VF Corporation reported that second quarter sales rose 13% to $1.44 billion from $1.27 billion in the prior year's second quarter. Net income increased 11% to $100.0 million, or 88 cents per share, from $90.1 million, or 80 cents per share in the year-ago period. Second quarter earnings include a net benefit of 7 cents per share from special items. Similarly, second quarter EPS in 2004 included a net benefit of 4 cents per share related to the exit of the former Playwear business.

The acquisitions of the Vans®, Napapijri®, Kipling®, Reef® and Holoubek businesses added $156 million to sales and 9 cents to earnings per share in the 2005 quarter.

For the first six months of 2005, sales increased 11% to $3.00 billion from $2.70 billion. Net income rose 15% to $222.9 million from $194.0 million, with earnings per share rising 13% to $1.95 from $1.73. The above acquisitions contributed $312 million to sales and 20 cents to earnings per share in the first half of 2005.

“We are delighted to report another record quarter,” commented Mackey J. McDonald, chairman and chief executive officer. “Our strategy to transform VF into a higher growth, more dynamic company is working: we're investing behind our core brands to maintain their leadership positions and at the same time using our operational and brand management skills to effectively integrate and grow our new brands. Most of our core businesses are strong, healthy and operating at very profitable levels, and our acquisitions are clearly delivering on their potential.”

He continued, “Earnings rose more than we anticipated during the quarter, due to particularly robust sales in our Outdoor and Sportswear coalitions, which in turn are driving higher gross margins. Two noteworthy examples in the quarter were our Vans® brand, where we are benefiting from very strong product launches and the success of a new retail merchandising format, and our Nautica® brand, where we experienced a double-digit sales gain and a big improvement in profitability. We also are gratified by the sales increase posted by our U.S. jeanswear business during the quarter.”


Total Jeanswear sales, which include the Wrangler®, Lee®, Riders®, Rustler®, H.I.S®, Maverick® and Old Axe® brands, rose 2% in the quarter, to $597 million versus $586 million in last year's second quarter, with increases in both international and domestic jeans sales. Sales in the Mass Market and Western Specialty businesses were robust, while the Lee® brand business declined. The increase in international jeans sales resulted from favorable foreign currency exchange rates. Jeanswear operating income increased 9%, including the aforementioned reductions in benefit accruals that were greater than required by local laws. The effect in any prior period was not significant.


Outdoor Coalition sales doubled in the quarter to $297 million from $146 million, with the acquisitions of the Vans®, Kipling®, Reef® and Napapijri® brands contributing $138 million of the increase. The Vans® and Kipling® brands had exceptionally strong results and continue to outpace expectations. The Reef® brand acquisition, which was completed in April 2005, contributed $25 million to sales in the quarter. Organic sales growth in the quarter was 9%, driven by strong growth in The North Face® and JanSport® brands. Operating income rose 97%, with a slight decline in margins reflecting the impact of recent acquisitions.

Intimate Apparel

Sales in our Intimate Apparel business, which includes our Vanity Fair®, Vassarette®, Lily of France®, Bestform® and Curvation® brands, declined 5% in the quarter, to $223 million from $235 million. We have noted previously that 2004 results benefited from a large new product launch with a specialty store customer, which will result in difficult sales and profit comparisons throughout 2005. The 61% decline in operating income and lower margins primarily result from the lower sales and aggressive actions taken to align capacity and reduce costs. We expect comparisons in the second half of the year to improve versus the first half.


Our Imagewear coalition reported a 4% sales increase in the quarter, to $181 million from $173 million. The increase in sales was a result of the January 2005 acquisition of the assets of a licensee of the Harley-Davidson Motor Company, Inc., which drove a double-digit sales gain in our licensed sports apparel business. Occupational apparel sales were about flat in the quarter. Operating income rose 16% as we continue to lower product costs and leverage a very solid business platform.


