North Face 2004 Annual Report Download - page 16

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VF C O R P O R A T I O N 2004 Annual Report
Despite this acquisition activity, we ended
the year with our balance sheet in great shape
and with very strong cash flow. Debt as a
percentage of total capital was 28%, and cash
flow from operations reached $730 million.
We paid out 25% of our earnings in
dividends and increased the dividends paid
to shareholders for the 32nd consecutive
year. All of this resulted in a good year
for our stockholders: VF’s share price rose
28% in 2004 versus an increase of 9% for
the S&P 500.
2004 marked the first year of our
Company’s ambitious new growth plan,
which was the result of many months of hard
work and analysis by scores of people both
within and outside VF. Following several
years of restructuring, business divestitures
and relatively flat sales performance, it was
time to take a new and more aggressive
approach toward stimulating top line growth.
That approach is already paying off, and we
expect to continue the momentum this year.
In the course of developing this plan, we
created and launched a new Vision
Statement that heralds our commitment to
growth and serves as a rallying point for all
our associates and businesses. To wit: VF will
grow by building leading lifestyle brands that
excite consumers around the world. That says
a lot in just a few words, but first and fore-
most, it states our commitment to growth.
Our industry is consolidating and so are
our customers. We intend to be an active
participant in this process by adding brands
and capabilities that will ensure that we
remain vital to our customers and our
consumers. The focus of our growth will be
lifestyle brands — brands that through their
products and positioning make a powerful
statement about the aspirations, activities and
interests of consumers. We also recognize
that in order to grow, our brands must excite
consumers through product innovation,
quality, functionality and value. In short,
consumers get excited about a brand when
it makes them feel better about the lives they
lead. And of course, as a global company,
we’re always looking to build great brands
that have a truly global reach.
The strategic foundation of our growth
plan consists of five key drivers. Our intense
focus on these drivers resulted in a number
of significant accomplishments in 2004.
Build New Growing Lifestyle Brands Our
goal is to generate 8% sales growth annually,
through growth in our core categories as
well as through the addition of new lifestyle
brands. In 2004 we saw a 9% sales gain in our
Intimates coalition. Sales in our Imagewear
coalition grew 6%, while Jeanswear coalition
sales were about even with prior year levels.
These businesses provide us with a powerful
foundation: not only do they comprise leading
brands and businesses in their categories, they
are very stable and profitable, generating
tremendous cash flow that is essential to
increasing shareholder value. As we look to
grow our category-driven brands, it will be in
the context of extending them into additional
product categories, new consumer segments
and new geographic areas.
The biggest area of growth for us in 2004
was our O utdoor coalition, which achieved a
sales gain of 73%. The North Face®brand had
a stellar year, with sales up 38%. It was also
an exceptionally busy year on the acquisition
S A L E S B Y B U S I N E S S C O A L I T I O N S
front for our O utdoor team, with the addition
of three companies that had total annualized
sales of $489 million at the time of purchase.
Based in Southern California, Vans®is an
authentic action sports shoe brand. Napapijri®
is a premium European outdoor apparel
brand, and Kipling®is a fun and fashionable
brand of bags and accessories for women.
Each acquisition fulfills all of our primary
acquisition criteria:
•A strong brand with room to grow
•Adds a new category or consumer
•Strengthens our product or channel
presence
•H as global reach
•Enjoys distinctive brand positioning
•H as the potential to reach our financial
targets
•Is quickly accretive to earnings
Sportswear contributed $605 million to sales
in 2004, reflecting a full year’s contribution
from the acquisition of Nautica in mid-2003.
The Nautica®brand is performing above
our expectations, and we’re extremely
pleased with the results we’re seeing from
our work to reposition the brand and
improve our product offerings.
Expand our Share with Winning Customers
Our big customers are getting bigger, and
we need to partner with them in a different
way in order to continue to grow our share
of their business. In 2004 we added the talent
and resources to spearhead the creation of
a new customer team organization that is
leveraging and coordinating our efforts
across VF’s brands and coalitions. We’re also
investing more to analyze our customers’busi-
nesses to help us identify new opportunities
for mutual growth.
Stretch our Brands & Customers to New
Geographies The focus internationally is, first
and foremost, to build our brands into truly
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VF C O A L I T I O N S :● Jeanswear ● Intimate
Apparel ● O utdoor ● Sportswear ●Imagewear
●Other
VF is one of the most diversified apparel companies in
the world. Our broad base of brands allows us to reach
consumers in nearly every channel of distribution,
including department, chain, mass market and specialty
stores. We’re global in scope, with 23% of sales coming
from international markets.