威富公司 (VFC) 2007 Q4 法說會逐字稿

Good day, and welcome to the VF Corporation fourth quarter 2007 earnings conference call.

Today's call is being recorded.

At this time, I'd like to turn the conference over to Mr.

David Griffith of ICR.

Please go ahead, sir.

Thanks, Tom.

Good afternoon.

And thanks for participating in VF Corporation's fourth quarter 2007 conference call.

By now you should have received today's earnings press release.

If not, please call my office at 203-682-8200 and we'll get you a copy immediately following the call.

Hosting our call this afternoon is Mr.

Eric Wiseman, President and CEO of VF.

Before we begin, we'd like to remind participants that certain statements included in today's remarks and the Q&A session may constitute forward-looking statements within the meaning of the federal securities laws.

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

Important factor that could cause the actual results of operations or financial condition of the company to differ are discussed in the documents filed by the company with the SEC.

At this time, I'd like to turn the call over to Eric Wiseman.

Thanks, David, and good afternoon.

Thank you all for joining us today to discuss another record quarter of performance for VF Corporation.

Mackey will speak today to the highlights of 2007 and I'll provide some perspective on what we're currently seeing out there.

In addition to Bob Shearer, our Chief Financial Officer, we also have our coalition leaders with us today, each of whom will spend a few minutes discussing their 2007 results and their outlook for 2008.

I'll turn the call over to Mackey.

Thank you, Eric.

2007 was an exceptional year for VF with achievements in many different areas.

As you saw in this afternoon's release, 2007 marked our fifth consecutive year of record revenues and earnings.

And we passed the $7 billion mile mark in revenues for the first time in our history.

Our fourth quarter results came in even stronger than we had initially anticipated which in this market underscores what you can do when you have great people managing great brands.

To reemphasize our fourth quarter performance, revenues were up 22% while earnings per share rose 18%.

Our prior guidance was for revenue and earnings per share increases of 18% and 13% respectively.

We also substantially exceeded our guidance for cash flow from operations which hit a record $834 million in 2007.

During the year, we significantly enhanced VF's portfolio businesses, selling our intimates business, completing the acquisitions of four growing brands and creating contemporary brands as a new growth platform.

We also enhanced our capital structure and liquidity through our debt financing.

We've been very focused on building the talent and infrastructure needed to support future growth particularly in critical areas such as international and retail, and 2007 was no exception.

More than anything else, it is the exceptional leadership in our businesses and our operations that made our success possible in 2007.

Thanks, Mackey.

As you know, we had an investor meeting and webcast back on January 9th.

And at that meeting, we raised our five-year growth targets and provided our initial guidance for 2008.

I'd like to start today's call by taking just a few minutes to go over the main questions we've been hearing since that meeting.

First question which will come as no surprise is, just how bad is it out there?

Well, there's no question that the current environment is very challenging.

It was challenging during the fourth quarter and we expect it to continue to be difficult.

All of you noted the December retail sales reports which were anything but positive.

We're coming off a highly promotional holiday season and our customers are planning very cautiously for 2008, but we're not seeing any unusual amounts of order delays or cancellations.

We worked closely with our retail partners to develop more conservative plans that we and they believe are achievable for 2008.

The headwinds are out there and they're affecting some of our businesses more than others.

But they haven't stopped us from delivering strong results overall, and we believe we will continue to do so.

Second question, do we expect things to get better, stay the same, or get a lot worse?

We're not planning any big recovery in 2008.

We've taken into account the difficult environment and planned accordingly with what we believe is an appropriate amount of conservatism.

Next question, are we seeing our international businesses affected by the trends here in the U.S.?

The answer to that's, no.

We posted a 30% gain in international revenues in the quarter, 20% adjusted for currency and our international leaders continue to see plenty of opportunity for growth.

And finally, what makes us think we can deliver 9% top line growth and 10% bottom line growth in 2008?

And the answer to that lies in our uniquely diversified business model.

We have tremendous diversity in terms of our brands, our products, our channels of distribution and our geographies.

We have powerful brands with room to grow and experienced people in place to drive that growth.

I would remind that you the 5% organic growth we're planning in 2008 is below what we achieved in 2007.

So we're clearly not immune to what's going on out there and of course the year has just begun.

And we'll have greater visibility into both the upsides and downsides to our plan as the year progresses.

Now to give us some more color on the fourth quarter results, here's Bob Shearer.

Thanks, Eric.

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

Our coalition leaders will provide more perspective on their businesses, so I'll keep my remarks to a few key areas I know will be of particular interest to you.

In terms of our revenues in the quarter, we did exceed our prior guidance with revenues up 22% versus the 18% we originally forecast.

The upside came from our outdoor and contemporary brands coalitions.

Next, there were two items that affected our results that were not included in our prior guidance.

First, we realized a tax credit related to the settlement of an open tax year of a foreign operation that reduced our tax expense by $12 million.

That benefit was worth $0.11 per share.

This tax credit allowed us to take a number of specific actions, primarily within our international jeanswear operation, to strengthen our sales and marketing organizations and maximize efficiencies within our distribution infrastructure.

Total expenses incurred in the fourth quarter related to these actions were $13 million, worth $0.09 of which $8 million related to those described within our jeanswear coalition.

The remainder of the spend was spread across various businesses and was not material to any one business segment.

Now you might recall that we had a similar tax credit in 2006 which added $0.15 to EPS in the fourth quarter of last year and similarly last year we put those tax credits to work for us in a number of areas.

The expenses incurred in the 2006 quarter represented $0.12 per share.

So that the benefit of the tax credit net of the spending was $0.03 per share last year versus the $0.02 net benefit in the current year's quarter.

So you can see the impact of the tax credits reflected in our tax rate for both periods, which were lower than those we reported during the first three quarters of each year.

