威富公司 (VFC) 2009 Q1 法說會逐字稿

Good day, and welcome to the VF Corporation first quarter 2009 earnings conference call.

Please be aware that today's conference is being recorded.

At this time, I would turn the conference over to Jean Fontana of ICR.

Please go ahead ma'am.

Thank you.

Good afternoon.

Thanks for participation in VF Corporation first quarter 2009 conference call.

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

If not, please call 203-682-8200 and we will get you a copy immediately following the call.

Hosting the call this afternoon is Mr.

Eric Wiseman Chairman and CEO of VF.

Before we begin, we would like to remind participants certain statements included in today's remarks in 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 factors that could cause actual results, collaborations or financial conditions of the Company to differ are discussed in the documents filed with the Company and the SEC.

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

Thanks for joining us.

Following my opening comments we'll have Bob Shearer review our financial results.

In addition, we have with us today Karl Heinz Salzburger, President of our International business who will take a few minutes to talk about our business in our international market.

We are pleased that we achieved results that were in line with our expectations in the first quarter.

However, with revenues and earnings both below those of last year's first quarter our results do confirm that we continue to face extremely challenging conditions that are affecting all of our businesses to one degree or another.

However, there were a number of very important bright spots in the quarter.

Our global Outdoor and Action Sports revenues rose on a constant currency basis, with The North Face, Vans and other our brands continuing to outperform the competition.

Our domestic Jeans revenue also increased, a testament to the strength of our Wrangler and Lee brands and the success of their efforts to gain market share with best of quest product innovation and marketing.

Domestic Wrangler revenues rose 3% in the quarter while Lee was up 7%.

On a constant currency basis global revenues of our two largest brands, Wrangler and The North Face increased during the quarter.

Our retail revenues were up in the quarter with new Vans and The North Face and 7 For All Mankind stores opened.

In total, our comp store performances running down at a mid single-digit rate which we believe is better than how many other mono brand retail concepts are performing.

Our business in Asia continues to grow rapidly with revenues up 24% in the quarter and we completed the acquisition of the Splendid and Ella Moss brand further rounding out our contemporary portfolio.

We are testing products from both brands in our 7 For All Mankind stores now and the early results are encouraging.

In addition, we are looking forward to the opening of the first Splendid store in Los Angeles in the third quarter.

In total, I am encourage by the relative strength we've seen in many of our large and important businesses.

I believe this performance is a meaningful indicator of how VF will emerge from the recession.

Of course, while we all like to see clear signs that the global recession is easing we are not planning for any improvement in the macro economic conditions this year.

When we provided our initial guidance back in February, it was with the expectation that economic conditions would remain largely as they were in the fourth quarter of 2008, which, as we all recall were pretty poor.

While our first quarter results came in largely as we expected, we've seen a few areas where conditions have significantly and unexpectedly deteriorated and so today we are resetting the bar for our revenue and earnings guidance at levels that we believe capture these changes and more appropriately reflect the scale and scope of this recession.

While the change in our revenue guidance is relatively modest, the change to our earnings guidance is more sizable.

As mentioned in the release, this is due to the big decline we are now experiencing in our European Jeans business and to a lesser degree to the fact that we are expecting shortfalls in two of our higher margin businesses, contemporary brand and the workwear segment of our imagewear colation.

So with that as a back drop I'll turn the call over to Bob.

Thanks, Eric.

Let me start with a couple of overriding comments.

First, the effects of changes in foreign currency exchange rates in both translation and transactions were material to our results in the quarter and are expected to be for the full year as well.

So, obviously I'll be making a number of comments on both of those pieces and secondly, we are discontinuing our practice of providing specific quarterly guidance.

The obvious reason is it more difficult than ever to predict revenues in particular on a quarter-by-quarter basis in this environment.

So with that behind us let's move down to P&L and I will start on revenues, which on constant currency basis declined 2% in the quarter.

Reported revenues were down 7% with a 5% impact from foreign currency translation.

That was a point higher than the 4% impact we originally expected.

Gross margins were down 290 basis points and about half of this decline is due to the transactional effects of currency movements that I just spoke to.

