威富公司 (VFC) 2003 Q1 法說會逐字稿

Good afternoon ladies and gentlemen, my name is Paul and I will be your conference facilitator today.

At this time, I would like to welcome everyone to the VF Corporation's first quarter earnings conference call.

All lines have been placed on mute to prevent any background noise.

After this speaker's remarks there will be a question and answer period.

If you would like to ask a question during this time please press star and the number 1 or your telephone keypad.

If you would like to withdraw your question, press the pound key.

Thank you.

I would like to turn the conference over to Mr. Tom Walsh, FRB, Weber Shanwick (ph).

Mr. Walsh, you may begin.

Thank you.

Good afternoon, everyone and thank you for participating in the VF Corporation first quarter conference call.

You should have all received a copy of the press release issued earlier today.

If you did not please contact myself at FRB Weber Shanwick at 212-445-8459 and I will send one out tour and confirm our name on either fax or email distribution list.

Starting our call today is Mackey McDonald, Chairman and Chief Executive Officer of VF Corporation.

Before we again I would like to remind certain statements concluded in today's remarks and in the question and answer session may constitute forward-looking statements within the meaning of the federal securities laws.

Forward-looking statements are not guarantees and actual results may differ materially from those expressed or implied in the forward-looking statements.

Important factors that could cause the actual results of operations or financial condition for the company to differ or discuss documents filed by the company with Securities and Exchange Commission.

Now I'd like to turn the call over to Mackey.

Mackey.

Ok, Thank you, Thomas.

Good afternoon.

Thank you for joining us on our first quarter conference call.

With me today are Chief Financial Officer Robert Shearer and our Coalition Chairman, John Schamberger (ph), Eric Wiseman (ph), Terry Lay and George Dehofr (ph) and also our VP.

Investor Relations Cindy Knoebel (ph).

We were extremely pleased with the performance this quarter, retail conditions as you know remain challenging at best but our friends delivered record earnings per share to our shareholders.

Our core brands of businesses remain in great shape and continue to gain share both jeans and intimate apparel and I'm also pleased we about able to maintain our earnings, margin and cash flow guidance for the full year. (Inaudible) a little bit of time on each one of our major businesses.

As expected, sales in our domestic jeans business were gown in the quarter and the units were down less than 2 percent.

We (inaudible) of forward (inaudible) programs as our customers continue to watch an manage our inventories very carefully.

It's obviously the right strategy for this type of situation and we're also managing our own inventories accordingly.

Our annual sales expectations for the jeans business remains intact, down approximately three percent due to the competitive factors we discussed in our past calls.

I'd like to re-state nothing has changed with regards to our outlook or our jeans business from the entry of one of our competitors in the mass market and the K-Mart store closings, both of which are factored into our sales expectations for the year.

For those of you who listened to our jeans wear launch (inaudible) VS session I'll hope you agree we have an enormous amount of activity going on in terms of new products and programs.

For example, we're launching both (inaudible) throughout all May company stores this year.

Our new Lee Young (ph) a new contoured fit strolling out two thousand stores.

New fashion plus size products are expected to contribute to the further share gains for the brand.

Recent NPD data indicates that Riders is one of the fastest growing female brands in addition to being the number one national brand for women in mass (ph) stores.

We're also re-launching Riders with new ticket design products designed specifically for men at K-Mart.

Also this year we'll be launching a new jeans product at Target called Blue Jeans from the makers of Lee.

Wrangler is launching a new line of fashion products to drive share gains in the young men's category.

Work wear inspired looks continue to be strong and in response we're also introducing work wear products called Wrangler Work Probe in mass stores and new line called Ridgework (ph) by Wrangler and specialty and sports stores.

We feel very good about the prospects of these new programs, the positive impact which will largely be seen in the second half of this year.

Jeans industry unit sales are running about flat so far this year.

We continue to think that the industry unit sales in '03 will be about flat with prior year levels.

Let me give you a quick rundown or our jeans market shares in units through February of '03.

In total VF share of the jeans market closed to 21 percent, 20.5 percent.

