Press Release:

 

GREENSBORO, N.C.–(BUSINESS WIRE)– Information regarding VF’s third quarter conference call webcast today at 8:30 a.m. ET can be found at the end of this release.

 

VF Corporation (NYSE:VFC – News), a global leader in branded lifestyle apparel, today announced record results for the third quarter of 2011. All per share amounts are presented on a diluted basis.

 

The discussions in this release refer to adjusted amounts that exclude costs incurred in connection with the acquisition of The Timberland Company which are described under the heading “Adjusted Amounts – Excluding Timberland acquisition-related expenses.” Reconciliations of GAAP measures to adjusted amounts are presented in the supplemental financial information included with this release and identify and quantify all excluded items.

 

Third Quarter Results Summary

 

Revenues rose 23% to $2,750.1 million from $2,232.4 million in 2010. The acquisition of The Timberland Company (“Timberland”), which was completed on September 13, added $163.6 million to revenues. Excluding Timberland, organic revenue growth in the quarter was 16%. All VF coalitions achieved strong revenue gains: Outdoor & Action Sports revenues, which now include the Timberland® and Smartwool® brands, grew 37%; Jeanswear revenues rose 8%; Imagewear revenues increased 14%; Sportswear revenues grew 18%; and Contemporary Brands revenues were up 11%.

 

Gross margin declined, as anticipated, to 45.3% from 46.5% in the 2010 period, reflecting the impact of higher product costs. Operating income of $430.1 million included a net benefit from the Timberland acquisition of $13.5 million, which included acquisition-related expenses of $26.6 million. Operating margin was 15.6% compared with 15.9% in the 2010 period, with acquisition-related expenses negatively impacting operating margin by approximately 100 basis points. On an organic basis, the third quarter operating margin increased to 16.1% from 15.9%.

 

Net income grew 24% to $300.7 million from $242.8 million, while earnings per share increased 21% to $2.69 from $2.22. Adjusted earnings per share were $2.87, an increase of 29% over 2010 levels. The Timberland acquisition was accretive to adjusted earnings by $.25 per share in the quarter. On an organic basis, earnings per share grew 18% to $2.62. Foreign currency translation benefitted earnings by $.10 per share in the quarter.

 

Nine Months Results Summary

 

Revenues increased 17% to $6,549.0 million from $5,576.4 million in 2010, with strong growth in every coalition. The Timberland acquisition accounted for three percentage points, or $163.6 million, of the revenue growth in the period.

 

Net income and earnings per share each increased by 22%, to $630.8 million and $5.69. Adjusted earnings per share were $5.89, an increase of 26% over 2010 levels. Earnings per share in the period also benefitted by $.11 in special items reported in the first quarter, $.07 from a gain on a facility closure reflected in second quarter earnings, and $.14 due to foreign currency translation.

 

“The strength of VF’s diversified brand portfolio has never been more evident,” said Eric Wiseman, Chairman and Chief Executive Officer. “These results – in this environment – clearly demonstrate that VF has the right brands and strategies for strong and sustainable long-term growth. Our businesses continue to post healthy and very profitable organic growth, and the acquisition of Timberland further strengthens our portfolio with the addition of two outstanding outdoor brands.”

 

Third Quarter Business Review

 

Outdoor & Action Sports: Outdoor & Action Sports continued its momentum, achieving record revenues and operating income in the quarter. Total global revenues rose 37%, reflecting strong organic growth of 22% and the addition of the Timberland® and Smartwool® brands, which contributed $163.6 million to revenues. Organic growth in the coalition’s Americas and international businesses continued at double-digit rates, rising 13% and 38% respectively. On a constant currency basis, organic revenue growth internationally was 28%.

 

Most Outdoor & Action Sports brands achieved double-digit growth in the quarter, with the two largest brands –The North Face® and Vans® – achieving global revenue growth of 22% and 25%, respectively. Growth for both brands was well-balanced, with strong gains achieved across their wholesale, direct-to-consumer, domestic and international platforms. Our Kipling® and Napapijri® businesses continue to deliver exceptionally strong performance, with revenues up 30% and 23%, respectively, in the quarter. The Timberland® brand also continued to show solid growth during the full quarter, with growth in both the direct-to-consumer and wholesale channels and continued expansion in the Earthkeepers® collection across all regions.

 

Operating income for the coalition rose 29%. Operating margin was 22.3% compared with 23.7% in the 2010 quarter, reflecting a negative impact of 120 basis points from acquisition-related expenses. Third quarter operating income of $321 million included a net benefit from the Timberland acquisition of $22 million, including acquisition-related expenses of $18 million. Excluding Timberland and related acquisition costs, operating income was up 21% and the coalition operating margin was 23.5%.

 

Jeanswear: Jeanswear revenues rose 8% in the quarter, with increases in both domestic and international revenues. The domestic jeans business continues to perform as anticipated, given the challenges posed by higher product costs and the impact of higher prices on unit volumes. Domestic revenues rose 2% in the quarter, reflecting accelerating growth in the Wrangler® Western specialty business and higher Lee® brand revenues, with mass market revenues declining slightly in the quarter. Domestically, the Wrangler® and Lee® brands continue to gain share within their respective channels, with strong performance from new products. International jeans revenues increased 22% (16% on a constant currency basis), with more than 50% growth in Asia and double-digit gains in Europe, Latin America and Canada.

 

Reflecting the continued impact of higher product costs, jeanswear operating margin and income both declined in the quarter. Jeanswear operating margin remained strong at 15.1%.

 

Imagewear: Sustaining the strong growth of the past several quarters, Imagewear grew revenues by 14% in the quarter. Image revenues increased 18%, fueled by continued strength in its Protective Apparel and Industrial uniform businesses. Licensed Sports Group revenues rose 11%, reflecting a pickup in its National Football League (NFL) licensed apparel business and positive response to an expanded women’s NFL apparel offering.

 

Operating income rose 21% and operating margin reached 14.3% in the quarter, up from 13.5% in last year’s quarter.

 

Sportswear: Sportswear revenues rose 18% in the third quarter, with double-digit growth in both the Nautica® and Kipling® (U.S.) businesses. Nautica® brand revenues rose 13%, with healthy growth in the men’s wholesale sportswear and direct-to-consumer businesses. Kipling® handbag and accessory revenues in the U.S. grew by 63%, as the brand continued to expand its distribution and extend into new products and styles.

 

Sportswear achieved a 33% increase in operating income during the quarter, with operating margin expanding to 12.0% from 10.7% in the prior year period.

 

Contemporary Brands: Contemporary Brands revenues grew 11% in the quarter, with growth across the 7 For All Mankind®, Splendid®, Ella Moss® and John Varvatos® brands. Global revenues of the largest brand, 7 For All Mankind®, rose 8%, with growth both domestically and internationally. New stores, comp store growth and higher e-commerce revenue drove 30%-plus growth in Contemporary Brands’ direct-to-consumer revenues during the quarter.

 

The profitability of the Contemporary Brands business showed significant improvement in the quarter. Operating income increased 55% while operating margin improved to 6.4% from 4.6%.

 

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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.

 

Dividend Increased

 

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.