(Source: Business Wire)
VF Corporation (NYSE:VFC), a global leader in branded lifestyle
apparel, today announced results for the third quarter of 2009. All per
share amounts are presented on a diluted basis.
Third quarter revenues were $2,093.8 million, a decline of 5% compared
with $2,206.6 million in the third quarter of 2008, with foreign
currency translation accounting for two percentage points of the
decline. Net income in the current quarter was $217.9 million compared
with $233.9 million in the prior year's quarter. Earnings per share
declined to $1.94 from $2.10. The current year included a $.17 per share
combined impact from higher pension expense and foreign currency
translation of $.11 and $.06 per share, respectively. Also impacting the
comparison was a $.07 per share benefit from unusual items in last
year's third quarter.
For the first nine months of 2009, revenues were $5,304.9 million, down
7% from $5,730.5 million in the prior year period. Foreign currency
translation accounted for three percentage points of the decline. Net
income and earnings per share both declined 19% to $394.4 million and
$3.54 respectively. A majority of the earnings per share decline was due
to higher pension expense and foreign currency translation impacts of
$.36 and $.19 per share, respectively, which together accounted for $.55
of the $.83 per share reduction.
"We achieved an important improvement in our third quarter performance
relative to the first half of the year as conditions have stabilized,
giving us the confidence to move our earnings guidance toward the higher
end of our prior range," said Eric C. Wiseman, Chairman, President and
Chief Executive Officer. "Our relentless drive to control costs, reduce
inventories and focus investments on our highest return opportunities
has served us very well during these difficult and volatile times. We
will continue this disciplined approach through the balance of this year
and into 2010 to maximize opportunities for both top and bottom line
growth."
He continued, "Our four largest brands -- Wrangler®,
Lee®, The North Face® and Vans®,
representing approximately 60% of our total revenues -- are strong and
healthy, and continue to gain share in most markets. And, we were
pleased that our fifth largest brand, Nautica®, grew
revenues and achieved a significant improvement in profitability in the
quarter with a return to double-digit margins."
He added, "We are also pleased to announce a 2% increase in our
quarterly dividend, to $.60 per share, which will mark 2009 as the 37th
consecutive year of higher dividend payments to shareholders. Strong
cash generation has enabled us to continue to build on our
long-established track record of increasing our dividend and returning
superior value to our shareholders."
Third Quarter Business Review
Outdoor and Action Sports
Third quarter revenues in our Outdoor and Action Sports coalition were
about even with the prior year, with operating income and margins each
reaching record levels in the period. On a constant currency basis,
revenues rose 3%. Global revenues of The North Face®
and Vans® brands grew 10% and 4%, respectively, in the
quarter on a constant currency basis. Total coalition revenues in our
Americas businesses rose 1%, while international revenues were up 4% in
constant dollars, led by exceptionally strong growth in Asia. Total
direct-to-consumer revenues for our Outdoor and Action Sports coalition
rose 17% in the quarter, with double-digit growth in our The North
Face®, Vans® and Napapijri®
brands.
Operating income rose with margins reaching a record 23.1% in the
quarter, with continued expansion in gross margins.
Revenue growth should accelerate in the fourth quarter primarily due to
an increase in our owned retail store business, as well as more
favorable foreign currency translation rates. In addition, operating
margins should continue to expand in the quarter compared with the prior
year period.
Jeanswear
As anticipated, revenue comparisons in our global Jeanswear business
improved in the third quarter versus the second. On a constant currency
basis, revenues were down 7% in the third quarter compared with a 12%
decline in the second quarter. The improvement is especially evident in
our domestic business, which was down 6% in the third quarter compared
with a decline of 12% in the second quarter. We continued to grow market
share in our Wrangler® men's and our Lee®
men's and women's jeans and casuals businesses in the U.S. Total
coalition revenues declined 11% on a reported basis in the quarter.
International jeanswear revenues were down 10% on a constant currency
basis in the quarter, reflecting continued difficult economic conditions
across Europe. Strong growth continued in Asia, where jeanswear revenues
rose 17%.
Operating income declined in the quarter on lower revenues, while
operating margins improved to 16.7%.
Fourth quarter revenue comparisons are expected to improve over those of
the third quarter. Operating margins should be nearly double those of
the prior year's quarter, reflecting strong gross margin expansion both
domestically as well as internationally. In addition, operating margins
last year were impacted by actions taken in that period to reduce costs.
Sportswear
Revenues of our Sportswear coalition, which includes our Nautica®
brand and the Kipling® brand in North America, grew 4%
in the quarter -- a significant improvement compared with first half
results. While the third quarter benefited from a slight shift in Nautica®
brand wholesale shipments from the fourth quarter to the third, we
continue to expect better comparisons in the second half versus the
first, with a mid single-digit decline in total coalition revenues in
the period.
