威富公司 (VFC) 2007 Q2 法說會逐字稿

Good day and welcome to the VF Corporation second quarter 2007 earnings release conference call.

At this time, all of our participants have been placed on a listen-only mode, and the floor will be open for your questions following the presentation.

It is my pleasure to turn the floor over to your host, Mr.

David Griffith.

Please go ahead, sir.

Good morning and thank you for participating in VF Corporation second quarter 2007 second quarter conference call.

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

On our call this morning is Mackey McDonald, Chairman and Chief Executive Officer 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 what is expressed or implied in the forward-looking statements.

Important factors that can cause the actual results of operations (inaudible) of the Company to differ are discussed in documents filed by the company with the SEC.

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

Thank you, good morning, and thanks for joining us.

We're very pleased to again report strong results ahead of our prior guidance.

Within our industry it does appear to be a fair amount of restructuring and positioning underway.

Fortunately the strategy that we initially launched in 2004 has proven to be exactly the right one for these changing times.

In terms of our brand portfolio, we've successfully transformed much of our mix away from lower growth businesses to higher growth ones and there's more to come.

We've invested in our strongest heritage businesses, jeanswear and imagewear to keep them healthy and growing and we've not hesitated to exit underperforming businesses, such as intimate apparel, which we sold in April.

Perhaps most importantly, we've demonstrated our ability to successfully identify, acquire, integrate and grow new brands and businesses, including the North Face, Nautica, Vans, Reef, Napapijri, Kipling and Majestic.

We've addressed the changing dynamics in the retail landscape by diversifying our portfolio into powerful, authentic life-style brands that have substantially strengthened our presence and specialty and own retail.

We've put in place the foundation for future growth in such growing and dynamic markets as China, India and Russia, by leveraging our well established infrastructure in Europe and Asia.

Given the strength and diversity of our brand portfolio and our expertise in managing across complex geographies, we're very well positioned to capture significant growth in emerging, as well as established, international markets.

Our portfolio is in excellent shape today.

As we look across our Jeanswear, outdoor, sportswear and Imagewear businesses, we see the strongest brands in the industry.

We see tremendous opportunities for continued growth and new geographies and product extensions and own retail stores and in e-Commerce.

And we see opportunities to round out our portfolio with additional brands and businesses to give us access to new consumers and markets.

So we are quite confident about our future.

We continue to look forward to another record year in '07.

In terms of our guidance for the second half of the year, some of you may be wondering what changed.

We really don't see any specific changes in any of our businesses, but we are simply adopting a cautious approach, which we certainly think is prudent, given the cross currents that are pressuring consumer spending.

Regardless of how retail and consumer spending trends play out for the balance of the year, it has been proven time and again that authentic brands that are strongly connected to consumers will continue to be in demand.

Our excitement about the quarter was clearly dampened by the loss of one of our great and loved leaders in a tragic automobile accident on Saturday.

Mike Corvino, president of Jansport, will be missed.

Now let's hear from Eric about our coalition's performance.

Thanks, Mackey.

I'll start today with Jeanswear and we're very pleased to post another quarter of top line growth with total revenues up 3%.

That growth was fueled by our international business, which excluding the effects of currency, grew by 7%.

Our Lee brand in Europe is performing strongly, a result of positive reaction to new products, including the Lee Works of Denim premium line.

We further expanded Lee's retail footprint, with six stores in Europe now and more to come.

In India, we operate stores under a partnership rather than owned model and we expect to double our total Jeanswear store count in India, from around 70 at the beginning of the year to around 140 by year end.

We're also delighted with the continued strong growth we're seeing in China, while still a relatively small business for us, our Jeanswear business there continues to grow at an annual rate of more than 40%.

We recently made some very important leadership changes in both our European jeans and Asia-Pacific businesses.

We named Aiden O'Meara, who previously headed our international jeans business, as president of VF Asia-Pacific, a new position, where he'll spearhead the expansion of all VF brands in the region.

