VF Corp. reported second quarter revenues rose 7% to $1.59 billion from $1.49 billion in the second quarter of 2009. Net income and earnings per share reached record levels in the quarter, with each increasing by 47%. Net income rose to $110.8 million, or $1.00 per share, compared with $75.5 million, or 68 cents per share, in the 2009 quarter.

For the first half of 2010, revenues increased 4% to $3.34 billion from $3.21 billion in the 2009 period. Net income rose 55% to $274.4 million from $176.5 million, while earnings per share also increased 55% to $2.47 from $1.59. Foreign currency translation rates benefited earnings by $.06 per share in the first half of 2010.

“This was another outstanding quarter: revenues grew across all coalitions, gross margins reached record levels and earnings per share hit an all-time high,” said Eric C. Wiseman, chairman and chief executive officer. “While current indicators point to a pause in the economic recovery, strong, highly profitable brands with compelling products that speak to consumers' needs can be successful regardless of the external environment. Our outstanding and diversified brand portfolio continues to perform exceptionally well and we look forward to a strong second half.”

Second Quarter Business Review

Outdoor & Action Sports: Its Outdoor & Action Sports businesses achieved record revenues, operating income and operating margins in the second quarter. Global revenues rose 12% with strong increases in both its Americas and international businesses. Revenue growth in Asia was particularly strong, rising 28% in the quarter. Global revenues of The North Face and Vans brands grew 12% and 24%, respectively. Total direct-to-consumer revenues for its Outdoor & Action Sports businesses rose 13% in the quarter, with double-digit growth in The North Face, Vans and lucy brands.

Operating income rose by 35%, with operating margins increasing by more than two full percentage points to nearly 14% in the quarter, despite significant increases in marketing and other brand-building investments.

Jeanswear: Its global Jeanswear business resumed growth in the quarter, with revenues rising 2%. Domestic revenues rose 5% with growth in all three major businesses – Mass Market, Lee and Western Specialty. We were especially pleased with the 6% increase in its Mass Market business, driven by continued strength in our core Wrangler and Riders businesses. Revenues of its Lee brand in the U.S. rose 2% in the quarter and revenues in VF's Western Specialty business increased 5%. International jeans revenues declined 5% due primarily to the exit of its mass business in Europe. Solid growth continued in other international markets including Mexico, South America and Canada.

Operating income increased 40%, with a significant increase in operating margins to 17% in the quarter.

Sportswear: The Sportswear business also resumed growth in the quarter, with revenues rising 5%. Revenues of its Nautica brand increased 4% with a double-digit increase in the brand's wholesale business with department stores. Kipling brand revenues in the U.S. increased 17% in the quarter, reflecting the successful launch of a new, exclusive program with Macy's. The improvements in profitability achieved in the past several quarters continued in the second quarter, with operating income and operating margins improving substantially over those of the prior year's quarter.

Contemporary Brands: Revenues of the Contemporary Brands coalition, which consists of the 7 For All Mankind, John Varvatos, Splendid and Ella Moss brands, rose 18%, driven by double-digit growth across all brands.

Operating income rose 12%, with a slight decline in operating margins reflecting higher brand spending as well as investments in new 7 For All Mankind® retail stores.

Imagewear: As anticipated, VF's Imagewear business rebounded in the quarter, with revenues rising 8% driven by growth in both its Image and Licensed Sports Apparel businesses. Operating income rose 36% in the quarter with operating margins improving by 250 basis points to 12%.

Gross Margins Reach Record Level in Quarter

Second quarter gross margins reached record levels, rising 320 basis points to an all-time high of 47.1%. As in the first quarter, this substantial improvement was driven by three primary factors: 1) lower product costs; 2) continued expansion and improved gross margins in its retail stores; and 3) generally clean inventories across its businesses. Operating margins rose to 10.6% from 8.1%, while marketing spending increased 19% as we continued to implement a focused program of investment spending behind its strongest and most profitable brands.

Expansion in International and Direct-to-Consumer Businesses

VF said its international and direct-to-consumer businesses remain important long-term drivers of both organic growth and margin expansion. During the quarter, international revenues increased 6% on a constant currency basis driven by strong growth in its Outdoor & Action Sports and Contemporary Brands businesses. VF said its momentum in Asia continued in the quarter, with revenues rising 26% reflecting double-digit growth in The North Face, Vans and 7 For All Mankind brands.

Direct-to-consumer revenues increased 7%, driven by new store openings in the quarter. The direct-to-consumer businesses of The North Face, Vans, 7 For All Mankind and lucy brands each achieved double-digit revenue gains in the period. We opened a total of 25 stores across VF's brands in the quarter and 41 stores year-to-date, bringing the number of owned retail stores to 768 at the end of the quarter. We remain on track to open a total of 80 to 90 stores this year.

Strong Balance Sheet

Cash and equivalents were $540 million at the end of the quarter and inventories declined 10% from prior year levels. VF said it continues to expect a very strong year of cash flow generation, which is now expected to approximate $850 million. Year-to-date we have spent $318 million to repurchase 4 million shares, which is one million shares higher than indicated in its previous guidance.

2010 Outlook: Expecting Record EPS

Based on strengthening trends across its businesses – and in particular in those areas where VF has increased its marketing spending – the company now expects revenues to increase 4 to 5% in 2010 compared with our prior guidance of an increase of 3 to 4%. The new guidance includes a negative 1% impact on revenues from foreign currency translation due to the decline in the value of the euro since VFs prior guidance in April. On a constant currency basis revenues are expected to rise 5 to 6%.

VF also said it is raising its earnings per share guidance to $6.10 per share, versus our previous guidance of $5.90 per share. The new guidance, which includes a negative impact from foreign currency translation of $.04, represents an increase of 18% over 2009 earnings per share of $5.16 (before impairment charge). On a GAAP basis, earnings per share are now expected to increase 48% from the $4.13 reported in 2009.

The revised guidance reflects its expectation for an increase of approximately 5% in second half revenues versus 2009, compared with a 4% increase in first half revenues. Gross margins in the second half of 2010 should be above prior year levels. An increase in SG&A in the period will reflect the timing of higher investment spending in its brands. Of the total $85 million in planned spending this year, $65 million will occur in the second half of the year. Also included in our guidance for second half earnings is a negative impact of $.10 per share from foreign currency translation, with most occurring in the third quarter.

For the full year, VF expects gross margins will reach record levels, slightly exceeding 46%. Operating margins should improve substantially as well, despite the incremental $85 million in brand investments.

Concluded Wiseman, “I can think of no better way to demonstrate our confidence in the strength of our brands than by continuing to invest behind their global growth potential. We look forward to reaping the benefits of these investments this year in the form of strong revenue growth, record gross margins and all-time high earnings.”

Dividend Declared

The Board of Directors declared a quarterly cash dividend of $.60 per share, payable on September 20, 2010 to shareholders of record as of the close of business on September 10, 2010.

About The Author

Thomas J. Ryan

Thomas J. Ryan Senior Business Editor | SGB Media tryan@sgbonline.com | 917.375.4699



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Supplemental Financial Information
Business Segment Information
(In thousands)


Three Months Ended June
Six Months Ended June




Coalition Revenues

Outdoor & Action Sports $ 584,447

$ 523,547

$ 1,263,009

$ 1,141,819









Contemporary Brands




Total coalition revenues $ 1,594,104  
$ 1,485,637  
$ 3,343,983  
$ 3,211,111  



Coalition Profit

Outdoor & Action Sports $ 81,522

$ 60,386

$ 214,227

$ 148,981









Contemporary Brands