Expansion in International Revenues
International revenues increased 44%, with 15 percentage points of the growth attributable to the Timberland acquisition. On a constant currency basis, international revenues grew by 37%. In constant dollars, organic revenue growth in Europe was 20%, while Asia revenues were up 43%. Revenue growth in India continues to be robust, rising 59% during the quarter. The North Face® and Vans® each achieved international growth in excess of 30%.
Growth in Direct-to-Consumer Revenues
Direct-to-consumer revenues grew 21% in the quarter, with six percentage points of the growth attributable to the Timberland acquisition. The direct-to-consumer businesses of The North Face®, Vans®, Nautica®, 7 For All Mankind®, Napapijri® and Kipling® brands each achieved solid revenue gains in the period. The total number of owned stores at the end of the quarter was 1,077, reflecting 32 new store openings in the quarter and 76 year-to-date, and the addition of 247 Timberland stores.
Strong Balance Sheet
VF’s financial position remains strong. Cash and equivalents at the end of the quarter were $337 million compared with $403 million in the 2010 period. The increase in long-term debt reflects the financing of the Timberland acquisition. Short-term borrowings rose in conjunction with the acquisition, as well as to meet working capital needs, with most of these borrowings expected to be repaid by year-end. Inventories excluding Timberland rose 19%, with 9% of the increase due to higher product costs, 1% due to foreign currency translation, and the remaining increase reflecting increased unit volumes to support strong revenue growth expectations for the fourth quarter.
2011 Guidance Increased
“We’re confident that our brands’ momentum will continue through the fourth quarter, and look forward to delivering a year of stellar organic growth to our shareholders, capped by the highly accretive and transformational Timberland acquisition,” Wiseman said. “We will, of course, continue to carefully monitor economic and market conditions globally, and are well-positioned to respond quickly, if conditions change materially, to protect our brands and ensure our business remains strong and healthy.”
Total revenues are now expected to rise 22 to 23% in 2011, due to continued strong organic growth and the Timberland acquisition. Organic revenue growth is anticipated at approximately 13.5% in 2011, above previous guidance for growth of 12 to 13%. The full year revenue contribution from Timberland continues to be about $700 million in 2011.
Reflecting the Timberland acquisition, and the fact that more than half of Timberland’s revenues on an annual basis are from international markets, international revenues are now expected to grow by approximately 40% this year. In 2011, international revenues should account for 34% of total revenues, up from 30% in 2010. Direct-to-consumer revenues are now anticipated to increase by nearly 30%. In 2011 direct-to-consumer should account for 19% of total revenues.
Adjusted earnings are now anticipated to increase to approximately $8.15 per share, up from prior guidance for earnings of approximately $7.50 per share. For the first time, our guidance includes Timberland. The $8.15 per share includes accretion from Timberland of $.55 per share, excluding acquisition-related expenses, (up from $.45 per share accretion indicated at the time of acquisition), as well as an increase of $.10 per share from stronger-than-anticipated organic earnings growth. Acquisition-related expenses are expected to approximate $.25 per share in 2011, up slightly from the $.20 per share indicated at the time of acquisition.)
Adjusted Amounts – Excluding Timberland acquisition–related expenses
The discussions in this release refer to adjusted amounts which exclude transaction and restructuring costs related to the acquisition of Timberland, which approximated $3.5 million and $26.6 million during the second and third quarters of 2011, respectively, and are estimated at $9.3 million for the fourth quarter of 2011, and the estimated tax benefits of these costs. On a per share basis, the acquisition-related expenses were $.02 and $.18 in the second and third quarters of 2011, respectively, and are estimated at $.05 for the fourth quarter of 2011. Please see reconciliations of GAAP to adjusted amounts later in this release.
Timberland Acquisition Accounting
In accounting for the Timberland acquisition, we have recorded provisional amounts for assets and liabilities such as goodwill, intangibles and deferred tax liabilities based on the information we have at this time. Adjustments may be made to the acquired assets and liabilities as new information is obtained about the facts and circumstances that existed at the acquisition date.
The Board of Directors declared a quarterly cash dividend of $.72 per share, an increase of 14%. The dividend is payable on December 19, 2011 to shareholders of record as of the close of business on December 9, 2011. This marks the 39th consecutive year of higher dividend payments to shareholders.