VF To Sell Intimate Apparel Business to Fruit of the Loom, Inc.
GREENSBORO, N.C.--
VF Corporation (NYSE:VFC):
-- Move Enhances VF's Business Mix, Growth and Margins
-- Proceeds to be Used to Repurchase Shares
-- Expects Record Fourth Quarter for 2006
-- 2007 Initial Guidance Provided
Management will host a webcast and conference call to discuss this announcement today at 10:00 a.m. ET. Interested parties should call 1-800-811-8824 domestic, or 1-913-981-4903 international, to access the call. You may also access this call via the Internet at www.vfc.com. A replay will be available through January 30, 2007 and can be accessed by dialing 1-888-203-1112 domestic, and 1-719-457-0820 international. The pass code is 6403506. A replay also can be accessed at the Company's web site at www.vfc.com.
VF Corporation (NYSE:VFC), a leader in branded lifestyle apparel whose primary brands include Wrangler(R), Lee(R), The North Face(R), Nautica(R), Vans(R) and JanSport(R), announced today that it has signed a definitive agreement to sell its global intimate apparel business to Fruit of the Loom, Inc., a subsidiary of Berkshire Hathaway, Inc. (NYSE: BRK.A) (NYSE: BRK.B) for $350 million in cash. VF's intimate apparel business includes such leading brands as Vanity Fair(R), Lily of France(R), Vassarette(R), Bestform(R) and Curvation(R) in the U.S., and Lou(R), Gemma(R) and Belcor(R) in Europe. The agreement is subject to government approvals and customary closing conditions and is expected to be completed in the first quarter of 2007. VF currently intends to use the proceeds from the sale to repurchase shares in 2007.
"This marks an important chapter in VF's ongoing transformation toward becoming a higher growth, higher margin lifestyle company - and another example of our willingness to take bold steps to enhance total shareholder value," said Mackey J. McDonald, VF's Chairman and Chief Executive Officer. "Our Intimates business has been a positive and important contributor to VF's success over our 100-plus year history. But the time has come to strategically rebalance our portfolio and to focus our energies and resources on the many growth opportunities across our Jeanswear, Outdoor, Imagewear and Sportswear businesses."
Key highlights of this move in VF's transformation include the following:
-- Business Mix: An increase in the contribution to total
revenues from VF's growing lifestyle businesses - Outdoor and
Sportswear - to 40%, with the Company's strong heritage
businesses - Jeanswear and Imagewear - accounting for 60%. In
2005, lifestyle businesses accounted for 30% of total
revenues.
-- Revenue Growth Targets: We are targeting 8% annual revenue
growth including acquisitions, and expect strong organic
growth of 5% annually. Acquisitions will continue to be an
important component of our growth plan.
-- Operating Margin Goal: Operating margins should approach our
goal of 14% in 2007, up from 12.7% reported in both 2005 and
2004.
Fruit of the Loom plans to operate these businesses as Vanity Fair Brands, a wholly-owned subsidiary. Curt Holtz, President of VF's Intimates coalition, and his management team will continue directing current operations from headquarters in Alpharetta, Georgia and Igualada, Spain.
"We are delighted at the prospect of adding such strong brands to our portfolio," said John Holland, Chief Executive Officer of Fruit of the Loom. "We were most impressed with the heritage, experience and innovative talent of the VF Intimates worldwide team."
Implications for 2006 Financial Results
VF's Intimates business generated over $800 million in revenues and approximately $50 million in operating income on a global basis in 2006, representing 12% and 6% of VF's total 2006 revenues and operating income, respectively.
The business will be reported as a discontinued operation in 2006. Accordingly, restated operating results for the first nine months of 2006, as well as for 2005 and prior years, are attached. Additional restated financial information is available on our website, www.vfc.com. The implications for 2006 full year and fourth quarter results from continuing operations are expected as follows:
Full Year 2006:
-- Total revenues of approximately $6.22 billion, an increase of
10% over revenues of $5.65 billion in 2005.
-- Earnings of approximately $4.70 to $4.72 per share, up
approximately 11% from $4.23 per share in the prior year.
Fourth Quarter 2006:
-- Total revenues of approximately $1.60 billion, an increase of
9% over revenues of $1.46 billion in 2005.
-- Earnings of approximately $1.20 to $1.22 per share, up about
9% from $1.11 per share in the prior year's quarter.
These results reflect a healthy increase over prior year results, and represent another quarter of record revenues and earnings. However, we do expect 2006 results from continuing operations to be 2 to 4 cents per share lower than our previous guidance, reflecting a more difficult mass channel retail environment in the fourth quarter. We plan to release 2006 results on February 6, 2007.