Aiden is responsible for developing and executing a comprehensive growth strategy for our entire portfolio of brands in the region.

In addition, Giorgio Presca was named as president of international Jeanswear succeeding Aiden.

Giorgio joined VF from Diesel, where he was the general manager, and we're thrilled to have him on board and know he'll be a key driver of our future success in these important markets.

I also should note we sold our HIS brand in the quarter, which resulted in the $0.04 per share gain noted in the press release.

This brand, while still having a good position in Germany, has been underperforming for us over the last couple of years.

Total annual revenues of the brand were $34 million last year and the transition of that business should be completed by the end of the year.

On the domestic front, our three primary businesses, Lee, mass market, and western specialty, had sales that were essentially flat with prior year levels.

In terms of Lee, we continued to see healthy growth in our women's business, which has been offset by lower sales in men as we've seen a move away from carpenter-style jeans where we were strong.

However, we're expecting an improvement in our men's business in the back half of this year as we introduce new programs and styles.

On the mass market side, our men's business is performing very strongly, up in the single digits.

There, our female business is weaker.

Some of our key customers have seen a slowdown in their traffic in their overall women's business.

All in all, we're quite pleased with the performance of our domestic jeans business and are looking forward to a year that's in line with our target of low single-digit growth.

Jeanswear operating margins improved by more than 150 basis points to 15.5%, driven by a substantial improvement in the profitability of our international Jeanswear business.

Turning next to outdoor, this business continues to have great momentum.

As evidenced by the 20% revenue increase in the quarter, and as we've seen in past quarters, the growth is taking place across most of our brands.

The North Face and Vans aren't the only strong growth businesses within outdoor.

In fact, the North Face, Reef, Eastpak, and Napapijri all grew in excess of 30% in the quarter.

Our domestic growth was tempered by lower revenues in Jansport due to a shift in the timing of product shipments from the second to the third quarter.

Internationally, our outdoor business continued to achieve exceptional growth, both top and bottom line.

We remain very, very positive about all the key growth initiatives under way in our outdoor brands.

The North Face remains focused on growing its current limited distribution base with specific initiatives in place in footwear, own retail stores, sportswear, and emerging markets.

Vans is growing its core footwear business through wholesale, retail store expansion and e-Commerce.

We're also encouraged by the performance of Vans apparel, which is a key growth driver for the brand.

Reef is driving growth through innovation within its sandal business.

We recently introduced our girl's sportswear and swim apparel line to the trade, to positive reviews and are looking forward to launching at retail next spring.

Internationally, the Reef brand, while just getting started, but we think there's great growth potential, and our initial results are phenomenal.

Napapijri continues to be the hot brand in Europe and we think it has strong potential in Asia, particularly Japan.

Kipling, our growth is accelerating with very positive reaction to our newest product launches and comp store sales running over 20%.

Outdoor operating income rose 25% in the quarter, with about a half point improvement in margins.

In terms of our sportswear business, revenues grew a very healthy 9% in the quarter.

On a year to date basis, our Nautica men's sportswear business is up low single digits on a comp store basis across its U.S.

department store customers.

We had a solid Father's Day driven by the deck shirt launch.

The Nautica retail business in our own stores and upscale outlet centers grew at a high single-digit rate with comp store sales growing at a mid-single digit rate.

We have placed women's sportswear in 31 outlet doors and that business is on plan.

Our women's business remains a work in progress and performance continues to improve.

We're committed to getting the model right and we'll continue to take a slow and steady approach to building this business over time.

Our Kipling business in the U.S., while still very modest, is gaining great traction.

We're beating our door expansion targets and expect to be in 260 department store doors for fall and holiday.

We're seeing great enthusiasm for our Fergie for Kipling line.

Yes, that's Fergie of Black Eyed Peas fame, which we recently launched.

And finally, our John Varvatos brand continues to expand rapidly with sales up approximately 50% in the quarter.

The performance of the John Varvatos/Star USA line has been very strong at retail and the performance of our six owned stores has also been strong with our newest store in Easthampton running well ahead of plan.