Operating margins rebounded strongly in the quarter to 15.8%, reflecting
improved margins in our Nautica®brand wholesale
business and aggressive cost and inventory reduction actions. We
continue to expect double-digit operating margins for both the fourth
quarter and the year.
Contemporary Brands
Revenues of our Contemporary Brands coalition, which consists of the 7
For All Mankind®, lucy®, John
Varvatos®, Splendid® and Ella Moss®
brands increased 3% (or 4% on a constant currency basis), with the
acquisition of the Splendid® and Ella Moss®
brands contributing $20 million to revenues in the quarter. Weak
conditions in upper tier department and specialty stores continued in
the U.S., resulting in a decline in 7 For All Mankind®
global brand revenues in the quarter. Despite the revenue challenge, the
operating margin for our 7 For All Mankind® brand for
the year should be well above VF's overall long-term target of 15%.
We expect much stronger revenue and operating income comparisons in the
fourth quarter, with better top line performance in our 7 For All
Mankind® brand resulting from new store openings and
continued growth in our international business. The addition of the
Splendid® and Ella Moss® brands will
also continue to benefit both revenues and operating margins. We remain
confident coalition operating margins will return to strong double-digit
levels in the fourth quarter.
Imagewear
Imagewear coalition revenues fell 15% in the quarter, with comparable
declines in both our Image and Licensed Sports businesses. Our Image
business has been impacted this year by high levels of unemployment in
key sectors affecting our industrial and protective apparel businesses.
Licensed Sports revenues have been impacted by lower attendance at
sporting events as well as the overall economic environment which has
led to reduced sales of highly discretionary products such as team
sports apparel.
Operating income and margins declined reflecting the lower volumes,
particularly those in our industrial and protective apparel businesses
where profitability levels are higher than the coalition average.
While high unemployment levels will continue to impact Image revenues in
the fourth quarter, our customer relationships remain strong and we are
well positioned to capitalize on new business opportunities when
economic conditions improve. We also expect easier comparisons in our
Licensed Sports business in the fourth quarter. The coalition's
operating margin is expected to be relatively stable in the quarter
compared with the prior year period.
VF's gross margins remained near record levels for the period, and were
44.3% compared with 44.4% in last year's third quarter. Despite a 100
basis point impact from higher pension expense, operating margins
declined only slightly, to 15.2% in the quarter from 15.9% in the prior
year period.
International and Direct-to-Consumer
Continued growth in our international and direct-to-consumer businesses
remain key long-term drivers of both organic growth and margin
expansion. During the quarter, international revenues declined 2% on a
constant currency basis due to weak market conditions affecting our
European jeanswear business in particular. However, on a constant
currency basis, international revenues of our Vans®and The
North Face® brands rose in the quarter. Our highly
profitable Asian business continued to grow strongly, with revenues up
32% in the quarter.
Our direct-to-consumer business increased 6% in the quarter, driven by
strong increases in our Vans®, The North Face®,
7 For All Mankind® and Napapijri® brands.
Our direct-to-consumer business represented 15% of VF's total revenues
in the quarter, up nearly 2 percentage points from the prior year's
quarter. Operating margins of this business also expanded during the
quarter, driven primarily by our successful full-price retail formats.
We opened a total of 23 stores across our brands in the quarter,
bringing the number of owned retail stores to 733 at the end of the
quarter. Year-to-date, we have opened 59 stores, and we now expect to
open more than 80 stores in total this year.
Balance Sheet and Cash Flow
"A strong balance sheet and cash flow are VF hallmarks, and our focus on
working capital management has further enhanced our financial position
in 2009," said Mr. Wiseman. "We now expect that cash flow from
operations could reach $800 million this year, versus our prior guidance
of $750 million."
Cash and equivalents were $379 million and should exceed $600 million at
year-end assuming no additional acquisitions this year. Our inventory
reduction actions have resulted in a decline in inventories of 13% from
September 2008 levels. By year-end, we expect inventories to also be
down approximately 13%, or $150 million, from year-end 2008 levels.
Outlook
"We are confident that VF has the right levers in place to drive
long-term shareholder value: a foundation of powerful brands with
significant long-term growth potential; expanding international and
direct-to-consumer platforms that will enhance our brands' reach to
consumers while also driving higher margins; and exceptionally strong
cash flow that supports our solid dividend and acquisition strategy,"
said Mr. Wiseman.
With three quarters of the year behind us, we are strengthening our full
year earnings guidance. We anticipate that 2009 revenues will be down
about 6%, with 2% of the decline due to foreign currency translation.
Earnings per share should range between $4.85 and $5.00 versus $5.42 in
2008, including a negative impact of approximately $.70 per share in
2009 from higher pension expense and currency translation.
