V.F. Q2 2010 Earnings Call Transcript

V.F. Q2 2010 Earnings Call Transcript
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V.F. (VFC)

Q2 2010 Earnings Call

July 22, 2010 8:30 am ET

Executives

Jean Fontana - Integrated Corporate Relations

Karl Salzburger - Vice President and President of VF International

Eric Wiseman - Chairman, Chief Executive Officer, President, Ex-Officio Member of Finance Committee

Robert Shearer - Chief Financial Officer and Senior Vice President

Analysts

Dana Telsey - Telsey Advisory Group

Sean Naughton - Piper Jaffray

Robert Drbul - Barclays Capital

Kate McShane - Citigroup Inc

Jim Duffy - Thomas Weisel Partners

Mitchel Kummetz - Robert W. Baird & Co. Incorporated

Kenneth Stumphauzer - Sterne Agee & Leach Inc.

Omar Saad - Crédit Suisse AG

Robert Ohmes - BofA Merrill Lynch

David Glick - Buckingham Research

Michael Binetti - UBS Investment Bank

Christopher Svezia - Susquehanna Financial Group, LLLP

Todd Slater - Lazard Capital Markets LLC

Presentation

Question-and-Answer Session

Eric Wiseman

Compare to:
Previous Statements by VFC
» V.F. Q1 2010 Earnings Call Transcript
» V. F. Corporation Q4 2009 Earnings Call Transcript
» VF Corporation Q3 2009 Earnings Call Transcript

No, I can only speak to VF specific. I know that we have such strong brands that are in great demand by consumers. That helps us address some of that. And how efficient we are, I mentioned in the call, a third of our production comes from factories that we own and operate, and we are not having labor inflation there or were able to offset it by efficiencies based on how well we run factories. So we're just not seeing it there. So I understand there's a really big question out there, but we're pretty confident that we have work to do and the story is not yet fully told, but I'm real confident in our team's ability to address substantially all of this.

Jim Duffy - Thomas Weisel Partners

Yes, given your sourcing base, it seems you're better insulated than many sounding so [ph](42:36). You've begun the booking process with some of your brands for spring. Early days yet, but what are you hearing from the mindset of retailers as you have those discussions?

Eric Wiseman

There's caution back in people's voices right now in general about the market. The slowdown that we've all seen happen since I guess the second week in May has had everybody ask, how confident should we be in placing spring orders? The good news for us, if you look at what happened during even the recession when there was more than just a little caution, there was widespread caution; we continued to get pretty good bookings for most of our business. You know that in 2008, we had a good revenue year. Last year, we were down 4% on a constant currency basis across our company, and we're pretty confident that we've got the right brands and the right products within our brands to do better than most in that. And in fact, as people are getting more selective about what they buy, they're looking to leading brands, if you're looking to leading brands, you're looking to brands like Wrangler and you're looking to brands like Vans and The North Face. So we're pretty confident about next year.

Jim Duffy - Thomas Weisel Partners

Great, and then final question for Karl Heinz: Can you provide an update on your progress with the Vans brand in China? And some thoughts on the outlook for that business over the next couple years?

Eric Wiseman

Karl Heinz, you got it? Can you hear it?

Karl Salzburger

Yes, I got it. You heard me saying that before, we had a very,very strong quarter with Vans in China, which nearly doubled the business. Vans, we see Vans as a big opportunity for us in China. We just started basically a couple of seasons ago. We have very talented management on the spot, management which knows about footwear, and it's one of the brands where we certainly will do better and become a big opportunity for us in China. We open a store, we have a big store's [ph](44:36) rollout and I can't quote what the company is [ph](44:42) longer term, but certainly it's one of the top opportunities we have.

Operator

We'll take our next question from Bob Drbul with Barclays Capital.

Robert Drbul - Barclays Capital

Eric, I just have some questions on the Mass Jeanswear business. There was recently a change of the U.S. business for one of your largest customers and I was wondering if you saw any major strategic changes that might positively or negatively impact your business. And some of the changes or the moves in your Riders and Wrangler Women's businesses, is that due to the change in strategy or anything that we should think about?

Eric Wiseman

Well, Bob talked about the acceleration of our progress in our Mass Jeans business during his comments. And what's driving that, there are a couple things. We have been talking for a while about programs that we lost with one of our large Mass customers, and we are regaining some of those programs and permission I think to gain them all back. Some of them were in test. Some of them are further than test into full rollouts, so that's to our team's tenacity in not giving up on those programs because we believe they were the right things for that customer, and we're giving permission to, at a minimum, test them and, as a best case, roll them out. You've heard comments about one of our customers talking about returning to basics, and they've specifically mentioned things like jeans and tees. So any time we have a large customer on jeans, when we're their largest provider of national branded jeans, that creates an opportunity for us and we're working very closely with that customer to help them get back to the more basic apparel business. I think it's the right move for them, and they'll execute it really well. We're really confident they can execute that well, and we're happy to be a partner in that with them.

Robert Drbul - Barclays Capital

Great, and, Bob, I have a question for you on product costs. I think Eric said that you would have lower product costs for the remainder of the year. I think in previous calls, you had mentioned that you thought you would have higher year-over-year costs beginning in the fourth quarter. What has changed from that perspective?

Robert Shearer

Well, Eric's comment was for the second half. So the cost, as you might expect, Bob, increasing a little bit as each quarter goes on. So for the fourth quarter, what I've indicated in the past is that costs, or product costs, when you compare year-to-year, fourth quarter to fourth quarter of last year, right, that the costs will be up just a little bit over where they were last year in the third quarter; they'll still be below, and that nets to being just slightly below for the second half of the year. The reality is that costs year-to-year, when you look at the second half of 2010 versus the second half of 2009, again, down a little bit on a net basis, but fairly neutral.

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