The remainder reflects the challenging retail environment as anticipated resulting in margin pressure from discounting and other factors and lower revenues in our higher margin businesses.

SG&A as a percent of revenue was up 1 point with 90 basis points of the increase related to higher pension expense and a similar impact from tour retail growth.

So cost reductions efforts are clearly helping the comparisons.

Now, these factors combined resulted in operating margins of 9.4%, which was as planned for the quarter versus 13.2% in last year's first quarter.

The tax rate in the quarter was 29% compared with 33.3% last year and as we said in past calls, our declining tax rate reflects the benefit of substantially lower effective rates in our international businesses.

The effective rate of 29% in the first quarter is consistent with the annual rate in 2008.

That brings up to earnings per share.

On a constant currency basis EPS declined 24% to a $1.01 with $0.11 of the decline due to higher pension expense and most of the remaining decline resulting from the transactional impact from fluctuating foreign currency exchange rates.

On a reported basis EPS declined to $0.91.

In addition to the pension in transactional currency impacts, foreign currency translation impacted earnings by another $0.10 per share.

In terms of our coalition results, you'll note that we've included an additional table with the release it provides coalition revenues and profits on an as reported and constant currency basis.

We believe the currency adjusted numbers are most representative of our business performance.

I'll direct my comments primarily to those comparisons.

Beginning with Outdoor and Action Sports, we are pleased with the performance in the quarter with revenues up 2% in constant currency.

The Americas business up 4% and our international business down a bit.

The coalition largest brand, The North Face had another very good quarter with global revenues up 14% on a currency adjusted basis.

In Vans our second biggest brand had global revenues that were about flat on a currency adjusted basis and were up 3% domestically.

Both brands saw strong growth in the direct to consumer businesses with an increase of 35% at The North Face and 16% at Vans.

Operating income in constant currency declined a bit due primarily to transactional currency impacts, overall margins remain very strong.

Turning next to Jeanswear, global revenue were down slightly as a constant currency basis as noted in our release, we were really pleased with the growth in domestic revenues of 4% in the quarter with increases in both our mass market and Lee businesses.

According to our most recent data, both Wrangler and Lee, two of our largest brands in VF have gained share in their representative channel of distribution.

International jeans declined 8% on a constant currency basis.

This is an area where we are clearly experiencing more challenging conditions than expect.

Started to see the first signs of softening in the Eastern European and Scandinavia economies at the end of the fourth quarter which accelerated into a sharp contraction during the first quarter.

Many believe that the severe challenges in these markets have further reaching impacts across Europe.

Karl Heinz will have more to say about these dynamics in just a few minutes.

Jeanswear operating income declined significantly in the first quarter and as noted in the release the bulk of the decline came from the international market conditions that resulted in higher than anticipated discounting, provisions for excess inventories and the impacts of lower absorption on manufacturing related expenses and SG&A.

In terms of our Sportswear coalition results, I remind you that these results exclude the John Varvatos business which in 2009 was moved to our Contemporary Brands coalition.

Prior year results have been restated to reflect this change and the 14% decline in revenues relates primarily to our Nautica brand which continues to be affected by weak conditions in department stores.

We remain very encouraged by the work that's been done to reposition the Nautica brand with upgraded technically inspired products that have been well received by customers.

However, the channel remains very promotional which continuing to impact our profitability.

Operating income more than doubled over last year's first quarter.

This is a seasonally low quarter for this brand and therefore operating margins in this period are always well below full year results.

We continue to expect better comparisons in the second half of the year.

With contemporary brands hereto the difficult retail environment is taking it toll with upper tier department and specialty stores especially hard hit as the luxury consumer has scaled back.

Our 7 For All Mankind brand which has enjoyed strong growth since its launch in 2000 is clearly feeling the impact of this slow down.

While the brands wholesale business will remain challenging through 2009, we continue to see opportunities to expand its reach with additional retail store openings and expansion in both Europe and Asia.

Our retail stores for the brand continue to track on plan.

