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VF investing big in outdoor group

During its first quarter conference call Tuesday with analysts, VF Corp. said it is making significant investment in its Outdoor Coalition in the second quarter to support the group’s future growth despite the tough economic environment.

VF’s outdoor group includes Vans, Reef, North Face, Kipling and Napapijri.

“We are completely committed to making investments in the second quarter behind what has been our best growth story, outdoor,” said VF CEO Eric Wiseman.

The big main investments in outdoor will be:

- Expanding into new geographic areas

- 15 to 20 new store openings in the Outdoor Coalition in the second quarter.

- North Face will launch an eCommerce site Aug. 1. The growth of North Face is straining the distribution center so more staff is being hired in Q2 to get ready for Q3 shipments.

-An increase in the global advertising spend in marketing for Vans and North Face. This investment is both in people and an increased advertising budget to drive business in the second half.

Because of the investments, the outdoor coalition will record lower operating margins in the second quarter compared to the same period last year. Outdoor revenue is expected to grow at a double digit rate in the second quarter.

In the first quarter, outdoor revenues grew 18 percent. Operating income grew 26 percent, while operating margins reached 16.6 percent.

Company-wide first quarter results

Revenues up 10 percent to $1.8 billion

Income from continuing operations rose 11 percent to $149 million.

Gross margins reached to 45.1 percent, up from 43.5 percent

Jeanswear

VF owns many brands including Lee, Wrangler and Rider. The jeans business was hurt in both mass market and midtier distribution channels by consumers migrating to the lowest price points. Global revenues fell 6 percent in this division.

Sportswear

Its sportswear business, including Nautica, John Varvatos and Kipling declined 11 percent in the quarter, mostly due to softness in the Nautica brand.

Contemporary

This division includes brands acquired in 2007, including 7 for all ManKind and Lucy. The group added $96 million to first quarter revenues and $15 million to operating income. 7 for all Mankind performed particularly well.

International

Revenues rose 21 percent the quarter, accounting for 36 percent of total revenues.

Retail

Revenues grew 24 percent in the quarter, with Vans, North Face, Kipling, Napapijri, Wrangler and Lee brand stores growing at double digit rates. VF opened 15 new stores during the quarter to reach 641 stores. For the full year, VF plans to open 100 new stores.

Economic environment

Wiseman said companywide VF is seeing lots of promotional activity and seasonal goods are moving slowly due to cooler weather. He said it is not seeing a material change in order cancellations and delayed shipments but retailers are “tightening the pipeline” and are being even more conservative in inventory planning and orders.

VF’s international business and retail stores are acting as a buffer from domestic results.

Guidance

VF lowered its second quarter guidance but maintained its full year guidance. Revenues should grow 10 percent as expected, but operating margins will decline, in part due to the investments in the Outdoor Coalition. VF is expecting earnings per share of 80 cents, down from 93 cents.

The company maintained its full year guidance of 9 percent revenue growth and 10 percent earnings per share growth.