VF Corporation announced record results for the fourth quarter and record earnings for the full year. Q4 earnings from continuing operations rose 52% to $.96 per share, compared with $.63 per share in 2002. Income from continuing operations was $105.6 million versus $70.3 million in the 2002 period. Sales in the quarter rose 6% to $1,387.3 million versus $1,310.6 million in the prior year's quarter.
Foreign currency translation benefited sales and earnings per share by $31
million and $.03, respectively, in the quarter.
For the full year 2003, earnings from continuing operations rose to $3.61 per
share, an increase of 11% over the $3.24 per share reported in 2002. Income from
continuing operations was $397.9 million versus $364.4 million reported a year
ago. Sales rose 2% to $5,207.5 million compared with the $5,083.5 million
reported in the 2002 period. Foreign currency translation benefited sales and
earnings per share by $128 million and $.14, respectively.
The addition of Nautica contributed approximately $177 million in sales and $.11
per share to fourth quarter results, and $249 million in sales and $.16 per
share to full year results.
Commented Mackey J. McDonald, chairman and chief executive officer, “The
contributions from our newer businesses, namely, Nautica and The North Face, are
paying off in the form of higher sales and profits for our Company. At the same
time our core businesses continue to enjoy healthy profitability and generate
the strong cash flow we'll be using to fund our future growth.”
Mr. McDonald continued, “We expect continued growth in both sales and earnings
in 2004. At the same time, we believe it is time to take a more aggressive
approach to growth. Several months ago we launched an initiative within VF
designed to surface substantial new growth opportunities within our coalitions,
across coalitions and into new categories. We are developing specific plans to
unlock the potential of our current brands, focus more heavily in certain
geographic areas, find new ways to partner with our customers and step up the
pace of acquisitions to strengthen our portfolio.”
Business Review
Total sales in 2003 rose 2%, a result of strong performance in our Outdoor
businesses and the acquisition of Nautica. Sales in the Company's Outdoor
coalition, which includes The North Face(R), JanSport(R) and Eastpak(R) brands,
rose to $581 million in 2003 from $508 million in 2002, an increase of 14%.
These results were driven by a sales increase of more than 25% in The North
Face(R) brand globally and strong growth in our international businesses across
each brand. Nautica performed better than we had anticipated. Nautica's
sportswear business performed better than we planned; Nautica's men's jeanswear,
retail and licensing businesses all performed well. The initial response by
customers to our Fall 2004 line has been positive, and we are encouraged by our
progress in addressing product and brand positioning issues.
As anticipated, sales in our core businesses continued to reflect soft retail
sales of apparel. Total jeans sales declined 4% to $2,667 million from $2,788
million. International jeans sales rose 5% from prior year levels due to
favorable currency translations. As anticipated, domestic jeans sales declined
7%, reflecting competitive conditions at retail and a large number of store
closings by a major customer.
Global intimate apparel sales declined slightly, to $830 million in 2003 from
$840 million. Sales in our Imagewear coalition also declined slightly.
Occupational apparel sales declined 8%, while licensed sports apparel sales
climbed 17%.
We are continuing our negotiations for the sale of our Playwear and of our John
Varvatos businesses. We anticipate the disposal of our Playwear business will
impact earnings by approximately $.03 to $.05 per share in 2004.
Gross margins improved by more than 100 basis points in 2003, rising to 37.4%
from 36.0%, while operating margins rose to 12.4% from 12.2%.
Earnings in 2003 also benefited from higher interest income and a lower tax
rate, both resulting from favorable tax settlements received in the fourth
quarter.
VF's balance sheet, liquidity and cash flow remain very strong, particularly
given the acquisition of Nautica in the third quarter. Our focus on inventory
management has paid off: inventories at year-end were up 12% over prior year
levels, with all of the increase resulting from the Nautica acquisition and
foreign currency effects. At year-end, cash totaled $515 million. Debt as a
percent of total capital was 33.7% at the end of the year; net of cash, debt was
19.6% of total capital. Cash flow from operations was $544 million, with Nautica
adding approximately $60 million since being acquired.
Outlook
We're looking forward to another record year in earnings in 2004, and are
currently projecting a 5% increase in both earnings and sales.
Sales growth will be driven primarily from the acquisition of Nautica, which is
expected to contribute approximately $550 million to full year sales and at
least $.16 to earnings per share in 2004. Our Outdoor businesses are also
expecting another strong year of double-digit sales growth. Total jeanswear
sales are expected to be about flat with prior year levels, with low-single
digit sales increases expected in both global intimate apparel and imagewear. We
also expect sales will reflect the exit of our Playwear business, which
contributed approximately $141 million to sales in 2003.
