VF Corporation revenues rose 15% to $1.67 billion, compared with $1.46 billion in the first quarter of 2006, driven by higher revenues across the Outdoor, Jeanswear and Imagewear businesses. Income from continuing operations in the current quarter increased 13% to $134.1 million, compared with $118.1 million in the prior year's quarter. Earnings per share from continuing operations also rose 11%, to $1.17 from $1.05 last year.
The Majestic Athletic acquisition contributed three cents to earnings per share in the quarter. As previously disclosed, VF completed the sale of its intimate apparel business on April 1, 2007. Reflecting discontinued operations, net income was $138.3 million, or $1.20 per share, compared with $128.2 million, or $1.14 per share.
“We're off to a strong start for the year,” said Mackey J. McDonald, chairman and CEO. “We completed the sale of our Intimates business and made two acquisitions. Organic growth was 12% in the quarter – better than our initial guidance of 10% – while acquisitions added an additional three percentage points of growth to our top line. We are looking forward to continuing the momentum and delivering another record year of revenues and earnings to our shareholders.”
First Quarter Business Review
The momentum continues in VF's Outdoor coalition, with total revenues up 40% to $538.8 million and strong gains across nearly every brand. Domestic revenues grew 31% in the quarter, while international revenues rose 52%. The North Face, Vans, Kipling, Reef, Napapijri and Eastpak brands each posted double-digit revenue gains in the quarter. The acquisition of the Eagle Creek brand of adventure travel gear added $6 million to revenues in the quarter.
Operating income jumped 66% in the quarter, and operating margins expanded sharply reflecting the strong revenue gain.
Our Jeanswear coalition, which includes our Wrangler, Lee and Riders brands, posted an 8% gain in revenues during the quarter. Domestic revenues rose 5%, with healthy increases in both our Mass Market and Lee businesses. International revenues grew 14%, with double-digit growth in both Wrangler and Lee brands in Europe. Jeanswear revenues in Asia were up over 30%, and our joint venture in India also contributed to revenues in the quarter. Overall Jeanswear operating income rose 5%.
Total revenues of the Sportswear coalition, which includes our Nautica and John Varvatos brands as well as the Kipling brand in North America, declined 9% in the quarter. Kipling and John Varvatos businesses each posted double-digit revenue gains. As planned, revenues of the Nautica brand business declined in the quarter, due primarily to a shift in shipping dates by most of the brand's customers, as well as lower sales of distressed inventory.
VF continues to target a mid-single-digit revenue increase for the year for the coalition and expect more positive comparisons in both revenues and profits in the second half of 2007. Reflecting the lower revenues, as well as the sustained investments in the Nautica women's sportswear initiative, operating income for the coalition declined in the quarter.
Total revenues of the Imagewear coalition rose 10% due to the recent acquisition of the Majestic Athletic business. Majestic Athletic contributed $27 million to revenues in the quarter. Imagewear operating income rose slightly in the quarter, largely due to the aforementioned acquisition.
Gross margins and operating margins were essentially flat with prior year levels, at 43.5% and 12.9%, respectively. Foreign currency exchange rates positively impacted earnings per share by five cents in the quarter, while a higher tax rate and higher average shares outstanding negatively impacted earnings per share by two cents and three cents, respectively. During the quarter, the company repurchased 2 million shares as part of its plan to use the $350 million in proceeds from the sale of the Intimates business to repurchase shares this year.
VF's balance sheet continues to be very healthy. The increase in inventories is consistent with the increase in revenues, after taking into account the impact of our recent acquisitions. Accounts receivable, before the impact of recent acquisitions, were above prior year levels by 15%, due primarily to the strong revenue growth, particularly in the international businesses where payment terms are longer than those of the U.S. businesses. Debt as a percent of total capital was 24% at the end of the quarter, compared with 25% at the end of the comparable period in 2006.
Leveraging brands through a growing base of retail stores continues to be a strategic priority for VF. The company ended the quarter with 533 owned retail stores. Total retail revenues grew 19% in the quarter, with particularly strong growth in our Vans® brand stores.
With the positive momentum of the first quarter and the acquisitions of the Majestic and Eagle Creek brands, VF management now believes revenues for the year will approximate $7 billion, an increase of over 12%. They continue to expect healthy organic growth in all coalitions, and the two acquisitions should contribute $180 million to revenues in 2007. The company is also raising guidance for earnings per share from continuing operations from prior guidance of a 10% increase to a 12% increase. VF continues to expect a very strong year of cash flow from operations of approximately $625 million.
Looking at the second quarter, revenues should be up 14%. Earnings per share from continuing operations should increase 8% reflecting the seasonality of recent acquisitions and the timing of investments and other SG&A spending that will affect the operating margins of this seasonally lowest quarter of the year. The company expects operating margin expansion of approximately 40 basis points for the full year, including the impact of recent acquisitions that have not yet realized their full profit potential.
The board of directors declared a cash dividend of 55 cents per share, payable on June 18, 2007 to shareholders of record as of the close of business on June 8, 2007.
VF CORPORATION
Consolidated Statements of Income
(In thousands, except per share amounts)
Three Months Ended March
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2007 2006
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Net Sales $1,653,608 $1,436,706
Royalty Income 20,011 18,916
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Total Revenues 1,673,619 1,455,622
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Costs and Operating Expenses
Cost of goods sold 945,883 824,600
Marketing, administrative and general
expenses 512,411 443,709
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1,458,294 1,268,309
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Operating Income 215,325 187,313
Other Income (Expense)
Interest income 2,444 1,418
Interest expense (13,923) (12,679)
Miscellaneous, net 266 829
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(11,213) (10,432)
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Income from Continuing Operations Before
Income Taxes 204,112 176,881
Income Taxes 70,034 58,739
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Income from Continuing Operations 134,078 118,142
Discontinued Operations 4,266 10,043
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Net Income $ 138,344 $ 128,185
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Earnings Per Common Share - Basic
Income from continuing operations $ 1.20 $ 1.07
Discontinued operations 0.04 0.09
Net income 1.24 1.16
Earnings Per Common Share - Diluted
Income from continuing operations $ 1.17 $ 1.05
Discontinued operations 0.04 0.09
Net income 1.20 1.14
Weighted Average Shares Outstanding
Basic 111,893 109,854
Diluted 114,820 112,339
Cash Dividends Per Common Share $ 0.55 $ 0.29