Expenses in both years are reflected in the individual coalition results as reported in the segment data that's attached to the press release.

Now, obviously, the incremental spending did impact jeanswear margins in the quarter, but I remind you that last year's jeanswear margins were also impacted by expenses totaling $14 million related to restructuring activities.

Despite these expenses, our global jeanswear businesses continue to deliver very healthy margins and very strong cash flow.

And these actions were taken to assure their solid P&L and cash generation performance going forward.

So these two items, the tax settlement and the related spending actions, nearly offset each other when comparing year on year performance for the quarter and full year.

Now, gross margins in the quarter improved slightly to 43.5% from 43.2% due primarily to the beneficial mix impact from our lifestyle businesses representing a higher percent of total sales along with the impact of acquisitions completed during the past year.

Relative to operating margins, the improvement in the operating margin of our outdoor businesses reflects the global strength of our outdoor brands along with our ability to leverage business within these fast growing businesses.

The improvement in our jeanswear operating margins reflects increases in both our U.S.

and international jeans operations.

In addition, our newest coalition, contemporary brands, posted a strong operating margin in their first full quarter for VF and provided a stronger than anticipated gain in EPS for the quarter.

In terms of sportswear, the decline in operating income was greater than we had anticipated.

As noted in the release, the decline relates to high levels of promotional activity in our Nautica brand particularly in their outlet stores and to a lesser degree in department stores.

That's likely not a surprise to those of who you closely follow this retail sector.

As to the decline in our imagewear operating margin, it's due to the Majestic Athletic acquisition where fourth quarter margins are lower than the coalition's average.

Without Majestic, margins would have been flat with those of the prior year's quarter.

Majestic is a highly seasonal business and this business's fourth quarter profitability is significantly below its annual averages.

And while these results were as anticipated, improving the profitability of Majestic remains an opportunity for us and we expect to make progress in this area in 2008.

Interest expense in the 2007 quarter was up about $11 million due to borrowings related to acquisitions.

And I've commented already on the tax rate in the quarter and the credits that benefited us there.

Now, turning to our cash flow and balance sheet, the real standout here is our cash flow from operations.

As you know, we'd originally targeted $625 million in cash flow from operations and in fact achieved $834 million.

This stronger than expected performance was a result of focused attention on working capital levels as well as our overall strong financial performance for the year.

This is an all-time high from a cash generation standpoint for VF, actually by a fairly wide margin.

And our balance sheet remains in excellent shape.

Inventories were up 19% versus the 22% increase in fourth quarter sales.

The majority of the increase in inventories resulted from the acquisitions made during the year.

Increases in inventories of organic businesses were well below comparable sales increases.

We are comfortable with the quality and quantity of inventories that are both reflected on our balance sheet and our brands inventory levels at retail.

Cash in the balance sheet at year end was $322 million which also points to our financial health when you consider that we spent over $1 billion on acquisitions in 2007, increased our debt by less than $500 million, paid a healthy dividend and kept our cash on hand at near prior year levels.

Now turning next to our guidance.

To reiterate what we said on January 9th, we expect the year 2008 revenue growth to be 9% and EPS growth to be 10%.

We expect 5% organic growth on the top line with the balance coming from our 2007 acquisitions.

Now I'll let our coalition leaders speak more to their plans for 2008, but we do expect to see organic growth in each coalition in 2008 and higher operating margins in nearly all our businesses.

We did point out in our release that we expect sportswear to be relatively flat with '07 levels.

During 2008, we're making a variety of investments to strengthen the Nautica brand as well as to support the ongoing growth we expect in our Kipling U.S.

and John Varvatos businesses.

And of course, we expect the conditions in the department store sector will continue to be challenging, which is also reflected in our margin expectations for sportswear.

Now in terms of our first quarter guidance, we expect to continue our strong performance with increasing revenues of 8% to 10% and growth in earnings per share of 8% to 10% as well.

Those expectations are in line with our new long-term targets.

As noted in the release, revenue and profit drivers for the quarter will be our outdoor and imagewear businesses, as well as from our new contemporary brands coalition.

Jeanswear and sportswear contributions will likely remain more challenging, based on our expectation that conditions in the mass market, mid-tier and department store channels of distribution will remain challenging.

We're looking for another very strong year of cash flow from operations, which could exceed $700 million.

In terms of our plans for share repurchases, we currently expect to repurchase two million shares in 2008 and expect to complete this repurchase by mid-year.

To date, we purchased 500,000 of the two million shares.

Given our strong cash flow and our depressed share price, we will continue to revisit the opportunity for share repurchases and balance any decision in this area against acquisition opportunities which continue to be a priority for us.

And finally, just wanted to cover a few miscellaneous items.

CapEx should be up from $145 million this year, up from $114 million in 2007.

Obviously, our spending plans include a significant investment in our own retail operations.

Depreciation and amortization should be in the area of $160, million while our tax rate should approximate 34%.

Eric.

Thanks, Bob.

And now we're going to have each of our coalition presidents provide a perspective on 2007 results and the outlook for their business in 2008.

We'll start today with Dave Gatto, President of our Outdoor America's Coalition.

Dave?

Thanks, Eric.

The Outdoor Americas had another very solid year growing revenues by 24% with even higher growth in operating income.

We're pleased with the progress of all of our brands, but particularly delighted by the strength of our two largest brands: The North Face and Vans.

In addition, our growth in 2007 benefited by 11 months of results from the Eagle Creek acquisition.

But even without Eagle creek, our business was up about 20%.

Despite well-founded concerns about the economy and consumer spending, we also delivered an outstanding fourth quarter with revenue growth of over 30%.

I think that is a real testament to the power of our brands and the great people behind them.

