V.F. Corporation (VFC)

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V. F. Corporation (VFC)

Q4 2009 Earnings Call

February 11, 2010 8:30 am ET


Jean Fontana – Investor Relations

Eric C. Wiseman – Chairman of the Board, President & Chief Executive Officer

Robert K. Shearer – Chief Financial Officer & Senior Vice President

Karl Heinz Salzburger – Vice President & President International


Jim Duffy – Thomas Weisel Partners

Jeffery Klinefelter – Piper Jaffray

Robert S. Drbul – Barclays Capital

Kate McShane – Citigroup

Omar Saad – Credit Suisse

Benjamin H. Rowbotham – Goldman Sachs

David J. Glick – Buckingham Research Group

Michael Binetti – UBS

Mitch Kummetz – Robert W. Baird

Christopher Svezia – Susquehanna Investment Group

Paula Torch – Needham & Company

Maggie Gilliam – Gilliam & Company

Kenneth M. Stumphauzer – Sterne Agee Capital Markets



Welcome to the V.F. Corporation fourth quarter 2009 earnings conference call. Please be aware that today’s conference call is being recorded. At this time for opening remarks and introductions, I’d like to turn the conference over to Jean Fontana.

Jean Fontana

Thanks for participating in V.F. Corporation’s fourth quarter and full year 2009 conference call. By now you should have received today’s earnings press release. If you have not, please call 203-682-8200 and we will send you a copy immediately following the call. Hosting the call this morning is Mr. Eric Wiseman, Chairman and CEO of V.F..

Before we begin we would like to remind participants, certain statements included in today’s remarks in the Q&A session may constitute forward-looking statements within the meaning of the federal securities laws. Forward-looking statements are not guarantees and actual results may differ materially from those expressed or implied in the forward-looking statements. Important factors that could cause actual results, collaborations or financial conditions of the company to differ are discussed in the documents filed with the company and the SEC.

At this time I would now like to turn the call over to Eric Wiseman.

Eric C. Wiseman

Following my opening comments you’re going to hear a recap of the quarter’s results and 2010 outlook from Bob Shearer. Karl Heinz Salzburger who’s President of our International Business is also on our call today from Italy and he’s going to comment on our international performance in 2009 and our key international priorities for 2010.

As you saw in the release this morning, our fourth quarter and therefore our year came in much stronger than we anticipated. I’ll comment on the impairment charge in a moment but for now I’ll base my comments on our results excluding that charge. The upside in the quarter was fairly broad based in nature. Our outdoor action sports, jeanswear America, sportswear and imagewear businesses all contributed.

You’re well aware of a variety of factors impacting the comparisons this year including last year’s $0.30 per share charge to reduce costs and this year’s higher pension expense as well as the impairment. In the release we noted that if you adjusted for all these factors, our fourth quarter earnings per share would be up 28%.

In terms of our full year earnings picture it’s important to remember that the $5.16 per share in 2009 included twin headwinds of higher pension expense and foreign currency translation which combined impacted earnings per share by $0.66. We also noted in the release that if you compared 2009 with 2008 and exclude the 2008 charge as well as this year’s pension, foreign currency and impairment, 2009 earnings per share would have risen 2% from 2008 levels on an apples-to-apples basis.

2009 was a year unlike any other we’ve experienced. Looking back, I believe we struck the right balance between cautiousness related to managing costs and inventories and assertiveness related to investing behind our brands to keep them strong and healthy and investing in growth markets. Let me take just a moment to recap the many accomplishments achieved by our outstanding teams during this very challenging year.

First, we continued the momentum in our outdoor and action sports businesses globally. Next, we gained share in our core Wrangler and Lee brands in the US. In Asia, V.F.’s total revenues grew by 28%. During the year we extended our contemporary brands portfolio by completing the acquisition of the Splendid and Ella Moss brands and we are thrilled to have these brands and these people as part of V.F. Corporation.

We continued to grow our direct-to-consumer business with a 6% increase in direct-to-consumer revenues and the addition of 90 new stores. We improved the profitability of our sportswear coalition, achieving double digit margins for both the quarter and the year. Our gross margins reached record levels. We committed to and achieved $100 million in cost reductions. We reduced inventories by 17%, well above our prior guidance of a 13% reduction. We achieved an all time high in cash flow from operations of $973 million and we delivered our 37th year of higher dividend payments to shareholders.

We’re real proud of these accomplishments but we also saw our shares of challenges and disappointments during the year. Our revenues declined 6% or 4% on a constant currency basis in 2009 reflecting recessionary conditions around the world. Our European jeans business had a much more difficult year than we had envisioned particularly in Eastern Europe where we had experienced significant growth in recent years. Our image or our uniform business was hurt disproportionately during this down turn than by higher than anticipated levels of unemployment in key sectors.

While we’re encouraged by the profit improvement in sportswear, our revenue trend is still not where we want it to be and our earnings were meaningfully impacted by higher pension expense and foreign currency translation rates. Finally our yearend impairment analysis resulted in a charge to earnings in the fourth quarter which substantially reduced our earnings on a GAAP basis.

In terms of the impairment charge, we noted in the release that the charge is related to our Nautica, lucy and Reef brands where results since acquisition have not met our expectations due in part to the pressures imposed by this global recession. As you are all aware, V.F. is a company with a decade’s long history of growth through acquisitions and acquisitions will continue to play an important part in our growth plans for the future. We’re committed to improving the performance of our Nautica, lucy and Reef brand and we’re encouraged about the opportunities for improved performance in each.

So with 2009 finally behind us we are energized about our opportunities for 2010 and very focused in our approach to delivering solid top and bottom line growth. We have a lot to look forward to this year. Bob will talk you through a number of points related to our guidance for 2010. I do want to spend a minute though on a very important point highlighted in the release and that’s the fact that we’re ramping up investment behind our brands to fuel market share gains and accelerated growth now and in to the future.

The release noted that we’re increasing spending this year by $50 million. The bulk of this spending will be concentrated in brand marketing but we also plan to invest behind building our product, innovation and sustainability platforms. Our spending is going to be very focused on specific initiatives within our most important and most profitable businesses.

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