We remain very enthusiastic about the long-term growth potential for this powerful brand which remains a clear industry leader in the premium denim category.

Revenues of our contemporary brands coalition were down 6% with declines in both our 7 For All Mankind and lucy businesses and strong growth in our John Varvatos business and as Eric noted we completed the acquisition of Mo Industries, owner of the Splendid and Ella Moss brands which contributed $6 million to coalition revenues.

Now both operating income and margins for our contemporary brands coalition were up on a constant currency basis in the quarter with our new acquisition contributing positively to our results.

Moving to imagewear, revenues were down 8% with a primary challenge in our uniform business.

Due to rising unemployment uniform demand in all sectors except healthcare and government has declined significantly since December.

In fact, unemployment in the petrochemical sector which represents a large component of our protective business have been lower than most jump from around 4% near year end '08 to over 12% today.

Manufacturing sector is increased from the 6 to 8% range at year end to a over 12% today.

No customers are being lost.

However, our large vertical laundry customer during these tougher times tend to bring manufacturing in-house to fulfill their existing capacity, further challenging our top line.

The decline in our economic sensitive industrial and protective businesses are driving disproportionate declines in our imagewear coalition, operating income and margins as these businesses have historically enjoyed strong profitability above the coalition averages.

So, while challenged today, we believe the future will present opportunities for this business as our customers feel a pinch of holding their own capacities in inventories and smaller players exit the category.

Now a few words about our international and retail businesses, as you saw in the release our international revenues were down 5% on a constant currency basis, with the biggest decline in our European jeans business.

However, we continue to be very encouraged by the growth we are seeing in Asia where revenues increased 24% with both our Jeanswear and Outdoor and Action Sports revenues up double-digits.

Our direct to consumer business grew 4% in the quarter with strong increases in our North Face and Vans brand direct to consumers businesses.

During the quarter we opened 19 stores and we remain on track to open approximately 70 stores this year.

Now a few words about our balance sheet and cash flow which continue to be areas of focus for us.

Our financial position is very strong and gives us a lot of flexibility in these difficult times.

Cash equivalent at the end of the quarter was 276 million above the March 2008 level and should exceed 600 million at year end barring any additional acquisitions.

Now, despite acquisition activity our debt levels are below last year.

By year end, assuming no additional acquisitions our debt-to-cap ratio net of cash is estimated at 12%.

Finally, our liquidity remains strong with 1.1 billion available in lines of credit and no long-term debt payments due until 2010.

We stated back in February our intention to reduce inventories throughout 2009 and we made very good progress in the first quarter with inventories down 4%.

Year end inventory should be more than 10% below prior year levels as we continue to aggressively manage inventories to protect our profitability and liquidity.

In fact, as this continues to be a very high priority for us we see our inventory management actions leading to a projection of cash generated from operations this year of $750 million which is higher than our prior target of $700 million.

Now, we've been asked about whether we are seeing a rising in delinquent accounts.

We are changing our credit terms where any of our customers are changing theirs.

We continue to monitor this very carefully across our businesses.

We have not experienced any material issues.

In fact, our days in AR are down by two from this time last year.

Clearly this environment is particularly difficult for smaller specialty businesses and we've seen a number of smaller accounts close.

With regard to our customers we have not seen any material changes in credit terms.

In terms of our guidance.

I think we spelled out the factors that have caused us to reduce our numbers.

We lowered our revenue guidance slightly from low to mid single-digit decline to a decline of 5 to 7% and we continue to anticipate that currency translation will account for about 4% of this decline.

As we noted today the reduction in our European Jeans business is the biggest factor behind our change in guidance in both the top and bottom lines.

Obviously, we are disappointed that now we are looking at full year EPS is below 2008.

Our reported basis our new guidance points to a decline in EPS to the $4.70 to $5 range versus 2008 at $5.42.

Now as a reminder, 2009 includes the following impacts -- $0.50 per share from higher pension expense, $0.30 per share from foreign currency translation and a further impact from the transactional side of FX estimated at about $0.20 per share.

Obviously, absent these factors our earnings per share would be above prior year levels.

