North Face 2012 Annual Report Download - page 3

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To Our Shareholders:
2012 was another year of records for VF— record revenues, record
margins, record earnings and record cash flow from operations.
It was a year that revealed the strength of our company and
business model.
VF has unique strengths that provide us with an enduring competitive
advantage, including:
• A diverse portfolio of more than 30 brands that combine a rich, authentic
heritage with new product innovation to reach a broad array of consumers
in every market;
• A consumer-centric approach to product development, backed
by comprehensive research, that is helping us forge ever-deeper
connections with those who buy and wear our products;
• A highly efficient, flexible and diversified supply chain that includes both
owned and sourced manufacturing, which gives us unparalleled
advantages in product innovation, speed-to-market, cost and quality; and,
• An extraordinary bench of talent across our brands and functional areas
that is committed to winning in any environment — and to delivering strong,
consistent returns to our shareholders.
Individually, any one of these strengths would be an enviable asset for
a company to have. Yet together — in concert — they are at the center of
VF’s DNA and are what allows us to consistently generate value for our
shareholders. Our focus on TSR, or total shareholder return, has clearly
paid off, with VF generating a TSR averaging 30 percent during the last
three years. And we are far from done.
2012: A Year of Milestones
In 2012, total revenues grew 15 percent, reaching a record $10.9 billion, with
organic growth in every coalition, every global region, and in both our
wholesale and direct-to-consumer businesses. Excluding The Timberland
Company (“Timberland”), VF’s organic revenues grew by 6 percent.
Internationally, constant dollar revenues for the year were up 29 percent, or
11 percent excluding Timberland, with double-digit growth in our Asia,
Europe and non-U.S. Americas regions. In 2012, international revenues
reached 37 percent of VF’s total revenues.
Direct-to-consumer revenues, which include our owned retail and
e-commerce businesses, increased 25 percent — an increase that takes our
DTC business to 21 percent of total VF revenues. Excluding Timberland,
direct-to-consumer revenues increased 10 percent in 2012.
Adjusted earnings per share — which exclude Timberland acquisition
expenses and the gain on the April 2012 sale of the John Varvatos
Enterprises Inc. business — increased 17 percent to $9.63, well above our
long-term target of 12 percent annual EPS growth. VF’s reported earnings
per share for 2012 reached a record $9.70.
VF’s cash flow from operations was a record $1.3 billion in 2012. Among
other things, this strong cash flow helped fund a 21 percent increase in our
Our fourth growth driver is to “Win with Winning Retailers.” About
75 percent of our business comes from our wholesale partners, so at the
center of this strategy is aligning our brand, product and marketing
strategies with those partners who can drive mutually beneficial, profitable
growth. A great example of this growth driver in action was our 2012
launch of the Rock & Republic® brand exclusively at Kohl’s, with results
that surpassed our expectations.
Fifth is to “Enable VF’s Future.” VF is a much bigger company today than
we were just five years ago. To continue our momentum, we recognize
the importance of consistent investments behind a best-in-class infrastructure,
including talent development, supply chain capabilities and technology.
In 2012, our capital expenditures reached a record $244 million, as we
invested in growth-supporting projects, such as new distribution centers,
coalition offices, technology and retail stores.
Our sixth growth driver is to “Lead in Innovation.” At VF, we have a simple
definition of innovation: something new that creates value. Products, of
course, are at the heart of our innovation agenda. From The North Face®
brand’s FlashDry™ technology fabric that provides unmatched moisture
wicking…to the Timberland® brand’s anti-fatigue boot technology that
gives workers all-day comfort…to patent-pending technology in Jeanswear
that provides a superior fit for women, all of our brands are actively
pursuing breakthroughs in product and process innovation.
We are proud of our company’s success — but we are also keenly aware of
the many challenges posed by mixed economic conditions globally. We
continue to scrutinize costs across the board and keep inventories tightly
controlled. At the same time, challenging conditions offer great opportunities
for strong companies with strong brands to invest and gain market share.
So we will continue to invest in our highest-growth, most-profitable brands
and businesses to support our top and bottom line momentum.
Our portfolio of brands is as strong as it has ever been. We have countless
opportunities to grow around the world. We are investing to strengthen our
core capabilities in product development, technology, direct-to-consumer
and sustainability, among others, to support an even bigger and more
profitable VF in the future.
Eric C. Wiseman
Chairman, President & Chief Executive Officer
Note: All per share amounts are on a diluted basis.
quarterly dividend rate, marking the 40th consecutive year of increasing
dividend payments to shareholders.
VF’s Growth Drivers Guiding
Our Success
Turning to 2013, we’re looking forward to delivering another year of record
revenues and earnings. All global companies operate in a constantly
changing environment and we have proven — time and time again — our
ability to effectively manage our business under a variety of conditions.
This year will be no different. We will continue to leverage our business
model and competitive advantages to grow revenues, expand margins and
increase earnings while mitigating external economic risks.
Since being introduced in 2004, VF’s six growth drivers have guided our
success. And they will continue to do so in 2013.
Our first growth driver is “Build Lifestyle Brands.” In 2013, this means
maintaining the momentum in our fastest-growing business, Outdoor
& Action Sports, and continuing to empower our other brands to grow
and reach their full potential, globally. We’ll leverage our consumer
insights, marketing and product-development capabilities to strengthen
consumer loyalty for all of our brands. Ensuring Timberland continues to
create value for our shareholders — by growing revenues and improving
profitability — remains a key focus. This fall will mark the launch of
Timberland men’s apparel in the U.S., which will complement the brand’s
existing apparel businesses in Europe and Asia. Although the launch will
be intentionally small and modestly incremental to revenues, we have
great confidence that it will set the stage for our ultimate goal of adding
$300 million to Timberland revenues in the coming years.
“Go Global” is our second growth driver. Our focus is on investing behind
our strong momentum in Asia and navigating through difficult conditions in
Europe. Our business in Europe continues to post solid growth, as our
marketing investments fuel expansion in our biggest and most profitable
brands and markets. The power and authenticity of our brands, combined
with generally low market penetration in many countries, gives us confidence
in our ability to continue to grow in Europe in the near and longer term.
In Asia, the story for VF is just beginning. To date, we have built four platforms
for growth in this region: Jeanswear, primarily with the Lee® brand;
Outdoor with The North Face® and Timberland® brands; Action Sports with
the Vans® brand; and, handbags and accessories with the Kipling® brand.
In 2012, we announced our intent to add $1.1 billion in revenues in Asia
during the next five years. We have tremendous opportunities in the region,
and capturing these opportunities will be a significant factor in achieving
our goal of 45 percent of revenues from international markets by 2017.
VF’s third growth driver is to “Serve Consumers Directly,” through our
growing base of retail stores and e-commerce. This year, we plan to open
approximately 160 stores across our brands. VF’s e-commerce business
grew more than 30 percent in 2012, and we expect similarly strong perfor-
mance in 2013. In total, our direct-to-consumer business should comprise
about 23 percent of total revenues this year.
Eric C. Wiseman
Chairman, President & Chief Executive Officer
DIRECT-TO-CONSUMER
ACCOUNTED FOR
21% OF TOTAL
VF REVENUES
REVENUES GREW
15% REACHING
A RECORD
$10.9 B
CASH FLOW FROM
OPERATIONS WAS
A RECORD
$1.3 B
INTERNATIONAL
REVENUES REACHED
37% OF TOTAL
REVENUES