威富公司 (VFC) 2006 Q4 法說會逐字稿

Good day, and welcome to the VF Corporation fourth quarter conference call. [OPERATOR INSTRUCTIONS] At this time, all participants have been placed in a listen-only mode and the floor will be open for your questions following the presentation.

It is now my pleasure to turn the floor to Mr. David Griffith WITH ICR.

Please go ahead, sir.

Thanks, Tom.

Good afternoon, and thanks for participating in VF's fourth quarter 2006 conference call.

By now you should have received today's earnings press release, if not please call my office (203) 682-8213 and we'll get you a copy immediately following the conference call.

Hosting our call this afternoon is Mr. Mackey McDonald, Chairman and CEO of VF.

Before we begin, we would like to remind participants that certain statements included in today's remarks and in the Q&A session may constitute forward-looking statements within the meaning of 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 conditions of the Company to differ are discussed in documents filed on the Company with the SEC.

At this time I'd like to turn the call over to Mr. Mackey McDonald.

Good afternoon, and thank you for joining us.

It's always a pleasure to spend time talking about a great quarter, a great year, and a great outlook.

I'll have a few comments and then Bob will review the quarter's financials.

Following that, Eric and our coalition presidents will provide a brief overview of our businesses and growth initiatives and then we'll take your questions.

As you know, we updated our guidance on January the 23rd in conjunction with our announcement regarding the sale of our Intimates business.

Our fourth quarter results were very strong.

Revenues up 9% and earnings per share from continuing operations up 12%.

Including a $0.03 benefit from unusual items.

In terms of our full year results, revenues were up 10% and earnings per share from continuing operations increased 12%.

All in all, a great year for VF driven by organic growth across all of our coalition.

For the full year, outdoor revenues were up 28%, sportswear was up 5%, and both jeanswear and imagewear were up 3%.

These results are largely in line with the growth targets that we've set for our lifestyle and for our heritage businesses.

Certainly we're in a very different position today than we were several years ago.

Our growth plan is working.

Recently, we confirmed our 8% revenue growth rate target and raised our expectations for organic growth to 5% from 3% to 4%.

Organic growth has picked up sharply.

Validating our decision to invest more heavily in our brands.

Clearly, there is no better place to invest our dollars than internal growth opportunities.

And we have an impressive list of growth opportunities.

List some of the key ones, continuing the momentum in the North Face® particularly in sportswear and footwear as well as retail.

Expanding Vans base of retail stores and building its apparel business, supporting the geographic expansion for all of our outdoor brands not only in Europe, but in Asia, as well.

Launching Reef apparel, building our Kipling and Napapijri Brands here in the U.S.

Continuing the rollout of nautical women's sportswear and expanding internationally, maintaining the momentum in our Lee brand, both here and abroad and many others, as well.

Another important part of our growth plan continues to be acquisitions.

While we will continue to be disciplined in our approach both strategically and financially, we will continue to add lifestyle brands to our portfolio through acquisitions.

Looking forward, we expect another record year in 2007.

Again, driven by strong organic growth in everyone of our coalition.

We're looking forward to 8% growth in revenues and a 10% increase in earnings per share from continuing operations.

We expect continued margin expansion, with operating margins approaching our target of 14% despite continued investments in growth.

We have a very solid plan for growth, investments, and margin improvement across our strong portfolio brands in '07.

As you would expect, these items don't always flow smoothly across our results throughout the year.

As I mentioned, we expect 8% revenue growth and 10% earnings per share growth in '07.

Revenues in the first quarter should increase 10%, but earnings per share are likely to grow at a lower rate due to a couple of factors that Bob will discuss in a moment.

I'm delighted with the plan our management team has built for 2007 and the foundation they have established that will ensure continued strong growth in the future.

Now, let's hear from Bob Shearer.

Thanks, Mackey.

Mackey touched on our overall results for the quarter and for the year.

And our coalition leaders will provide more perspective on their businesses.

So I'm going to keep my remarks to a few key areas and I know of what will be particular interest to you.

Now, first relates to the unusual items in the quarter and continuing operations.

There were two items that affected our results that were not included in the guidance we provided just two weeks ago.

First, a tax credit referred to in the release resulted from the settlement of a number of open tax years related to a foreign operation.