I would remind you that last year results included $0.30 in restructuring cost.

In terms of the second quarter, we indicated in our release that our second quarter would mark the low point of the year in our revenue and earning's comparisons, given seasonal factors and the candace of profits from our lifestyle and retail businesses.

So we do expect revenues and EPS comparisons that are even more difficult than those of the first quarter.

Given the continued volatility and market conditions we elected not to provide specific revenues or earnings guidance for the second quarter.

However, we expect much better comparisons in the second half of the year particularly in the fourth quarter when we will be up against much easier comparisons given the charge taken last year's fourth quarter.

Now, given our lower guidance the natural question to consider is that of further expense reductions and given the magnitude of the cost reductions announced in February we are comfortable that our cost structure is well aligned with current conditions and we remain on track with $100 million in cost savings targeted for this year.

Certainly we can take additional reductions in areas like advertising and product development.

These investments are crucial to maintaining the strong equity of our brands.

Our largest brands are gaining share and we think we have a great opportunity to make further share gains in this environment by continuing to invest behind our brands growth strategies.

Our intent is to come out of this stronger than ever.

Now let's hear from Karl Heinz.

Thank you, Bob.

There has been a lot noted already about the rapid change in conditions in key European economies as well as the unprecedented volatility in foreign currency exchange rates that are affecting us this year.

To put some perspective around our total business in Europe and Asia, using '09 projections, Jeanswear account for 35% of total revenues while Outdoor and Action Sports account for 34% and Sportswear and Contemporary account for 31.

As has been pointed out, Scandinavia and especially in Eastern Europe which is where we have seen the biggest change in economic conditions account for 40% of our European Jeans business and a significantly smaller percentage of our other businesses.

Accordingly, the change in market conditions is impacting our Jeans business more significantly than our other businesses.

Scandinavia and Eastern Europe has been areas of strong growth for us during the past several years and so this sudden change marks a big reversal in change for us.

I should also note that we took steps to improve the overall profitability of our Jeanswear portfolio with a decision to discontinue our European mass market business.

This business generated over 65 million in revenues in '08 and has not met our profit target.

We'll be phasing out the business during the course of this year.

That wraps up my comments about our European Jeanswear business so I move on with a few words about our other businesses.

Our Outdoor and Action Sports business and our Sportwear and Contemporary brand business both had difficult first quarter as well due to previously discussed conditions.

However, most of our major brands like The North Face, Kipling, Napapijri, and 7 For All Mankind continue to perform well.

For a full year, on constant currency basis we expect to see mid to high single-digit revenue increases.

Highlights for The North Face, which is our biggest brand, in the quarter included the opening of new owned retail stores in Glasgow and Bristol.

We also continued to allow new partnership stores and shopping shops, 71 new shopping shops are planned for The North Face this year bringing the total in Europe to over 220.

And our next own retail store will open in Copenhagen in the fourth quarter.

We remain confident about the performance of the The North Face brand, which has a double-digit increase in fall bookings.

Speaking of retail store we plan to open two new Vans stores this year both in France and the 7 For All Mankind flagship stores opens in Paris next month.

Our Napapijri store (Inaudible) continues to post positive comp store gains.

Our store in Asia continues to be very positive with double-digit revenue growth in the quarter for Lee, The North Face, Vans, Napapijri and Kipling brands.

The North Face brand is expected to grow more than 30% this year in China and we are very encouraged by the response we have seen to the launch of the our Vans brand in late August.

Overall we continue to expect our revenues in Asia to be up 25% this year.

Asia continues to be an exciting growth opportunity for us and we plan to provide a more in depth look at our progress and plans for Asia in our next conference call in July.

In summary, while we face significant market challenges, we are focused on maintaining our brand, strong market positions, continuing to selectively open new owned retail and partnership stores and using cost and inventories and ensuring that we have a strong solid foundation in place for all our brands when conditions improve.

Thanks Karl Heinz.

That wraps up our comments for today's call.

The performance of many of our brands, our biggest brands in particular, Wrangler The North Face, Vans, demonstrate their strength and we will continue to invest in those brands.