Sportswear operating income increased 3% in the quarter, with operating margins remaining above 12%.

I'll conclude with Imagewear.

Revenues also grew in the quarter, up 22%.

The gain (inaudible) February acquisition of Majestic Athletic and we're very pleased with Majestic's performance.

We finalized our extension with Major League Baseball through 2014, giving us a solid platform for continued growth.

The integration is proceeding ahead of schedule.

There's no hiccups there.

Excluding Majestic, Imagewear revenues were down slightly in the quarter.

Some of the decline is due to the exit of the commodity fleece business.

In addition, we experienced a timing of some store sets being moved back due to a cautious retail environment.

On the positive side, our protective and government business is growing strongly.

We do expect positive organic growth to resume in the third quarter.

Operating income declined 10% with margins down 400 basis points from very robust levels last year, reflecting a less favorable business mix.

But as noted in the release, operating margins are expected to show substantial improvement in the second half of the year.

That wraps up our discussion of our coalition results.

I'll now turn the call over to Bob Shearer, who will take us through the financials for the quarter.

Okay, thanks, Eric.

Okay.

Let's start at the top.

Total revenues grew a bit over 12% in the quarter, with growth across all coalitions, as Eric just discussed.

The Majestic, Eagle Creek acquisitions contributed a total of $54 million to revenues in the quarter.

If you exclude acquisitions, our organic growth rate for the quarter was quite strong at 8%.

Now, you'll recall that our previous guidance for revenue growth in the quarter was 14% and a variety of factors, no one single large issue accounted for the difference.

Part of the difference is represented by a shift in timing of shipments within our outdoor and activewear businesses.

Also, our licensed sports apparel replenishment business was slower than anticipated.

This business is expected to show stronger comparisons in the second half of the year.

Gross margins were down slightly to 42.9% to 43.3% partly due to the HIS sale, a small charge worth 20 basis points related to the sale was recorded in Cost of Goods Sold.

Also, Imagewear gross margins were lower than those of their unusually strong prior-year second-quarter.

Operating income rose 16%.

Operating margins up 30 basis points to 11.1%.

As noted in the release, the increase includes the benefit of the HIS gain.

On a more comparable basis, we're excluding this gain, operating margins would have been 20 basis points lower, reflecting the lower Imagewear operating margins.

Now, I would remind everyone that this is our seasonally smallest quarter and so the margins are not indicative of what we expect for the full year.

For the full year, we continue to expect an approximate 40-basis point improvement in operating margins nearing the 14% level.

For the third quarter, we expect our operating margins to be comparable to the prior year quarter, which was 15.9%.

After interest and taxes, income from continuing operations for the quarter was up 18%, with EPS from continuing operations up slightly less for 16% due to higher average shares outstanding and a slightly higher tax rate.

Reflecting the impact of discontinued operations resulting from the sale of our intimates business, net income was $81.7 million, or $0.72 per share.

Now, related to discontinued operations, not all assets related to the sale of our intimates business have been sold through the end of the second quarter, and considering the anticipated gain of approximately $0.10 per share related to assets to be sold during the second half of the year.

The net impact on the full year from this discontinued business is estimated to be a loss of $0.07 per share.

In terms of shares outstanding, we repurchased 2.1 million shares in the quarter, thereby concluding the buyback related to utilization of proceeds from the sale of our intimates business.

The total number of shares repurchased through the second quarter was 4.1 million.

Now, in terms of our balance sheet and cash flow, accounts receivable were up 20%.

The higher increase in AR versus our sales gain during the second quarter was due to the strong sales in our European businesses, where payment terms are substantially longer than our other businesses.

In fact, our sales in Europe during the quarter increased by 33%.

The inventories rose 17%, a bit higher than our guidance for the third quarter sales increase of 12%.

The difference is explained by higher levels in certain businesses to better service our customers during our upcoming heavier shipping periods.

By year end, we expect inventory days to be in line or below prior year levels.

