At a time when apparel vendors are under increasing pressure from retail consolidation, VF is trumpeting the strength of the company and its confidence in the long-term success of its growth strategy. It reinforced that view on Monday by rewarding shareholders with a 90 percent increase in its dividend payout.
"We wanted to make a statement about our confidence in our growth plan and our ability to continue to generate cash" to fund future expansion, said Mackey McDonald, chairman and chief executive officer of the $6.5 billion apparel group, in an interview. "We wanted to make a strong statement."
After the stock market closed on Monday, the company said its board had approved the increase, entitling shareholders to an annual dividend of $2.20 a share, up from $1.16 a share, payable June 19 to shareholders of record as of June 9.
For McDonald, the ability to offer such a sizable increase is another validation of the success of the company's transformation from conservative manufacturer of such brands as Lee, Wrangler and namesake Vanity Fair into a global powerhouse of lifestyle brands, many of which came with ready-made retail operations.
To be sure, the company's aggressive acquisition of lifestyle brands — a strategy it embarked on in 2003 — has sent sales and earnings skyrocketing and has helped insulate VF from the affects of retail consolidation.
VF has returned three straight years of record growth, finishing off 2005 with a 6.7 percent earnings gain to $506.7 million, or $4.44 a share. Revenues for the year rose 6.2 percent to $6.5 billion. The momentum has carried into 2006. In its most recent quarter, the company reported a 24.6 percent rise in earnings to $128.2 million, or $1.14 a share. Revenues rose 5.3 percent to $1.67 billion.
Other major apparel manufacturers have not fared nearly so well, such as Liz Claiborne and Jones Apparel Group. Jones recently reported a 70 percent drop in earnings and a 9.9 percent revenue decline to $1.22 billion in the first quarter of 2006. The company's wholesale moderate apparel sales declined 6.9 percent, or $25 million, and wholesale footwear and accessories fell 14 percent, or $39 million.At Claiborne, earnings sank 34.3 percent and sales fell 3.4 percent to $1.17 billion in the first quarter.
"The shareholders expect more than we're delivering, and we expect to deliver more in the out quarters," said Paul Charron, chairman and chief executive officer, during a conference call with Wall Street analysts.
Charron blamed the declines on consolidation in the department store channel after Federated's $17 billion acquisition of May, as well as on unseasonable weather in February and March, the Easter holiday calendar shift and Claiborne's own repositioning efforts, which resulted in hundreds of layoffs.
VF has lessened its dependence on the department store channel, partially by expanding its company-owned retail operations. Further growth of own-retail is seen as a key strategy over the next four years, a move management believes will provide further protection from any upheavals in the retail environment.
Last December, VF unveiled plans to open more than 400 company-owned stores, for a total of 928 by 2009. At the time of the announcement, management said the company owned 525 stores that accounted for 13 percent of sales in 2005. The increased store count is expected to account for 18 percent of sales by 2009. Management also views expanding its retail operations as an opportunity to highlight its growing portfolio of lifestyle brands — from North Face to Vans and Napajiri.
McDonald dismissed the idea that raising the dividend might be interpreted as a sign the company is pulling back from pursuing new acquisitions of lifestyle brands.
"Absolutely not," said McDonald. "Over the last three years, we have invested $1.4 billion in acquisitions. We've carefully analyzed our abilities to continue at that same pace."
McDonald indicated that the next acquisition could occur within the year. Management expects its lifestyle businesses to account for 60 percent of revenues by 2009, compared with 30 percent in 2005.
VF shares rose 1.4 percent Monday to close at $61.34 in New York Stock Exchange trading.
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