V.F. Corporation (VFC)

VFC 
$61.49
*  
0.46
0.74%
Get VFC Alerts
*Delayed - data as of Jul. 29, 2014  -  Find a broker to begin trading VFC now
Exchange: NYSE
Industry: Consumer Non-Durables
Community Rating:
 
 
Symbol List Views
FlashQuotes InfoQuotes
Stock Details
Summary Quote Real-Time Quote After Hours Quote Pre-market Quote Historical Quote Option Chain
CHARTS
Basic Chart Interactive Chart
COMPANY NEWS
Company Headlines Press Releases Market Stream
STOCK ANALYSIS
Analyst Research Guru Analysis Stock Report Competitors Stock Consultant Stock Comparison
FUNDAMENTALS
Call Transcripts Annual Report Income Statement Revenue/EPS SEC Filings Short Interest Dividend History
HOLDINGS
Ownership Summary Institutional Holdings Insiders
(SEC Form 4)
 Save stocks for next time

V.F. Corporation (VFC)

June 11, 2013 8:45 am ET

Executives

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

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

Karen Murray - President of Sportswear Coalition

Susan Kellogg - President of Contemporary Brands Coalition

Stephen F. Dull - Vice President of Strategy & Innovation

Michael T. Gannaway - Vice President of Vf Direct and Customer Teams

Thomas A. Glaser - Vice President and President of Supply Chain

Karl Heinz Salzburger - Group President of International and Vice President

Rick Wood

Martino Scabbia Guerrinic - President of Sportswear & Contemporary Brands EMEA coalition

Aidan O'Meara - President of Asia Pacific

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

Analysts

Robert S. Drbul - Barclays Capital, Research Division

Evren Dogan Kopelman - Wells Fargo Securities, LLC, Research Division

Michael Binetti - UBS Investment Bank, Research Division

Scott D. Krasik - BB&T Capital Markets, Research Division

Christopher Svezia - Susquehanna Financial Group, LLLP, Research Division

John D. Kernan - Cowen and Company, LLC, Research Division

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

David J. Glick - The Buckingham Research Group Incorporated

Presentation

Unknown Executive

Good morning, ladies and gentlemen. Just a reminder to please turn off your cell phones for this morning's investor meeting. And please take your seats. We will be beginning momentarily. Thank you. Ladies and gentlemen, Director, Investor Relations, Lance Allega.

Lance Allega

All right. Good morning, everybody. Thank you so much for coming out to join us today. It's good to see a lot of familiar faces and some new ones as well.

We've got a pretty full agenda for you today and very excited. Two years ago in March of '11, we laid out a 2015 plan. And 3 months later, we acquired a little company called Timberland. And then last year, we had a Vans 2016 plan in June. And then in September, we did an Asia Pac 2017 plan. So we thought we'd take today to really roll everything together in a nice, neat package for you, and we've got a lot of exciting things to go through.

Classic Safe Harbor statement. Obviously, today, we'll include forward-looking statements. And as I said, there's a full agenda, and we're really excited to have a pretty deep bench of VF leadership here today and really take you through the strategies and reasons to believe in our plan for the next 5 years. So again, thank you very much. We're looking forward to it.

[Presentation]

Unknown Executive

Ladies and gentlemen, Chairman, President and Chief Executive Officer, Eric Wiseman.

Eric C. Wiseman

Good morning, everyone. Thank you for being with us this morning. Some of you have been following VF for a long time. I can see, by the technology, moving in the room, some of you are already beginning today's coverage of VF. We have a long story to tell here today, and we're pretty excited about what's happened to our company over the last 5 to 10 years. As many of you know, we've changed VF in a lot of ways over the last 5 to 10 years. And today, our company is much stronger and much more capable than we were when we began our transformation.

At VF, we're both very proud of our past. But more importantly, we're very excited about our future. We believe we're just beginning to achieve the potential that we have to grow and to deliver shareholder value. And we've talked a lot about where we've been over the last few years, and today, we're going to share with you some of our plans and priorities for the next 5 years.