The performance results also demonstrate the strength of VF's very diverse business model.

While there are many challenges in this environment, there are also opportunities for companies that have strong brands and also have great financial strength and flexibility.

Because of all that I am confident that VF will continue perform well relative to the markets and emerge stronger than ever.

I'd now like to open the call to your questions.

(Operator Instructions).

Our question for today will come from Todd Slater with Lazard Capital.

Thanks very much.

Good evening everybody.

I appreciate all the color.

It's really helpful.

I was wondering if we can talk a little bit about the denim business.

It sounded like you said the seven business in our own vertical store was on plan but overall it was weak.

So I'm wondering can you give us more color on the concentration by weakness and maybe the basic styles, maybe more color on that category?

Sure.

We have like nine or ten stores that we've opened.

That is relatively new for us and it's an important part of the future of the brand but not part of the current.

The biggest piece of the business is the US wholesale which accounts and how difficult the challenge has been in those accounts.

The total business Todd, is down around 10% in the quarter and it's because partially a big part of it is driven by the wholesale business in the US as well as the wholesale challenges in Europe.

It is absolutely in a piece of the market that has been most challenged in this economy and that's more premium luxury sector.

But again our stores are performing at our expectation but they are very new stores.

Does that help you?

When the wholesale US which is I guess some department stores as well as specialty stores, can you give us a sense of how, if there's a differentiation between those two channels?

I'm not sure that I'm fully prepared to answer that.

What I will tell you is that the wholesale business in the big department store because you see their comps so you know how they are struggling to get traffic into the store.

The special store business, we are losing customers, not that they are dropping the brand but the stores are going away and that's a big part of the challenge that we have right now with the brand.

I don't have a number for you on how big that is.

Okay.

Lastly what is the Foreign exchange assumptions you are using going forward for the rest of the year?

Most of it related to the Euro and we are using 130.

Is that, was it at 133 before?

That's exactly right.

The average for the first quarter was about 130.

Pretty close.

Thanks .

Our next question today will come from Kate McShane with with City Investment Research.

Please go ahead.

Hi.

Thank you.

Hi Kate.

Can you talk a little bit more about what is going on in the mass merchant for Jeanswear?

I think you mentioned that during the quarter you gained some share and I know for the last couple of quarters you noted that you were losing share.

So what happened this quarter that was different?

Are you lapping?

Was there another circumstance like lower price or better product that drove the growth in the quarter?

Our Wrangler brand and that is the biggest piece of that brand is the mass channel business, is fair to say it's up against a weaker comp in the first quarter of last year.

It's also accurate to say that it's performing very well on some product innovation it has at the mass channel at this time.

The combination of that it is up 3% in the quarter.

Okay.

Great.

And then if your guidance I know you are not giving quarterly guidance but are you assuming inflation cost in your guidance for the year and if so how much?

And with your lower inventory projection of down 10% are you counting for marginal improvement in the second ha;f because of this lower inventory and lower risk of mark down?

I'll make a couple of points on the inflationary cost.

Relative to our product cost which is an important factor, as most companies did we locked in pretty much in the first half of the year and the costs were up a little bit but in the second half of the year given the renegotiations that took place our cost lack a little bit down.

Overall for the year costs are relatively stable on the product side but with some variation between the first half versus the second half.

In terms of inventories, your question again there Kate?

I wonder if you expect or see possibly better margin year-over-year if there's less clearance activity from lower inventory?

Yes.

Right.

It's obviously one of the benefits.

Obviously we talk a lot about the benefit of reducing inventories and the impact on cash and I included it in my comments but the other side of it and one of the reasons we are pushing so hard on the inventory side is absolutely to reduce the exposure to markdowns and the P&L impacts that go along with that.

We had a pretty good year last year in 2008 but yes we do expect to see that improve somewhat in many of our businesses.

Okay.

Thank you.

Right.

Our next question will be from Bob Drbul with Barclays Capital.

Good afternoon, you guys.

Hi Bob.

I guess a couple of questions.