Wrangler share remains stable at 9.2 percent.

I'm pleased to note that Wrangler brand has recaptured the number 1 share position for men 25 plus in the industry.

These shares rose to 5.4 percent from 4.6 percent.

One question may relate to the increase in share versus the decline in our reported sales in jeans wear and the answer to this is two fold.

First our sales (inaudible) at retail are running ahead of shipments to retail for the reasons that I have discussed earlier, in some cases up to 7 to 8 percent.

Second our mix is moving to lower price products, as expected in this environment.

On the international jeans front our brands continue to outperform the competition.

Our Lee brand had a strong first quarter with sales up 7 percent on a currency adjusted basis.

Highlights for this year include the expansion of Lee and Wrangler into Russia and the launch of Wrangler into China.

However, the international jeans market is also challenging, a combination of weak economic trends and knew military and work wear looks.

Intimate apparel the good news is our businesses are up in both department chain and mass stores and we're continuing to gain share, a big accomplishment (inaudible) team.

We also saw sales (inaudible) margin improvement in our international business.

We're particularly enthused about the roll out of our new (inaudible) products in Wal Mart. (inaudible) early indications are very promising.

We're also targeting the full figure consumer in our Vanity Fair brand with our new Comfort Smart (ph) program, a complete line of bras for the full figured customer all valued price with the recommended retail price of 16.99 every day.

Our Tommy business also remains strong.

This performance is particularly satisfying giving the intimate apparel categories in having a difficult year of retail so far running down about 9 percent.

Of course the outdoor business continues to be a big growth driving for VF.

Cold and wet weather in most of the country contributed to strong spring outer wear (inaudible) .

The North Face has outperformed its competition.

Spring '03 sale through is strong with pre season bookings up 23% with the total spring and reorders up 68 percent for the first quarter.

Fall '03 preseason bookings are up 35 percent versus the prior year.

Every product category is experiencing significant increases in fall of '03.

Our new 85 line (ph) has strong sale in and initially sale throughs are strong.

Our New York store opened in March with initial sales 19 percent above plan.

The North Face is the fastest growing out door brand in Europe and their fall order book looks very strong as we will.

We have an aggressive plan to increase distribution over the next several years from approximately 28 hundred doors in '03 to five thousand stores in 08.

Our new stores being opened in London this year with an additional planned in '04.

The US tax (ph)business is a bit soft this year, again reflecting general conditions of retail but our JanSport (ph) brand is maintaining its leadership position.

Retailers are approaching the fall season cautiously. (Inaudible) and travel products.

Our air lift technology has been a big positive force.

We are incorporating the air lift technology into our technical and travel categories this year.

Our image wear coalition had an outstanding quarter and sales planned primarily due to the strong sales of NFL products for the super bowl.

Sales increased along with higher operating margin business and our work wear business resulted in a 50 percent increase in image wear (inaudible)profit.

Now I'd like to turn it over to Robert Shearer.

Thanks, Mackey and good afternoon everyone.

First, I hope you're finding that the absence of restructuring charges in '03 makes it a more straightforward quarter to review than we have seen in recent history.

Let's get started with sales.

As noted in the release, sales were up 3 percent.

Currency was a strong positive for us, excluding the effects of currency sales would have been about flat.

In the release we noted the sales performances of our various businesses both on an absolute and currency adjusted basis.

As we have seen in the last few quarters gross margins improved nicely from 35.3 % to 37.5 %, excluding restructuring charges taken in 2002, the gross margin was 35.6% still resulting in nearly a few hundred basis point improvement.

Continuing to reach the benefits of our strategic repositioning program including the move to lower cost sourcing an manufacturing.

In addition our inventories remained clean (inaudible).

By year end we should have only about 5 to 10 percent domestic manufacturing with reminder from offshore owned and contracted manufacturing.

We have been asked often about our longer term expectations for margins and as you know, we folk is our gains on operating margins which we continue to expect will increase to the 13 percent level this year.

This increase will be driven by continued improvements in our gross margins, which we saw in the first quarter and expect to see in the second half as well.

