Q1 2011 Earnings Call
April 29, 2011 8:30 am ET
Jean Fontana - Integrated Corporate Relations
Scott Baxter - Vice President, Group President of Jeanswear Americas & Imagewear and Member of Operating Committee
Eric Wiseman - Chairman, Chief Executive Officer, President, Ex-Officio Member of Finance Committee
Steve Rendle - Vice President, Group President of Outdoor & Action Sports Americas and Member of Operating Committee
Robert Shearer - Chief Financial Officer and Senior Vice President
Karl Salzburger - Vice President, Group President of International and Member of Operating Committee
Robert Drbul - Barclays Capital
Michelle Tan - Goldman Sachs Group Inc.
John Kernan - Cowen and Company, LLC
Kenneth Stumphauzer - Sterne Agee & Leach Inc.
Andrew Burns - D.A. Davidson & Co.
Robert Ohmes - BofA Merrill Lynch
Jeffrey Klinefelter - Piper Jaffray Companies
Michael Binetti - UBS Investment Bank
Jim Duffy - Stifel, Nicolaus & Co., Inc.
Evren Kopelman - Wells Fargo Securities, LLC
Previous Statements by VFC
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Thank you. Good morning, everyone. Thank you for participating in VF Corporation's First Quarter 2011 Conference Call. By now, you should have received today's earnings press release. If not, please call (203) 682-8200, and we'll send you a copy immediately following the call. Hosting the call today is Eric Wiseman, Chairman and CEO of VF.
Before we begin, I would like to remind participants that certain statements included in today's remarks and the Q&A session may constitute forward-looking statements within the meaning of 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.
I would now like to turn the call over to Eric Wiseman.
Thanks, Jean, and good morning and thanks, everyone, for joining us today for the 80-or-so of you on the line, who have made VF stellar performance a priority versus the royal first kiss. We appreciate your interest.
With me today are Bob Shearer, our Chief Financial Officer; and our 3 group presidents, Karl Heinz Salzburger; Steve Rendle; and Scott Baxter. And Karl Heinz and Steve are joining us today by phone.
As you saw in this morning's release, we are off to a very strong start to the year, and we expect this momentum to continue as we progress through 2011. The brand investments we made in 2010, and continue to make in 2011, refuel growth in our highest growth, highest profit businesses will allow us to achieve growth this year well above the 7% reported last year, and in line with the five-year target of 10% that we announced last month. To recap the highlights of our first quarter results, revenues were up 12% with higher revenues and operating income achieved by every VF coalition. Our International business rose 20% with strong growth in all regions, including Europe, Mexico, Latin America and Canada, and exceptionally strong growth in Asia.
Our revenue growth in the quarter was also very well balanced across our wholesale and direct-to-consumer businesses, which were up 12% and 10% respectively. Earnings per share rose 25%, and that increase was helped by $0.11 per share in special items. But even without these items, earnings per share were up and very strong 20%. And our gross margin remained at very healthy levels despite the pressures of higher product cost. We were especially pleased by the growth in our International business in the quarter.
To recap the growth rates in key market: Asia in total rose 52%, with China up 56% and India rising by over 80%. Europe revenues grew 12% with double-digit growth in our Outdoor & Action Sports and our Sportswear and Contemporary businesses. Revenues in Latin America grew 41%, driven by strong growth in our Outdoor & Action Sports and Teens Wear businesses. And in both Mexico and Canada, Jeanswear revenues were up over 20%. You will recall that our full year guidance for international growth this year was 15%. And based on the growth achieved to date, there may be some upside to that target.
You may have noticed yesterday's release announcing our new partnership with Kohl's as the exclusive retailer for the Rock & Republic brand, which we acquired earlier this month. This marks the first partnership for VF's recently formed retail licensed brands group. The brand will launch across Kohl's stores and kohls.com in spring 2012 with VF designing and manufacturing Jeanswear and other bottoms for men and women. We are very excited about this new opportunity, which will benefit our Jeanswear top and bottom lines next year.
Finally, before I comment on our full year guidance, I recognize that there remains intense interest around the topic of the product cost, pricings and margins, so a few comments before turn the call over to Bob. In our last call back in February, we indicated, first, that VF's gross margin was expected to decline by less than 100 basis points this year, and then operating margin should be about stable with 2010 levels. Second, the gross margin pressure would be greatest in our domestic Jeanswear business, where product costs are expected to rise at a mid-teen percentage rate this year. Third, that this pressure will be offset by profitability improvements in our European Jeans business and strong momentum in our highly profitable Asian market. So the total operating income for our Jeanswear business will be about flat in 2010.
Two months later, we are still comfortable with these assumptions. We recognize that it's still early in the year and that our P&L has yet to reflect the full amount of higher product cost. We're also cognizant the price increases are just beginning to take effect in retail and there's more to come, and that it's still largely unknown just how consumers will respond to the additional price increases that go into effect later in the year.
We are, however, very pleased by the fact that the initial price increases taken in our domestic Jeanswear business had gone smoothly and have had less impact on unit volumes than we anticipated. We continue to believe that great brands that offer innovative products with compelling value will win in this environment, and we're fortunate that VF has an abundance of such brands in our portfolio.