V.F. Corporation (VFC)

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V.F. (VFC)

Q1 2013 Earnings Call

April 26, 2013 8:30 am ET


Lance Allega - Director of Investor Relations

Eric C. Wiseman - Chairman, Chief Executive Officer, President and Ex Officio Member of Finance Committee

Steven E. Rendle - Group President of Outdoor & Action Sports Americas and Vice President

Karl Heinz Salzburger - Group President of International and Vice President

Scott H. Baxter - Group President of Jeanswear Americas & Imagewear and Vice President

Robert K. Shearer - Chief Financial Officer and Senior Vice President


Kate McShane - Citigroup Inc, Research Division

Robert S. Drbul - Barclays Capital, Research Division

Michael Binetti - UBS Investment Bank, Research Division

Erinn E. Murphy - Piper Jaffray Companies, Research Division

Omar Saad - ISI Group Inc., Research Division

Mitchel J. Kummetz - Robert W. Baird & Co. Incorporated, Research Division

Christian Buss - Crédit Suisse AG, Research Division



Good day, and welcome to the VF Corporation First Quarter 2013 Earnings Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Lance Allega, Director of Investor Relations. You may begin, sir.

Lance Allega

Thank you, operator. Hello, everyone, and thank you for joining us today to discuss VF's first quarter 2013 results.

Before we begin, I'd like to remind participants that certain commentary included in today's prepared remarks and the Q&A session may constitute forward-looking statements under the definition of federal securities law. Forward-looking statements include management's current expectations, estimates and other projections about our business, results of operations and the industries in which VF operates.

Actual results may differ materially from those projected in the forward-looking statements. Important factors that could cause actual results to differ materially from those projected in the forward-looking statements are discussed in the documents filed with the SEC.

Additionally, participants on today's call may discuss non-GAAP financial measures. You'll find the appropriate reconciliations in our press release, which was issued about an hour ago, and in our website at vfc.com.

Joining us on today's call will be VF's Chairman and Chief Executive Officer, Eric Wiseman; Bob Shearer, our Chief Financial Officer; and our group presidents, Scott Baxter, Karl Heinz Salzburger and Steve Rendle. Following our prepared remarks, we'll take your questions. [Operator Instructions]

And now I'll turn the call over to VF Chairman and CEO, Eric Wiseman. Eric?

Eric C. Wiseman

Thanks, Lance. Good morning, everyone, and thank you for joining us today. 2013 is off to a great start for us with results beating our expectations. Consistent with what we told you in February, our first quarter revenue growth rate was a few points below our full year target of 6%. And as we've seen over the last year, our diverse model continues to deliver great bottom line results, especially from our lifestyle brands and our international and direct-to-consumer businesses. In fact, our record earnings per share in the first quarter was a little better than our expectations. And with record revenues and record gross margin, it's another fantastic quarter for VF.

During the quarter, our Outdoor & Action Sports business grew revenues by 10% amid concerns about fluctuating weather conditions impacting our cold-weather brands. Our international business was up 6%, despite continued economic weakness in Europe and an inventory overhang in China. And our direct-to-consumer business rose 12% with strength both here and abroad, even in a generally sluggish macro environment.

While the economic environment is, overall, a headwind, we are very encouraged and proud of the consistent improvement in our profitability. Both gross and operating margins showed substantial expansion over the prior year's first quarter with gross margin up 240 basis points and adjusted operating margin rising by 130 basis points. Together, this growth in profitability enabled VF to deliver a 25% improvement in adjusted earnings per share to $2.43.

Looking to the balance of 2013. With a slightly stronger-than-expected start to the year, we're raising our full year adjusted earnings guidance by $0.05 per share to $10.75. With 3 quarters still ahead of us and many dynamics at play, we feel it's prudent to maintain a fairly cautious approach to guidance while we continue to seek and invest in new opportunities for long-term growth.

And speaking of long-term growth, it was a little over 2 years ago that we got on stage in New York and took you through our 5-year plan. By every measure, revenues, margins and earnings per share, we're well ahead of the 2015 plan we presented then. So it's time to get back on stage, which is exactly what we plan to do on June 11 in New York, where we'll take you through the next 5 years of VF strategies and the performance you can expect us to deliver.

But back to 2013. This is the year of opportunity, opportunities to strengthen our brands, to innovate more meaningfully and to connect with and reach even more consumers. Our diverse portfolio of brands, backed by deep consumer insights and the relentless focus on operational excellence, is built to inspire consumers and generate consistent returns for our shareholders.

We continue to invest thoughtfully and consistently behind key drivers of top and bottom line growth, and these investments are certainly paying off. So with a great start, the right strategies and superior execution, we're looking forward to delivering another outstanding year to our shareholders.

And with that, I'll turn the call over to Steve, Karl Heinz and Scott who will take us through the top 5 VF brands, and then Bob will close out with a deeper dive into our financial results. Steve?

Steven E. Rendle

Thank you, Eric. First quarter global revenues for The North Face were up 6%, fueled by very strong growth in the brand's D2C business, which increased 25%. Globally, we also saw a slight increase in our wholesale business. In the Americas region, revenue was up 3%, helped by winter weather that arrived mid-January and continued until just recently.

In fact, our D2C performance was strong in the quarter, up low double digits and the highest comps in over a year, driven by solid sell-through of winter-related apparel, including insulated jacket, fleece and shells, as well as spring-weight rainwear and performance athletic apparel, clearly evidence that The North Face brand is strong and its product coveted as the industry's best, all of which gives us confidence that we have a great year ahead of us.

Looking out towards fall, as expected, retailers have remained cautious with their orders, which were in line with our expectations. So definitely a good start to 2013 and great confidence in our ability to achieve high single-digit revenue growth for the full year.

As I outlined on our year-end call, we are focused on 3 key areas to grow The North Face brand in 2013: product innovation, marketing and D2C. And with the first quarter behind us, we're definitely firing on all cylinders in these initiatives.

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