VF Corp Outdoor Revenues Zoom Up 17%

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VF Corporation (NYSE: VFC), a global leader in branded lifestyle apparel, today announced record results for the second quarter of 2008. All per share amounts are presented on a diluted basis and, unless otherwise noted, reflect continuing operations.

Second quarter revenues rose 11% to a record $1,677.5 million, compared with $1,517.4 million in the second quarter of 2007. Income from continuing operations in the current quarter was $104.0 million, compared with $105.8 million in the prior year's quarter. Earnings per share from continuing operations reached $.94 in the second quarter, compared with $.93 last year. Current period results included a $.07 per share benefit from resolutions of certain income tax matters and the impact of $.04 per share in expenses related to actions designed to improve our cost structure. Prior year results included a $.04 per share gain from the sale of a business.

For the first half of 2008, revenues rose 10% to a record $3,523.8 million from $3,191.0 million. Income from continuing operations increased 5% to $253.0 million, compared with $239.9 million in the prior year period. Earnings per share from continuing operations rose 8% to $2.27.

"Our ability to deliver record revenues and earnings per share in the face of exceptionally challenging economic conditions clearly demonstrates the strength and resilience of VF's business model - which is based on powerful brands, excellent geographic and retail channel diversity, and consistent execution," said Eric Wiseman, President and Chief Executive Officer. "We continue to see great momentum in brands such as The North Face(R), Vans(R) and 7 For All Mankind(R) as well as many of our smaller, emerging brands including Kipling(R), Napapijri(R), Eastpak(R) and John Varvatos(R). We also are very pleased by the consistently strong performance achieved by our Imagewear coalition."

Mr. Wiseman continued, "Our success in building and expanding our international and owned retail platforms is also proving very beneficial to both our top and bottom lines, particularly in today's environment. We achieved double-digit growth in both our international and retail revenues in the second quarter and expect this momentum to continue during the second half of the year."

Second Quarter Coalition Performance

Outdoor
The strength of our Outdoor brands around the world contributed to another quarter of exceptionally strong performance. Total revenues rose 17% with double-digit growth in both our domestic and international businesses. The North Face(R) global brand revenues grew over 40% in the quarter, with comparable increases both domestically and internationally and growth across most product categories. The brand's wholesale and retail revenues each rose in the quarter, with retail revenues up nearly 50% driven by strong same store sales gains as well as new store openings. Our Vans(R) brand also enjoyed another quarter of exceptional growth, with global revenues up 14% reflecting double-digit increases both domestically and internationally. Vans(R) retail revenues also grew strongly in the quarter, with an increase of about 20%. Our Napapijri(R), Kipling(R), Eastpak(R) and Eagle Creek(R) brands also achieved solid growth in the quarter. We opened a total of 12 stores during the quarter, with new stores added for our Vans(R), The North Face(R) and Napapijri(R) brands.

Outdoor operating income rose 11% in the quarter reflecting the strong volume gains. Operating margins declined in the quarter due to the seasonality of our growing owned retail businesses and the impact of investments in such areas as new retail store openings and advertising.

We expect 15%-plus revenue growth for our Outdoor coalition in the second half of this year, with solid gains anticipated both domestically and internationally. We are looking forward to exceptionally strong growth in our owned retail businesses as we benefit from the new store openings of the past year and a continuation of positive same store sales trends. We continue to expect higher operating margins in Outdoor for the full year with solid improvement in the second half driven by the seasonality of our retail businesses, particularly in the fourth quarter.

Jeanswear
As anticipated, the revenue performance of our global Jeanswear coalition, which includes our Wrangler(R), Lee(R) and Riders(R) brands, improved in the second quarter compared with first quarter results. Total Jeanswear revenues declined 1% in the current quarter, with double-digit gains in our international jeans business offset by lower revenues in our domestic jeans business. International jeans revenues rose 14% due to the benefit of foreign currency translation and reflecting strong growth in Asia and Mexico, with double-digit revenue increases on a constant-currency basis in each market. Domestic jeanswear revenues declined 7%; our mass market business was essentially flat in the quarter, while our Lee and Western Specialty businesses declined.

Jeanswear operating income and margins declined in the quarter. During the quarter we took the opportunity to take actions to improve our cost structure, which impacted operating margins in the current quarter by 50 basis points. In addition, last year's second quarter operating margin included the gain from the sale of a business, which benefited that quarter's operating margin by 110 basis points.

In terms of the second half, we are encouraged by the early success in such new programs as Wrangler(R) Comfort Series jeans and Lee(R) Comfort Fit casuals and jeans, which should contribute to more stable revenue comparisons in the second half of the year. We continue to expect Jeanswear to post strong, stable margins in the mid-teens on a full year basis.

Sportswear
Revenue and income comparisons in our Sportswear coalition, which includes our Nautica(R) and John Varvatos(R) brands as well as the Kipling(R) brand in North America, also improved in the second quarter versus the first quarter. Total Sportswear revenues declined 4% in the current quarter. We achieved 30%-plus growth in our Kipling(R) U.S. and John Varvatos(R) brands while Nautica(R) brand revenues declined 8% due to a customer's decision last year to reduce their Nautica(R) product assortments and to the exit of our women's wholesale sportswear business.