We expect stronger revenue comparisons in the fourth quarter, helped in
part by more favorable foreign currency translation rates. Earnings per
share should be up sharply over 2008 levels, as comparisons will benefit
from our growing direct-to-consumer business, operating efficiencies and
the absence of the restructuring actions that reduced last year's fourth
quarter earnings by $.30 per share. Foreign currency translation rates
should be neutral to earnings in the quarter, as the quarter is a
seasonally lower period of profit contribution from our international
businesses. Higher pension expense should impact earnings by $.12 per
share.
Dividend Increased
The Board of Directors declared a quarterly cash dividend of $.60 per
share, an increase of $.01 per share. The dividend is payable on
December 18, 2009 to shareholders of record as of the close of business
on December 8, 2009.
Constant Currency Financial Measures
This press release contains constant currency financial information,
which is a measure of financial performance that is not prepared in
accordance with generally accepted accounting principles ("GAAP"). An
explanation of management's use of this non-GAAP financial information
is described in the supplemental financial information on page 11.
Statement on Forward Looking Statements
Certain statements included in this release are "forward-looking
statements" within the meaning of the federal securities laws.
Forward-looking statements are made based on our expectations and
beliefs concerning future events impacting VF and therefore involve a
number of risks and uncertainties. We caution that forward-looking
statements are not guarantees and that actual results could differ
materially from those expressed or implied in the forward-looking
statements. Potential risks and uncertainties that could cause the
actual results of operations or financial condition of VF to differ
materially from those expressed or implied by forward-looking statements
in this release include the overall level of consumer spending on
apparel; disruption and volatility in the global capital and credit
markets; general economic conditions and other factors affecting
consumer confidence; VF's reliance on a small number of large customers;
the financial strength of VF's customers; changing fashion trends and
consumer demand; increasing pressure on margins; VF's ability to
implement its growth strategy; VF's ability to grow its international
and direct-to-consumer businesses; VF's ability to successfully
integrate and grow acquisitions; VF's ability to maintain the strength
and security of its information technology systems; stability of VF's
manufacturing facilities and foreign suppliers; continued use by VF's
suppliers of ethical business practices; VF's ability to accurately
forecast demand for products; continuity of members of VF's management;
VF's ability to protect trademarks and other intellectual property
rights; maintenance by VF's licensees and distributors of the value of
VF's brands; fluctuations in the price, availability and quality of raw
materials and contracted products; foreign currency fluctuations; and
legal, regulatory, political and economic risks in international
markets. More information on potential factors that could affect VF's
financial results is included from time to time in VF's public reports
filed with the Securities and Exchange Commission, including VF's Annual
Report on Form 10-K and Quarterly Reports on Form 10-Q.
About VF
VF Corporation is a global leader in lifestyle apparel with a diverse
portfolio of jeanswear, outdoor, imagewear, sportswear and contemporary
apparel brands. Its principal brands include Wrangler®,
Lee®, Riders®, The North Face®,
Vans®, Reef®, Eagle Creek®,
Eastpak®, JanSport®, Napapijri®,
Nautica®, Kipling®, John Varvatos®,
7 For All Mankind®, lucy®,
Splendid®, Ella Moss®, Majestic®
and Red Kap®.
VF Corporation's press releases, annual report and other information can
be accessed through the Company's home page, www.vfc.com.
Webcast Information
VF will hold its third quarter conference call and webcast today at
4:30 p.m. ET. Interested parties should call 1-800-829-9048 domestic, or
1-913-312-1378 international, to access the call. You may also
access this call via the Internet at www.vfc.com.
A replay will be available through November 2 and can be accessed by
dialing 1-888-203-1112 domestic, and 1-719-457-0820 international. The
pass code is 2419147. A replay also can be accessed at the
Company's web site at www.vfc.com.