Now the total tax credit was $17 million, which benefited earnings per share by $0.15 per share.

You can see the impact of this tax credit reflected in our tax rate for the quarter, which was 26.1%, compared with the more normal rate of 33.4% in last year fourth quarter.

We did put those tax credits to work for us.

In our international operations, primarily in our international jeans business in the form of actions to reduce product loss and improve our product development processes.

The cost of those actions, which included capacity realignment, totaled $15 million or $0.12 per share.

Now, we are seeing strengthening within our jeans business overseas.

And these investments will further that progress.

They were important moves to ensure the strong results predicted for 2007 from this group.

These costs account for the majority of the margin decline in jeanswear in the quarter.

It also explains the decrease in overall operating margins for VF in the quarter, which otherwise would have been above prior year levels.

These two items, the tax settlement and the restructuring basically offset each other with a slight net benefit to earnings to the quarter and the year of $0.03 per share.

Absent these items, we would have been right in line with the guidance provided on January 23rd, regarding our results from continuing operations.

Next on the fourth quarter P&L, below the results from continuing operations, we captured the activity related to our intimates business in anticipation of the sale of that business.

For the quarter, the $4 million of operating income represents the net after tax operating results of the business in the quarter.

Following that is the estimated loss and the disposition of the intimates business of $36.8 million, which is actually a bit lower than what we indicated in our January 23 press release.

The total net loss on sale estimate for the 2-year period, that is in 2006 and 2007 is also expected to be a bit lower than previously indicated.

And is now estimated at $40 million or $0.36 per share.

Now, including the net impact from discontinued operations, net income from the quarter was $108.6 million or $0.95 per share.

Now, you can see that for the full year results, the same loss on the disposition of $36.8 million is almost entirely offset by the $35 million in discontinued operations, which represents the full year after tax contribution from operations from our intimates business.

So there's only a penny difference between EPS from continuing operations and consolidated earnings per share, which were $4.73 and $4.72, respectively.

Now, turning to our cash flow and balance sheet, I'd like to add some further clarity to the 2006 cash flow and accounts receivable commentary included in the release.

Our sales were especially strong during the fourth quarter of the year in our international businesses, particularly in our international outdoor and jeanswear operations.

Where payment terms are longer than in the U.S.

In fact, our European and Asian businesses posted sales gains of 20% during the quarter.

In addition, our U.S. outdoor business, where sales were also very strong during the quarter historically carries higher days than VF's overall average due to customary industry practices.

Accordingly, both AR balance and cash generation from operations were impacted by this shift.

Now relative to 2007, any similar change in mix of our AR balance is already factored into our expectation.

For another strong year of cash flow from operations, which we expect will be approximately $625 million.

Now keep in mind that this guidance represents cash generation from continuing businesses only highlighting the strength of our cash generation expectations.

I'd also like to add some clarification around our annual guidance.

Nearly all of the 10% earnings growth anticipated for 2007 results from top line growth and margin expansion.

Obviously, there is a benefit from the lower number of shares that will result from using the $350 million of proceeds from the intimates sale to buy back shares.

However, that benefit is largely offset by the higher number of shares outstanding at the end of 2006 verses the 2006 average as well as the impact of ongoing stock option exercises that typically occur throughout the year.

Now you might ask why wouldn't we buy back additional shares to offset the dilution from ongoing stock option exercises as we have in prior years.

We will, of course, continually evaluate all alternatives, including additional repurchases as we progress throughout the year.

We have a very strong cash position at year end 2006 and expect strong cash generation in 2007.

Our intent is not to build cash, but to put it to good use.

Now, in terms of our first quarter guidance, during the first quarter, we expect to continue our strong sales growth with an expected sales gain of 10% and an increase in earnings per share of 4% to 6%.

Now, the biggest factors contributing to the difference between the top in earnings increases are one, our average shares outstanding will be 2% higher in the first quarter of 2007 verses 2006 due to the high level of stock option exercises that occurred in the second half of '06.

And then secondly, our tax rate will be about one point higher in the quarter.

Obviously our full year guidance applies strengthening earnings per share comparisons as we progress throughout 2007.

