Contemporary coalitions are each planning for mid-single digit revenue growth in 2011.
    * 15% growth in international revenues, with low double-digit growth expected in both Europe and the Americas, and exceptionally strong growth in Asia. Growing our business in Asia – particularly in China and India – remains a strategic priority, with revenue growth expected to exceed 25% this year. On a longer term basis, we remain confident in our ability to achieve 40% of total revenues from international markets.
    * 10 to 15% revenue growth in our direct-to-consumer business. Growth will be driven by approximately 100 store openings in 2011 – the highest number of store openings in our history – and low single-digit comp store growth, in addition to the continued rapid growth in our e-commerce business. Over half our new store openings will be outside the U.S., further supporting our international growth plans. We expect that our direct-to-consumer revenues will approach 20% of total revenues in 2011.

Dividend Declared

The Board of Directors declared a quarterly cash dividend of 63 cents per share, payable on March 21, 2011 to shareholders of record as of the close of business on March 11, 2011.