Although 2008 poses some challenging economic times, I'm looking forward to our strong brands continuing their success.

The North Face brand continues to show impressive year-over-year revenue growth of higher than 24% our coalition achieved in average, with solid double digit gains in both wholesale and retail businesses.

I should note that we opened five new full priced retail stores in locations that complement our wholesale business and to date these stores have exceeded our plan.

Fourth quarter growth for The North Face was even stronger with growth across all segments of the business.

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

Moreover, our backlogs for spring, summer and fall are up solid digit double growth and are in line with our expectation.

Finally, we look forward to launching our own The North Face e-commerce website in early fall.

Vans also enjoyed another record year with its wholesale and retail businesses both up more than 20% and even stranger increases in wholesale footwear and wholesale apparel segments.

We are pleased with our momentum in apparel and look to add to the product line's breadth in 2008.

We opened 20 full-priced stores and two outlet stores in 2007 and have plans to slightly exceed those numbers in 2008.

Our first half backlog is comparable to last year's reflecting a more challenging environment where we're looking forward to another double ditched growth year from Vans.

Reef and JanSport both continue to drive success with their core consumers and we remain encouraged by the future potential.

But I should note and bear in mind that combined these two brands account for less than 20% of our coalition's revenue.

Eagle Creek has transitioned into our coalition and has achieved its revenue plans for the partial year 2007.

Growth in Eagle Creek backlog for 2008 is slightly greater than our planned revenue growth and we are pleased with the early results of this acquisition.

Our strong momentum is continuing and though I expect 2008 to be more challenging than 2007, I'm also very confident that it will be a successful one for our outdoor brands.

Thanks, Dave.

Now let's hear from Karl Heinz Salzburger, who has responsibility for both our international outdoor and jeans businesses.

Karl Heinz?

Thank you.

Let's start with international outdoor.

'07 was another very successful year with revenues increasing 35% and all plans showing double digit growth.

2008 should also be a very successful year for us with double digit growth again expected across all our major brands.

Our fourth quarter was also very strong with revenues up 28% versus the same period last year.

The North Face brand, our premium [technical] novelties outdoor apparel brand, continues to be our primary revenue driver, with revenues up over 30% in '07.

During the year we open one additional owned store, 10 new partnership stores and 42 shopping shops.

We're looking for strong growth in '08 as well.

In addition to continued growth in Europe, we're also building our business in Russia.

'08 will be the first full year of owning The North Face brand business in China and we expect to nearly double our business there this year.

Napapijri, our high end outdoor inspired brand continues to be one of our fastest growing brands with revenues also up over 30% in 2007.

During the year, we opened two new stores in Europe and three in Asia.

New store openings for 2008 in key European cities such as Milan and Madrid.

Vans continues to do very well, with revenues up over 50% in '07.

Growth in 2008 will come from expanding our apparel business, new retail store openings and new geographies.

We're looking forward to launching Vans in China this fall.

Kipling is also a success story with revenues up over 30% in '07.

In 2008, strong wholesale performance as well as retail expansion will continue to drive this brand's result with one new owned store and 33 partnership stores planned.

Looking across our outdoor brands, as we look forward to another very strong year in '08, our focus would be on three areas: geographical expansion, product diversification, and category extension and the retail initiatives.

Geographical expansion would continue to be focused on important emerging markets such as Russia, China, Japan, Korea and India.

Product diversification will also play an important role in our growth.

Specific apparel lines would prefer to develop and enhance for Eastpak and Reef, with a period has had positive feedback on its footwear launch and growing (inaudible) footwear business continues to be a big initiative for us both in U.S.

and abroad.

One of our major build (inaudible) momentum and visibility is our retail program.

A total of 12 new owned stores and 54 partnership stores we opened in '07.

Being the total for outdoor international brand portfolio for 36 owned stores and 192 partnership stores.

In '08, stores have plan to be open for major European and Asian cities including Amsterdam, Madrid, Milan and Beijing in China.

Now I'll turn for a moment to our international jeanswear business.

2007 was a good year for our international jeanswear business with an increase in revenues of 13%.

The fourth quarter was similarly positive with revenues also up 13%.

This performance is due to the good results we have had both in Europe and Asia, particularly in China, Scandinavia, Russia and Eastern Europe.

2008 should be another year of healthy growth for both our Lee and Wrangler brands.

Foreign currency complication did contribute to the strong gain in the fourth quarter but our Lee and Wrangler businesses were up on a constant currency basis in Europe.

Our Lee brand had a strong increase in revenue of 15% in Europe in '07.

Under new leadership we will significantly strengthen the brand positioning, building off lifestyle brand values.

Both consumers and the media have given the Lee brand important recognition.

The brand was voted the best denim brand of the year by (inaudible) readers and was also cited by "Vogue" magazine as the brand with the most innovative media campaign.

Each of our initiatives continue to play a major role in the branch growth strategy with stores open in European cities, such as Amsterdam and Cologne, Germany, and also in Asia, we do opening of stores of Shanghai, Beijing and (inaudible).

Wrangler, our other core brand, has also shown very good results with a 13% increase in European revenues in '07.

Our new winter collection has received positive initial reactions from our first presentations to the European sports and key accounts.

During '07 we also began to work with Seven for all Mankind brand.

The integration of the brand onto our VF international platform is ongoing and the outlook for '08 is positive.

Key markets in Europe, Frankfurt, Germany, and the UK, as well as the Asia Pacific region.

The Asia Pacific region continues to be an area of great opportunity for us in both our outdoor and jeans businesses.

While still modest in size, our jeans business was up nearly 50% in China and over 35% in India in '07.

The highlights during the year included the conversion of The North Face to an owned business in China, the establishment of a joint venture for Napapijri in Japan and double digit growth for our Kipling brand in the region.

