By  on February 9, 2006

NEW YORK — VF Corp. turned in a third consecutive year of rising sales and record earnings in 2005, propelled by growing sales in its outdoor apparel and equipment segment.

"Clearly, we put in place a platform for solid, sustainable growth in both sales and profits," Mackey McDonald, president and chief executive officer of the Greensboro, N.C., manufacturing giant, said during the company's conference call. "All the pieces are in place for another excellent year in 2006."

For the three months ended Dec. 31, earnings rose 1.7 percent to $127.5 million, or $1.13 a diluted share, from $125.3 million, or $1.10 a share, in the same period a year ago. Earlier this month, VF announced it would include the impact of stock-option expenses in its accounting for the quarter. The new accounting practices negatively affected earnings by $5 million, or 3 cents a share, in the quarter.

Revenues for the three-month period increased 4.2 percent to $1.65 billion. The firm's acquisition of active lifestyle brands over the past two years continues to pay dividends, with its outdoor apparel and equipment segment again posting gains of 22.9 percent to $343.9 million.

Eric Wiseman, executive vice president of global brands, said during the call that much of the segment's growth has come organically, and the North Face led the pack with a 25 percent revenue gain during the quarter. Wiseman also noted that the company's most recent acquisition, Reef, contributed $50 million to revenue.

"I'm actually not at all anxious about the outdoor coalition running out of steam," Wiseman said in response to a question from an analyst. "The brands we have acquired, like Vans and Reef, have unbelievable potential to get into the apparel business."

Four out of the company's six business coalitions reported revenue gains for the quarter. Jeanswear, the company's oldest and largest segment, which includes the Lee and Wrangler brands, had a 1 percent revenue gain to $686.8 million. Turning around the Lee jeans business, which had declining revenues during the quarter, remains one of the biggest challenges facing the jeanswear segment. Lee is engaging in a new print marketing program touting the brand's fit and is focusing its efforts on the female consumer."I can't promise that the turnaround will be quick, but we do expect better top-line comparisons at Lee by the second half of 2006," said Wiseman.

Imagewear reported a 1.6 percent revenue gain to $234.6 million, Intimate apparel revenues fell 1.2 percent to $183.6 million and the Sportswear segment revenues inched down 0.4 percent to $182.9 million.

For the year, earnings rose 6.7 percent to $506.7 million, or $4.44 a share, compared with $474.7 million, or $4.21 a share, in 2004. The early adoption of stock-option expense accounting had a more dramatic impact on full-year results however. The company recorded a $27 million noncash expense related to stock options for the year, which translated into a hit of 15 cents a share on earnings. This was compounded by a one-time adjustment of 10 cents a share.

Revenues for the year rose 6.2 percent to $6.5 billion. The outdoor segment again led the way, with revenues up 43.8 percent to $1.45 billion from $1.01 billion. Sportswear had a gain of 5.2 percent to $650.8 million, while Imagewear revenues rose 4.6 percent to $805.8 million. Revenues for the intimate apparel segment experienced the steepest decline, falling 6.4 percent to $848.2 million. Jeanswear revenues dipped 0.3 percent to $2.70 billion.

With almost $300 million in cash on hand, analysts sought to gain insight into the company's next acquisition target. In his opening remarks, McDonald described the acquisition environment as "quite competitive." There was some indication that future acquisitions would likely have a retail component to them, as the company has made expanding retail operations a new platform in its growth strategy.

"Our owned-retail represents about 13 percent of our revenue and we expect by 2009 to add over 400 stores ... and increase that to about 18 percent of revenue, and that's excluding any acquisitions," said Wiseman. "Actually, most of the lifestyle brands we have acquired in the last three years did bring with them a strong retail component."

For 2006, management expects to achieve 6 to 8 percent revenue growth, half of that coming through growth of existing businesses.

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