We're confident of achieving our plans as we've ever been. And if you look back, the best place for me to start is looking back at where we were in beginning of 2011, as Lance mentioned, when we announced the 5-year plans to you. What we said at that time very simply was we were going to grow our company by $5 billion, and that's $5 in earnings per share by 2015. And greatly helped by the acquisition of Timberland, we've made substantial progress in the first 2 years of that 5-year period. You can see on this chart we're well ahead of the game everywhere that we should be. Our revenue, again greatly helped by the acquisition of Timberland and SmartWool, is 2/3 of the way to our plan target. We've made great progress in gross margins, again ahead of plan. Our operating margin, also ahead of plan. But as you know, Timberland and SmartWool have been a slight drag on our operating margin rate. Where they've also helped us, though, is in our earnings per share where we're also at about 2/3 of our target at $9.63.

So as I think forward to that, to the guidance that we shared in April of this year, it gives you another look at how much progress we'll make based on this guidance in 2013, most importantly in the earnings per share line, achieving most of our target by the end of this year, which is why we're here today. We're here today to help you understand what we're committed to achieving in the next 5 years and how we're going to get that done. And we have a whole bunch of our leadership team here today to take you through where we're going to grow, how we're going to grow and how we're going to enable that and achieve it.

When I think of VF Corporation, I really think about 2 things. I think about powerful brands and powerful platforms. Those powerful brands and platforms are so effectively managed by our leadership team that it's enabled consistent growth over time.

The powerful brands are the foundation of our business. We have brands that have really strong equity with consumers and, most importantly, have strong operating models. And those operating models let us invest in each brand to achieve growth while, at the same time, delivering superior shareholder return.

Our corporation's -- is covered with brands. We have a really, really diverse portfolio of brands. But our business model empowers brand teams to focus on their brands to deliver operating performance while, at the same time, letting us leverage our size to drive efficiency and profitability.

Our brands speak to a diverse set of consumers. We try to speak to them wherever they live, however they live their lifestyle and wherever they shop.

We think our diversity is maybe our single biggest strength, if you think about how personal the shopping experience has become. If you want to be relevant to a skateboarder, a 20-year-old skateboarder living in Orange County, you better show up in an authentic way or they'll dismiss you. And if you want to speak to somebody living a Western lifestyle, a 20-year-old living a Western lifestyle in Montana, you better show up in an authentic way or they'll dismiss you. The diversity of our brands lets us do that consistently, and the effectiveness of our operating model lets us do that in a way that drives superior shareholder value consistently over time.

Today, we're going to focus on 7 of our largest brands, and our leaders will come up and share with you how each of those, our 7 biggest brands, are going to enable their future.

One of the things that goes across all of our brands is the importance of innovation at our company. For us, innovation is about creating new opportunities for growth. We define innovation as something new that creates value. And our objective in being innovative is to shape the future of footwear and apparel. And over the next 5 years, our innovation platform is going to be much more important to us as we drive revenue growth, enhance our margin and strengthen our brands' connectivity with consumers.

What we talk about from is the mass channel to the mountaintop, we have to innovate. What we've learned in our third year of our innovation platform is innovation is just as important to our mass channel Jeanswear business as it is to The North Face.

Also we innovate in how we run our businesses. Whether we're innovative in robotics in a factory or robotics in a distribution center, or whether we're staying out in front of the digital and social space, we know we have to stay innovative. And of course, in our products, we have to always give consumers reasons to believe in, trust and buy our brands.

But innovation only matters -- by matters, I mean create shareholder value -- if we connect it to consumers. So we take a holistic approach in our innovation strategy. We think about our relationships with consumers, connecting across their lifestyle and their aspirations and their passion for products. Our consumer insights group uses both qualitative and quantitative data to shape product and brand strategies with the ultimate objective to drive loyalty from consumers and deeper brand equity connectivity. In every brand and in every geography that we do business, we try to combine the art of product design with the science of consumer insights to make sure we connect with consumers, always keeping them at the center of everything we do.