We expect to report a loss on the sale of the business of approximately $45 million, or $.40 per share. This includes the write-off of $55 million of accumulated foreign currency translation losses, reflecting changes in foreign currency rates (weaker U.S. dollar) since acquiring our international intimates operations. Full year 2006 results are expected to include approximately $41 million ($.36 per share) of this loss. The remainder of the loss will be recorded primarily during the first quarter of 2007.
2007 Outlook: Another Record Year
We are looking forward to another year of very healthy top and bottom line increases in 2007. We expect revenues in 2007 to increase approximately 8%, with growth in earnings per share from continuing operations of 10%.
We will provide additional details related to this guidance upon the release of fourth quarter and year-end results on February 6.
"Our ability to commit to such a strong outlook underscores the fundamental strength and momentum of our Growth Plan, our ability to execute that plan and our enthusiasm for the continued transformation of our business," concluded McDonald.
Cautionary Statement on Forward-looking Statements
Certain statements included in this release are "forward-looking statements" within the meaning of the federal securities laws. Forward-looking statements are made based on our expectations and beliefs concerning future events impacting VF and therefore involve a number of risks and uncertainties. We caution that forward-looking statements are not guarantees and that actual results could differ materially from those expressed or implied in the forward-looking statements.
Potential risks and uncertainties that could cause the actual results of operations or financial condition of VF to differ materially from those expressed or implied by forward-looking statements in this release include the successful completion of the sale of the intimate apparel business; VF's reliance on a small number of large customers; the financial strength of VF's customers; changing fashion trends and consumer demand; increasing pressure on margins; VF's ability to implement its growth strategy; VF's ability to maintain information technology systems; stability of VF's manufacturing facilities and foreign suppliers; continued use by VF's suppliers of ethical business practices; VF's ability to accurately forecast demand for products; continuity of members of VF's management; VF's ability to protect trademarks and other intellectual property rights; maintenance by VF's licensees and distributors of the value of VF's brands; the overall level of consumer spending; general economic conditions and other factors affecting consumer confidence; fluctuations in the price, availability and quality of raw materials; foreign currency fluctuations; and legal, regulatory, political and economic risks in international markets. More information on potential factors that could affect VF's financial results is included from time to time in VF's public reports filed with the Securities and Exchange Commission, including VF's Annual Report on Form 10-K and Quarterly Reports on Form 10-Q.
About the Company
VF Corporation is a leader in branded lifestyle apparel including jeanswear, outdoor products, image apparel and sportswear. Its principal brands include Wrangler(R), Lee(R), Riders(R), Rustler(R), The North Face(R), Vans(R), Reef(R), Napapijri(R), Kipling(R), Nautica(R), John Varvatos(R), JanSport(R), Eastpak(R), Lee Sport(R) and Red Kap(R).
VF Corporation
2006 Consolidated Statements of Income by Quarter
Reclassified to Present Continuing Operations
(In thousands, except per share amount)
2006
-----------------------------------------------
First Second Third Nine
Quarter Quarter Quarter Months
----------- ----------- ----------- -----------
Net Sales $1,436,706 $1,332,892 $1,791,648 $4,561,246
Royalty Income 18,916 18,421 18,450 55,787
----------- ----------- ----------- -----------
Total Revenues 1,455,622 1,351,313 1,810,098 4,617,033
----------- ----------- ----------- -----------
Costs and Operating
Expenses
Cost of goods sold 824,600 765,554 1,018,021 2,608,175
Marketing,
administrative and
general expenses 443,709 439,970 504,253 1,387,932
----------- ----------- ----------- -----------
1,268,309 1,205,524 1,522,274 3,996,107
----------- ----------- ----------- -----------
Operating Income 187,313 145,789 287,824 620,926
Other Income (Expense)
Interest income 1,418 1,292 1,439 4,149
Interest expense (12,679) (13,856) (15,835) (42,370)
Miscellaneous, net 829 542 1,869 3,240
----------- ----------- -----------------------
(10,432) (12,022) (12,527) (34,981)
----------- ----------- -----------------------
Income from Continuing
Operations
Before Income Taxes 176,881 133,767 275,297 585,945
Income Taxes 58,739 44,208 89,340 192,287
----------- ----------- ----------- -----------
