VF Corporation (NYSE: VFC) today announced results for its first
quarter ended March 31, 2012. All per share amounts are presented
on a diluted basis. All references to “organic” financial data
exclude the Timberland® and Smartwool® brands (“Timberland”),
acquired on September 13, 2011. “Adjusted amounts” refer to
non-GAAP measures that exclude Timberland acquisition-related
expenses and the anticipated gain on the sale of John Varvatos
Enterprises, Inc. as described in the “Adjusted Amounts” paragraph
at the end of this release.
“Our excellent first quarter performance spotlights our success
in driving brand growth across our portfolio and the ability of
VF’s diversified business model to deliver healthy, sustainable
growth on both the top and bottom lines,” said Eric Wiseman, VF
Corporation Chairman and Chief Executive Officer. “Our momentum is
strong, and we are excited about the prospects for delivering
another year of record revenues and earnings to our
shareholders.”
First Quarter Results Summary
Revenues rose 31% to $2,556 million from $1,959 million
in 2011, with Timberland adding $356 million to revenues. Organic
revenue growth in the quarter was 12%, slightly stronger than
anticipated due in part to earlier shipments and stronger sales of
seasonal products. All VF coalitions achieved solid revenue growth
in the quarter, with the strongest increase in Outdoor & Action
Sports, where total revenues rose 60% and organic growth was
15%.
Gross margin declined as anticipated, primarily due to
the continued negative impact of higher jeanswear product costs,
and was 45.7% compared with 47.2% in the 2011 period. Operating
income was $319 million on an adjusted basis in the first
quarter. This included earnings from Timberland of $22 million and
excluded acquisition-related expenses of $5 million. On a GAAP
basis, first quarter operating income was $314 million.
Operating margin on an adjusted basis was 12.5% in the first
quarter of 2012 and 12.3% on a GAAP basis. Excluding Timberland,
first quarter operating margin was 13.5% compared to 14.0% in last
year’s first quarter. In the first quarter of 2011, gross and
operating margins both reflected a 40 basis point benefit from a
change in inventory accounting.
Net income on an adjusted basis rose 9% to $219 million
from $201 million in the same period last year. Adjusted
earnings per share increased 7% to $1.94 per share,
including $0.12 per share accretion from Timberland. Earnings in
the quarter were negatively impacted by $0.09 per share from
foreign currency translation and higher pension expense ($0.04 and
$0.05 per share, respectively). In the first quarter of 2011,
earnings of $1.82 per share benefitted by $0.11 per share from a
favorable tax settlement and the change in inventory accounting
($0.07 and $0.04 per share, respectively.) On a GAAP basis, net
income and earnings per share were $215 million and $1.91,
respectively, in the first quarter of 2012.
First Quarter Coalition Review
Outdoor & Action Sports, VF’s fastest growing
coalition, achieved another period of strong growth with global
revenues rising 60% and organic revenue growth of 15%. The addition
of the Timberland® and Smartwool® brands contributed $356 million
to revenues.
Global revenues of The North Face® brand increased 14% during
the quarter, with double-digit growth in both the Americas and
internationally. Momentum continued in The North Face® brand’s
direct-to-consumer business, where revenues grew more than 20% in
the quarter. The Vans® brand achieved another quarter of very
healthy growth, with global revenues rising 25% and strong
increases in both its Americas and international businesses. The
Vans direct-to-consumer business demonstrated solid results, with
revenues rising by 18%. Timberland’s revenues grew modestly during
the quarter, with continued growth in the Timberland® Earthkeepers®
collection and PRO® Series.
Operating income for the coalition rose 40% to $202 million,
including earnings from Timberland of $17 million. Operating margin
was 16.0% compared with 18.3% in the 2011 period, with a negative
impact of 40 basis points from acquisition-related expenses.
Excluding Timberland, operating income rose 28% and the coalition
operating margin increased 200 basis points to 20.3%.
Jeanswear delivered strong revenue growth of 9% in the
quarter. Double-digit increases across the Lee®, Mass Market and
Western businesses in the U.S. reflected strong sales of spring
seasonal products and a positive response to the recent launch of
Rock and Republic® jeanswear. International jeans revenues declined
slightly (flat in constant dollars) in the quarter, with growth in
Asia offset by lower revenues in Europe and other regions.
Jeanswear operating income and margin both declined as
anticipated in the quarter, reflecting the impact of higher product
costs. Operating margin comparisons are expected to improve in the
second quarter, with operating margin expansion expected beginning
in the second half of 2012.
Imagewear revenues grew by a solid 12% in the quarter,
with gains in both the Image and Licensed Sports Group businesses.