Now you're going to see this x a lot today. We're going to shape a lot of today's presentation about how we create shareholder value and how we win. And we're going to focus on 4 of VF's growth drivers, and I'm going to lay all 4 of them out for you now, and you'll see them in many of the brand presentations that you're about to see.

The first is we lead in innovation. And to us, that means a constant stream of new and better products, new and better store environments, new and better digital experiences that deliver what our consumers want.

Second, we connect with consumers, and we connect with consumers because we understand them. We believe that we invest more in developing and refining consumer insights and that we invested better than anybody else in the industry. We have an extraordinary robust consumer insight practice at our corporate headquarters in each of our brands and in each of our geographies that's connected to build terrific brand strategies that work with consumers with our products in each market.

The third plank, we serve our consumers wherever and however they want to engage with our brands. To us, this used to be a direct-to-consumer vocabulary. It's about serving consumers. It's recognizing that they are completely in charge of their relationship with our brands. So we want to make sure that we're effective as we do that in our stores, through e-commerce, at our partner stores and through social media. We need to make sure that they understand what our brands are doing and that they appreciate how authentic our brands are.

And the fourth growth driver for us is expanding geographically. We have a lot of potential left, a lot of growth potential left in the more mature U.S. and European markets. And we have abundant opportunity in emerging markets around the world. Over the next 5 years, our international business will almost double again. And as a percentage of our revenues, it'll continue to climb.

And one thing that enables all this is our powerful platforms. Our powerful platforms around the world have consistently demonstrated they can enable the growth and financial success of every brand we own and every brand we acquire. It's hard to find an example of a place where we have not been able to change the trajectory of a brand based on our global platforms. It's a critical thing to our future.

Our brands capitalize on these by understanding the power that they deliver to the brand. But in addition to physical platforms, we also had capability platforms that are critical to our success. Today, you're going to hear from Steven Dull, who's going to speak to our front-end disciplines around strategy, consumer insight, innovation and brand management and how, importantly, we share best practices of our brands around the world.

Mike Gannaway is going to join us up here today, and he's going to talk about our direct-to-consumer business, how that's so important to our growth, our opening of stores and building e-com connections with consumers and how we share practices of that on a global basis.

Tom Glaser is going to go up and talk about our supply chain. And you'll see that it is complicated, and you'll see that we execute it very well. It's one of our critical enablers of our success. Quite frankly, some of us we're concerned when we were a $5 billion company if we'd be able to execute as well when we were an $11 billion company. That has been asked and answered. We are actually working more effectively now as an $11 billion company through our supply chain than we were when we were a $5 billion company.

And this afternoon, I'm going to have a bunch of our international leaders join me on stage, and we're going to talk about the business in each of the geographies and the importance of international growth to our future.

Before I have all those leaders come up and before we get with the agenda, and I know many of you have -- no, not true, all of you have been looking through the books. But I will officially unveil kind of what the next 5 years are going to look like to you right now. And it's all about growth.

In 2017, VF will be a $17 billion company. As I said earlier, we're confident that we can grow our business at 10% a year. We think 8% of that will come organically and 2% by acquisition. Why are we so confident? In January of 2008, we laid out a 5-year plan for you that we met. In January -- in spring of 2011, we laid out a 5-year plan for you that we're exceeding at such a big rate we have to have this meeting 2 years later and talk about what the next 5 years looks like. So we're confident we can get to the $17 billion.

Over that time period, our gross margin will expand by 300 basis points to 49.5%. Over that time period, our operating margin will expand by 250 basis points to 16%. We know for us to achieve some of our growth rate, we need to invest more in our brands. And at the end of the day, Bob Shearer will lay out for you kind of what that -- what the shape of that will look like, but we're going to invest some of our gross margin growth rate expansion back into our brand so that we can deliver a $17 billion VF in 2017.

Our earnings per share will be $18 in 2017. It'll grow at a compound annual growth rate of 13%. We could have made it $17. So we had in 2017 $17 in -- $17 billion in revenue and $17 per share, but we just couldn't help ourselves. $18 is going to be the number. That's where we'll be in 2017.