We also have established a strong leadership structure to support the growth of our key brands in the coming years.

Thank you, Karl Heinz.

Now Angelo LaGrega will comment on the Jeanswear Americas business.

Angelo?

Yes.

Thank you, Eric.

First I'd like to thank all the Jeanswear associates for 2007.

Very proud despite a very soft retail environment, however we grew slightly and we leveraged our scale to deliver significant profit increases.

Our (men's) division delivered the strongest revenue performance and along with the Lee division continued to gain share with our key retailers.

Our gross margins were up, our SG&A expenses were down and we had (inaudible) of our inventories all of which led to a significant profit and cash flow increase for the coalition.

In 2007, we continue to see growth in our Wrangler brand where we not only integrated the core to gain share but we're also extending it to new categories through the segments to such a lot of Wrangler tops and Wrangler outdoor which has been very successful.

In addition will make bigger, smarter investments in the brand, leveraging campaigns with both Brett Favre and Dale Jr.

I believe we face difficult divisions in our mid-tier department store that impacted our revenues particularly in the fourth quarter.

But we feel very good about our efforts to strengthen the brand through superior marketing communication.

Additionally, our best of class product innovation is helping us gain market share.

We're gaining market share in our core businesses, particularly in the female area and believe we can leverage these successes to extend to more fashion forward consumers and new channels such as department stores and direct to consumer.

Domestically speaking, we believe we're well positioned for additional market share gains in 2008.

A couple words on our fourth quarter performance.

Give than retail was very challenging throughout the holiday season as fears of a recession loomed over America, we think we did okay in the quarter.

Revenues were about flat with the prior year, but we saw strong performance in our mass division.

Also, SG&A costs and inventories were down leading to problems in cash flow increases.

Our current inventories are in excellent shape.

The first quarter will be particularly challenging on both the top and bottom line given the retail conditions on both the mass and retail stores.

Despite current market conditions, we believe we can grow market share in our core businesses and extend to adjacent consumer segments and new channels in 2008.

We've innovated our core businesses with new programs such as (inaudible) and slender secret.

We're increasing our consumer deluxe selling efforts and leveraging our brands to new channels.

Additionally, we'll continue to support our business with increased investment in our flagship brands and enhance marketing sciences and recognizing that having the right people in the right positions is pivotal to our plan of success, we are broadening our talent base to drive further growth.

All in all, we believe we have a solid [type off] of long-term growth, we are making appropriate investments in our [powerful] brands to support our growth initiatives.

Our strategies are well grounded with deep consumer insight.

And therefore we will deliver the profits and cash flow our shareholders expect.

Thanks, Angelo.

Now let's hear from Denise Seegal, President of our Sportswear Coalition.

Denise?

Thank you, Eric.

2007 was a mix of positives and negatives for our sportswear coalition.

On the positive side our two smaller businesses, Kipling and John Varvatos, continue to grow rapidly.

Revenues of our Kipling business in the U.S.

rose more than 35% in 2007 as we continue to grow our department and specialty store distribution.

Our John Varvatos brand grew at a similar strong rate with growth in our wholesale owned retail stores and licensing businesses.

However, the Nautica brand clearly faced challenges, particularly in the second half of the year as the retail environment in department stores became increasingly challenging with a 4% decline in revenues for the year.

These factors resulted in 2007 revenues for our sportswear coalition being flat with 2006.

Full-year 2007 operating income in margins decreased from prior year levels again due to a particularly difficult second half for our Nautica brand.

The profit reduction was driven by Nautica volume decline in a very promotional environment, particularly in the fourth quarter.

While not impacting the comparison, operating margins also reflect the continued investments we're making in our women's sportswear business.

In terms of the fourth quarter, revenue was up in all of our brands and up 6% overall as a department store calendar shift which we told you about in the fourth quarter swung back in our favor.

As Bob already noted, the decline in operating profit relates to higher levels of promotional activity particularly in our owned Nautica outlet stores.

Turning now to 2008, we will continue to focus on initiatives to elevate the Nautica brand including activating the new elevated brand positioning across multiple product categories including [Halo] product and this effort will be led by our creative director that we brought on last year.

We also change leadership and key positions to support this effort.

We are also launching e-commerce in February '08 and investing incrementally in men's sportswear marketing.

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

In men's sportswear we will continue to maximize our successful knit power products, the deck shirt, in solid and stripes for spring and Father's Day followed by the launch for fall '08 of a new twill anchor pant, true khaki, and a new core woven program to grow share in these important categories.

In men's jeans, we are overhauling our tops to align with the core Nautica brand essence.

We've infused spring '08 with more crisp, clean, colorful and bold shorts and tops including the [keel] shirt, a knit shirt for a younger consumer.

We will also launch the deck shirt in women's sportswear as we focus on a more casual product offering.

In the outlet business, we are creating more innovative fashion-right product across all categories, and we are reducing cold weather products in the second half in favor of more wear now products including wovens, knit tops, pants, denims and lightweight outer wear.

John Varvatos will enjoy another year of significant growth driven by the continued expansion of the John Varvatos Star USA collection to over 180 doors in the U.S.

and Europe.

We planned to open four new stores in 2008 bringing the total to nine including San Francisco and a second New York City store in the location of the former CBGB Club in the first half.

Licensing will continue to build including the launch of a women's fragrance.

With the Kipling brand, we plan to continue to aggressively grow out department and specialty store business.

In 2008, Kipling will be distributed in over 300 department stores in the U.S.

We will continue to invest in the brand to increase brand awareness and build on the brand momentum created this year with the Fergie for Kipling promotion.

2008 will be a transition year for the Nautica brand as a new brand positioning begins to take hold.

We are confident that this will be another year of strong growth for the Kipling and John Varvatos brands.