And lastly, just a few miscellaneous items, capital spending should be about $145 million this year, that's a bit over our 2006 levels and reflecting higher spending to support our retail store growth.

Depreciation and amortization should be comparable to the '06 levels at about $125 million.

While the tax rate should approximate 34%.

Now, in summary, our priority remains the same as it has been since we initially launched our growth plan to find accretive acquisitions of growing global lifestyle brands that enhance total shareholder returns.

In 2007, we again expect to generate above average returns to shareholders, which is a combination of our expected EPS growth of 10% and our 3% dividend yield.

Thanks, Bob.

Eric?

Thanks, Mackey.

We're delighted by the progress we continue to make in transforming VF to a disciplined and successful execution of our growth plan.

Since we launched this plan, we've grown our base of revenues by $1.8 billion.

We got there by making progress on every platform of our growth plan.

We've added strong, global lifestyle brand.

We've strengthened our business model with key customers, grown international sales, accelerated our own retail growth, filled key talent and leadership gaps and leveraged our strong supply chain organization to both improve margins and provide a strong foundation for future growth.

As Mackey mentioned, we have our coalition presidents joining the call today, so let's turn the call over to them beginning with Angelo Legrega.

President of our jeanswear America coalition.

Thank you, Eric.

In terms of our results in 2006, all of us at jeanswear Americas are very proud that our revenues were up a healthy 3%.

Virtually all of our divisions posting revenue gains, led by solid performances from our Mass and Lee business.

Our two flag ship brands Wrangler and Lee performed strongly in 2006.

We continue to see growth in Wrangler brand where were extending to new categories and new consumer segments through such programs as our line of Wrangler shirts.

At Lee our turnaround efforts are continue to pay off.

We've sharpened our product development efforts and marketing communications to more directly target our core consumer.

We've increased our investment in the brand and successfully restructured our management team.

These efforts led to strong revenue gains and improved profitability at Lee in 2006 and we believe the momentum will continue strongly into 2007.

A couple of words on our fourth quarter performance.

As you may recall, we are coming off a very strong third quarter.

However the dynamics of the business shifted in the fourth quarter.

Particularly in our Mass business.

Several of our Mass market customers experienced difficult same-store sales comparisons which led to softer sales for us in this channel.

Compounding the issue was the fact that our Mass business enjoyed a particularly strong fourth quarter in 2005 making the comparisons that much more difficult.

In the first quarter, we'll still be working down inventories in our Mass business which will have some impact on our margins in the quarter.

On the positive side, our Lee business remains strong.

With mid tier revenues growth in the quarter, fueled by strength in the mid tier department stores.

Operating income during the quarter was challenged, due primarily to product mix issues and investments in marketing to drive revenue growth as well as a piece of the restructuring that Bob referred to earlier.

As we look toward the balance of 2007, we are well-positioned to deliver another year of top line growth, which significantly improved profit performance.

We are confident we can grow in 2007, primarily through force base and productivity gains.

For example, the Lee brand has been awarded several new programs at some of our biggest accounts.

We're also excited about some new test that will be launched in 2007, which will represent new distribution for the Wrangler brand.

Additionally we'll continue to support our business with enhanced consumer insights and recognize in having the right people in the right positions is pivotal to our plan success.

We are broadening our talent base to drive further growth.

Operating profits and margin in 2007 should benefit from our 2006 investments in media and restructuring.

The combination of top line growth and manufacturing efficiencies should help offset increases we may see in raw materials.

All in all, we believe we got a solid platform for growth, that we're making the appropriate investments in our powerful brands to support our growth initiatives, that our strategies are well-grounded and deep consumer insights.

And thus, we will deliver the profits and cash flows our shareholders expect.

Thanks, Angelo.

Now let's hear from Aidan O'Meara, who heads up our international jeanswear coalition.

Ayden?

Thanks, Eric. 2006 was a good year for our international jeans business.

Our core in Lee and Wrangler brands grew strongly in our emerging markets particularly China and Russia, well also performing well in the more mature western European companies.

Completion of our majority joint venture in India was also a break through, which significantly bolsters our growth prospects for the coming years.

Finished the year on a solid note with fourth quarter revenues up strongly on a constant currency basis, due mainly of the inclusion of sales from our India business.