And we're going to generate abundant cash flow over this period. Over the 5-year period, $9.5 billion of operating cash flow will come to us. We're about $1.3 billion last year. We think we'll be at about $2.4 billion in annual operating cash flow by 2017.

We're really excited about this story. A lot of you, as I said, have been following VF for a long time. Almost everybody you're going to hear from today at VF was part of the company back in 2004 and '05 when we were a $5 billion company and aspired to be an $8 billion company and then aspire to be an $11 billion company. And we've accomplished all that. And here we are today talking about a commitment to being a $17 billion company in 2017.

To understand that, you need to understand the pieces. And the first piece of that, and an important piece of it, is our Outdoor & Action Sports businesses globally. To talk to you about that, it is my pleasure to introduce the Group President of our Outdoor & Action Sports businesses in the Americas, and that is Steve Rendle. Steve, you're up. Thank you all very much. Good luck.

Steven E. Rendle

Eric. Good morning, everybody. How are you? I have noticed there's a lot of BlackBerry and iPhone activity going on. So as I -- I'm going to take about a day's worth of content, and I'm going to try to cram it into 30 minutes. I mean, this is a very important part of VF's overall business, some very exciting brands.

Outdoor & Action Sports is a very rich and diverse portfolio of 11 unique brands, diverse from the activities that we participate in, from outdoor to action sports to performance and travel; diverse when you think about the categories of product, apparel, equipment, footwear and accessories; and diverse in that we're in every region of the world that VF does business.

Over the next -- or over the past few years, we've seen significant growth, both organically but also through the acquisition of Timberland and SmartWool. And over that period of time, we've grown to be 54% of VF's total revenue. And as you project over the future, we'll achieve sales of $11 billion, which, if you stop and think about, that's equal to what VF was in 2012 in total. And as we achieve that target, growing organically from an 11% standpoint, 3% through acquisition, we'll be 64% of VF's total revenue.

You might ask, why do we think we can achieve that? I would tell you first, it's a powerful brand portfolio that we have and the people that run these businesses. But if you think historically, our most prior 5-year organic growth rate for this portfolio was 12%. And over the past 3 years, we've grown at a compounded growth rate of 15%. So we've shown that we can do it. We have the expertise, and we certainly have the powerful brands.

This growth will come from each of our global regions, each growing at double-digit rates. And we're often asked the question about our individual brand growth opportunities, and I would tell you this. We're fairly immature in each of the regions that we do business with, and there's a tremendous amount of headroom for us to grow in these years to come.

All the brands in our Outdoor & Action -- Outdoor portfolio will be integral to us achieving our $11 billion target. Today, I'd like to focus on 3. These are powerful brands with very proven teams, and they're proven leaders in their individual sectors. In 2012, these 3 brands made up 45% of VF's total revenue. And by 2017, they'll make up 52% of the total sales.

When you think of that versus some of the larger activity lifestyle brands or athletic brands in the space, these brands have -- are very underpenetrated in a lot of the markets across the world, and we have just great headroom to grow.

If you think also about the market share, and we're asked often about our share. What is our current share or what is our opportunity to grow share? And I understand why that question is relevant, but it's -- I think there's 2 sides to the story.

I think first, I'll give you some context to our share. It's a fair question. If you think about The North Face at $1.9 billion in 2012, we were -- had an 8% share of the global marketplace. And yet, The North Face doesn't just operate in the Outdoor business. It's in the Action Sports and performance business. And if you add that market revenue to the opportunity, that's a $74 billion market opportunity.

In case of Vans, we're a -- at $1.5 billion last year. We had a 5% share of a finite market. And this brand, too, plays much broader than just in the Action Sports space.

In Timberland, well, there we're just 2% of only footwear. And we'll be talking to you today about an exciting apparel opportunity that we have with this brand.

So the second side of the story is market share is always talking about a finite or a static pie. And if you think about the markets these brands play in, these are very dynamic, growing global markets where consumers are entering [ph] on a constant basis. And in fact, our brands and our marketing efforts are about attracting new consumers to these spaces for us to get passionately engaged with the activities that we're all excited about building products for.