The Image business achieved revenue growth of 21% in the quarter,
fueled by strong uniform demand in the oil and gas and automotive
industries. Licensed Sports revenues grew 3%, with particular
strength in its women’s and e-commerce businesses.
First quarter operating income grew 16%, with operating margin
expanding to 15.5% from 15.0% in the prior year’s quarter.
Sportswear achieved revenue growth of 10% in the quarter,
reflecting increases in both Nautica® and Kipling® (U.S.) brand
revenues. A 6% increase in Nautica® brand revenues was driven by
solid gains in both its men’s sportswear and retail businesses. The
Kipling® brand continued its rapid expansion, with revenue growth
of 44% during the quarter.
Sportswear operating income increased 44% in the quarter, with
operating margin rising to 8.7% from 6.6% in the first quarter of
2011.
Contemporary Brands delivered strong results in the
quarter, with revenues up 13% and growth across the 7 For All
Mankind®, Splendid®, Ella Moss® and John Varvatos® brands. The 7
For All Mankind® brand’s success in combining product innovation
with fashionable new styles in both denim and sportswear drove an
18% increase in U.S. revenues with double-digit growth in both its
wholesale and direct-to-consumer businesses during the quarter. On
March 8, 2012, a definitive agreement to sell John Varvatos
Enterprises, Inc. was announced, and the transaction is expected to
be completed in the very near future.
Contemporary Brands’ operating income increased 53% in the
quarter, with a substantial improvement in operating margin to
11.7% from 8.7% in the prior year’s quarter.
Expansion in International Revenues (in Constant
Dollars)
International revenues increased 48% in the first quarter, with
33 percentage points of the growth attributable to Timberland.
Organic revenue growth in Europe was 13%, driven by solid
performance in the Vans® and The North Face® brands. In Asia,
organic revenue growth was 19%, with growth in the Lee®, The North
Face®, Vans® and Kipling® brands. Strong growth also continued in
India, where revenues were up 18% during the quarter.
International revenues reached 40% of total revenues in the
quarter compared with 36% in the first quarter of 2011.
Growth in Direct-to-Consumer Revenues
Direct-to-consumer revenues increased 49% in the first quarter,
with 32 percentage points of the growth attributable to the
Timberland acquisition. Direct-to-consumer revenues of The North
Face®, Vans®, 7 For All Mankind® and Nautica® brands each achieved
double-digit growth in the period. A total of 24 stores were opened
across our brands in the quarter, bringing the total number of
owned retail stores to 1,059. Direct-to-consumer revenues reached
19% of VF’s total revenues in the quarter compared with 16% in the
2011 period.
Balance Sheet Strength
Inventories remain very well managed, up 28% in total from March
2011 levels but up only 7% excluding Timberland, with the majority
of the increase resulting from higher product costs. The higher
debt levels compared with 2011 are related to the Timberland
acquisition. Two million shares were repurchased near the end of
the first quarter for approximately $300 million.
2012 Earnings Guidance Raised
Based on strong first quarter results, adjusted earnings per
share in 2012 are now expected to rise to approximately $9.45 per
share, up $0.15 from the $9.30 per share guidance provided on
February 16. The expected earnings contribution from Timberland in
2012 remains at approximately $1.10 per share.
Guidance for adjusted 2012 earnings per share now excludes two
items: 1) Timberland acquisition-related expenses, currently
estimated at $0.23 per share, and 2) the anticipated gain from the
sale of John Varvatos Enterprises, Inc., which should approximate
$0.20 per share. Inclusive of these two items, 2012 earnings per
share on a GAAP basis is now expected to reach $9.42.
The impact of a slightly stronger than anticipated U.S. dollar
on foreign currency translation rates versus our guidance
benefitted first quarter earnings by $0.05 per share. Accordingly,
the negative impact of foreign currency translation on full-year
earnings per share is now expected to be $0.35 per share, versus
the $0.41 per share anticipated in prior guidance. The assumed euro
conversion rate for the second quarter of 2012 is 1.30, while the
assumed rate for the second half remains unchanged at 1.25. The
revised guidance continues to include a negative impact of $0.19
per share from higher pension expense in 2012.
Revenue guidance for 2012 remains unchanged, with revenues
expected to rise by approximately 15% (17% in constant dollars) to
$10.9 billion, with Timberland accounting for approximately $1
billion of the growth. Excluding Timberland, revenues should rise
by approximately 6% (8% in constant dollars). Given the imminent
sale of the John Varvatos business, current guidance excludes $70
million in John Varvatos revenues for the remainder of 2012.