First, when you look at the expectation on the earnings for the full year now, can you give us an idea in terms of the three buckets that you talked about Europe, the short fall in contemporary, workwear or imagewear, how much of the changes, can you give us a little more clarity in terms of the impact on each of those three businesses in the new earnings guidance?

And I guess when you look at the second quarter Bob I know you are not giving quarterly guidance, but from a modeling perspective, are there any issues that you think we should be well aware of as we think about how to plan the second quarter?

First of all, Bob, relative to the three impacts that we disclosed, the international jeans piece the Europeans Jeans piece was a little over half of the total reductions.

So when you look at our prior guidance versus our current guidance, the jeans was a little over half and then the other two were evenly split relative to the remainder of the reductions.

Okay?

Yes.

And the second question?

So when you, when we look at the second quarter or the second quarter expectations, you haven't said any guidance but for our modeling perspective are there any color that you make when we look at the comparisons versus last year?

First of all, the three factors that we talked about will remain challenging in the second quarter.

So they are the bigger factors that will impact the second quarter as well but I'd also like to remind you that in the second quarter we've had this discussion over the last couple of years.

The second quarter is by far our smallest quarter overall and it's becoming even more so.

And a lot of that is driven by the growth we've seen in our outdoor businesses and it puts more pressure on the profitability in the second quarter.

So again I know we talked about that in the past and it continues to be the case today.

The other factor is retail.

Obviously you know the retail business is the second quarter is a small quarter for retail as well.

So we have the fixed cost in the second quarter, not a lot of revenue and retail as well and again we see the buys of that in the third and especially the fourth quarter.

So those are some things that put pressure on the overall profitability on top of some of the factors that we've already talked about, challenging businesses.

Okay.

Great.

And then I guess one final question is on the, I'm not sure if you addressed this, but the expectation for flat comp which was the trend in the fourth quarter for the full year, how are you thinking about your own retail business I guess on an annualized basis based on what you've seen so far in the first quarter and the expectation for the rest of the year?

Sure.

We are still planning to open around 70 stores this year.

19 of them opened in the first quarter.

That is new stores.

Our revised guidance reflect a new assumption about our comp store performance being down to mid single digit which was the experience we had in the first quarter.

Great.

Thank you very much.

Our next question will come from Erin Kopelman with JPMorgan.

Thank you.

Good afternoon.

The first question following on the overall comp being down mid single-digit, I believe they were flatish in the fourth quarter.

It was surprising to us that there was a deterioration.

Can you talk about what businesses drove the difference and what surprised you?

I actually think that it was pretty consistent across each of the formats and largely driven by a reduction in traffic in every retail place that we do business and then also a reduction in average selling price because of markdown that had to happen.

Those two things together drive mid single-digit decreases in stores.

We do have, we were pretty consistent across the store.

The one high spot for us was Vans which actually had positive mid single digit comps for the quarter.

Great.

That was going to be my next question about Vans because again the fourth quarter performance is very strong, --

That continues to be relatively strong.

So actually on that, can you talk about the international?

Because that was weaker than our expectations Vans international.

Can you talk about what surprised you there?

On a constant currency it was down.

Yes, this Karl Heinz answering.

We suffer from two elements.

The UK is our largest market for Vans and Bob mentioned before we have, we suffered the effect of the weakening of the Pound to the Euro.

So this is the first answer.

We had three years of very solid growth with Vans in Europe and we saw the slowing down in the first quarter.

For the full year we expect the brand to perform and improve what we have seen a little bit so far.

And finally Karl you mentioned that The North Face booking is double-digit for the fall.

Can you comment on bookings for the other large brands, Wrangler, Lee and Vans, thank you.

Normally don't give bookings with the exception of The North Face as you mentioned and it is the larger brand.

Thanks.

Good luck.

Our next question will come from Omar Saad with Credit Suisse.

Please go ahead.

Thanks.

Good afternoon.

Hi.

Since we have Karl on the phone I think I'll ask him some questions on the international side as well.

Karl, as you think about this year, what is happening across the various brands and various markets, where do you feel most comfortable about your business and your ability to meet the plans and meet your targets?