As planned, operating income and margins were below prior year levels, reflecting the lower volume. We anticipate a return to double-digit operating margin levels in the fourth quarter of 2008, reflecting substantial improvements in our owned retail business compared with last year's weak performance and reduced losses from our women's sportswear business.

Contemporary Brands
Our Contemporary Brands coalition, which consists of the 7 For All Mankind(R)and lucy(R) brands acquired in 2007, added $88 million to second quarter revenues. Operating income was $14 million with stronger margins than anticipated. We continue to expect coalition revenues to exceed $415 million in 2008, with operating margins above 15%.

We remain enthusiastic about the near and long-term opportunities for both brands. The performance of our new 7 For All Mankind(R) stores is exceeding our expectations, and we look forward to opening 11 stores this year, including our first New York City-based store in August. The brand's core denim, sportswear, international and direct-to-consumer businesses each continue to exhibit strong growth. We are also making solid progress in strengthening the product assortment and store concept for our lucy(R) brand and continue to target 10 new store openings this year. We also are excited about our recent purchase of one-third of the shares of Mo Industries, owner of the Splendid(R) and Ella Moss(R) brands.

Imagewear
Our Imagewear coalition turned in another solid quarter, with total revenues up 5% in the quarter and growth in both our Image and Activewear businesses. Growth in our Image business reflects particular strength in our Protective and Services divisions. Our Activewear business is benefiting from strong sales of licensed sports apparel, particularly in our Major League Baseball business under the Majestic(R)brand. Imagewear operating income rose in the quarter and margins increased to 12.7% from 11.3%.

Our focus on controlling costs and inventories clearly benefited our results this quarter. Gross margins increased to 43.8% from 42.9%, reflecting healthy growth in many of our lifestyle brands and expansion in our retail, international and Image businesses. Operating margins were 9.8% in the quarter, higher than previously anticipated as a result of tight cost control, but below prior year levels due to the seasonality of our growing retail business as well as investments in our Outdoor and international Jeanswear businesses and lower Sportswear profitability.

Our balance sheet is in excellent condition and our focus on effective inventory management continues to pay off. Inventories were up 10% from the prior year's quarter, with more than half the increase due to the acquisitions made in the second half of 2007. Cash and equivalents were $276 million at the end of the quarter, and we continue to expect cash flow from operations of approximately $700 million in 2008. During the quarter we repurchased .3 million shares, bringing the total number of shares purchased year-to-date to 2.0 million.

International and Direct-to-Consumer Expansion
We continue to experience strong top line momentum in our international and direct-to-consumer businesses, both of which are strong contributors to profitability. Our international revenues increased 23% in the quarter and represented 27% of total revenues. For the first half of 2008, international revenues increased 21%. For the year, we expect international revenue growth of approximately 19%.

Retail revenues increased 15% in the quarter and represented 15% of total revenues. Retail revenues of our The North Face(R), Vans(R), Kipling(R), Napapijri(R), John Varvatos(R) and Lee(R) brands each grew at double-digit rates. Retail revenues in the first half of 2008 have grown by 19%. At the end of the quarter, we had 655 owned retail stores, and we are on track with our plans to open over 90 stores this year. For the year, we anticipate an increase of over 20% in our retail revenues.

Outlook
"Well-managed companies with strong brands can perform well, even in difficult conditions," said Mr. Wiseman. "VF is delivering excellent results and we are confident as we look to the balance of the year that our momentum will continue. Accordingly, we are raising our full year earnings growth target for 2008 from 10% to 12%, or approximately $6.05 per share. We anticipate revenues for 2008 of $7.9 billion, representing an increase of over 9%."

We are looking forward to record third quarter results, and currently anticipate that third quarter revenues and earnings per share will both increase approximately 9%. Given our full year guidance, this indicates stronger earnings per share growth in the fourth quarter, reflecting the continued shift of our revenue mix toward more owned retail, the seasonality of our Outdoor business and a significant improvement in Sportswear profitability.

Dividend Declared
The Board of Directors declared a cash dividend of $.58 per share, payable on September 19, 2008 to shareholders of record as of the close of business on September 9, 2008.

Webcast Information
VF will hold its second quarter conference call and webcast today at 4:30 p.m. ET. Interested parties should call 1-888-205-6648 domestic, or 1-913-312-0733 international, to access the call. You may also access this call via the Internet at www.vfc.com. A replay will be available through July 22 and can be accessed by dialing 1-888-203-1112 domestic, and 1-719-457-0820 international. The pass code is 6641220. A replay also can be accessed at the Company's web site at www.vfc.com.

About VF
VF Corporation is a global leader in lifestyle apparel with a diverse portfolio of jeanswear, outdoor, imagewear, sportswear and contemporary apparel brands. Its principal brands include Wrangler(R), Lee(R), Riders(R), The North Face(R), Vans(R), Reef(R), Eagle Creek(R), Eastpak(R), JanSport(R), Napapijri(R), Nautica(R), Kipling(R), John Varvatos(R), 7 For All Mankind(R), lucy(R), Majestic(R) and Red Kap(R).

VF Corporation's press releases, annual report and other information can be accessed through the Company's home page, www.vfc.com.

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Author:

Sean Obrien

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