Looking ahead to the second quarter, earnings per share
comparisons will be particularly challenging due to several
factors. First, while Timberland is on track for significant
revenue and earnings accretion in 2012, it is a highly seasonal
business. Accordingly, Timberland has historically posted a
substantial loss in the second quarter. This loss is expected to
approximate $30 million (equal to about $0.20 per share) in the
second quarter, which is comparable to the loss reported by
Timberland in its second quarter last year. Second quarter earnings
will also reflect the continued negative impact from foreign
currency translation and higher pension expense, which together
should impact earnings per share by $0.09. Additionally, second
quarter 2011 earnings benefitted by $0.07 from a gain from a
facility closure. These factors are expected to negatively impact
second quarter earnings comparisons by a combined $0.36 per
share.
Adjusted Amounts
This release refers to adjusted amounts that exclude
restructuring and other costs related to the acquisition of
Timberland, which approximated $5 million ($0.03 per share) in the
first quarter of 2012 and are currently estimated at $34 million
($0.23 per share) for the full year. Adjusted amounts referenced in
conjunction with 2012 annual guidance also exclude the anticipated
gain on the sale of John Varvatos Enterprises, Inc. of
approximately $40 million (about $0.20 per share). Reconciliations
of GAAP measures to adjusted amounts are presented in the
supplemental financial information included with this release,
which identify and quantify all excluded items.
Dividend Declared
The Board of Directors declared a quarterly cash dividend of
$0.72 per share, payable on June 18, 2012 to shareholders of record
as of the close of business on June 8, 2012.
Webcast Information
VF will hold its first quarter conference call and webcast today
at 8:30 a.m. ET. Interested parties should call 1-877-723-9511
domestic, or 1-719-325-4774 international, to access the call. You
may also access this call via the Internet at www.vfc.com. A replay will be available through
May 4, 2012 and can be accessed by dialing 1-877-870-5176 domestic,
or 1-858-384-5517 international. The pass code is 8189534. A replay
also can be accessed at the Company’s website at www.vfc.com.
About VF
VF Corporation is a global leader in branded lifestyle apparel
with more than 30 brands. The company’s top six brands are The
North Face®, Wrangler®, Timberland®, Vans®, Lee® and Nautica®;
other brands include 7 For All Mankind®, Eagle Creek®, Eastpak®,
Ella Moss®, JanSport®, John Varvatos®, Kipling®, lucy®, Majestic®,
Napapijri®, Red Kap®, Reef®, Riders® , Splendid® and
Smartwool®.
Forward Looking Statements
Certain statements included in this release and the attachments
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. You can
identify these statements by the fact that they use words such as
“will,” “anticipate,” “estimate,” “expect,” “should,” and “may” and
other words and terms of similar meaning or use of future dates. 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,
but are not limited to, the level of consumer confidence and
overall level of consumer demand for apparel; fluctuations in the
price, availability and quality of raw materials and contracted
products; disruption to VF’s distribution system; disruption and
volatility in the global capital and credit markets; VF's reliance
on a small number of large customers; the financial strength of
VF's customers; VF’s response to changing fashion trends;
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, including the Timberland
acquisition; the sale of John Varvatos Enterprises, Inc.; 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; 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.
VF CORPORATION
Consolidated Statements of
Income
(Unaudited)
(In thousands, except per
share)
Three Months Ended March
2012 2011 Net Sales $
2,527,417 $ 1,937,124
Royalty Income 29,038
21,675
Total Revenues 2,556,455
1,958,799
Costs and Operating
Expenses Cost of goods sold 1,388,866 1,033,856 Marketing,
administrative and general expenses 853,487
650,300 2,242,353 1,684,156
Operating Income 314,102 274,643
Other
Income (Expense) Interest income 1,038 966 Interest expense
(23,345 ) (15,940 ) Miscellaneous, net 1,746
(1,931 ) (20,561 ) (16,905 )
Income Before
Income Taxes 293,541 257,738
Income Taxes
78,314 56,318
Net Income
215,227 201,420
Net (Income) Loss Attributable to
Noncontrolling
Interests
(11 ) (717 )
Net Income Attributable to VF
Corporation $ 215,216 $ 200,703
Earnings Per Share Attributable to VF Corporation Common
Stockholders Basic $ 1.95 $ 1.85 Diluted 1.91 1.82
Weighted Average Shares Outstanding Basic 110,527 108,222
Diluted 112,750 110,040
Cash Dividends Per Common
Share $ 0.72 $ 0.63
Basis of presentation: 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 first quarter ends on the
Saturday closest to March 31. For presentation purposes herein, all
references to periods ended March 2012, December 2011 and March
2011 relate to the 13 week, 52 week and 13 week fiscal periods
ended March 31, 2012, December 31, 2011 and April 2, 2011,
respectively.