Thanks, Denise.

Next up, Ed Doran, President of our Imagewear Coalition.

Ed?

Thank you, Eric.

In 2007, the imagewear coalition recorded a fifth consecutive year of both top and bottom line growth primarily driven by the Majestic Athletic acquisition as well as organic growth in our license sports business.

In 2007, imagewear a 19% revenue increase, to $988 million as well as a 6% increase in operating income.

The imagewear coalition is composed of two unique business models.

In our image business, we do not sell to traditional retailers.

Rather we sell our workwear unifiorm products through distributers, industrial laundries, retailers, add specialty houses or direct to launch corporation, where we develop and manage their uniform programs.

Some of our main customers include Federal Express, AT&T, T.S.A., Continental Airlines, American Airlines, U.S.

Customs and Border Patrol, the Fire Department of New York and many others.

The other business is our activewear business where we develop and manage some powerful lifestyle brands with exclusivity in our challenge of distribution for the National Football League, Major League Baseball, Harley Davidson, NASCAR, NHL, NCAA, the NBA, ESPN, as well as our newest company Majestic Athletics.

We acquired Majestic Athletic in March 2007 and they are the exclusive on-field provider of all major league baseball uniforms and other apparel items.

Relative to the fourth quarter, imagewear achieved a 21% revenue increase.

On an organic basis, revenues were up 3% with growth in both our image and activewear businesses.

Operating income increased 5% in the period.

As Bob mentioned previously, margins were down reflecting the Majestic acquisition, but we continue to see opportunities to improve our margin in this business.

2008 will prove to be another growth year for the imagewear coalition.

We expect middle, single digit growth despite the current business climate and a continued soft outlook for manufacturing jobs.

Imagewear expects to again deliver record profitability and we expect increases in all of our major businesses.

And in order to accomplish this we have several ongoing key initiatives in 2008.

First, we are going to continue to build on our mission statement of customer first, which has been the foundation of our success for the past five years.

Division of customer first is to truly understand the end use consumer of the industry or corporation or a league and then providing them with the right brands, the right products, the right services and the right technology that best meets their changing lifestyle.

Second, we're going to drive even more league exclusivity in our license sports business.

The addition of the Majestic brand brings a powerful new weapon to the imagewear coalition.

That opens up additional opportunities and new channels and new markets.

We are also encouraged by the growth we've experience and the NFL and Harley Davidson business.

And we look forward to developing and growing our newer brands such as Majestic as well as our ESPN apparel business.

At the same time we'll continue to look for more opportunities that fit our licensed sports model.

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

As you know, VF is known for its retail floor based management capabilities.

In 2007, we expanded the scope of our retail floor based management program at our major customers.

This expansion will continue well into 2008 and we expect continued outstanding results.

And finally, we are launching our new business platform capabilities that leverage growth markets such as hospitality, where we sell to hotels and motels as well as adding significant value to our existing uniform occupational markets where we participate.

And as always, we will continue to search for strategically opportunistic acquisitions that compliment our core growth.

The imagewear coalition is very proud that we have developed two business platforms that focus on product innovation, exclusivity, outstanding service to our customers and most importantly we have great people to execute division of customer first.

Great.

Thanks.

Let's wrap up with a few words from Mike Egeck, who heads up our new Contemporary Brands Coalition.

Mike?

Thanks, Eric.

As you saw in today's release, our new contemporary brands coalition has gotten off to a good start.

Despite the challenging retail environment, both Seven for all Mankind and Lucy's finished a solid year with a very strong fourth quarter.

As you know, VF has only owned these brands since last August, but compared with last year's fourth quarter, the combined revenues of the two brands grew 43% with even stronger growth in operating income.

Both top and bottom line growth were well ahead of internal acquisition plans.

Similarly on a full-year basis, brand revenues were up 35%, driven by a 50% increase in the Lucy brand inclusive over 12% comp store increase and a 32% increase in sales for Seven for all Mankind.

The growth in both brands is the result of a strict focus on executing our major growth initiatives.

Those initiatives are: growth in the core Seven for all Mankind denim business as we continue to gain market share in a consolidating segment, extending Seven for all Mankind product into sportswear and bags and accessories, additional retail stores and ecommerce growth for both brands.

In 2007, the we opened 19 Lucy stores and the first of two Seven for all Mankind stores.

We plan to open a total of 25 new stores for 2008.

International growth for Seven for all Mankind.

Sales outside the U.S.

grew 42% in 2007 and now account for about 30% of total Seven for all Mankind brand sales.

And then finally, increased productivity and product margins for the Lucy stores.

In 2007 we made significant progress on each initiative and that progress is reflected in our results.

We will continue to focus on this list of initiatives in 2008, which we believe will yield additional strong gains.

We'd like to conclude by saying that the early read in 2008 for both brands is encouraging.

The new Seven stores are performing above plan, the Lucy stores are showing improved margins, and the Seven for all Mankind spring season order book is up in excess of 20%.

We are off and running as a part of VF.

Thanks, Mike.

That concludes our formal remarks.

As you've heard, we're certainly seeing some of the challenges out there, but we do think that the diversity of the brands within VF, the strength of our international business and the growth opportunities there, the broad scope of our product offerings and the many channels of distribution that we sell will really help us continue to meet our plans in 2008.

We'd now be happy to take any of your questions.

The question and answer session will be conducted electronically.

(OPERATOR INSTRUCTIONS) We'll take our first question from Jeff Edleman with UBS.

Thank you.

Good afternoon, and nice job to all of you.

Eric, you really did leave many areas for to us question.

You covered a lot of it in your opening remarks, but thinking about the outlook, just had one question maybe for Bob.

How much should we think of the new -- for this year the new store additions contributing in terms of incremental sales?

Jeff, are you talking about for the year '07?