Our balance sheet remains very strong.

Debt as a percent of total capital was 20% at the end of June compared to 25% at this time last year.

Obviously, our balance sheet presents us with opportunities for sales and earnings growth.

And we continue to expect a very healthy year of cash flow from operations, which should approximate $625 million.

In terms of our guidance for the rest of the year, as Mackey mentioned, we are being cautious in our outlook.

We've chosen to keep our four-year guidance of a 12% increase in both revenues and earnings intact.

Looking forward to a record third quarter, with revenues in EPS expected to increase 12% and 10% respectively.

Now, the reason EPS will grow at a slightly lower rate than revenues relates to our tax rate which will be higher in the third quarter.

Last year's rate reflected some tax credits that pulled the rate down a bit.

In fact, operating margins should be strong and stable in the quarter, nearing the 16% level as I previously mentioned.

Mackey?

Okay, thank you, Bob.

That summarizes our very positive result and our very confident outlook.

We'll now open it up for questions.

(OPERATOR INSTRUCTIONS)

Our first question comes from Bob Drbul of Lehman Brothers.

Hi, good morning.

Good morning, Bob.

Couple of questions for you.

First, overall, when you look at the SG&A expenses for the quarter, can you just maybe discuss how the numbers played out versus, like the differences in last year versus plan?

It just seems like it came in a little bit better than expected and sort of where that performance really came from in the aggregate.

Was it marketing, was there a change in marketing spend or anything like that that is worth noting?

There weren't those kinds of changes.

Bob, the most important thing in the quarter was the gain on the HIS transaction, had a fairly significant impact on the quarter alone.

In fact, it reduced the expenses by about 60 basis points.

Got it.

Okay.

So that was, that was a big factor.

Okay, and can you elaborate little bit more on the inventory levels up 17%?

You talked about just heavy shipping and some of your customers and trying to maintain it that way.

Can you just maybe give us a little bit more color around the products that are in there?

Is it basic product?

Is there more, any of the fashion element product in that as well?

Yeah.

No, it is more basic product.

What we did was we just beefed up the levels a bit to make sure we were servicing the needs.

Last year we could have used a bit more frankly, so, again, to assure service, more of that is in outdoor as well.

You know, it's a bigger piece.

So, again, yeah, we're very comfortable that they are not -- there's no issue relative to the inventories.

They remain very, very clean.

We just increased the levels a bit.

And as I said, by the end of the year, in other words, after these heavier shipping periods, by the end of the year, our days, you know, you'll see better comparisons by that point in time, again, after these large shipping periods.

Okay, great.

Thank you very much.

You bet.

And we now have a question from Brian McCall of Morgan Stanley.

Thanks a lot.

I guess just -- I would say that I encourage you to have Fergie on one of your next analyst meetings.

(laughter)

One thing I wanted to ask about is over the past quarter, I guess Wal-Mart has cut their U.S.

square footage growth from 8% down to 4%, and it sounds like you guys now in your business are really starting to leverage a lot of infrastructure investments over there and it's helping margins, but as you look out over another year or two years as it relates to U.S.

jeans space, specifically, what are you thinking as far as how the overall market dynamics might change?

In the mass channel, Brian?

Yes, yes.

Our target for growth in the mass channel, as well as for our domestic denim business, is kind of low single digits and we're confident that with the team we have in place and the brands we have in place and the opportunities we have to extend our brands to new categories, that we can accomplish that while there are market changes and we've been doing that pretty consistently as the market has changed and our customers have changed strategy over the last two or three years and there have been substantial changes in the last two or three years and we've delivered that.

We can continue to deliver that going forward.

Okay.

And then I guess just another question is that on the European business, not only Jeanswear, which is doing great, but also outdoor, there's, there's a currency benefit there and I guess a lot of people might think you're just going to flow that right through the P&L and print it and I'm wondering how much of that you're doing versus how much you're going to take and actually reinvest back into the business in order to fuel growth in the outer years.

I don't know.

I'll let Bob think about if there's a specific number.