Improvements are due primarily to our move to lower cost sources of manufacturing.

In terms of operating expenses, as a percent of sales we move from 24.3 percent in 2002 to 25.8 percent in 2003.

You will recall in our guidance for SG and A as a percent of sales for the full year was flat to up slightly over 2002.

Within this full year guidance we had planned some increase in this ratio in the first half with lower comparisons in the second half, accordingly we would expect to see an increase in this ratio in the second quarter similar to what we saw in the first quarter.

Lower interest expense was a positive force in the quarter and should be for the year as well.

We continued to expect that interest expense will be down about 10 million dollars in 2003, a decline in our tax rate to 34.9 percent also helped in the quarter.

And we are looking for about that rate for the next three quarters.

We did continue our share repurchase program in the first quarter of that 800 thousand shares.

We expect to continue at a rate of 1 million shares per quarter as significant acquisition.

We're proud of our balance sheet which remains in great shape. (Inaudible) was 28%,0net of cash in the approach the bench as the was 18.9 percent.

At the end of the quarter we had 265 million dollars of cash in our balance sheet as we discussed in the past our cash flow priority remains acquisitions.

We noted in our release the increase in inventories and stated that the reasons included improved service levels an currency.

In fact currency accounted for about a third of the increase.

Those of you who follow VF know that inventory management has always been a top priority for us and will continue to manage inventories aggressively and we believe we'll be in good shape for the year.

Declining cash flow from operations was largely influenced by the increase in inventories as well as the 75 million dollars contribution we made to our pension plan in February.

To reiterate two other points of guidance.

Capital expenditures should approximate 100 million this year, appreciation should also be around 100 million.

Internal cap remains an important parameter of driving shareholder value and we see further improvement this year from the 17 percent achieved last year.

Again, acquisitions could have some impact on this projections.

In terms of the full year and second quarter we noted that second quarter earnings could be flat to down five percent and the basis for a comparison here is 76 cents per share for the second quarter of 2002, which excludes the impact from restructuring.

Street estimates reflected the expectations for a weaker first quarter and a stronger second quarter.

But in fact, the gain in the first quarter and the more difficult second quarter are in line with our plans.

Margins in the quarter could be down slightly, primarily reflecting mixed issues in our jeans wear business related to a move to more fashion products that carry lower margins than our basics business.

This effect is somewhat magnified in the second quarter do you to the volume of jeans business and the quarter are laid into the total.

As note in the release we continue to expect a 5 to 10 percent increase in full year earnings per share.

It's important to remember that these comparisons are based on 2002 earns per share from continuing operations of $3.38 which excludes restructuring charges.

Reported continuing in shares (inaudible) was $3.24.

Ok.

Thank you, Bob.

That about wraps it up.

We continue to expect retail conditions will remain challenging until we see some uptake in consumer confidence and employment right both of which remains extremely difficult to produce at this time.

We're much more confident that despite this challenging environment the focus on the key drivers for our business, great brands, great products and great value along with conservative financial management will continue to drive earnings growth.

At this time I'd like to turn it over to questions.

Ladies and gentlemen, if you would like to ask a question press star and the number 1 or your telephone keypads.

Again, that's star and the number 1 or your telephone key pads.

Your first question is from Dennis Rosenberg with CSFB.

I have a few questions.

Starting with US jean sales you were down 7 percent in this quarter.

The second half you have a lot of new initiatives but you also will have the lower sales at Wal-Mart because of Lee advice.

So how do you stay with that down three percent for the full year?

This is John Schamberger, Dennis.

Basically its all the new initiatives that we have going starting in June right on through the end of the year, we had about 10 initiatives going into the year.

We thought we would do maybe about five out of the 10.

We had about 8 adoptions out of the 10 which really helped us out the last half of the year.

And that's in not only the mass channel like Mackey said with the new jeans program at target, but also some new programs at least that we have, for example one true fit that Lee will announce and promote starting in July of this year.

And that's in 2000 stores.

So it's really our new programs and we have got a bunch of them this year, more than we have ever had before versus what is going to happen in the mass channel when the competitor comes in there.

