VF reports Q4 and Fiscal 2010 financial results

Sportswear: Sportswear revenues increased 11%, with double-digit increases in both our Nautica® and Kipling® brands. Nautica® brand revenues grew by 10% in the quarter, with strong growth in the brand’s core wholesale men’s sportswear business. A 30% increase in Kipling® brand revenues resulted from the successful launch earlier this year of a new program that is exclusive to Macy’s.

Sportswear profitability continued to improve, with operating income rising 27% in the quarter and operating margins reaching nearly 14%.

Contemporary Brands: Revenues of our Contemporary Brands coalition, which consists of the 7 For All Mankind®, John Varvatos®, Splendid® and Ella Moss® brands, declined 9% in the quarter, with foreign currency translation accounting for 2 percentage points of the decline. Conditions in the U.S. premium denim market remain soft, contributing to a decline in 7 For All Mankind® brand revenues in the quarter. Our Splendid® , Ella Moss® and John Varvatos® brands each grew revenues at a mid-teen rate during the quarter. Building our contemporary brands’ direct-to-consumer businesses, including new stores and e-commerce, continues to be an important component of our growth plans for these businesses, and during the quarter direct-to-consumer revenues for our Contemporary Brands coalition grew 42%.

The coalition recorded an operating loss of $8 million in the quarter, reflecting inventory reduction initiatives as well as continued investments in new 7 For All Mankind® retail stores and marketing programs to support future growth globally.

Expansion in International Revenues

Our international businesses remain an important long-term driver of both organic growth and margin expansion. During the quarter, international revenues increased 22% on a constant currency basis driven by strong growth in our European Outdoor & Action Sports businesses, and across our biggest brands in Asia. Total revenues in Asia were up 31% in the quarter, with our jeanswear, The North Face® and Vans® businesses each growing in excess of 40% in the quarter. For the full year in 2010, international revenues grew 7% (8% in constant dollars) and accounted for 30% of total revenues. Revenues in Asia increased 31% in 2010. With an established infrastructure now in place, India has emerged as an important new market for future growth. Revenues in India nearly doubled in the fourth quarter and rose 60% for the full year.

Given their strong profitability and efficient tax structure, our international businesses continue to be a key driver to both operating income and earnings per share growth.

Growth in Direct-to-Consumer Revenues

Our direct-to-consumer revenues increased 13% in the quarter, driven by new store openings and comp store growth. The direct-to-consumer businesses of The North Face®, Vans®, 7 For All Mankind®, Kipling® and Napapijri® brands each achieved double-digit revenue gains in the period. We opened a total of 23 stores across our brands in the quarter and 85 stores during the year, bringing the total number of owned retail stores to 786 in 2010. Our direct-to-consumer revenues grew 13% in 2010, rising to 18% of total revenues.

Marketing Investments Driving Organic Growth

As noted above, marketing spending increased 48% ($45 million) in the fourth quarter and 30% ($100 million) for the full year. Marketing spending as a percent of total revenues reached a high of 5.5% in 2010 compared with 4.6% in 2009. While over half of this increase in total spending was behind The North Face® and Vans® brands, where brand investments doubled during the year, nearly every brand in our portfolio received additional marketing support in 2010. Heavy investments were also made this year to support our rapidly-growing and highly profitable businesses in China.

Cash Flow from Operations Rises to a Record $1 Billion

Cash flow from operations reached an all-time high of $1 billion in 2010. Cash rose to $792 million at the end of the year. Inventories rose 12%, as expected, to support strengthening revenue trends. During 2010 we spent $412 million to repurchase 5.1 million shares, made $264 million in dividend payments, paid down $200 million of long-term debt, and contributed $100 million to our pension plan.

2011 Guidance: Strong Top and Bottom Line Growth and Stable Operating Margins

“We enter 2011 with excellent top and bottom line momentum, and our brands very well-positioned to grow and capture additional market share,” said Mr. Wiseman. “2011 should mark the highest rate of organic revenue growth since 2007. The investments made last year to drive organic growth were successful and will continue this year, further strengthening our foundation for delivering solid, sustainable growth in 2011 and beyond.”

Revenues in 2011 are expected to increase by 8 to 9%, and we anticipate earnings per share rising to $7.00 to $7.10 this year.

Operating margins are expected to be comparable to the 13.3% achieved in 2010. Reflecting higher product costs, gross margins are expected to decline, but by less than one percentage point, as margins will also continue to benefit from our changing business mix. We will continue to invest strongly in our brands, with the ratio of marketing spending to revenues remaining at approximately the same level in 2011 as in 2010. However, our overall SG&A spending will represent a lower percentage of revenues in 2011, reflecting the leverage from strong revenue growth.

Key points related to our 2011 outlook include:

- Solid revenue growth across all coalitions, highlighted by mid-teen percentage growth in Outdoor & Action Sports and supported by continued healthy levels of marketing spending. Our Jeanswear, Imagewear, Sportswear and Contemporary coalitions are each planning for mid-single digit revenue growth in 2011.

- 15% growth in international revenues, with low double-digit growth expected in both Europe and the Americas, and exceptionally strong growth in Asia. Growing our business in Asia – particularly in China and India – remains a strategic priority, with revenue growth expected to exceed 25% this year. On a longer term basis, we remain confident in our ability to achieve 40% of total revenues from international markets.

- 10 to 15% revenue growth in our direct-to-consumer business. Growth will be driven by approximately 100 store openings in 2011 – the highest number of store openings in our history – and low single-digit comp store growth, in addition to the continued rapid growth in our e-commerce business. Over half our new store openings will be outside the U.S., further supporting our international growth plans. We expect that our direct-to-consumer revenues will approach 20% of total revenues in 2011.

Dividend Declared

The Board of Directors declared a quarterly cash dividend of $.63 per share, payable on March 21, 2011 to shareholders of record as of the close of business on March 11, 2011.

Non-GAAP Financial Measures

This press release contains constant currency financial information and adjusted amounts that exclude noncash impairment charges. These are measures of financial performance that are 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 included with this release.