Our growth strategy for international jeans is predicated on the development of a strong central platform, which can be leveraged to support our brand's consistent and successful development, throughout Europe Middle East, Africa, and Asia.

In this respect, we may significant progress in '06, particularly in the critical areas of enhancing our product development capabilities and further developing and rolling out our managed space and retail stores program.

Consumers around the world demand more premium and individual products more frequently, harnessing up our resources to deliver compelling products concepts such as Lee X-line and Wrangler BlueBell at globally is a strong competitive advantage for our brand.

Similarly, our retail presentation concept supporting infrastructure are being leveraged across markets.

We are running extensive amount of space in partnership programs in many countries and continue to expand our retail store footprints.

With recent openings in Madrid for Wrangler and a [inaudible] Berlin, Paris, and Shanghai for Lee.

Two largest Lee and Wrangler stores in the world were also opened in Bangalore in '06 bringing the total of 73 and 39 respectively in India.

The outlook for 2007 is also encouraging with our strongest order backlog for many years confirmed for spring.

Although remain somewhat uncertainty about the strength of the NC replenishing business.

We are confident that we will continue to see solid growth in Europe, substantial organic growth in China and of course the first full year of sales from India.

We also expect to see meaningful margin expansion resulting from a combination of reduced costs and planned improvements and product mix and pricing.

Retail continues to be a priority for us, as we focus on expanding our store network, primarily in western Europe and China.

Aside from continuing to build on our success for Lee and Wrangler brand which represents the vast boat of our sales, we also [inaudible] plan in place to improve the outlook for our smaller Mass and HIS businesses.

Great Ayden,thanks.

Now let's hear from Denise Seagal, President of our Sportswear coalition.

Denise?

Thanks, Eric. 2006 was another successful year for the sportswear coalition.

We achieved 5% revenue growth to $685 million with increases in all of our brands.

Our nautical brand grew 4% in 2006.

Our John Varvatos brand grew 26% with healthy growth in wholesale, retail and licensing.

Our Kipling brand grew 40% as we continue to broaden the distribution in the U.S. market.

In terms of the fourth quarter, revenue was up in all of our brands and up 8% overall with profit up 7%.

However, the consolidation of two of our largest customers and the unusually warm weather in Q4 impacted our men's sportswear business which was down slightly in the quarter.

In 2006, we continued to aggressively invest in all of our brands.

In Nautica we established a women's sportswear platform and introduced our first women's collection for fall '06.

In March, we launch a new fragrance for men, Nautica Voyage, which became the most successful fragrance launch in the brand's history.

Internationally, we continue to expand our distribution in China and opened our first two stores in India.

We are very excited with the progress of John Varvatos.

Sales of our men's collection grew at a double-digit rate and we successfully launched the John Varvatos star USA collection in 130 upscale department and specialty store doors in the U.S. and 50 in Europe.

During the fall and holiday seasons, our retail performance in those stores significantly exceeded plans.

In addition, the Converse by [inaudible] collection was launched in fall 2006.

Finally, in our second year of managing the Kipling brand in the U.S., we expanded our department store and owned retail distribution while our core specialty store business was up double-digits.

Operating margins were 13.3% compared to 15.4% in 2005.

The reduction is largely a result of the investment associated with our women's sportswear initiative.

Looking ahead to 2007, we have exciting plans across all of our businesses and are encouraged by the initial acceptance of a number of our new initiatives.

In Nautica, we have significant new product introductions in both our men's sportswear and jeans businesses.

In mens sportswear we are growing our critically important mid top business by introducing the Deck shirt.

We are very pleased that our spring summer bookings of the Deck shirt exceeded our expectations.

In men's jeans, we are launching the end series collection of denim and related tops, supported by a multimedia marketing campaign.

John Varvatos will enjoy another year of significant growth driven by the continued expansion of the John Varvatos Star USA collection to over 250 doors in the U.S. and Europe. 30% growth in the John Varvatos collection business and double-digit growth in our retail business.

In May, we will open our sixth John Varvatos retail store in east Hampton, New York.

With the Kipling brand, we plan to aggressively increase our presence in department stores.

We will be doubling our marketing investment in the brand in connection with the celebrity endorsement the details of which, will be announced in the next few weeks.