Is it The North Face and Vans in China?

Is there a possibility for a rebounds in the Europeans Jeans business in Eastern Europe?

How do you think about the different brands and the different parts of the world, where do you think the best opportunities are in the next 9 to 12 months?

We see two great areas.

One is brand and geography.

A bright spot we have is Asia and particularly China where we are doing very well.

Bob mentioned this before.

We do well not only on The North Face but also Lee and Vans and Kipling.

These are the four big brands in China.

As far as Europe is concerned, Vans is doing well.

We see constant growth which has been happening in the last year and we are confident about the performance of that brand.

Across Europe, we are affected by circumstances like the Vans, the Pound devaluation but to sum up, clearly the performance of The North Face and the performance of Asia where we see also some good signals is on the Wrangler in Europe.

As you know we have started initiative to bring more lifestyle component in our Jeans business and we see Wrangler which are positive.

Okay.

Can you elaborate a little bit, you kind of mentioned exiting the mass business and I know -- what is that business exactly?

(Inaudible) Are there other businesses like that out there internationally where the upside just isn't there to make it worth while to stay with it?

It was 65 million business which we did all over, it was in Europe.

We worked three brands.

We didn't see a strategic reason, we didn't see growth, and especially, we didn't see meeting this business our profit target.

So we decided to exit.

Unfortunately we don't have a large European account which we could handle with and we had to build regional phase forces and approach door by door.

So we decided to exit this and focus on our two big brands where we see the big opportunity which Lee and Wrangler.

Okay.

And then one question for Eric.

You are one of the few apparel and footwear portfolio companies left standing in a healthy position.

Sounds like you are getting more conservative on the cash side, more focused on inventories.

You raised your cash flow guidance.

How are you thinking about the portfolio not just from an M&A perspective, but as you are managing the portfolio the potential to get out some of the businesses potentially, that may not fit with the long-term plans.

Sure.

It's a fair question, and I won't give you any specific guidance about either end of that spectrum.

We absolutely are looking at opportunities to enhance our already strong portfolio, and as part of our normal annual drill, we are always looking at our weaker performers and asking about their strategic or financial relevance to our company.

That is how we manage the business.

I know you know that.

But this is a particularly interesting time filter to look at that through.

The worlds in a different place right now.

Great.

I appreciate your candor.

Best of luck.

Thanks.

Our next question will come from Jim Duffy with Thomas Weisel Partners.

Thank you.

Hello.

Hi Jim.

A couple of questions for you.

Within the Outdoor and Action Sports portfolio, The North Face and Vans appear to be holding up.

What is the component of the coalition that aren't working and as you look across the balance of the year, do you expect that coalition to show growth in '09?

The bigger pieces of those businesses and Action Sports is really for us, we talked about Vans and Vans and Reefs also in performance and the Vans business continues to do well.

I am looking for someone to help with the Vans annual number.

Reefs business is struggling right but it's so small compared to the Vans business that the story is about Vans and the same is also true in the Outdoor space of JanSport, The North Face, and Eagle Creek where The North Face has become so large, it is the lions share of that business and it is strong.

The other businesses are doing okay in this environment but as you might imagine Eagle Creek which has a big travel luggage component to the business, travel is down therefore luggage sales are struggling and that is the reality that we are living in right now.

We expect the Vans brand to grow at a mid single-digit rate for the year.

Did you hear Bob's comment, Jim?

I did.

Good.

The coalition, as a whole Action Sports and Outdoor, do you expect to make progress for the year or are you likely to see modest decline there?

I'll speak in constant dollars.

We do expect to see growth over the year.

Okay.

And then Bob you mentioned CapEx, I missed it.

Any update to the guidance there?

No change from where we started.

Jim, the components there were that we expected.

The store numbers are there to be down a little bit from last year, so nothing new from a CapEx standpoint.

And then you mentioned cash balances target at 600 million at year end.

Where would you expect total borrowing at year end?

Total borrowings at the end of the year would be fairly similar to where they were last year.

The cash component would be the big news there.