I will tell you that our emphasis in our international business is to have them be a key growth driver for us going forward and we're making substantial investments in our brands there and in owned retail to continue our growth trend.

That is our number one priority.

And as part of the international team over there, they are also responsible for Asia, where we're also making substantial investments.

We make healthy operating margins from our international business, and already, and as we're getting gains, we're trying to plow them back to secure our future.

Only thing I would add to that is a little perspective around that currency benefit in the quarter was about $0.01 a share.

Okay.

And then I guess lastly, Bob, on the balance sheet, it just looks exceptional.

We're starting to see a lot of companies now, however, like your Home Depots of the world, who are materially increasing their debt leverage even if they sacrifice rating and their return on the capital back to shareholders.

And you guys are starting to go the other way, I guess, as your leverage comes down and down.

Can you talk just about how you guys have been, have you been thinking about that, whether it be at a board level or amongst yourselves, and whether that might change at all over the upcoming 6 to 12 months?

Brian, right now, you know, again, as we've been very, very consistent with this, we've continued to see a number of opportunities related to investing our dollars against acquisitions, again, which has been what we have been seeing and we continue to look at those kinds of opportunities.

So, so at this point in time, we believe the (inaudible) of our shareholders are best served and we think that our track record related to the acquisitions has proven that.

That's the way we would like to put our balance sheet to work for us against the right kinds of investments that provide us with the long-term top and bottom line growth.

Okay.

Okay, guys.

Thanks a lot.

You bet.

Thanks, Brian.

Our next question comes from Jeffrey Edelman of UBS.

Thanks.

Two areas of questions.

One, Eric, you talked about the good performance in retail overall.

Could you give us some sense how your recent store openings have been performing, kind of on an overall basis, in line a little better?

And what you're learning from some of the opening of some of the newer types of stores.

That's, Jeff, that's a broad-based question because we're opening stores in lots of places.

I will say that in total, our owned retail stores get to our targeted operating margins, if that's one of your questions, very quickly.

So from a profitability standpoint, the stores that VF has been opening over the last few years, by and large, have been successful and collectively are achieving our corporate targets for operating margins.

On a comp store performance basis, because of the kind of stores we're investing in primarily and our biggest investments have been in Jeanswear in Europe and Asia, in Vans in the U.S., and in the North Face, that's where the biggest investments in stores have come.

Those stores are achieving comp store growth rates in the mid single digits: I'm sorry.

Mid double digits.

Okay, great.

Thank you.

And Bob, I believe at one time you had said you were comfortable with a longer-term targeted long-term debt to capital ratio of around 40%.

As you look at your business and cash flow now, what, what do you think would be an appropriate target, and then just a follow-up to that, would you expect to be maintaining the current dividend payout ratio?

Thank you.

Yeah, Jeff, you're right on the 40% and we -- actually we continue to believe that the 40% is the right target for us.

That's how we look at it internally, but what we've also said is given our very, very strong cash generation that for the right opportunities we could and have, not often, but have in the past, levered up a bit over the 40% ratio.

So we still overall think that's the right opportunity to the prior question, you know, we're well below that at this point in time and that's obviously what creates the opportunity for us today.

Related to the, related to the dividend, what we've indicated there is that we will maintain our payout ratio above the 40% level at the time of the increase, that it was represented by about 44% was the payout, was the payout level, so again, committed to keeping that above 40%.

So the increase would be proportionate to do that.

Okay.

Thank you.

You bet.

Our next question is from Omar Saad of Credit Suisse.

Thank you, good morning.

Good morning.

I wanted to ask about the environment.

You kind of referred to some of your expectations or at least what you're baking into your outlook for the rest of the year, been more cautious, cautious expectations about kind of the consumer retail spending environment.

What are you seeing out there?

I mean you guys are such a big company, so many different channels and markets.

Can you kind of elaborate where you're seeing strength and where you're seeing weakness and what your biggest areas of concern are from an environmentals perspective in terms of the spending environment?

