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VF Corp (VFC)
Q4 2013 Results Earnings Conference Call
February 14, 2014 / 8:30 A.M. E.T.
Lance Allega – Director of IR
Eric Wiseman – Chairman, President & CEO
Bob Shearer – SVP & CFO
Steve Rendle – VP of VFC, Group President of Outdoor & Action Sports Americas
Karl Heinz Salzburger – VP of VFC, Group President of International
Scott Baxter – VP of VFC, Group President of Jeanswear, Imagewear & South America
Karen Murray – President of Sportswear
Susan Kellogg – President of VF Contemporary Brands
Bob Drbul – Nomura Securities
Matthew Boss – JPMorgan
Michael Binetti – UBS
Kate McShane – Citigroup
Laurent Vasilescu – Macquarie
Lindsay Drucker Mann – Goldman Sachs
Jim Duffy – Stifel Nicolaus
Erinn Murphy – Piper Jaffray
Robby Ohmes – BofA Merrill Lynch
Barbara Wyckoff – CLSA Financial Services
Mitch Kummetz – Robert W. Baird
Previous Statements by VFC
» How Will V. F. Corp. Perform In A Challenging Retail Environment?
» V.F. Management Discusses Q3 2013 Results - Earnings Call Transcript
» V.F. Corporation Discusses Q3 2013 Results (Webcast)
Thank you, operator. Hello, everyone, and thank you for joining us today to discuss the VF's fourth-quarter and full-year 2013 results. Before we begin, I would like to remind participants that certain commentary included in today's 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 businesses, results of operations and the industries in which VF operates. Actual results may differ materially from those projected in these 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 will find appropriate reconciliations for those in our press release, which was issued about an hour and a half ago and at our website at VFC.com.
Joining us on today's call will be Vodafone Chairman and Chief Executive Officer, Eric Wiseman; Bob Shearer, our Chief Financial Officer, and our Group Presidents, Scott Baxter, Steve Rendle and Karl Heinz Salzburger. Also participating will be Karen Murray, President of VF Sportswear, and Susan Kellogg, President VF Contemporary Brands.
Following our prepared remarks, we'll take your questions and we'll ask that you limit your initial questions to two. In the event you have additional questions that are not covered by others, please re-queue and we will do our best to come back to you. Thanks for your cooperation on this. I will now turn the call over to VF Chairman and CEO, Eric Wiseman. Eric.
Thanks, Lance. Good morning, everyone, and thanks for joining us today. As Lance mentioned, we have several members of the VF team with us today to review our fourth quarter and 2013 performance and to provide insight into 2014, so our call will likely extend beyond one hour to ensure we have ample time to take your questions.
In setting the table for this morning's discussion I will focus on three topics – first, a summary of our performance in 2013; second, a review of our success in creating value for our shareholders; and third, a look to the future including a focus on our four key growth platforms that are going to drive for near-term performance and fuel our success in achieving the five-year plan that we presented in June of last year.
2013 was a terrific year at VF. We ended the year on a strong note that really set us up well for a successful 2014. We achieved all-time highs in revenues, gross margin, earnings and cash flow and we did this despite continuing economic challenges around the world and a highly competitive environment.
We beat our guidance on both gross margin and EPS for the full year while also exceeding our cash flow from operations target. And while we were a bit shy of our revenue target, we are thrilled with the momentum we reestablished in the fourth quarter especially for The North Face, Vans and Timberland brands.
So taking a closer look, total VF revenues grew 5% reaching $11.4 billion. Our biggest revenue drivers included the Outdoor & Action Sports coalition, which grew 9% with meaningful gains from Vans, the North Face and Timberland. Outdoor & Action Sports delivered 56% of VF's revenue in 2013.
Our International business grew 8% representing 38% of our total revenue and our direct-to-consumer business grew 13% and was 22% of VF's revenue.
The solid growth in these higher-margin businesses and continuing gross margin expansion rates in our coalitions lifted our gross margin to 48.1%, up 160 basis points from 2012. Our operating margin reached 14.4%, a 90 basis point improvement even with the incremental marketing spend we elected to make in the second half of the year. And our adjusted earnings per share increased 13% to $2.73, right in line with our 2017 plan target of 13% annual EPS growth.
The VF team's strong performance created great value for our shareholders in 2013. Our stock price increased 65% hitting all-time highs and that is compared with an S&P index that rose 30% in its best performance since 1997. We are pleased with the strong response to our performance, our plans and the outlook for our Company.
In 2013, we announced a 21% increase in our quarterly dividend rate and that marked the 41st consecutive year of higher dividend payments to shareholders. Our track record of returning cash to shareholders is solid. Last year we returned nearly $700 million to shareholders in the form of cash and share buybacks.
Now let's move on to our plan to fuel near and long-term growth. Underlying our growth plan is a relentless focus on VF's four growth drivers.
First, we will lead in innovation. That means developing a constant stream of new and better products, store environments and digital experiences that deliver what customers want. Our emphasis on creating game changing products at VF is stronger than I've ever known it to be. And our innovation pipeline has never been fuller than it is right now.
Second, we will connect with consumers. We are confident in our ability to do that, not just because we understand consumers, but because we are always listening to them. We ask and they tell us what they want, what inspires them and how to best communicate with them.
Third, we will serve consumers directly wherever and however they want to engage our brands. We are working tirelessly to elevate their brand experiences. Whether brick-and-mortar or click and order, we are there learning, improving and customizing their experience to create brand loyalists.
And fourth, we will continue to expand geographically from the Americas to Europe to Asia in mature and emerging markets. We believe our brands are underdeveloped and have a robust ability to not only capture share but, more importantly, to grow to market.
Moving towards the year ahead, in 2014 we expect revenues to be up 7% to 8%, which is an acceleration that puts us roughly in line with our 2017 organic growth rate target. And consistent with 2013 we anticipate our Outdoor & Action Sports coalition to be the largest driver of our top-line growth.
We expect worse margin to reach 49% while our operating margin should reach 15%. We expect earnings per share to grow 11% to 13% of reaching $3.00 to $3.05 per share. Cash flow from operations should reach $1.65 billion and we're pleased to report that we expect to return more than $1 billion to shareholders in 2014 through share repurchases and dividends.
So, with one year of our five-year plan on the books I can report we are on track. I want you to take away from this call how well positioned we are with powerful global brands and powerful business platforms that guide and support our long-term growth strategy. With product innovation leading the way we see continued momentum across our portfolio.