VF CORPORATION
Consolidated Balance Sheets
(Unaudited)
(In thousands)
March
December March 2012 2011 2011
ASSETS Current Assets Cash and equivalents $
325,649 $ 341,228 $ 672,963 Accounts
receivable, net 1,206,179 1,120,246 892,294 Inventories 1,516,446
1,453,645 1,183,314 Other current assets 315,059
272,825 201,457
Total current assets 3,363,333 3,187,944 2,950,028
Property, Plant and Equipment, net 729,079 737,451 615,372
Intangible Assets 2,956,312 2,958,463 1,556,791
Goodwill 2,018,839 2,023,460 1,187,107
Other Assets
435,754 405,808
383,840 $ 9,503,317 $
9,313,126 $ 6,693,138
LIABILITIES
AND STOCKHOLDERS' EQUITY Current Liabilities Short-term
borrowings $ 680,500 $ 281,686 $ 40,052 Current portion of
long-term debt 2,789 2,744 2,722 Accounts payable 537,531 637,116
429,541 Accrued liabilities 683,500
744,486 564,531 Total current
liabilities 1,904,320 1,666,032 1,036,846
Long-term
Debt 1,831,113 1,831,781 935,244
Other Liabilities
1,316,216 1,290,138 594,601
Commitments and
Contingencies Stockholders' Equity Common Stock
109,296 110,557 109,014 Additional paid-in capital 2,384,636
2,316,107 2,159,204 Accumulated other comprehensive income (loss)
(376,979 ) (421,477 ) (202,203 ) Retained earnings
2,335,520 2,520,804
2,059,492 Total equity attributable to VF Corporation
4,452,473 4,525,991 4,125,507 Noncontrolling interests
(805 ) (816 ) 940
Total stockholders' equity 4,451,668
4,525,175 4,126,447
$ 9,503,317 $ 9,313,126 $
6,693,138
VF CORPORATION
Consolidated Statements of Cash
Flows
(Unaudited)
(In thousands)
Three Months Ended March
2012 2011 Operating Activities
Net income $ 215,227 $ 201,420 Adjustments to reconcile net income
to cash used by operating activities: Depreciation 35,064 30,096
Amortization of intangible assets 12,181 9,776 Other amortization
5,658 5,069 Stock-based compensation 22,922 13,702
Pension contributions under expense
17,829 10,817 Other, net 21,356 2,615 Changes in operating assets
and liabilities, net of acquisitions: Accounts receivable (73,491 )
(101,628 ) Inventories (55,174 ) (101,511 ) Other current assets
(6,657 ) 726 Accounts payable (102,473 ) (94,167 ) Accrued
compensation (93,453 ) (64,313 ) Accrued income taxes 7,242 14,651
Accrued liabilities (30,459 ) 8,922 Other assets and liabilities
(1,433 ) 30,960 Cash used by operating
activities (25,661 ) (32,865 )
Investing Activities
Capital expenditures (25,140 ) (33,607 ) Trademark acquisition -
(55,500 ) Software purchases (13,370 ) (7,256 ) Other, net
6,341 53 Cash used by investing activities
(32,169 ) (96,310 )
Financing Activities
Increase in short-term borrowings
397,595 3,427 Payments on long-term debt (698 ) (550 ) Purchase of
Common Stock (297,316 ) (2,453 ) Cash dividends paid (79,924 )
(68,475 ) Proceeds from issuance of Common Stock, net (2,164 )
46,036 Tax benefits of stock option exercises 22,055
8,384 Cash provided (used) by financing activities
39,548 (13,631 )
Effect of Foreign Currency Rate Changes
on Cash and Equivalents
2,703 23,530
Net Change in Cash and
Equivalents
(15,579 ) (119,276 )
Cash and Equivalents - Beginning of
Year 341,228 792,239
Cash
and Equivalents - End of Year $ 325,649 $ 672,963
VF CORPORATION
Supplemental Financial
Information
Business Segment Information
(Unaudited)
(In thousands)
Three Months Ended
March 2012 2011 Coalition
Revenues Outdoor & Action Sports $ 1,263,967 $ 788,215
Jeanswear 741,711 679,243 Imagewear 277,521 246,808 Sportswear
122,915 111,894 Contemporary Brands 126,904 111,916 Other
23,437 20,723 Total coalition revenues
$ 2,556,455 $ 1,958,799
Coalition
Profit Outdoor & Action Sports $ 201,700 $ 143,905
Jeanswear 110,772 123,126 Imagewear 42,926 36,898 Sportswear 10,726
7,430 Contemporary Brands 14,858 9,684 Other (1,610 )
(2,074 ) Total coalition profit 379,372 318,969
Corporate and Other Expenses (63,524 ) (46,257 )
Interest, net (22,307 ) (14,974 )
Income Before Income Taxes $ 293,541 $ 257,738
VF CORPORATION
Supplemental Financial
Information
Business Segment Information –
Constant Currency Basis
(Unaudited)
(In thousands)
Three Months Ended March 2012 Exclude
As Reported Impact of Foreign under GAAP
Currency Exchange Constant Currency
Coalition Revenues Outdoor & Action Sports $ 1,263,967 $
(14,724 ) $ 1,278,691 Jeanswear 741,711 (7,075 ) 748,786 Imagewear