Okay.

I have a question for you, Bob.

On currency, this is the first time you have quantify identified the impact.

Could you give us your thoughts about currency's impact on sales and earnings for the second quarter and for the final three quarters combined?

Yes, Dennis, I think we have in the past, whenever it's been significant we try to break out the impact of currency.

I think it's important to keep in mind a couple of things.

Number 1, the rates were lower in the first quarter of '02 so the comparison was bigger.

When you look at a rate today of 108 to 109 versus the rates that existed in the first quarter of '02, again there's a bigger spread.

So we are not projecting the same kind of spread for the second half of the year, because the rates changed, increased as the year went on last year.

And I guess the only other point I would make there is that we are not relying on the current rate of $1.08 to $1.09 to achieve the guidance.

That's not built into our forecast.

Can you be a little more specific as to what is built into your forecast and on an earnings per share basis based on what is built in, what you're expecting from currency?

Well, again what was built into the plan originally in the original guidance was not a real strong improvement from currency.

Especially again in the second half of the year.

I'm going to push you on this.

What's the EPS impact.

If the Euro stays at let's say it's at 1.07, which would I guess eliminate today's spike, what would the EPS impact be in the second quarter and for the rest of the year and how much of that was included or is included in your guidance of 5 to 10

Again, Dennis, I'm not going to be too specific on that.

Just as I said there's not really a lot built in in the second half of the year.

You have to remember that the first quarter was unusually from that standpoint?

Terms of the rate changes year to year so we're not relying on currency in terms of achieving the numbers.

Okay.

Thank you.

Your next question is from Robert S. Drbul from Lehman Brothers.

Good afternoon.

Hi Bob

A couple questions.

First, I guess for Mackey, in terms of the cash that you keep generating at what point could you get more aggressive on your share repurchase program?

Just given the returns of the business and how much cash you really sitting on right now, what are your thoughts on that?

Bob, we certainly have as our priority for our cash flow is strategic acquisitions that give us new growth opportunities and portfolio, we're continuing to look in the jeans intimate apparel.

We have specific targets there that we feel that we will fill in the future.

We also are continuing to look at brands in our sports group category.

That's our priority.

Secondary to that, certainly would be a share repurchase program.

We are continuing with our share repurchase program, and paying down debt has also been a use of the cash and a very healthy dividend use of our cash.

So I feel like we have a good balanced approach to it, with the priorities ( inaudible)

Okay.

In terms of, Bob, on the receivables seem to be a nice increase on receivables.

What's happening with that?

We think an important comparison there is year to year, the end of March.

Receivables are up a bit really in line with sales.

Okay.

And then could you refresh us in terms of the plans around your marketing spent the sort of dollars and where you're going with that, as the competitive landscape really heats up in the summer here?

As we said, in terms of the overall marketing spend for the year, remember that last year was up about 11 percent over the prior year and we indicated that we expected our total marketing spend to be about flat or up very slightly over that level.

And in total it looks like if its about 250 million dollars.

Okay.

I guess in terms of gross margin, where do you think we are in terms of how close are you to sort of the top of your gross margins possible abilities, 37 and a half percent, these type numbers that you are generating in are we -- can you put it sort of in innings, where would you say we are in terms of that in terms of a lot of the initiatives that you have under way?

As we have indicated, we are closing in on our ability to move offshore.

So in terms of innings, that's a little hard to say.

We're nearing the point that where we have some US remaining US manufacturing and that's primarily to the -- from a service standpoint.

As we indicated we're in the 5 to 10 percent area.

We think we'll probably settle in somewhere around 5 percent.

So not a lot more room there.

We still have some efficiencies to gain from the recent moves we have made related to the restructuring.

So again, we have some movement there but certainly not of the magnitude that we have seen over the last couple years.

One final question.

In terms of the northeast business, can you talk a little bit about what you're learning with the expansion of the full price stores that you have opening recently?

This is Terry Lay, Bob.

Mackey threw the number (inaudible) positive.

We are very excited about our retail stores.