No.

For '08.

If we're looking at 4%, 5% organic growth, how much of that do you figure would be generated from the stores that you opened in '07 until you anniversary them as well as the ones you expect to open in '08?

Jeff, I don't have that number specifically.

What I can tell you is that overall we expect retail to grow in the range of 20% to 25% for 2008.

As we said a piece of that of course are comp sales.

A piece of that is coming from the Lucy acquisition, for example, bringing others newly acquired sales which are all retail and then the remainder is in fact opening the stores.

And then just a quick one for Angelo, did you say the weakness in the nonmass merchant business in the fourth quarter was tied to one customer or was it just the overall softness in -- at retail?

Yes, Jeff, I said it was based on the overall softness in the channel.

Okay.

Great, thank you.

Thanks, Jeff.

We'll take our next question from Bob Drbul with Lehman Brothers.

Hi.

Good afternoon.

Hey, Bob.

I guess the question that I have on the inventory, I think you talked about half of it was from the newly acquired acquisitions.

But I guess, as you look at the inventory increase in your first quarter revenue expectations, are there any concerns that you have on the inventory side whether geographically or by coalition?

I think you went through some of the pieces throughout the remarks, but can you maybe just comment a little bit more on the inventory side?

Yes, Bob.

At the end just to clarify at the end of '07, actually more than half of the increase was related to the newly acquired companies.

Contemporary brands days are high right now.

That's an opportunity for us as we go forward.

And actually, the increase in the organic businesses was more like 3% to 4%.

So what we're saying is that we think that our inventories, our inventories are in very good shape.

The levels in excess and that kind of thing are quite low.

And, frankly, we made a concerted effort to get those inventories into that position by the end of 2007.

And again, as we said related to the newly acquired companies that's an opportunity for us as we look forward.

But having said that the quality of those inventories, we're not concerned about that.

Okay.

And then on The North Face business, when you look at the continued strength of the business, can you maybe just talk to the distribution increases of that brand maybe at year end '07 versus where it was in, '06 and the expectation for a full year '08 numbers in terms of door count?

Yes, Bob.

This is Dave.

Let me address that one.

The North Face growth really is coming out of the same distribution footprint.

Obviously we're growing doors based on those key retailers that we do business with, their growth like Dick's or R.E.I.

or Nordstrom's, but we're not significantly changing our distribution strategy or adding doors beyond that footprint we're in, with some few exceptions like footwear specialty stores that are picking up some of our footwear and endurance product.

So we're really growing within the same distribution footprint through more products year round and executing a four-season multi-activity-based product line in our owned retail stores.

Okay.

Great.

Just the question on the sportswear side, for Denise, on the Nautica business, when you look at -- can you give us the comp of Nautica's retail on the outlet side in the fourth quarter?

And when you look at 2008 from the department store on the wholesale side, is there any expect expectation of giving up some of the square footage that you have or do you expect that to be steady?

Actually on the Nautica outlet one, as you know, the store track was down across the board.

And we were too highly penetrated in cold weather, so we've made the adjustment going for next year to have more wear now.

We also ended our inventory clean at the end of the year because the outlet channel is much more aggressive earlier and deeper prices.

So we're clean right now.

And we looked at our strategy for fourth quarter next year, we're not going to expand as far as our doors but we think we'll get higher productivity base on the mix.

Regarding the department store channels, right now we're really focused on elevating the product and refining our mix.

We're investing more in marketing and presentation on the store level and we think we'll get higher productivity per door.

Great.

Thank you very much.

And we'll take our next question from Brian McGough with Morgan Stanley.

I just have a quick question for Bob on the cash flow.

Bob, I just want to make sure I heard you right.

On the cash from ops for '08, are you saying that you can do $700 million or better?

That's right.

Okay.

And I mean that's a huge improvement in '08.

I'm sorry, in '07 what you did versus '06, I think how I'm doing the math, the cash cycle has come down by about 25 days over the past three years, but of course we are Wall Street and we always want to know how much better you can get.

I'm wondering are there higher working capital costs associated with doing more growth internationally?

And then also just as you build up more of your own retail stores, I'm wondering as you take your higher inventories associated with building your own store, when you net that against the fact that there were no receivables associated with that business, is it a net positive or negative event to your cash cycle?

I want to make sure I answer all of the questions.

First of all, related to the international side, there are some implications.

And as we grow internationally, you saw the impact particularly last year in '06 when we had a very, very strong fourth quarter.

Now again, our international business remains strong.

But we had kind of a one-time pickup.

It does impact AR.

AR days is the one area that stands out.

They are quite a bit longer.

They are here in the U.S., nearly three times.

So that does have an impact on cash flow.

So at the end of last year, the AR was up quite a bit higher.

That cash was realized in 2007, so that was part of the story just in addition to a very, very strong focus on working capital.

There are some swings like that, that do impact the numbers.

The second part was on the international -- You also asked about retail I believe?

Yes, that's correct

The days in our retail inventories really aren't so different from our overall days.

So to this point in time, we've not seen a big impact relative to cash generation related to the retail expansion.

Now, when you plan over the next two, three years, Bob, is it fair to assume that there's still room to improve your cash cycle whether it is or is not to the same magnitude that you did over the past couple years?

Yes, that's a great point.

Maybe not to the same magnitude but an area that I just spoke to a little earlier, an area that we continue to put a lot of emphasis on is keeping our inventories clean.

In fact, we made progress there this year as we make acquisitions that's normally an opportunity for us as well.

So I'd say that's the area that continues to give us the most opportunity.

It is just working the inventory days down.

Great.

Thanks a lot, guys.

We'll take our next question from Virginia Genereux with Merrill Lynch.

Hello, hello.

Hey, Virginia.

Hey, Eric.

