North Face 2005 Annual Report Download - page 4

Our flagship Wrangler
Hero®brand continues
to fuel our mass market
jeanswear business in
the U.S.
VF achieved record
revenues and earnings for
the third consecutive year.
Surf’s up! In April 2005,
we acquired the Reef ®
brand, an authentic surf
lifestyle brand, which
has an exceptionally
loyal customer base.
What were the financial
highlights of 2005?
What drove results in 2005?
How are your newer brands—
Vans® ,Kipling® ,Napapijri®
and Reef ®—doing?
What are your top line
growth targets and how
will you achieve them?
What kinds of acquisitions
areyou looking for?
How will your mix of business
shift in the coming years?
VF Corporation 2005 Annual Report
04 05
The transformation of VF is well underway, as evidenced by our strong
performance in 2005. Clearly, we have put in place a platform for solid,
sustainable growth in both revenues and profits.
We achieved record revenues and earnings for the third year in a row.
Total revenues rose 6% to $6,502 million, while earnings per share
increased 5% to $4.44. Earnings in 2005 were reduced by $.25 per
share due to a required change in accounting to recognize stock
option expense, including a cumulative effect adjustment taken in the
first quarter. Earnings per share before the accounting change were
$4.69, an increase of 11% over the comparable 2004 number. We paid
out 24% of our earnings in dividends and increased the dividends paid
to shareholders for the thirty-third consecutive year. Cash flow from
operations was $561 million in 2005, and we ended the year with our
balance sheet in excellent shape, with nearly $300 million in cash and
adebt to total capital ratio of 22.6%.
Our Outdoor,Sportswear and Imagewear coalitions each achieved
higher revenues in 2005. Performance in our Outdoor coalition was
especially strong, with revenues up 44% versus last year,helped by a
full year of sales from our 2004 acquisitions—the Vans®
,Kipling®and
Napapijri®brands—and the April 2005 acquisition of the Reef®brand.
Revenues in our Sportswear and Imagewear coalitions both rose 5%
in 2005, while revenues in our Jeanswear coalition were about even
with prior year levels. We were pleased with the performance in our
Mass, Specialty and International jeanswear businesses, but we con-
tinued to face challenges with our Lee®brand in the U.S. Our Intimates
coalition had a difficult year, with a 6% decline in revenues due in part
to the absence of a large private label program, which had boosted
results the prior year.
We’re pleased with their performance and excited about their opportu-
nities for continued strong growth. Most of these brands are surpassing
our expectations in both revenues and profits. The integrations are
largely completed and we’re working on new growth platforms for all
the brands. We had some supply chain issues in our Napapijri®brand,
which impacted its profitability in 2005, but we’re now getting back on
track.
We target 6% to 8% revenue growth. Organic growth will likely
account for about half of that, with the rest coming from acquisitions.
We expect our Outdoor and Sportswear coalitions to generate high
single-digit to low double-digit revenue growth, with flat to low single-
digit growth anticipated from our Jeanswear, Intimates and Imagewear
coalitions.
We’reinterested in brands with global growth potential. We’relooking
most actively for brands to add to our Sportswear and Outdoor coal-
itions but will consider new brands for our other coalitions as well. We
want brands that connect strongly with consumers, such as lifestyle
brands that extend across multiple product categories and which
either already have or have the potential for freestanding retail stores.
We’relooking to gain access to new consumer segments and add
capabilities in new product categories and geographic markets.
Acquisitions must also meet our financial criteria. They should be able
to sustain revenue growth at a high single-digit rate for several years,
deliver a return on capital of 17% and achieve an operating margin of
14%.
We expect a substantial change in our business mix. Currently, only
about 30% of our revenues come from our lifestyle coalitions—
Outdoor and Sportswear—but as these businesses continue to grow
over the next several years, we expect them to account for about 60%
To Our Shareholders
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