We now have 7 full price stores.

The last most recently opened in New York in March.

And we really use those not only to showcase the brand but also to test product.

And truly manage retail space, understand direct consumer feedback, change our assortment and you may have also heard us discuss the fact that we're moving into department stores.

And the department store business is also quite dependent upon the model and having right mix for the consumer.

So we view the retail stores on the one hand as a part of our growth within the brand but from another standpoint also is a tool in learning and consumer feedback towards future product.

Thank you.

Nice quarter.

Thanks Bob.

Your next question is from Ron Tadross (ph) with, Banc of America Securities.

Good afternoon, gentlemen.

I think you made a comment about your sales being down, your market share being up and the difference between sell through and sell in, that would imply, I think, that the inventories are being worked down.

We have heard that perhaps debt of inventories came a bit high recently, folks are promoting or lowering retail selling prices to try to get inventories lower.

Is that something you're seeing?

In general, we're seeing a lot of promotion out there.

Retailers are trying to get traffic in their stores.

I would say in terms of debt I probably here more about that in the junior business than you do in the missy and the men's business.

We're not seeing as much, although we are seeing in general from mid January on, retailers having lower their inventories where for example on a men's size 36, 32, where they might carry 7 or 8 units you sell two or three you wanted to replace two or 3 usually then we let it get down to one or two units in the stores and not replace it until it gets real low.

So we are seeing retailers really work down their inventories low, part of which I think is just being conservative on what's happening in retail.

Is there any dock (ph) strike impact on having perhaps too much jean inventory retail.

You know, we talked to some industry (inaudible) through that up as a reason for promotion.

I don't see much of that in jeans wear anyway.

I don't see that.

Okay.

Can you tell us where you think you are sort of in a -- or where the industry is in terms of a denim cycle, and would you expect jeans, denim to be generally a bigger part of the mix sort of later this year or a smaller part of the mix?

I'd like to tell you a bigger part of the mix but to be honest with you it's been pretty steady over the last three years, right around 5 hundred 70 million sales and usually basics are fairly flat and fairly stable in that total market.

We are seeing again, we are seeing in the junior market where denim is a little bit weak and more of the flat fabric, wool fabric, the active wear fabrics are a little hotter than denim in the junior market but we're not seeing that in the missy or men's market.

Thank you very much for your time.

Your next question is from Noelle Grainger with J.P. Morgan.

Hi there, congratulations on having a press release less than 10 pages.

I have a couple questions.

First, can you talk a little bit about pricing overall.

I mean, it clearly had an impact on the jeans wear side.

You said units were down, too, but overall dollars down 7.

So can you address pricing overall and then John specifically in denim, is it mixture, that's the sense I get or have you made some adjustments for pricing or are you seeing competitors making adjustments for pricing?

That's a good question.

It's definitely mixed driven.

We're seeing more of the fashion and low price denim out there, denim jeans out there than we are in (inaudible).

Going forward obviously we hope that the basics come back.

But all the newness is selling and that's where we have low prices and low margins.

You're fashion goods are actually lower price than your basic goods?

Yes, especially in the men's side.

Okay.

Related to that, Bob, your comments with respect to gross margins for the second quarter from being affected by this mix shift, I guess I'm not clear on why that has such a big effect on the second quarter relative to the second half in terms of, you know, denim or jeans shipments.

Yes, Noelle, in the first quarter as we said we saw a nice improvement in our margins and that was largely driven by some other businesses, you know, for example outdoor and image wear having strong quarters.

In the second quarter when you look at the cycle of our businesses, number one, it's our lowest quarter of the year, lowest volume quarter of the year, however, jeans wear is the biggest component of that quarter than any other quarter.

Okay.

So as you lock at the overall margins, that's what's happening because jeans wear is the biggest piece of the second quarter.

You know, we think that there could be some pressure on the margins in the second quarter.

It's actually bigger in the second quarter than the quarter?

As a percent of the total.

And Noelle, when we say fashion product we're saying fashion jeans and (inaudible) and they are lower price than for example 5 pocket jeans.