277,521 (167 ) 277,688 Sportswear 122,915 - 122,915 Contemporary
Brands 126,904 (901 ) 127,805 Other 23,437 -
23,437 Total coalition revenues $
2,556,455 $ (22,867 ) $ 2,579,322
Coalition Profit Outdoor & Action Sports $ 201,700 $
(4,517 ) $ 206,217 Jeanswear 110,772 (57 ) 110,829 Imagewear 42,926
(100 ) 43,026 Sportswear 10,726 - 10,726 Contemporary Brands 14,858
(186 ) 15,044 Other (1,610 ) - (1,610 )
Total coalition profit 379,372 (4,860 ) 384,232
Corporate and Other Expenses (63,524 ) - (63,524 )
Interest, net (22,307 ) -
(22,307 )
Income Before Income Taxes $ 293,541
$ (4,860 ) $ 298,401
Constant Currency Financial
Information VF is a global company that reports financial
information in U.S. dollars in accordance with generally accepted
accounting principles. Foreign currency exchange rate fluctuations
affect the amounts reported by VF from translating its foreign
revenues and expenses into U.S. dollars. These rate fluctuations
can have a significant effect on reported operating results. As a
supplement to our reported operating results, we present constant
currency financial information, which is a non-GAAP financial
measure. We use constant currency information to provide a
framework to assess how our businesses performed excluding the
effects of changes in foreign currency translation rates.
Management believes this information is useful to investors to
facilitate comparisons of operating results and better identify
trends in our businesses. To calculate coalition revenues
and profits on a constant currency basis, operating results for the
current year period for entities reporting in currencies other than
the U.S. dollar are translated into U.S. dollars at the average
exchange rates in effect during the comparable period of the prior
year (rather than the actual exchange rates in effect during the
current year period). These constant currency performance
measures should be viewed in addition to, and not in lieu of or
superior to, our operating performance measures calculated in
accordance with GAAP. The constant currency information presented
may not be comparable to similarly titled measures reported by
other companies.
VF CORPORATION
Supplemental Financial
Information
Reconciliation of Select GAAP Measures
to Non-GAAP Measures
(Unaudited)
(In thousands)
Three Months Ended
Operating March 2012 Margin
Operating Income, as reported under GAAP $ 314,102 12.3 %
Timberland acquisition-related expenses 4,642
Operating Income, as adjusted $ 318,744 12.5 %
Timberland profit, excluding acquisition-related expenses
(22,099 )
Operating Income, excluding
Timberland
$ 296,645 13.5 %
Net Income, as
reported under GAAP $ 215,216 Timberland
acquisition-related expenses 3,295
Net
Income, as adjusted $ 218,511
Actual Guidance Three Months Year
Ended Ended March 2012 December 2012
Diluted earnings per share, as reported under GAAP $
1.91 $ 9.42 Timberland acquisition-related expenses 0.03
0.23
Anticipated gain on sale of John Varvatos
Enterprises, Inc.
- (0.20 )
Diluted earnings per
share, as adjusted $ 1.94 $ 9.45
Non-GAAP Financial Information The 2012 financial
information above has been presented on a GAAP basis and on an
adjusted basis which excludes the impact of costs related to the
acquisition of Timberland and the anticipated gain on the sale of
John Varvatos Enterprises, Inc. These adjusted presentations are
non-GAAP measures. Management believes these measures provide
investors with useful supplemental information regarding VF's
underlying business trends and the performance of VF's ongoing
operations and are useful for period-over-period comparisons of
such operations. Management uses the above financial
measures internally in its budgeting and review process and, in
some cases, as a factor in determining compensation. While
management believes that these non-GAAP financial measures are
useful in evaluating the business, this information should be
considered as supplemental in nature and should be viewed in
addition to, and not in lieu of or superior to, VF's operating
performance measures calculated in accordance with GAAP. In
addition, these non-GAAP financial measures may not be the same as
similarly titled measures presented by other companies.
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