Income from Continuing
Operations 118,142 89,559 185,957 393,658
Discontinued
Operations 10,043 9,473 11,750 31,266
----------- ----------- ----------- -----------
Net Income $128,185 $99,032 $197,707 $424,924
=========== =========== =========== ===========
Earnings Per Common
Share - Basic
Income from
continuing
operations
$1.07 $0.81 $1.68 $3.57
Discontinued
operations 0.09 0.09 0.11 0.28
Net income 1.16 0.90 1.78 3.85
Earnings Per Common
Share - Diluted
Income from
continuing
operations $1.05 $0.80 $1.64 $3.49
Discontinued
operations 0.09 0.08 0.10 0.28
Net income 1.14 0.88 1.75 3.77
VF Corporation
Consolidated Statements of Income
Reclassified to Present Continuing Operations
(In thousands, except per share amounts)
Year Ended December
-----------------------------------
2005 2004 2003
----------- ----------- -----------
Net Sales $5,582,075 $5,150,985 $4,377,233
Royalty Income 72,080 67,081 36,121
----------- ----------- -----------
Total Revenues 5,654,155 5,218,066 4,413,354
----------- ----------- -----------
Costs and Operating Expenses
Cost of goods sold 3,209,312 3,067,678 2,728,164
Marketing, administrative and
general expenses 1,676,892 1,486,031 1,132,667
----------- ----------- -----------
4,886,204 4,553,709 3,860,831
----------- ----------- -----------
Operating Income 767,951 664,357 552,523
Other Income (Expense)
Interest income 8,217 7,151 11,456
Interest expense (70,596) (76,021) (61,167)
Miscellaneous, net 6,121 182 9,917
----------- ----------- -----------
(56,258) (68,688) (39,794)
----------- ----------- -----------
Income from Continuing Operations
Before Income Taxes 711,693 595,669 512,729
Income Taxes 229,064 196,790 169,468
----------- ----------- -----------
Income from Continuing Operations 482,629 398,879 343,261
Discontinued Operations 35,906 75,823 54,672
Cumulative Effect of a Change in
Accounting Policy (11,833) - -
----------- ----------- -----------
Net Income $506,702 $474,702 $397,933
=========== =========== ===========
Earnings Per Common Share - Basic
Income from continuing operations $4.33 $3.61 $3.17
Discontinued operations 0.32 0.69 0.51
Cumulative effect of a change in
accounting policy (0.11) - -
Net income 4.54 4.30 3.67
Earnings Per Common Share - Diluted
Income from continuing operations $4.23 $3.54 $3.11
Discontinued operations 0.31 0.67 0.50
Cumulative effect of a change in
accounting policy (0.10) - -
Net income 4.44 4.21 3.61
VF Corporation
2005 Consolidated Statements of Income by Quarter
Reclassified to Present Continuing Operations
(In thousands, except per share amounts)
2005
-------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter Year
-------------------------------------------------------
Net Sales $1,336,366 $1,212,817 $1,589,782 $1,443,110 $5,582,075
Royalty Income 18,116 16,099 18,536 19,329 72,080
-------------------------------------------------------
Total Revenues 1,354,482 1,228,916 1,608,318 1,462,439 5,654,155
-------------------------------------------------------
Costs and
Operating
Expenses
Cost of goods
sold 766,214 688,354 912,837 841,907 3,209,312
Marketing,
admini-
strative and
general
expenses 423,740 400,417 429,432 423,303 1,676,892
-------------------------------------------------------
1,189,954 1,088,771 1,342,269 1,265,210 4,886,204
-------------------------------------------------------
Operating
Income 164,528 140,145 266,049 197,229 767,951
Other Income
(Expense)
Interest
income 3,016 2,041 1,402 1,758 8,217
Interest
expense (18,666) (18,479) (19,343) (14,108) (70,596)
Mis-
cellaneous,
net (336) 605 1,849 4,003 6,121
-------------------------------------------------------
(15,986) (15,833) (16,092) (8,347) (56,258)
-------------------------------------------------------
Income from
Continuing
Operations
Before Income
taxes 148,542 124,312 249,957 188,882 711,693
Income Taxes 47,476 35,389 83,026 63,173 229,064
-------------------------------------------------------
Income from
Continuing
Operations 101,066 88,923 166,931 125,709 482,629
Discontinued
Operations 13,620 7,826 12,699 1,761 35,906
Cumulative
Effect of a
Change in
Accounting
Policy (11,833) - - - (11,833)
-------------------------------------------------------
Net Income $102,853 $96,749 $179,630 $127,470 $506,702
=======================================================
Earnings Per
Common Share -
Basic
Income from
continuing
operations $0.90 $0.80 $1.50 $1.14 $4.33
Discontinued
operations 0.12 0.07 0.11 0.02 0.32
Cumulative
effect of a
change in
accounting
policy (0.11) - - - (0.11)
Net income 0.92 0.87 1.61 1.15 4.54
Earnings Per
Common Share -
Diluted
Income from
continuing
operations $0.88 $0.78 $1.46 $1.11 $4.23
Discontinued
operations 0.12 0.07 0.11 0.02 0.31
Cumulative
effect of a
change in
accounting
policy (0.10) - - - (0.10)
Net income 0.89 0.85 1.57 1.13 4.44
Source: VF Corporation
Released January 23, 2007