We are pleased with the momentum we have going into 2007 and confident that this will be another year of growth for the Nautica, John Varvatos and Kipling brands.

Thanks, Denise.

Next we'll hear from Ed Doran, President of our Imagewear coalition.

Thank you, Eric.

The imagewear coalition had another strong year in 2006 with sales up 3% to 828 million.

Our profitability continues to increase with operating margins reaching a record high of 16.2%.

This is the fourth consecutive year of higher sales and profits for the Imagewear coalition.

We're very proud and we've grown both our uniform occupational business as well as our license apparel business relative to our fourth quarter results.

We experience a slight sales decline of 2% for prior year.

This was due entirely to our planned exit of a commodity fleece and tee business.

Our license sports business however continued momentum with an 11% revenue gain.

Despite the slight decrease in the overall coalition sales, operating margin increased in the quarter to 17.9%, driven by tightly controlled inventories and a stronger product mix.

In terms of how we view our business and our opportunities for growth, we have two unique business models in the image wear coalition.

In our uniform occupational business, we do not sell to traditional retailers, rather we sell work wear and uniforms through distributors, industrial laundry, resellers, AFI houses, or direct to corporations where we develop and manage their uniform programs.

Some of our main customers include FedEx, TSA, Continental Airlines, Midwestern Airlines, US Customs and Boarder Patrol, the fire department of New York, and many others.

Our second business is our license sports business where we develop and manage some powerful lifestyle brands with exclusivity in our channels of distribution for the national football league, major league baseball, Harley Davidson, NASCAR, NHL, NCAA, Byron Nelson Golf, and our newest property ESPN.

In 2006 we signed a long-term agreement with ESPN to become their apparel provider in all channels of distribution.

We are excited about 2007.

We expect low single-digit growth despite the absence of 20 million in sales from the business exit I referred to earlier and a somewhat softer outlook for [jobs] especially in our industrial sector.

We expect to again deliver record profitability.

We expect increases in all of our major businesses, and in order to accomplish this, we have several key initiatives.

First, we're going to continue to build on our mission statement of customer firsts, which has been a foundation of our success over the past several years.

The essence of customer first is truly to understand the end used consumer of an industry, a corporation, or a league and then provide them with the right brands, the right products, the right services, and the right technology that best meets their changing lifestyle and deliver to them in any way that best meets their need.

Second, exclusivity in our life and sports business.

WE are encouraged by the growth we've achieved in NFL, major league baseball, NHL and Harley Davidson and we look forward to growing our ESPN apparel business.

And at the same time we will continue to look for more opportunities as fit our license sports model.

Third, we are going to continue to win with the winning retailers.

VF is known for its retail core space management capabilities.

We have begun to manage the floor space of our major customers in the license sports business and the results are impressive and building.

Fourth, we are targeting a new market segment for growth, the hospitality sector, focusing on hotels and motels and we will continue to pursue large, national, and global contracts.

And finally, we're going to continue our search, a strategically opportunistic acquisition to complement our core growth.

We are very excited that we have developed two business platforms in the Imagewear coalition, that focus on product innovation, exclusivity, outstanding service, and most importantly great people to execute that vision.

Outstanding, Ed.

Thank you.

Let's move now to our outdoor businesses.

Hear from Dave Goto, President of our outdoor Americas coalition.

Thank, Eric.

The outdoor Americas coalition had a very solid year, growing revenues 31% and even faster growth in operating income.

We're absolutely delighted by the strength we're seeing in all of our outdoor brands.

Our growth in 2006 benefited by full-year results from Reef but even without Reef, our business grew 28%.

And the good news is that we believe there's much more to come.

The North Face® brand continues to show impressive year-over-year revenue growth of more than 35% with solid double-digit gains in both wholesale and retail businesses.

I should note that we opened four new full-price retail stores in locations that complement our wholesale business.

Fourth quarter growth for the North Face® was similar to that of the full year despite unseasonably warm weather and an equally impressive quarter a year ago.

The North Face® product sell through and our inventory positions are very good.

More over, our backlogs for both spring and fall are up over 20% and in line with our expectations.

Vans also enjoyed a record year where the wholesale and retail businesses were both up more than 20%.