VF CORPORATIONConsolidated Statements of Income(In thousands, except per share amounts)
Three Months Ended September Nine Months Ended September
2009 2008 2009 2008
Net Sales $ 2,075,510 $ 2,185,825 $ 5,249,619 $ 5,669,503
Royalty Income 18,296 20,802 55,298 60,947
Total Revenues 2,093,806 2,206,627 5,304,917 5,730,450
Costs and Operating Expenses
Cost of goods sold 1,165,843 1,227,577 2,996,176 3,184,470
Marketing, administrative and general expenses 610,072 627,839 1,709,664 1,786,788
1,775,915 1,855,416 4,705,840 4,971,258
Operating Income 317,891 351,211 599,077 759,192
Other Income (Expense)
Interest income 420 1,435 1,750 4,696
Interest expense (21,325 ) (24,310 ) (65,159 ) (69,516 )
Miscellaneous, net 505 (1,677 ) 3,148 1,138
(20,400 ) (24,552 ) (60,261 ) (63,682 )
Income Before Income Taxes 297,491 326,659 538,816 695,510
Income Taxes 79,430 92,608 145,343 208,495
Net Income 218,061 234,051 393,473 487,015
Net (Income) Loss Attributable to Noncontrolling Interests in Subsidiaries
(141 ) (176 ) 913 (130 )
Net Income Attributable to VF Corporation $ 217,920 $ 233,875 $ 394,386 $ 486,885
Earnings Per Share Attributable to VF Corporation
Basic $ 1.97 $ 2.14 $ 3.57 $ 4.46
Diluted $ 1.94 $ 2.10 $ 3.54 $ 4.37
Weighted Average Shares Outstanding
Basic 110,881 109,106 110,372 109,062
Diluted 112,145 111,258 111,471 111,379
Cash Dividends Per Common Share $ 0.59 $ 0.58 $ 1.77 $ 1.74
Fiscal Periods: VF operates and reports using a 52/53 week fiscal year ending on the Saturday closest to December 31 of each year. Similarly, the fiscal third quarter ends on the Saturday closest to September 30. For presentation purposes herein, all references to periods ended September 2009, December 2008 and September 2008 relate to the fiscal periods ended as of October 3, 2009, January 3, 2009 and September 27, 2008, respectively.
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VF CORPORATIONConsolidated Balance Sheets(In thousands)
September2009 December2008 September2008
ASSETS
Current Assets
Cash and equivalents $ 379,148 $ 381,844 $ 225,957
Accounts receivable, net 1,102,878 851,282 1,313,919
Inventories 1,171,151 1,151,895 1,341,842
Other current assets 275,556 267,989 222,669
Total current assets 2,928,733 2,653,010 3,104,387
Property, Plant and Equipment 1,586,713 1,557,634 1,582,337
Less accumulated depreciation 956,633 914,907 920,760
630,080 642,727 661,577
Intangible Assets 1,566,640 1,366,222 1,390,402
Goodwill 1,472,150 1,313,798 1,323,808
Other Assets 308,563 458,111 504,091
$ 6,906,166 $ 6,433,868 $ 6,984,265
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Short-term borrowings $ 252,175 $ 53,580 $ 413,469
Current portion of long-term debt 203,147 3,322 3,427
Accounts payable 362,010 435,381 418,712
Accrued liabilities 537,725 519,899 577,716
Total current liabilities 1,355,057 1,012,182 1,413,324
Long-term Debt 939,143 1,141,546 1,142,170
Other Liabilities 754,398 722,895 565,928
Commitments and Contingencies
Stockholders' Equity
Common Stock 110,814 109,848 109,827
Additional paid-in capital 1,842,147 1,749,464 1,747,775
Accumulated other comprehensive income (loss) (201,708) (276,294) 78,268
Retained earnings 2,105,758 1,972,874 1,925,132
Noncontrolling interests in subsidiaries 557 1,353 1,841
Total stockholders' equity 3,857,568 3,557,245 3,862,843
$ 6,906,166 $ 6,433,868 $ 6,984,265
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VF CORPORATIONConsolidated Statements of Cash Flows(In thousands)
Nine Months Ended September
2009 2008
Operating Activities
Net income $ 393,473 $ 487,015
Adjustments to reconcile net income to cash providedby operating activities of continuing operations:
Depreciation 78,616 77,482
Amortization of intangible assets 29,953 29,781
Other amortization 12,346 9,862
Stock-based compensation 26,998 33,824
Pension funding over expense (35,420 ) (711 )
Other, net 80,601 11,090
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable (237,209 ) (363,767 )
Inventories (1,945 ) (193,485 )
Other current assets (1,635 ) 10,929
Accounts payable (79,225 ) (93,990 )
Accrued compensation 17,128 (24,259 )
Accrued income taxes 3,598 36,373
Accrued liabilities 3,594 52,588
Other assets and liabilities (26,999 ) (12,929 )
Cash provided by operating activities of continuing operations 263,874 59,803
Cash used by discontinued operations - (1,002 )
Cash provided by operating activities 263,874 58,801
Investing Activities
Capital expenditures (57,746 ) (88,319 )
Business acquisitions, net of cash acquired (207,219 ) (93,377 )
Software purchases (9,349 ) (7,349 )
Sale of property, plant and equipment 6,050 5,851
Other, net (1,875 ) 1,020
Cash used by investing activities (270,139 ) (182,174 )
Financing Activities
Increase in short-term borrowings 196,799 281,340
Payments on long-term debt (2,582 ) (2,945 )
Purchase of Common Stock (52,988 ) (149,729 )
Cash dividends paid (195,550 ) (190,347 )
Proceeds from issuance of Common Stock, net 47,418 63,450
Tax benefits of stock option exercises 4,648 22,246
Other, net - (305 )
Cash provided (used) by financing activities (2,255 ) 23,710
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