So as Eric mentioned, you're going to see the x a lot. And the x to us has a center point. And over the history of these brands, but even more so in the last 4 or 5 years as we've developed our consumer information team, the consumer is at the center of every decision that we make. And we've spent a tremendous amount of time and resources investing in global consumer segmentation studies for these 3 brands, and these 3 brands' information is -- actually forms our entire portfolio. And these investments help us and really guide the decisions we make around product, around marketing, around our in-store merchandising, understanding really how our consumers want to be spoken to but also our digital strategies. And as we also think across our ability to leverage this knowledge geographically, we tap into the powerful regional platforms that we have in Europe and Asia to help these brands scale in each region of the world.

So let's get into some of the business. Last time I stood in front of you, we talked about a $3 billion North Face by 2015. The North Face remains the leader in the outdoor industry, and we are as confident as ever of this brand's potential. And over the next 5 years, we see this brand growing at a 12% compounded growth rate, achieving $3.3 billion in sales by 2017. If you think about that 12% compounded growth rate, we look at even double-digit growth across each of our regions.

And back to that comment I had about growing the pie, if you look at that Asia Pacific business, we're very young in the Asian market, and we're in a very unique position, an enviable position, of being able to start an outdoor conversation with the young, young consumer in China about what it means to get outdoors. Just a tremendous amount of opportunity and headroom ahead for us in that region.

We know our target consumer participates in a variety of activities, activities from running to skiing to hiking and climbing. And we know through our research that our consumers look to us for unrivaled performance and superior protection when they're out performing these activities. And the activity-based model that you've heard us talk about quite a bit over the years really is that platform that provides us an authentic, scalable means of reaching or really bringing our brand to our core consumers' new activities but also attracting new consumers to these activities. And we're the #1 outdoor brand in the world with particular strengths in apparel, in equipment, in footwear as well as accessories. And we're the #1 apparel brand in ski specialty. And the ski market, or the action sports market for us, is a unique place for us to speak to a younger consumer. And we're really excited about our recent agreement to sponsor the U.S. Freeskiing team, first coming -- allowed in the [indiscernible] Olympic. New activities will be coming to the international arena around skiing, and we will be representing the U.S. Freeskiing team as their uniform supplier. And this will be the first time that a North Face brand is enabled to participate and be seen on such a large global stage through just the massive media that these particular activities will be getting.

Our performance business. New to the brand is our fastest-growing category. Over the last 3 years, we've seen this business grow at a compounded growth rate of 24%. And the piece of the business inside of here, the training business, which is such an important business to consumers today, is growing at a 44% compounded growth rate, and we're getting great placement here in the U.S., in Europe and just beginning in some of our Asian markets.

At the center of all of this is our innovation platform. And innovation to The North Face is about solving problems or bringing solutions to problems that our athletes and our consumers bring to us every day. And we've made significant investments over the last few years in our advanced products and materials research teams, who really are helping us dive deep into understanding what superior protection is and what it means to bring products that protect consumers from the elements.

And we're focusing our attention specifically around motion control, moisture management last year. And maybe you saw the introduction of our new Flash Dry technology that's now involved in a number of products not just from Sportswear but to outer layers and it's moving into footwear.

And temperature control. Temperature control certainly is what The North Face has made its living on. We have a unique understanding now through our research that for consumers to remain comfortable, and that's for you and I not to feel hot, not to feel cold, we need to help our consumers keep a skin temperature of 91 degrees Fahrenheit. And our research teams are very focused on technologies that would do that from base layers to mid-layers to outer layers.

And in fall '13, for those of you that joined us at the trade shows this last season, we're launching our new Thermoball technology, which is part of the Science of Warmth platform. And Thermoball is a polyester synthetic fiber that's been constructed to mimic the structure of down, 600-fill down, fill power would be the comparable warmth, but it doesn't have the inherent negatives of losing warmth when getting wet. And this is just the first of many new products coming out of this platform.

Read the rest of this transcript for free on seekingalpha.com