With even stronger increases experienced in the fourth quarter.

Our apparel products continue to gain momentum with accelerating growth rates.

Our products are clearly hitting the mark with our targeting consumers across all channels of distribution.

A strong backlog for the first half of 2007 points to continue growth ahead.

As pleased as I am with the performance of these two businesses, I am equally proud of the result in our other brand.

Reef and Napapijri both had record years.

Napapijri. open to flagship retail stores in New York City and Miami and is well on its way to proving out its consumer acceptance in the United States.

And finally, a special note on JanSport which accelerated its growth from 2005 to 2006 and drove record sales to the brand and impressive performance.

All this was accomplished while implementing the infrastructure both in systems and distribution facilities to support our growth in the future.

I'm looking forward to very successful year in 2007.

That's a great story, Dave.

Thank you.

Let's wrap up now with Karl Heinz Salzburger VF's President of Europe, the Middle East, Africa, and Asia.

Karl Heinz

Thank you, Eric.

Our brand portfolio achieved tremendous growth through '06.

Total revenues was 24% compared to prior year and nearly all organic.

The North Face® brand, our largest in terms of revenue continues outstanding momentum which revenue growth in excess of over 20% verses the prior year.

Spring bookings are up 20% plus and early feedback on our fall '07 bookings indicate that this trend will continue.

Our high-end outdoor fashion brand is among the fastest growing in our portfolio with a 25% increase in revenues over last year.

We continue to expand geographically in the main European markets, wholesale and retail levels.

Spring order bookings for '07 are up 35% plus.

Vans is mirroring its success story in the U.S., with revenues up more than 20% over last year.

We see particularly strong momentum in our footwear and apparel programs both at wholesale and retail.

Our other brand are also performing very well in total seven out of our eight brands have grown at the double-digit rate.

Our fourth quarter results were outstanding with a 28% increase verses the same quarter last year, in order to continue our top line growth, our major initiatives for '07 will be focussed on three main areas, geographical expansion, category extensions, and retail initiatives.

Geographical expansion into merging markets will become increasingly important factor with a particular focus on eastern Europe, China, Japan and Korea.

Category expansions into [inaudible] footwear from Napapijri and a development of European specific apparel lines for Reef will drive meaningful growth to our brands.

Our [inaudible] program continues to be a major growth driver and build upper brand momentum.

Store openings are planned in major European and Asian cities, including Barcelona, Milan, Sidney, Beijing and Shanghai.

We had 33 owned stores and more than 150 partnership stores at the end of '06 and plan to increase this number to a total of 50 owned and 200 partnerships by the end of '07.

So we feel very confident in our continued prospects for strong growth.

I'd like to thank this group of coalition presidents for their outstanding leadership in driving our growth plan.

Now we'll open it up for your questions.

[OPERATOR INSTRUCTIONS] If you'd like to ask a question, please do so by pressing the star key followed by the digit one on your touch tone telephone.

If you are using a speaker phone, please make sure your mute function is turned off to allow your signal to reach our equipment.

We'll proceed in the order that you signal us and we'll take as many questions as time permits.

Once again, please press star one on your touch tone telephone at this time to ask a question.

We're take our first question from Angelic Dobb with Nolanberger.

Good afternoon.

I just have a quick question on the strategy for Reef apparel in the launch there.

Can you talk to me about how it's going to fit into the competitive landscape, please?

What was the last part of that question, Angela?

How you feel it's going to fit into the competitive landscape.

Right.

Reef apparel has been launched in specialty stores across the country currently its male product around the Reef DNA, board shorts, tees, walk shorts that type of product and it's going to fit within the Reef DNA, a brand that routed in surf heritage that's focussed on the teenage customer, but also gravitates up into slightly older customers taking the Latin routes and the history Reef and embedded that into its products.

Great.

Thank you.

And then could we also talk about the jeans wear business and your expectations for '07 in that division?

Yes, this is Angelo from jeanswear America.

Right now for 2007, we feel very strong about our year, our brands, our brand equities are as strong as they've ever been, the acceptance that we've had working with our major retailers that because we continue to outperform much of the competition in these key accounts.

We are getting more real estate more racks to build on for 2007.

