North Face 2012 Annual Report Download - page 15

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constant dollar revenue growth in 2012, and continued to expand distribution
and capture new consumers with industry-leading innovations. Global
revenues for the Lee® brand, which continued to face challenges in the
mid-tier channel in the U.S., were flat on a constant dollar basis. Yet, here
too, our product innovation pipeline is robust, giving us great confidence in
our long-term ability to achieve growth. The real 2012 story in Jeanswear,
however, was the significant improvement in profitability with a 13 percent
increase in operating income and an operating margin reaching 16.7 percent,
moving closer to our historic levels.
Imagewear, VF’s third-largest coalition, has now delivered 11 consecutive
quarters of revenue growth, posting a 5 percent increase in revenues for
the full year with strength on both sides of the business — Image and
Licensed Sports Group.
Sportswear coalition revenues were up 6 percent in 2012, with growth in both
our Nautica® and Kipling® (U.S.) brands. Both brands contributed to
the year’s growth and continued improvement in profitability, combining to
deliver a 30 percent increase in operating income and a 230 basis point
improvement in operating margin to 12.6 percent. This improvement for both
brands provides a foundation for what we expect to be a strong contribution
to our portfolio for years to come.
And finally, the story in our Contemporary Brands coalition is also one of
both top and bottom line growth. Excluding the John Varvatos Enterprises
Inc. business, which we sold in April of 2012, Contemporary Brands
achieved a 5 percent increase in revenues for the full year. Our 7 For All
Mankind®, Splendid® and Ella Moss® brands each achieved higher
revenues during the year, reflecting growth in their direct-to-consumer and
wholesale businesses. The 37 percent increase in operating income was
quite impressive, representing a 360 basis point improvement in operating
margin over the coalition’s performance in 2011.
Positioned To Win
VF’s balance sheet continues to be in great shape. We ended the year with
nearly $600 million in cash after buying back 2 million shares of our stock,
paying down all outstanding commercial paper borrowings and contributing
more than $100 million to our pension plan. Our strong working capital
discipline was also evidenced by a $99 million reduction in inventories
year-over-year. And, we didn’t miss a beat in servicing our businesses’ needs;
on-time shipping performance was at our highest level ever.
In summary, we are thrilled to have wrapped up another great year for VF
and our shareholders, and we have tremendous confidence in our ability to
deliver another year of strong, balanced and profitable growth in 2013. We
are winning and we intend to keep winning.
VF’s record revenues, profit and cash flow from operations in 2012
were driven by a relentless focus on delivering the industry’s most
innovative products, deepening relationships with our customers
and consumers and driving operational excellence in every area of
our business. Amid a year that included compounding impacts
from two consecutive warmer-than-normal winters and a continued
recession in Europe, we are quite pleased to have delivered yet
another year of excellent returns to our shareholders.
• Revenues increased 15 percent to a record $10.9 billion from $9.5 billion in
2011. On a constant dollar basis, full year revenues increased 17 percent.
The Timberland Company (consisting of the Timberland® and SmartWool®
brands) accounted for 9 percentage points, or $907 million, of the revenue
growth in 2012.
• Gross margin rose by 75 basis points to a record 46.5 percent, compared
with 45.8 percent in 2011, reflecting the continued shift in our revenue mix
toward higher margin businesses.
• Operating income rose 18 percent to $1.5 billion from $1.2 billion in 2011.
Operating margin was 13.5 percent versus 13.2 percent in 2011, reflecting
a 90 basis point negative impact from Timberland’s operations, in which
margins are lower than VF’s average.
• Net income on an adjusted basis rose 18 percent to $1.1 billion, compared
to $913 million in 2011. On a GAAP basis, net income rose 22 percent, to
$1.1 billion, compared to $888 million.
• Adjusted earnings per share increased 17 percent to $9.63 per share.
On a GAAP basis, earnings per share grew 22 percent to $9.70 per share.
• VF’s cash flow from operations reached a record $1.3 billion in 2012,
which helped fund a 21 percent increase in our quarterly dividend rate,
and marked the 40th-consecutive year of increasing dividend payments
to shareholders.
VF’s strategy is engineered to deliver consistent, sustainable growth. Our
diversified portfolio, brand-building expertise, global expansion efforts,
strong partnerships with wholesale customers, and ability to connect with
consumers through our direct-to-consumer business all contributed to
strong top and bottom line results in 2012.
Coalition Performance
In Outdoor & Action Sports, we continued to build on our momentum with
revenues rising by 29 percent. On an organic basis, excluding the results
from Timberland, revenues rose 10 percent. Driving this result were
The North Face® and Vans® brands, which both reached record revenue
levels for the year growing 9 percent and 23 percent, respectively. And
although still quite young in the context of VF’s portfolio, Timberland’s
integration is on track with our expectations. In 2012, Timberland contributed
$1.12 to our full year earnings per share. We remain very excited about
helping this global brand realize its true potential. The profitability of our
Outdoor & Action Sports coalition remains a highlight with a 23 percent
increase in operating income to an operating margin of 17.4 percent — a
strong performance we’re confident we can improve upon in 2013.
In 2012, global revenues for VF’s Jeanswear business were up 2 percent, or
4 percent in constant dollars, a performance that reflected a mid single-digit
increase in the Americas, a high single-digit increase in Asia and a decline
in sales in Europe, where our brands remained strong yet were impacted
by the prolonged recession there. Driven by notable strength in its Western
Specialty and Mass businesses, the Wrangler® brand posted 3 percent
VF PERFORMANCE
UPDATE
Bob Shearer
Senior Vice President & Chief Financial Officer
Total Revenues By Coalition
OUTDOOR &
ACTION SPORTS
JEANSWEAR 26%
54%
10%5% 4%
IMAGEWEAR
SPORTSWEAR
CONTEMPORARY BRANDS
OTHER (1%)
Dividends Per Share
(Dollars)
Earnings Per Share
(Dollars)
Cash Flow from Operations
(Millions)
Revenues
(Millions)
Financial Highlights
10
$7,703
11
$9,459
12
$10,880
10
$1,001
11
$1,081
12
$1,275
10
$5.18
11
$7.9 8
12
$9.70
10
$2.43
11
$2.61
12
$3.03
3-Year Coalition Revenues and Profits
(Dollars in Millions)
Revenues
Profits
Outdoor &
Action Sports
10
$3,205$637
11
$4,562$828
12
$5,866
$1,019
Jeanswear
10
$2,538$432
11
$2,732$413
12
$2,789
$467
Imagewear
10
$909$111
11
$1,025$146
12
$1,076
$145
Sportswear
10
$498$52
11
$544$56
12
$577
$73
Contemporary Brands
10
$439$14
11
$485$36
12
$446
$49
S&P 500 Index
VF Corporation
VF Corporation vs. The S&P 500
21%
21%
Dividend yield
Capital gain
15%
16%
50%
2%
13%
2%
14%
2%
0%
2%
18%
3%
19%
2%
47%
3%
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