I think I got your question.

You kind of faded in and out, but just addressing the environment overall, we really are seeing no change in our specific changes in our existing businesses, existing brands.

We are certainly seeing and hearing, as you are, about the consumer confidence levels, some of their discretionary spending issues, pressures on their spending, and we're hearing about retailers being cautious about inventories going into back to school.

So those are the things that lead us to be a little more cautious.

Nothing really specifically within our business.

As we said, very healthy so far this year and healthy as we look out for the rest of the year, feel very good about the year actually.

So you're not seeing it, but you're kind of baking it in from a conservatism standpoint in terms of your outlook.

Exactly, exactly.

Okay, and then one follow-up question on earlier question on the SG&A spend.

Even if you add back kind of the one-time gain on the, on the gain on sale this quarter, looks like you still got a little bit of leverage in the SG&A and kind of in past quarters you have made comments where we're really taking this opportunity to strengthen our business to invest behind our key growth vehicles and if you kind of look over the last several quarters, you have been -- that's been one of the reasons why you have not been getting leverage on your sales growth, which is great invested behind those growth areas, but just want to, kind of wanted to reconcile what we saw this quarter, even after you add back the gain and are you looking to get a little bit more leverage on the spend going forward?

Well, we did, we did in this quarter.

Again, it's a little bit of an unusual quarter, as you know.

It's our lowest revenue quarter for the year, but I can tell you in the -- we actually drove a higher percent in those areas that are experiencing the higher growth rates.

So, so from a mix standpoint, there was actually about an 80-basis point increase in the SG&A relationship caused, just caused by the mix.

So we are continuing to invest heavily in those, in those opportunities.

What I can tell you, though, is that our rate in the quarter, in other words, more in our heritage businesses, was down a bit.

Perfect, thanks.

You bet.

And we now have a question from Kate McShane of Citigroup.

Good morning, thank you.

Is the HIS divestiture a sign that you're looking for other opportunities to divest brands?

Other opportunities for what, I'm sorry?

I'm sorry.

To divest brands?

Should we read anything about the HIS divestiture, as maybe a slight change in strategy to look at divesting more brands out of your portfolio?

We're getting a little bit of a broken transmission here, but as far as divestitures, we continue to look across our businesses.

We certainly don't see any large pieces of our business now that aren't performing.

As we talked about, all of our businesses are performing, but within those businesses we look, such as the HIS brand, that we recently talked about, we continue to look at smaller pieces of the business that aren't performing and if they, if the return on investment required to get them up to our performance levels, we will continue to have some divestitures, but nothing that we see major at this point.

Okay, thank you.

Our next question comes from Virginia Genereux with Merrill Lynch.

Hi, this is Rick Patel in for Virginia.

Thanks for taking my question.

So for EPS in the third quarter, I know you're expecting an increase of 10% over last year.

If I recall correctly, last year you were opening up some distribution centers for North Face, so I would have thought there would have been an easy compare there.

Taking into account there's a tax rate issue, are there any other investments going on in any particular areas?

So you're speaking specifically related to the margin or to the EPS increase?

The EPS increase, just to speak to that, is being held down by some, some tax credits that we had in last year's third quarter.

So--

So otherwise, you know, otherwise you would see, you would see a stronger comparison on EPS line.

It was $0.03 or $0.04 worth.

Okay.

Again, these were credits realized and recognized in last year's quarter that don't repeat in this year's third quarter.

Okay, great.

And can you talk a little bit about idle capacity at your manufacturing centers?

Does your outlook take into account any idle capacity as retail maybe pushes back some orders or changes some of their buying patterns?

What happens is relative to our own manufacturing, and we actually use, we use other pieces of our total sourcing scheme to balance out, to balance out our needs.

So we keep our plants running full, so if we see any reduction that will come out from somewhere else, not in our own plants.

Okay, great.

Just lastly, can you give us an update on the door count, specifically at Vans and North Face?

On the number of doors that we have?

Yes.