So we feel very confident about our 2007 forecast.

How are the responses to the programs you had initiated over the last 6 months with the Wrangler and Lee lines?

Yes, on both of those lines.

Lee, we relaunched in 2006 and has been very, very successful and in every consumer segment and especially our area, which is the area we were having our biggest declines over the last few years, we're seeing dramatic results in our Lee efforts across the board and we feel very, very strong about that.

On the Wrangler side our core business and brand is very, very strong and yet, we've been able to extend that to new consumer segment and is to new categories.

So for example, Wrangler Jean Company going after the younger mans business in the mass channel has been the most successful young man's offering in fashion offering in the channel as a result of that, we're gaining additional space in 2007.

And also our extension into tops, both at the wrangler brand and the riders brand has been very successful and we've been granted additional space in 2007 based on those successes.

Thank you.

We'll take our next question from Brad Stevens with Morgan Keegan.

Good afternoon.

Question, I guess for Denise, first of all.

Going into next year at sportswear, you're talking about mid single-digit type growth, but with Nautica Women's, Nautica Europe, Kipling for Varvatos, we think roads across all those brands?

Or maybe due to other circumstances we're seeing a pull back at the core Nautica?

I guess my point is I would expect maybe a little more given the -- given the rollout of some of these brands or extensions.

Our core Nautica growth is single-digit increases for 2007.

Nautica still remains solid in the number two brand in mens sportswear and we continue to be very focussed on our consumer providing him with innovative products that satisfies the needs of his lifestyle.

This requires us to constantly refine our product and marketing to meet those needs as we connect with our consumer.

And we will definitely see the growth in the years as we continue to invest in our brand.

Can you update us on where the Nautica Women's rollout is and what your feed back was from your first season and how many doors were going to go to next year?

Yes, we are pleased our women's sportswear with all our retail partners.

While we don't comment on revenues of our individual business, I can tell you we're planning to double our doors for 2007.

And what we learned from our fall holiday collection was that our female consumer prefers more casual products and that is how we've adjusted our merchandise assortment for spring 2007 and beyond, which was validated by our consumer focus groups and is shipping within the next two weeks.

Great.

And then, I guess a question on the given maybe on the outdoor segment here, Vans has just been an absolute animal lately.

I don't think I've seen a footwear retailer not comment on how great Vans is.

When you look at your outdoor total growth for next year, what are you building in for the back half for Vans right now?

Brad, this is Eric.

How you doing?

I don't think we're prepared to answer first of backhalf trend for Vans.

I will tell you that we don't expect the Vans brand to slow down.

We think the footwear business will remain strong throughout 2007 and we expect the apparel launch initiative to continue to grow.

Great.

And then last, maybe for Angelo, I think a year or two ago maybe some of these retailers had gone too far on the private label denim side, what are you seeing on the private label front from maybe some of the retailers in mid tier?

What we're finding, all our retailers have strong and established private label businesses.

We are seeing a resurgence to national brands.

I think they're finding more and more that national brands really drive the denim category.

I think we're so set up so fortunate that we have usually one of the first or second most dominant brand in the channel.

As a result of that, we're gaining a lot of opportunities.

Right.

Great.

Good luck, guys.

We'll take our next question from Jim Duffy Thomas Weisel Partners.

Hi, there.

Thank you.

Question on the jeans wear business on the mass channel.

Maybe you've addressed this and I missed it.

Are you beholding to the comp store sales of your retailers there?

Are there things you can do to kind of drive the business, et cetera?

I think I heard your question.

Right now in our Mass business there has definitely been a softness in the total Mass challenge, footprints have been down the fourth quarter.

As you know we had a very very strong first nine month in our Mass business.

We totally outperforming the marketplace and also in fourth quarter the good news is we totally outperformed the market place. .

So our business specifically trended at a much higher rate than many of our retail partners' total departments.

Okay.

So from here forth, though, is it a matter of what store looks like in those channels or is there more to offset softness that the retail --

That's a very good question.

What we're finding, which is very good in January is that we're back to normalized levels and our business, the core business and our fashion business at a healthy rate and we had a very strong January and point of sale.

Very good, thank you.

We'll take our next question from Gabrielle Kivitz with Deutsche Bank.