Maybe that will clarify it for you.

Okay.

That's helpful.

On the inventory can you help us get a little bit more comfortable with the quality of the inventory there?

Clearly, I appreciate the quantify indication on the currency impact, but you know still up ahead of sales growth.

Maybe, John, can you talk a little bit more about kind of the pushback you're seeing from retailers in terms of what are they holding in terms of, you know, weeks on hand relative to (inaudible) and are they still lowering that ownership at this point in time?

We saw that ownership really being lowered I would say mid January through the end of February.

And I think what's happened is March results weren't that great either so they kept their inventories lower.

We think there are some stock gaps (ph) now in certain major account and we're hoping in the next couple weeks to fill in those stock gaps.

But some of their inventories are in my opinion are all time lows as in denim.

Okay.

And with respect to your production shift, you're fully operational to service your replenishment business, should it start to pick up?

Oh, absolutely.

This year even better than last year.

Okay.

One last question, if I could, which is just on the sales line, I don't think I heard the sales growth for US intimate apparel and I'm wondering if we're still on track for kind of a mid single growth for the year there.

In terms of -- as you know, we don't break out the pieces.

And we do have some movement in terms of, you know, as we look forward, which is really what we saw in the first quarter, so as we see our outdoor business and our image wear being a little stronger, our intimates business could be a bit less than originally anticipated.

Are you still comfortable with one percent sales growth for the whole portfolio for the year?

Yes, we are.

Thank you.

Next question, is from Jeffery Edelman with UBS Warburg.

In giving the second quarter guidance that -- first quarter came in stronger than the street was looking for but it was in line with your expectations and your guidance was given to us I guess mid February so you were halfway through the quarter and that probably took some from the second quarter so I guess what I'm wondering is where was the change that you saw things strengthen relative to what you were talking about mid February?

There were two pieces, Jeff.

The first was currency and the numbers that in our guidance we did not include the kind of benefit from the currency fluctuations that we actually realized.

And the second piece was our image wear business was quite strong in the quarter.

Those were big factors.

Okay.

Then what takes away from the second quarter?

Well, actually what we indicated as we said earlier our second quarter was -- is on plan.

We're really, if you recall, we haven't given any specific guidance relative to the second quarter yet.

So this is the first guidance we have seen.

So it's actually on track with our plans.

Okay.

Now, you have maintained a 14 percent operating margin target.

Obviously your internal sales growth I guess at this point would be around 2, 3 percent.

One, is that kind of a sales increase sufficient to offset most of your increased costs now that you have anniversared (ph) your restructuring?

You're right.

For the year 2003, we're expect to go see some additional benefits in terms of the restructuring.

And also remember that we're continuing to see improvements in a number of our businesses.

Again, image wear is a pretty good example of the outdoor business as well.

That aren't strictly volume related.

Just pieces of the businesses are performing more efficiently than in the past.

So it's not totally driven by volume but I can tell you that a little volume would certainly help us get through the 14 percent.

Okay.

So if we end this year in that 13 percent area and obviously get a little bit of that from currency, I won't split hairs, what type of an increase in volume do you need to let's say hold on to that 13 percent?

You know

Given the fact that the CPI is going to be starting to move up and your overall cost structures probably are hard to maintain any more at this juncture?

Yes, it's difficult to be quite that specific because as we said, as we look out and we continue to be see opportunities for improvement in a number of our businesses threw means other than volume to split that remaining one percent out that definitely would be difficult to do.

Okay.

Fair enough.

Thank you.

Your next question is from Dave Sweet (ph) with VF Corporation.

That question has been withdrawn.

Your next question is from Caroline Jones with Goldman Sachs.

Hi, I just had a couple of questions.

The first question was on the new launch at Target.

Could you talk a little bit more about that, when do you expect that to happen, how many store, how big would that business be and also this is kind of a first step, are you thinking of introducing other categories there?

Its a chain wide program with shipments in late June, men's, women's, boys and girls, primarily in basic and fashion jeans.

And could it be the opening for taking other categories there?

