By  on April 25, 2007

VF Corp. posted another period of record sales and earnings during the first quarter, propelled by explosive growth across all brands in its outdoor segment and significant gains in jeanswear.

The strong results prompted management to raise estimates for 2007. Revenues are expected to rise more than 12 percent to about $7 billion, up from an increase of 8 percent. Earnings per share are anticipated to also climb 12 percent, up from previous guidance of a 10 percent increase.

The Greensboro, N.C.-based apparel giant reported Tuesday that earnings increased 7.9 percent to $138.3 million, or $1.17 a diluted share, for the three months ended March 31, compared with earnings of $128.2 million, or $1.05 a share, in the same period a year ago.

Revenues grew 15 percent to reach a record $1.67 billion during the quarter from $1.46 billion in the year-ago period. Sales rose 15.1 percent to $1.65 billion from $1.44 billion while royalty income rose 5.8 percent to $20 million from $18.9 million.

Booming growth in the company's outdoor segment, which includes brands such as The North Face, Vans, Kipling, Reef and Napapijri, has been a recurring theme in earnings calls, and the trend continued during the first quarter as revenues rose 29.7 percent to $538.8 million from $385.6 million.

"I can only say that our outdoor team's performance both domestically and internationally has been amazing," said Eric Wiseman, president and chief operating officer, during a conference call with analysts.

Domestic revenues in the outdoor division rose 31 percent on top of a 52 percent increase in international revenues. Vans, The North Face, Kipling, Reef, Napapijri and Eastpak all posted double-digit revenue gains.

Although the company's younger lifestyle brands tend to attract the bulk of attention with their eye-popping growth, the first quarter also showed the company's success in energizing and expanding even its largest and most mature business segment — jeanswear. Revenues for the segment, which includes the Wrangler, Lee and Riders brands, increased 8.1 percent to $760.8 million from $703.8 million. Domestic revenues increased 5 percent, driven by gains in the Lee brand and in the men's mass channel segment.

"Our efforts to revitalize Lee are clearly working, particularly on the women's side," Wiseman said.International jeans revenues grew 14 percent, led by double-digit gains for the Wrangler and Lee brands, both of which are positioned as premium products in Europe. Jeanswear revenues in Asia increased 30 percent.

Revenues for the imagewear division rose 10.2 percent to $213.7 million from $194 million. The recent acquisition of Majestic Athletic, which provides uniforms for Major League Baseball, contributed $27 million during the quarter.

The lone blemish came in the company's sportswear segment, where revenues declined 8.9 percent to $148.4 million from $163 million. Management attributed much of this drop to the Nautica brand and a calendar shift that had department store buyers placing orders a week later than last year. Management expects the sportswear segment to continue to face margin pressure in the second quarter, but is anticipating improvements in the second half of the year.

Mackey McDonald, chief executive officer, described the current retail environment as "somewhat spotty," with some retailers performing well while others struggle. It's a trend McDonald said he expects to continue. However, he also views it as an opportunity to partner with retailers by using the company's business systems to get a better read on customers' needs and buying habits.

"As [retailers] look for better solutions with their issues, we feel like we have opportunities to be a part of their business," McDonald said.

Although pleased with VF's performance, Wall Street analysts are still waiting for the company to put the might of its balance sheet to work with an acquisition that will have more than an incremental impact on sales and earnings.

"We continue to anticipate a meaningful acquisition ($250 million-plus) that can support a double-digit earnings growth rate on the company's multibillion revenue base," Lazard Capital Markets analyst Todd Slater said in a report after the earnings announcement.

McDonald said during the call that acquisitions would be a focus for the year. "We're off to a good start this year, but the environment for deals is still tough," he said.

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