VF: 2000 COULD BRING RECORD SALES, PROFITS

Byline: Thomas Cunningham

GREENSBORO, N.C. — Despite a lackluster first quarter, VF Corp. still has the potential for record sales and earnings in 2000, Mackey McDonald, VF’s chairman and chief executive officer, told shareholders at the company’s annual meeting Tuesday.
McDonald said the firm, one of the world’s largest apparel makers, is moving aggressively to cope with weaker sales at middle-tier department stores and a soft European jeans market. VF, which has announced three acquisitions already this year, is also on the lookout for more deals, he said.
Before making his comments, McDonald showed a video that reflected VF’s perception of the apparel industry in 2020. The futuristic film, which included robot shopping carts and fabrics that change color according to a customer’s mood, emphasized VF’s position as a technological leader in the apparel industry.
About 100 attended the event, which was held at the Grandover Resort & Conference Center here.
VF’s profits for the three months ended April 1 fell 5.8 percent to $80.6 million, or 68 cents a diluted share, from $85.6 million, or 69 cents. Excluding expenses related to the company’s cost-reduction efforts, VF’s earnings came in at 71 cents a share, ahead of Wall Street’s expectations.
Shares of VF, traded on the New York Stock Exchange, rose 2 3/16 to close at 29 5/8 on Tuesday. In the last 52 weeks, VF’s shares have traded as high as 55 and as low as 20 15/16.
Although VF’s stock performance was ahead of the industry’s as a whole last year, McDonald told shareholders he was committed to raising the value of the shares.
“We want to see that [stock] chart heading up,” he said. “We are going to use our marketing and technology advantages to grow our existing brands, participate in industry consolidation and grow our core business through targeted acquisitions.”
In the first quarter, sales for the maker of Wrangler, Vanity Fair and Healthtex inched up 0.6 percent to $1.37 billion from $1.36 billion. Domestic jeans sales climbed 4 percent, as increases in the mass market and Western business were partially offset by an expected decline at Lee. Sales were down in the company’s international jeans business, which has been in a slump since early last fall.
To spur its domestic business, VF is working with department stores to improve presentation of its products and rebuild its customer base, McDonald said. In Europe, VF is introducing its products at hypermarkets like Interspar and is committed to a continued flow of new products, he said.
“This is one of our most profitable categories,” McDonald said. “And if the [European] market stays down, we intend to increase our share.”
In the U.S., the company’s Wrangler Twenty X Western jeans are performing very well, as is Lee’s “riveted” women’s line, introduced last fall, McDonald said. He also praised the performance of the company’s Wrangler Hero brand and its Timber Creek casual pants line.
Before the meeting began, John Schamberger, vice president and chairman of the jeanswear and workwear coalitions, said the jeans division had a “great” April. “We would have done even better if we’d had more inventory,” he said. “We’re starting to see a resurgence of five-pocket.”
In the intimate apparel division, domestic sales fell 11 percent on lower private label business, although Vanity Fair, Lily of France and Bestform all had increases. Vanity Fair’s “Illumination” line and Lily of France’s “X” bra were strong performers during 1999, and Vassarette was the fastest-growing intimate label in the discount channel, according to McDonald.
The intimate apparel division also makes products under the Tommy Hilfiger and Nike labels.
On the plus side, VF’s playwear group had a record quarter, as sales climbed 15 percent, reflecting increases at Healthtex, Lee and Nike.
Overall, operating margins at the company fell to 10.5 percent of sales from 11.3 percent. Margins slipped at the international jeans and workwear operations, but were higher for domestic jeans, knits and playwear.
During the quarter, VF’s cash flow “rose sharply” to $78 million and for the year cash flow should exceed $500 million, the company said.
The company’s strong cash flow will help it to keep growing, according to McDonald.
“We’re in a great position to make acquisitions, buy back stock and invest in technology,” he said.
McDonald, who described the apparel industry as “consolidating,” made it clear that VF was on the hunt for more acquisitions. So far this year, VF has bought the Chic women’s jeans brand, and announced plans to buy the Eastpak backpack business; technical outerwear maker The North Face, and HIS Sportswear AG, which is Chic by HIS’s German subsidiary.
The acquisitions should add $500 million to the company’s annual sales and should boost earnings per share by 2001, the company said.
“We’re also looking at direct retail distribution as a way to get closer to our customers,” McDonald told shareholders.
McDonald said the company was watching North Face, which has eight retail stores and 14 outlets, and Healthtex, which sells directly to consumers from a Web site, as possible models for retail growth.
VF already has about 50 outlet stores nationwide.
VF is also ready to expand further in South America, Asia and elsewhere, McDonald said.
Despite the slower sales in some of its divisions, VF managed to trim inventories in the quarter to $967.9 million, down 5.8 percent from a year earlier.
VF also bought back 2 million shares of its stock during the quarter.
During the meeting, shareholders reelected three board members and approved the addition of W. Allan McCollough, president and chief operating officer of Circuit City Stores. McCollough, 50, succeeds L. Dudley Walker, chairman of the board of VF Knitwear, who stepped down after 15 years as a director.

load comments
blog comments powered by Disqus