It's quite possible but again that's something that we would discuss with Target.

Okay.

All right.

Then second question on the North Face business, what do you think is going on in that category in general versus market share gains for The North Face?

Carol line, this is Terry Lay again.

We believe we're outperforming the category.

As we said before, it was a favorable weather pattern seasonally for that category, we certainly benefited from that.

We actually, as Mackey indicated, our reorders were up 68 percent through the quarter.

A lot of that was really driven by continued winter weather, fall reorders as opposed to responding to spring goods.

But we think weather helped and overall the category had a decent year.

As we look forward and especially talking to suppliers and knowing what types of fabric quantities are being ordered and so on, we feel we're outperforming the category.

That's a credit to our products and our brand.

How much of your business is done on reorder versus backlog?

Preorders really drive our outcome.

That's really how the outdoor business works today.

So it's preorder driven.

We don't plan for a high percent of reorders in certain core products we do (inaudible).

I'm sorry, I didn't quieted hear that last part.

Did you say how much reorders are?

In certain core products like the (inaudible) jacket as an example we do keep in stock quantities and it's really a judgment call, we're responding to what we feel the market conditions are in terms of the amount of reorders we'll plan for in our inventory.

You must have planned for a decent amount of reorders if you could have your reorders up 68 percent this spring?

In relative terms year on year, it's also frankly a response to the fact the demand for the (inaudible) we service the business better in terms of putting ours in a position to respond to reorder.

Okay.

Do people react to strong business now by placing more orders for fall, is that what you have seen?

Yes.

I think it's a combination of the demand for the brand, the consumer demand and also the fact that in the past 12 to 18 months we have demonstrated increasing levels of capability around service, which gives the retailers more confidence in placing those over $5, I think on both counts we're seeing reasons for those preorders to increase.

Great.

Thanks a lot.

You have a follow-up from Ron Tadross with Banc of America Securities.

At the beginning of the call you indicated that you had increased your market share at Wrangler and Lee and overall from 20 and a half to 21 percent.

Is it possible for you to indicate to us which of your competitors or which competitor may have given that market share over to you?

We usually don't give out competitors (inaudible) sorry.

Thanks.

You have another follow-up response from Noelle Grainger with J.P. Morgan.

Hi, George, I figured I'd let you jump in here.

On the image wear side, curious on your license business, obviously the NFL has been a big boom for you guys, but wondering just more generally what your perspective is on kind of see if you know, the outlook for license apparel over the next year or 2?

Obviously this is a business that's been down for a number of years.

Do you think, you know, the fashion trends are really what's driving it, do you think it's more of a fan based, you know the leagues are doing a better job of promoting themselves, do you think this is a sustainable business?

Well, you're right, it's been a tough business for a long time.

And I think that it is getting much better positioned from a retailer point of view.

I think the leagues are doing a much, much better job of getting their brands back to where they need to be.

And I think that's being reflected, it's better performance overall retail.

So I would say that it's not a totally row bus environment given the overall business but we think licensed supports is on its bay back and particularly for us given our positioning with the NFL and other leagues

We have heard retro products (ph)(inaudible) are you targeting that type of look?

We are to some extent.

We are not as you know into the jersey business, where that is the hottest part but certainly we have, for instance, NFL originals that are doing extremely well that take advantage of that retro look and it is doing very, very well.

Okay.

Thank you.

You're welcome.

Again, ladies and gentlemen, star one if you would like to ask a question.

There are no further questions at this time.

Okay.

Thank you for joining us today.

We certainly feel that the difficulties that we have seen in this environment are going to continue, but we also feel they are creating tremendous opportunities with companies that have the right capabilities in place, the right brand marketing, the right consumer value, the right technology to manage inventories an we are one of the companies who has those capabilities so we feel like we can continue to take advantage of the situation.

We also are pleased with the improvements we have made in our brand marketing, our manufacturing source and cost control, but we're not there yet.

We still have a lot more improvement to make and we will be doing so.

Thank you for joining us.

Thank you, ladies and gentlemen for your participation.

Conference has now concluded.

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