Good afternoon.

It's great to see the Lee business doing so well.

Congrats on the progress there.

Thank you very much. [inaudible] Done a great job.

Great.

Clearly there's a lot of opportunity there.

I did want to revisit that jeans wear segment guidance for 2007.

Just want to understand.

You're calling for an acceleration business relative to the fourth quarter in terms of the rate of increase.

So I guess I just want to clarify, does that then assume the mass channel stabilizes and so the January improvement you're seeing continues through the year?

Or is there an acceleration in the Lee business.

Can you just help us understand what's embedded in that guidance?

Sure.

As far as our business overall, right now we're seeing both the Lee brand, the brand.

A good 2007 revenue and on our, the plans that we've given which is 2% to 4% organic growth.

We see across the board we had to achieve that in all the marketing companies.

Maybe I should ask this a different way.

What gives you the confidence that the softer performance in the Mass channel in November and December was more of an aberration and the improvement you're seeing in January can continue through '07?

Right.

I think we're looking at the January sales and a lot of that is both in core businesses and in our fashion business.

So we're seeing back to more normalized level.

So we feel confident that we can.

We don't think we'll have.

We feel good that January's more indicative of what we're going to see in the future than what we saw in November-December.

Okay.

Great.

Thank very much.

And good luck.

[OPERATOR INSTRUCTIONS] We'll go next to Kelly Duval with BB&T CApital MArkets.

Good afternoon, guys, it's actually Eric Tracy.

Thank you very much, first of all for all the detail from the coalition.

Bob, maybe if I could just turn to you in terms of the guidance of Q1.

You noted obviously 10% top line growth somewhat muted by the tax and sort of share differences.

But was curious, any other just investments margin constraints that we should see and then maybe how that continues to flow out through the remainder of the year?

Not really, Eric.

As we said we do expect a stronger second half of the year, but that has a lot to do with our mix of business and where we are right now.

In terms of -- in terms we expect all our businesses as we've indicated to have very strong years.

Our biggest growth driver of course is in the outdoor businesses and those sales and profits are more weighted to the second half of the year.

So it's as much that much seasonal kind of thing as anything else.

In the first quarter as we said, yes, if you barring those couple items.

They really account for most of the difference between the top line growth and what we're saying about the bottom line.

Okay.

And then just turning to the North Face®, want to get a sense.

I don't know if we can get this specific in terms of the retail company owned retail performance to date, maybe just talk, give us a little bit of color in terms of productivity going on there?

Retail was as strong as the wholesale business.

And as I said, combined they were up 35%.

I think that our retail strategy is an important one for the long-term growth.

A complementary way to the wholesale strategy.

And we really are looking for a few select key locations that highlight and showcase the brand and drive the wholesale sales around it.

So no necessarily given the strong performance of accelerating that ramp at all?

No, we're staying on track.

Okay.

Fair enough.

And then maybe, lastly, Mackey, if you could just touch on, we talked a little bit about on the last call.

But, again, the M&A environment, the acquisition strategies you'll have, you put it out there.

But just in terms of maybe what's in play, is it smaller tuck in type deals or do we see the M&A market easing a little bit and maybe some larger type transformational acquisitions out there?

Sure.

That continues to be our number one priority as we said.

We've got tremendous cash flow and that is the number one priority we have.

We're very excited about the success we've had with our transformation to lifestyle brands.

And we're going to continue that.

We do continue with the same criteria, both from a strategic and a financial standpoint.

I would expect to see some small tuck in acquisitions as we go forward, but we are continuing to look at larger, more transformational types of acquisitions, but what we won't do is sacrifice our criteria.

He has to fit strategically and also got to fit our financial criteria.

Fortunately, we have such strong organic growth that we're not required to go find acquisitions.

We can find the right kind and the right ones and we will do that.

Great.

Thank you all, and best of luck.

And that does conclude our question and answer session.

At this time, I'd like to turn the call back over to Mr. McDonald for any closing remarks.

Thanks very much for joining us.

As you can see, we are very excited about the success we're having in transforming VF into a higher growth, higher margin company.

And stay in tune with the results as we go forward.

Thank you very much.

This does conclude today's conference call.

We appreciate your participation, you may disconnect at this time.