I will tell you for this year -- I'm not sure I have a total door count here in front of me.

I know for this year we're opening 19 Vans doors this year and we're going to open an additional six North Face doors, bringing that total count to around 24.

For the full year we're going to grow to about 600 doors.

Okay, great.

Thank you very much.

We have a question now from Jim Duffy of Thomas Weisel Partners.

Thank you, good morning.

Good morning, Jim.

Couple questions on the Jeanswear business.

Can you speak specific to the inventories in the Jeanswear business, Bob?

Yeah, the inventories overall in Jeanswear are actually in pretty good shape and relatively consistent with where they have been.

So, again, no -- really not an issue there and no issues relative to quality of the inventories or anything like that.

Okay, and then relative to your Jeanswear sourcing, there was a recent report that you're closing a Malta plant.

Can you speak to the geographic mix of your sourcing as it stands now, and any opportunities for further consolidation of sourcing going forward?

Yeah, that, that -- the Malta plant was totally producing for our international jeans business.

So that production will shift to some lower, lower cost locations actually around the globe.

We try to spread that out pretty well.

Is there a lot of opportunity remaining for that to continue to happen with other plants around the world?

Not so much actually.

Not so much from that standpoint relative to our own manufacturing; at this point in time we're pretty pleased with what we have in our own plants continue to give us a benefit over opportunities or costs that are available elsewhere.

Okay.

And then Bob you mentioned something that was interesting, the impact of our international growth on the working capital metrics, particularly the receivables.

Right.

As this international continues to grow as a percent of the mix, would you expect that to continue to have an inflationary impact on DSO's, or is there some offset there that can help you work down receivables?

Yeah, it was -- this was a particularly strong quarter in terms of our European growth, so it had an unusually strong impact overall.

As our European business grows, however, it would push the days up a bit.

But again, the difference that we saw in this quarter, given the 33% growth in Europe was unusual, was stronger than we would expect to see on a go-forward basis.

But overall, the days as our European business grows and becomes a bigger part of the overall mix, we have said we expect our international businesses could represent 30% of our total in just a couple days.

Our days could expand a bit.

Very good.

Thanks very much.

You bet.

We have a question now from Angelique Dab of Nollenberger Capital Partners

Good morning.

Good morning.

As you look to the back half of the year, what's the percentage of the business that you expect to be able to do on a replenishment basis and what is your assumption for that replenishment sale incorporated in the top line guidance that we received today?

As we look at replenishment overall, we are somewhere in the 50% area with our replenishment in our heritage businesses, and then a lot of our life-style businesses are much less from a replenishment standpoint, more a one-time order basis.

But not a significant change.

No.

Anticipated over the second half of the year versus what we have seen.

Okay, thank you.

Okay.

(OPERATOR INSTRUCTIONS)

We'll take our next question from Robert Samuels of J.P.

Morgan.

Hi, good morning.

Could you just talk quickly about the current acquisition environment and sort of, you know, how you guys view things going forward?

Are you still looking to increase your exposure in the direct, in the direct business?

Yes.

As far as the environment, continuation of the same would be the way I would describe it, still very competitive, still lot of private equity money out there.

At the same time, we do feel that there are opportunities that fit us extremely well.

Our focus continues to be life-style brands, particularly brands that are targeted in areas that we don't currently have a strong position in either categories, in the outdoor or sportswear area.

We also are looking for global brands.

We're looking for brands that have growth potential.

We're not just bulking up, but we're looking for brands that can grow at high single to low double-digit rates after the acquisition, and direct, either direct capabilities or the potential to be a direct to consumer brand is another criteria we look at.

Great.

Thanks very much.

Okay.

And at this time, we have no further questions from the phone lines.

I'll turn the conference back over to Mr.

Mackey McDonald for any closing or final remarks.

Okay.

Thanks for joining us today.

As I said, we are very pleased with the results and very confident about the future of VF Corporation.

Thanks for joining us.

That does conclude today's conference.

We thank you for your participation.

Please have a good day.