Maybe for you and Bob, just a couple.

How about on the top line growth, Bob?

The first quarter view as I look at sort of what that implies for organic growth over the course of the year, I had revenues a little higher for the first quarter.

So is there a seasonality in part because of the way I have acquisitions coming in -- is there a seasonality dynamic maybe, Bob, as you guys open more owned retail or are you looking for sort of a faster growth rate in the back half?

Any comment on the quarterly cadence of organic?

Actually, Virginia, the seasonality of our business does continue to change.

For example, within the contemporary brands coalition, those businesses are weighted about 40% first half and 60% second half.

And obviously, our retail businesses overall for VF are clearly just like most retailers, our retail businesses is more weighted to the second half as well.

And that's also true within our fastest growing business which has been our outdoor businesses.

So our seasonality has had some implications in our overall top line growth.

Okay.

That's helpful.

And then sort of going down the income statement, you said the tax rate would pick up maybe a little less than 200.

You're looking at sort of a 34% tax rate.

That implies then that operating margins have some nice expansion, maybe approaching 30 basis points.

And can you just review, Bob, sort of what you said about your margins, expectations for the year by coalition maybe?

Well, as you probably guess, we won't do it by coalition.

But I will do it -- You're talking about the full year '08?

Yes.

I'm talking full year '08.

Because then you've had sort of -- margins were flat in '07.

I know you had some acquisitions of lower-margins stuff, just trying to think where the margin opportunity will be in '08.

Right.

So for the full year '08, what we're looking for, Virginia, is relative to the gross margins.

We think we could see 150 basis points of improvement there getting very close to the 45% level which is nice progress relative to our overall five-year goal?

And the normal -- the factors that we've been seeing, mix is a significant impact on that, the acquisitions -- the newest acquisitions helped, particularly in the contemporary brands areas.

And yes, we do expect to see improvement within our outdoor businesses as we continue to leverage scale there.

A little bit less improvement on jeanswear but higher than we saw this past year.

As we indicated we thought sportswear are margins would remain relatively stable, and imagewear some improvement as well, but not quite as strong as the jeans and outdoor pieces.

Also in that, when we talked about mix and other factors, the retail, the retail business as we talked about in the past, the retail business and the gross margins in the retail obviously continue to drive up the gross margin area as well.

And so what we expect is from SG&A standpoint then, about 100 basis points of an increase there, again impacted significantly from the mix standpoint, higher margin -- higher gross margin businesses also carry a little higher SG&A, so that we do expect to get very, very close to the 14% operating margin level for 2008.

That's great.

And then just lastly, sir, LIBOR coming down 150 bips or whatever here pretty quickly.

Does that advantage you in any way on the debt side, Bob, or is it going to take up your -- the discount rate on the pension obligations?

Is that sort of a wash?

Is there any way you guys can play that through swaps or something?

It is a bit of a wash right now.

Obviously from a debt standpoint, we're pretty well locked in.

But we're not -- we like the rates that we have.

With the A-minus rating, we think we're in a better position than most I would say to take advantage of opportunities that may have come our way and get to that place.

So that's actually the biggest advance that we have.

That's great.

You all keep it up.

We'll take our next question from Eric Tracy with BB&T Capital Markets.

Good afternoon.

Just real quick, if I could follow up on sort of the cadence of the quarterly flow in '08 from a top line perspective and particularly from the contemporary brands, is it safe to assume so I think you said, Bob, 60% in the back half, 40% first half?

Right.

Does that then imply that either the jeanswear or sportswear coalition's actually down year-over-year on an annual basis?

No.

To get to that 9% on an aggregate basis.

Okay.

I'm just trying to get to the math, if you've got roughly [$415 million] contribution from the contemporary branch, correct?

Right.

Okay.

Mid-teens for outdoor, mid-single digits for imagewear?

Yes.

Remember that we own contemporary brands.

I don't know how you treated that in the math, but we've owned contemporary brands for about four months.

Yes.

It short of growth -- off in the back half and then making some assumption for the first half.

Okay, maybe I'll follow to you afterwards on --

Sure.

Do that

Thanks, guys.

Our next question comes from Todd Slater with Lazard Capital Markets.

Thank you very much.

And congratulations on very consistent and terrific numbers.

Thanks, Todd.

I just want to clarify in the guidance, is the 10% EPS growth rate in '08 based on the $5.41 in '07?

Yes.

Yes it is.

That means you're comfortable with $5.95.

That's right.

And do you expect that the guidance includes any -- is there any expectation there of another tax benefit in the fourth quarter '08 or are we kind of done with that stuff?

I think the question was as I had a little bit of trouble hearing that, do we expect a tax benefit in the fourth quarter of '08?

Yes.

No, not at this point.

The tax credits -- we obviously understand over the last couple years, we've had them it's a situation in a foreign entity and settled with the passage of time.

So not at this point in time.

We can't really plan those or anticipate those.

So that's just pure growth, core businesses, no one time tax issues.

There are no one-time credits or benefits assumed in the numbers that --

Great.

What does the guidance assume in terms of currency if anything?

Relative to the Euro, which is by far the biggest factor for us, we assume a rate for the full year of about [140].

So obviously we understand that right now it's higher than that and if it would hold where it is today that would create some upside for us.

Okay.

That's good.

And then lastly on the international business, I believe that you had projected -- you thought that business could grow, expand margins 300 basis points or so over the next five years.

Is it expected that that expansion will occur -- is more front-end loaded or back-end loaded within that time frame?

We should see some opportunities, some benefit.

I talked -- I spoke earlier on a coalition basis and where we expected to see the margin expansion and one of the areas that we've been seeing the operating margin expansion would be in our outdoor businesses for example as we continue to grow at a fast pace and leverage scale within those businesses.