Sales of our Sportswear businesses, which include the Nautica® and John Varvatos® brands, as well as Kipling® brand sales in North America, increased 22% in the quarter, to $127 million from $105 million. Each Nautica business unit – Men's Sportswear, Jeans, Furnishings and Retail – experienced solid gains in the quarter. The John Varvatos® men's luxury sportswear business also continued its rapid sales growth in the quarter. Operating income increased sharply to $19 million, or 15.1% of sales, compared to $1 million in last year's second quarter. Both sales and operating income in the 2004 quarter included the negative impact of an acquisition-related adjustment of $7 million.

Overall gross margins for VF increased by two full percentage points in the quarter, to 41.4% from 39.4%, with the improvement coming primarily from growth in our higher margin businesses. Operating margins declined to 11.1% from 11.8% in the prior year period, primarily due to the lower margins in our Intimates business in the current quarter. The tax rate for the 2005 period declined to 29.6% from 32.1% due to the net impact of the income tax settlements and repatriation of foreign earnings, as detailed above.

Our balance sheet remains in excellent shape, and we ended the quarter with $250 million in cash. Inventories were up 8% over June 2004 levels, with $23 million of the total increase of $82 million due to the 2005 acquisitions. Debt as a percent of total capital was 29.9% at the end of the quarter, or 24.9% net of cash. During the quarter we repaid $100 million of long-term debt and will repay another $300 million that becomes due on October 1, 2005. During the quarter we repurchased one million shares of common stock, bringing the total shares repurchased year-to-date to two million. We expect to repurchase an additional two million shares over the balance of the year.


For the full year, VFC continues to expect another record year in both sales and earnings. Sales are expected to rise approximately 7%, excluding any additional acquisitions. VFC anticipates that sales in the second half of the year will be up approximately 4%, which includes the negative impact of a stronger U.S. dollar versus our prior expectations. The company expects comparable increases in both the third and fourth quarters.

VFC now sees earnings rising about 10% in 2005 to approximately $4.65 per share, reflecting both continued strong performance across most of our businesses during the second half and the special items reported in the most recent quarter. Third quarter EPS should rise approximately 12%, including an $.08 per share impact from the recognition of certain costs related to the disposition of the Playwear business reported in the third quarter of 2004.

Dividend Declared

The Board of Directors declared a regular quarterly cash dividend of $.27 per share, payable on September 19, 2005 to shareholders of record as of the close of business on September 9, 2005.

                            VF CORPORATION
                  Consolidated Statements of Income
               (In thousands, except per share amounts)

                           Three Months Ended      Six Months Ended
                                   June                  June
                             2005       2004       2005       2004
                           ---------- ---------- ---------- ----------

Net Sales                 $1,435,831 $1,269,537 $2,999,474 $2,702,206

Costs and Operating
 Cost of goods sold          841,221    769,708  1,755,645  1,648,101
 Marketing, administrative
  and general expenses       445,813    371,785    909,485    763,796
 Royalty income and other     (9,873)   (11,368)   (23,222)   (24,608)
 Gain on disposal of
  Playwear business                -    (10,363)         -     (7,417)
                           ---------- ---------- ---------- ----------
                           1,277,161  1,119,762  2,641,908  2,379,872
                           ---------- ---------- ---------- ----------

Operating Income             158,670    149,775    357,566    322,334

Other Income (Expense)
 Interest, net               (16,449)   (16,656)   (32,107)   (33,437)
 Miscellaneous, net             (137)      (489)       (18)     1,118
                           ---------- ---------- ---------- ----------
                             (16,586)   (17,145)   (32,125)   (32,319)
                           ---------- ---------- ---------- ----------

Income Before Income Taxes   142,084    132,630    325,441    290,015

Income Taxes                  42,097     42,542    102,586     96,053
                           ---------- ---------- ---------- ----------

Net Income                $   99,987 $   90,088 $  222,855 $  193,962
                           ========== ========== ========== ==========

Earnings Per Common Share
 Basic                    $     0.90 $     0.82 $     2.00 $     1.77
 Diluted                        0.88       0.80       1.95       1.73