By  on February 7, 2007

NEW YORK — VF Corp.'s sale of its intimates segment hampered fourth-quarter earnings, but failed to slow the revenue-generating momentum of the company's growing portfolio of lifestyle brands.

"Certainly, we're in a very different position today than we were several years ago," Mackey McDonald, chairman and chief executive officer, said during a conference call with analysts. "Our growth plan is working."

For the fourth quarter ended Dec. 31, the Greens­boro, N.C., manufacturing giant reported a 14.8 percent earnings decline, to $108.6 million, or 95 cents a diluted share, compared with earnings of $127.5 million, or $1.13 a share, in the same period a year ago. However, excluding charges related to the sale of its intimates division, the company would have reported an earnings gain of 12.5 percent.

Revenues for the three months grew 9.3 percent, to $1.6 billion from $1.46 billion in the year-ago period. Sales grew 9.3 percent, to $1.58 billion from $1.44 billion, and royalty income rose 13.4 percent, to $21.9 million from $19.3 million.

McDonald assured analysts that the company would continue to add lifestyle brands to its portfolio through acquisitions. VF was largely dormant on the acquisition front throughout the year, acquiring only the Eagle Creek brand in late December. Still, McDonald believes the results continue to support management's concentration on investing in its current brand stable.

"Organic growth has picked up sharply, validating our decision to invest more in our brands," said McDonald.

Brands such as The North Face, Vans and JanSport continued to fuel the company's outdoor segment, which again posted the largest gains for the quarter and year-end period. Outdoor revenues rose 31.6 percent, to $452.6 million from $343.9 million during the quarter, with The North Face, Vans, Kipling and JanSport all reporting double-digit revenue gains. According to the company, domestic revenues rose 34 percent and international revenues spiked 28 percent.

The North Face stands out as perhaps the strongest example of the type of lifestyle brands VF is looking to acquire. The brand has consistently turned in double-digit revenue gains, and during the fourth quarter, in particular, consumers were willing to keep spending on the brand despite the weather. During the call, Dave Gatto, president of the outdoor segment, noted that The North Face managed to generate double-digit gains despite the unseasonably warm temperatures during the quarter.In contrast, Angelo LaGrega, president of VF's jeanswear coalition in the Americas, said, "The dynamics of the [jeanswear] business shifted during the fourth quarter," as several major customers experienced lagging same-store sales due to warm weather. "We will still be working down inventories in the first quarter in the mass channel" as a result, said LaGrega.

Despite the problems caused by warmer weather, the jeanswear segment, the company's largest and oldest division, posted noteworthy gains. Overall jeanswear revenues rose 1.9 percent, to $700 million from $686.8 million. The bulk of gains was attributable to a 7 percent rise in international revenues. Domestic revenues were flat, with the exception of the Lee brand, which had a 16 percent jump in revenues.

The sportswear division's revenues increased 7.8 percent, to $197.2 million from $182.9 million, driven by double-digit gains in the Kipling and John Varvatos brands.

Imagewear, which includes Harley Davidson apparel and industrial apparel, had a 2 percent decline in revenues, to $230 million, owing to a planned exit from a commodity fleece business.

For the full year, VF reported a 5.3 percent rise in earnings, to $533.5 million, or $4.72 a share, compared with earnings of $506.7 million, or $4.44, last year. Revenues increased 9.9 percent, to $6.21 billion from $5.65 billion. Sales rose 10 percent, to $6.14 billion from $5.58 billion, and income royalty increased 7.8 percent, to $77.7 million from $72.1 million.

All business segments posted revenue gains for the year. Jeanswear revenues rose 3.1 percent, to $2.78 billion from $2.7 billion.

The outdoor segment's revenues ballooned 28.4 percent, to $1.87 billion from $1.45 billion. Imagewear rose 2.8 percent, to $828.2 million from $805.8 million, and sportswear revenues expanded 5.3 percent, to $685.5 million from $650.8 million.

Retail expansion continues to be a focus of the company's growth strategy; 24 stores opened during the quarter and 62 opened during the year. The company finished the year with 538 stores. Retail revenues rose 19 percent for the quarter and 17 percent for the year.

Given the momentum heading into 2007, management expects revenues to rise 8 percent in 2007 and expects earnings per share to increase 10 percent.

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