The national jeanswear business as well is having operating margin expansion and the new markets that were in, Todd, will start to become more profitable over the five-year period.

I'll expect more of that in terms of both dollars and rate would be in the years three to five in the plan.

So is that saying that the biggest rate of growth is going to occur in year three, four, five rather than the next couple of years?

No.

I wouldn't say that.

I would say that we expect to see improvement on a fairly continuous basis.

Okay.

Got it.

Thank you very much.

We'll go next to Jim Duffy with Thomas Weisel Partners.

Thank you.

Hello, everyone.

Hi, Jim.

Question for you on the sportswear business.

A tough year for Nautica.

And it looks as though in '08 you are looking for it to be another year of investment.

In the past, you have divested businesses that aren't performing up to your expectations.

What's the process that you go through to evaluate that decision, and how do you balance on paper potential versus historical results?

Sure.

We go through a regular and rigorous process of looking at every one of VF's businesses to look at their relevance to our future strategies and their contribution to our economic outlook.

And you're right, the Nautica business right now is not earning what we had expected it to earn, but it is certainly relevant to our strategy, being in the sportswear business is an important place for us to be.

And we have had this business earning mid teens operating margins in the past have chosen to make some investments in the business right now, reducing the operating margin in the business, but know we're confident we can get it back there.

Okay.

And so some of the margin compression that we've seen is because of investments in growth I suppose the notion is that you expect those to pay off and be margin expansion in future years some.

That's correct.

Very good.

Thank you.

Good example of that, Jim.

(OPERATOR INSTRUCTIONS) We'll go next to Robbie Ohmes with Banc of America Securities.

Thanks.

Two quick follow-ups.

Can you guys give a little more detail on the $0.09 of special spending initiatives in the quarter?

What type of savings going forward, how that was spread between jeanswear and other businesses?

And then the second question is just a little more -- I think I might have missed so the jeanswear outlook for the first quarter is a little tricky in the U.S.

given the environment.

But I think you guys are looking for jeanswear overall for the year to be strong.

Can you just walk us through again how we should see that playing out in '08?

Thanks.

Robbie, I'll answer the question in terms of the spending.

So out of the $13 million, what we said was $8 million of that was related to our international jeans business and there what we're addressing is mostly front-end areas, terms of sales and marketing, also some distribution.

And we'll see partly the benefit of that and expecting a strong year relative to our international jeanswear business in 2008.

Relative to the remainder, as we said it really is spread out and in a number of different areas it was $1 million in sportswear, $2 million in the corporate expenses, and $1 million in outdoor.

So, I'm sorry, just for international, are you closing things down, or are you hiring people and building infrastructure to buy the business over there, and so you have an extra charge?

Just kind of tell us what you're doing?

Actually given the sensitivities, Robbie, we'd rather not comment too specifically on that.

But I can just tell that you it has to do with driving the top line -- driving the top line.

Got you.

And then the follow-up question was just on jeanswear tough in the first quarter, but one of the leading coalitions for you for the year.

If you guys could just walk me through that again, that'd be great.

This is Angelo.

On the domestic side of the jeanswear business, as you all know, December and January are relatively tough, we are seeing that continuing anticipating that through the quarter, but we feel very strongly about our results and getting our modest growth 2008.

So there's a reacceleration coming in the second and third and fourth quarter?

Well, actually we see some things where in the first quarter on the domestic side there's been a little bit of a shift in seasonal business where people (inaudible) in '07 too much seasonal early and it's shifting into Q2.

So we see a little bit of that shifting over.

And then we are excited as we go through the year, and our big core warm bottom businesses, where we have seen good market share gains, we see that continuing throughout '08.

Okay.

Great.

Thank you very much.

Thanks, Robbie.

We'll take our next question from [Neil Halpert] with Davenport & Company.

Hey, guys.

Great quarter.

I got a question overall about the operating cash flows.

Can you get into any more granularity in terms of by coalition or was anything there anything unique that made it go up so much this year, or weather or anything else we should try to at least have in mind going forward?

Yes, Neil, we prefer not to comment on a by coalition basis, but if you look at the overall profitability which is strong in most of our coalitions, really all our generating cash in a very positive way.

Relative to 2007, why was it so much higher, it was an area of a lot of focus for us, frankly, in terms of working capital.

Now as we talked about earlier there's always a little bit of a swing in timing and if you look at the '06 cash generation number it was usually low.

And as we said earlier, part of that was due to the higher AR balance, and a lot of that was due to the very, very strong international sales that occurred right at the end of the year.

And in addition to that, our payables at the end, again, of '06, were a little bit lower than normal.

And that just has to do with the timing of inventory receipts.

So there was a bit of a swing that helped us, but more than anything else, the swing and timing, but more than anything else it was a very, very strong earnings, a real emphasis in terms of working capital and just a very strong year overall, and again very importantly looking at that $700 million number next year says that it was a year that obviously stood out, but we expect another very strong year in 2008.

Okay, so it's almost like somewhat of a sign wave is the way we described it.

So we should try to draw some kind ever a straight line going through that year over year, ups and downs?

Actually, the -- I'd say that the '06 number was, however, unusually low.

And again, relative, I would say that the '08 number at the $700 million is a more normalized number.

That's how I'd look at it.

Okay.

Thank you.

You're welcome.

And there are no further questions at this time.

I'd like to turn the call over to Mr.

Wiseman for any closing comments.

Sure.

I just want to thank all of you for joining our team today as they shared their plans for 2008.

As I said earlier in my comments, it is clearly a challenging year, we think we have the right people and the right brands and the right model to do well in this environment, and we look forward to giving you an update at our first quarter conference call in a couple months.

Thank you so much.

This does conclude today's conference call.

We appreciate your participation.

You may disconnect at this time.