Operating margins in 2004 are expected to be up slightly, and reflect continued
improvement in gross margins. We expect higher interest expense in 2004, due to
higher long-term borrowings, and a tax rate of approximately 34.5%. Cash flow
from operations is expected to range between $450 and $500 million.
In terms of the first quarter, we currently expect sales to rise 8-10%.
Reflecting the seasonal nature of Nautica's business, and its dilutive impact on
the first quarter, earnings are expected to be about flat with prior year
levels.
Dividend Declared
The Board of Directors declared a regular quarterly cash dividend of $.26 per
share, payable on March 19, 2004 to shareholders of record as of the close of
business on March 9, 2004.
VF CORPORATION
Consolidated Statements of Income
(In thousands, except per share amounts)
Three Months Ended Year Ended
----------------------- -----------------------
January 3 January 4 January 3 January 4
2004 2003 2004 2003
----------- ----------- ----------- -----------
Net Sales $1,387,259 $1,310,616 $5,207,459 $5,083,523
Costs and Operating
Expenses
Cost of products sold 868,747 873,447 3,262,375 3,254,008
Marketing,
administrative
and general expenses 366,462 325,180 1,331,814 1,229,902
Other operating
income (9,891) (4,420) (31,619) (22,311)
----------- ----------- ----------- -----------
1,225,318 1,194,207 4,562,570 4,461,599
----------- ----------- ----------- -----------
Operating Income 161,941 116,409 644,889 621,924
Other Income (Expense)
Interest income 6,844 2,290 11,456 7,397
Interest expense (17,966) (14,124) (61,368) (71,325)
Miscellaneous, net 745 1,510 3,529 3,732
----------- ----------- ----------- -----------
(10,377) (10,324) (46,383) (60,196)
----------- ----------- ----------- -----------
Income from Continuing
Operations
Before Income Taxes 151,564 106,085 598,506 561,728
Income Taxes 45,931 35,748 200,573 197,300
----------- ----------- ----------- -----------
Income from Continuing
Operations 105,633 70,337 397,933 364,428
Discontinued Operations - 6,263 - 8,283
Cumulative Effect of
Change in Accounting
Policy for Goodwill - - - (527,254)
----------- ----------- ----------- -----------
Net Income (Loss) $105,633 $76,600 $397,933 $(154,543)
=========== =========== =========== ===========
Earnings (Loss) Per Common Share - Basic
Income from continuing
operations $0.97 $0.64 $3.67 $3.26
Discontinued operations - 0.06 - 0.08
Cumulative effect of
change in accounting
policy - - - (4.83)
Net income (loss) 0.97 0.70 3.67 (1.49)
Earnings (Loss) Per Common Share - Diluted
Income from continuing
operations $0.96 $0.63 $3.61 $3.24
Discontinued operations - 0.06 - 0.07
Cumulative effect of
change in accounting
policy - - - (4.69)
Net income (loss) 0.96 0.69 3.61 (1.38)
Weighted Average Shares
Outstanding
Basic 107,845 108,379 107,713 109,167
Diluted 110,572 111,199 110,323 112,336
Cash Dividends Per
Common Share $0.26 $0.25 $1.01 $0.97
VF CORPORATION
Consolidated Balance Sheets
(In thousands)
January 3 January 4
2004 2003
------------ ------------
ASSETS
Current Assets
Cash and equivalents $514,785 $496,367
Accounts receivable, net 633,863 587,859
Inventories 932,985 830,518
Deferred income taxes 90,955 117,214
Other current assets 33,347 37,299
Current assets of discontinued operations 2,596 5,283
------------ ------------
Total current assets 2,208,531 2,074,540
Property, Plant and Equipment 1,559,846 1,539,269
Less accumulated depreciation 968,166 972,723
------------ ------------
591,680 566,546
Intangible Assets 318,634 -
Goodwill 700,972 473,355
Deferred income taxes 117,436 141,375
Other Assets 308,299 244,829
Noncurrent Assets of Discontinued
Operations - 2,506
------------ ------------
$4,245,552 $3,503,151
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term borrowings $33,948 $60,918
Current portion of long-term debt 1,144 778
Accounts payable 315,219 298,456
Accrued liabilities 515,630 502,057
Current liabilities of discontinued
operations 5,916 12,635
------------ ------------
Total current liabilities 871,857 874,844
Long-term Debt 956,383 602,287
Other Liabilities 436,018 331,270
Redeemable Preferred Stock 29,987 36,902
Common Shareholders' Equity
Common Stock 108,170 108,525
Additional paid-in capital 964,990 930,132
Accumulated other comprehensive income
(loss) (189,455) (214,141)
Retained earnings 1,067,602 833,332
------------ ------------
Total common shareholders' equity 1,951,307 1,657,848
------------ ------------
$4,245,552 $3,503,151
============ ============
