Q1 2012 Earnings Call
April 27, 2012 8:30 am ET
Jean Fontana - Senior Vice President
Eric C. Wiseman - Chairman, Chief Executive Officer and President
Steven E. Rendle - Group President of Outdoor & Action Sports Americas and Vice President
Karl Heinz Salzburger - Group President of International and Vice President
Scott H. Baxter - Group President of Jeanswear Americas & Imagewear and Vice President
Robert K. Shearer - Chief Financial Officer and Senior Vice President
Robert S. Drbul - Barclays Capital, Research Division
Michael Binetti - UBS Investment Bank, Research Division
Jim Duffy - Stifel, Nicolaus & Co., Inc., Research Division
Kate McShane - Citigroup Inc, Research Division
Eric B. Tracy - Janney Montgomery Scott LLC, Research Division
John D. Kernan - Cowen and Company, LLC, Research Division
Taposh Bari - Jefferies & Company, Inc., Research Division
Omar Saad - ISI Group Inc., Research Division
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Good day, and welcome to the VF Corporation First Quarter Fiscal 2012 Earnings Conference Call. Please be aware that today's conference is being recorded. At this time, I'd like to turn the conference over to Jean Fontana of ICR. Please go ahead.
Thank you. Good morning, everyone. Thank you for joining us today for VF Corporation's First Quarter 2012 Conference Call. By now, you should've received today's earnings press release. If not, please call (203) 682-8200, and we'll send you a copy immediately following the call. Hosting the call today is Eric Wiseman, Chairman and CEO of VF Corp.
Before we begin, I would like to remind participants that certain statements included in today's remarks and the Q&A session may constitute forward-looking statements within the meaning of the Federal Securities laws. Forward-looking statements include management's current expectations, estimates and projections about business and results of operations and the industries in which VF operates. Actual results may differ materially from those projected in the forward-looking statements. Important factors that could cause actual results to differ materially from those projected in the forward-looking statements are discussed in the documents filed with the company in the SEC. I would now like to turn the call over to Eric Wiseman.
Eric C. Wiseman
Thanks, Jean. Good morning, everyone. Thank you for joining us. With me today are Bob Shearer, our Chief Financial Officer; and our 3 Group Presidents, Scott Baxter, Steve Rendle and Karl Heinz Salzburger. In the midst of continued economic challenges and uncertainty both here and abroad, VF's record revenues and earnings demonstrate the strength of our highly diversified business model, the power of our brand portfolio and the ability of our people to succeed in any environment.
Total revenue growth of 31% in the quarter with organic growth of 12% continues to outpace our long-term annual revenue growth target of 10% and gives us complete confidence in our ability to achieve our goal of 15% growth in total revenues for the full year. During the quarter, each VF coalition achieved strong revenue gains with double-digit growth on a constant currency basis in every coalition. And with the exception of Jeanswear, where we expect to continue facing higher product costs in the first half of 2012, our coalitions posted double-digit gains in operating income and solid operating margins expansion.
So with 1 quarter behind us and 3 to go, thought I'd take a minute to recap our key strategic priorities for 2012, which are obviously aligned to VF's fixed growth drivers. First and foremost, building lifestyle brands. In 2012, this means maintaining a momentum in our fastest-growing business, Outdoor & Action Sports and continuing to empower our other brands to grow and reach their full potential globally. We'll leverage our consumer insight, marketing and product development capabilities to strengthen consumer loyalty for all our brands. And this year, making Timberland work for our shareholders by growing revenues and improving profitability is a particularly important focus. We're really excited about the progress we're making there, which you'll hear more about from Steve and Karl Heinz.
Second, growing internationally. Here, the focus is investing behind our strong momentum in Asia and navigating through increasingly difficult conditions in Europe. Our business in Europe grew strongly in the first quarter as our marketing investments continued to fuel growth in our biggest and most profitable brands. We do expect double-digit revenue growth in Europe, although slightly below last year's 16% constant currency rate, given conditions there. But the power and authenticity of our brands, combined with generally low market penetration in many European markets, gives us great confidence in our ability to continue to grow both near and longer term. In fact, this year, VF should see 37% of revenues coming from international markets.
With respect to Asia. We recognize there are concerns around slowing growth, particularly in China. But for VF, the story is really just beginning there as we've only invested in a small slice of VF's brand portfolio in China and in the region. To date, we've built just 4 platforms for growth there: Jeanswear, primarily with Lee; Outdoor with The North Face; Action Sports with Vans; and handbags and accessories with Kipling. We have many more opportunities in the region, and capturing these opportunities will be a significant factor in achieving our goal of 40% of revenues from international by 2015.
Third, serving consumers directly through our growing base of retail and online stores. This year, we will open more than 110 stores across our brands, with the largest number planned for Vans, Timberland and The North Face. 15% growth in our direct-to-consumer revenues this year should help drive those revenues to greater than 20% of our total revenues in 2012, marking another year of progress towards our goal of 22%.
Our fourth growth driver is to win with winning retailers. 80% of our business comes from our wholesale partners. So at the center of this strategy is aligning our brand, product and marketing strategies with those partners who can drive mutually beneficial and profitable growth. Fifth is to enable VF's future. We've nearly doubled in size over the past 5 years. To continue our momentum, we recognize the importance of consistent investments behind the best-in-class infrastructure, including talent development, supply chain capabilities and technology. In 2012, our capital expenditures will reach a record $375 million as we invest in such growth-supporting projects as new distribution centers, new coalition headquarters, technology and retail stores.
Our sixth and newest growth driver announced in March 2011 is to lead in innovation. At VF, we have a simple definition of innovation. It's something new that creates value. Products, of course, are at the heart of our innovation agenda, from The North Face's Flash Dry fabric that provides unmatched moisture wicking to Timberland's anti-fatigue technology that gives all-day comfort, to patent-pending technology in Jeanswear that provides a superior fit for women, all of our brands are actively pursuing breakthroughs in product and process innovation. We obviously have a lot to get done this year. I am confident that we have the right strategies, the right focus and most importantly, the right team to deliver another outstanding year to our shareholders.