We don't have any long-term debt payment due until October of 2010 and then we have about $200 million due.

Thanks so much and good luck.

Thanks, Jim.

Our next question will be from Paula [Torch] with Needham & Company.

Please go ahead.

Good afternoon.

Thanks for taking my question.

I just wanted to piggyback on Todd's earlier question about premium denim and I'm wondering if you can give us a little bit of information on what your best selling price point is for 7s and maybe if you can tell us if the more fashion denim is performing better than the basic styles and are you seeing the same trends for both your own stores and wholesale?

We have a really wide price range of Jeans in the contemporary, 7 For All of Mankind is what we are talking about?

Yes, absolutely.

$150 up to $300.

I'm not sure how to deal with your question specifically given that is a pretty big range.

Though, I will say that the unit volume at the lower end of the range is better than the unit volume at the higher end of the range in this environment.

Okay.

Does that help you Paula?

We've been hearing a lot from luxury department stores when they comment on premium denim they continue to say that the fashion denim within the premium denim category continue to do well versus your most basic, the 100 to $150 jean size.

I was wondering if you were seeing the same thing?

I think we are seeing the same trend actually, but the question is how big is the business model at each price point.

That is not what I was getting at but thank you.

You're welcome.

(Operator Instructions).

We'll now go to Mitch Kummetz with Robert W.

Baird.

A few questions.

On your sales outlook, your sales were down 6.5%.

You are guiding 5 to 7% decline for the year.

So Q1 sort of within the range for the year.

Are you expecting essentially similar coalition performance for the year as you reported in Q1?

I think Jim was asking about Outdoor and I think the answer there was yes.

What about the other coalitions?

Mitch this is Bob.

Some changes throughout the year.

There always are and we spoke to a couple of those pieces like the Outdoor and Action Sports.

We expect that to post numbers stronger than perhaps what you saw in the first quarter, and Imagewear, again could be a little bit better on the overall basis.

But for the most part fairly, fairly consistent with what we saw in the first quarter.

It's a complicated question because you have things like sports business had the current comps are up having the women sports and by the end of the year they won't be so it gets a little bit better for that reason but it's a complicated question for our company to answer.

We really haven't talked about are the comps.

Obviously in the first half of 2008 were our strongest.

In 2008, were our strongest quarters.

So there is an element built into these numbers of course that assumes that the comps do get somewhat easier as the year goes on.

That leads into my next question.

Is that largely why, even though you are assuming a fairly stable environment over the balance of the year, that your expectation is stronger results in the back half than the first half, is it due to the comparisons or are you seeing anything in terms of the order book or what your expectations might be in terms of reorder or anything in terms of the cadence of how you are opening your own stores or --

It is an absolutely significant factor in the comparisons on a quarter by quarter first half versus second half basis.

The other factor is things like retail.

We are continuing to open new stores and those will help the third and fourth quarter as well.

But the comparisons and the results of last year versus this year certainly have a significant impact on the overall comps.

And then, Bob, help me understand, I know you are not giving quarterly guidance but help me understand how FX is likely to play out the balance of the year given your full year outlook?

I'm guessing that in terms of its impact on sales and profit, probably a little bit of a bigger hit in Q2 than Q1 but maybe easing over Q3 and 4 but then I'm sure there are some hedging that will come to play that may have a different effect in terms of the earnings for the balance of the year.

Mitch, it's a little more about the strength of our quarters relative to our international business and our first -- third quarters are by far the strongest quarters on the international side.

So therefore while we said there's about a $0.30 per share translation impact expected for the year, and we said the $0.10 of that was in the first quarter, most of that, most of the remainder comes in the third quarter not all of but most of it.

The same is pretty much true on the transactional side except that on the transactional side that has a lot to do with our ability to adjust prices to the change in rate fluctuations.

So obviously by the end of the year we have a better opportunity and have taken some pricing adjustments clearly to offset the impact of the transactional impacts that we are disclosing.

More of that falls in the first quarter then it will in the third quarter.

So in my notes I said that about $0.20 for the full year.

Again a good portion of that was in the first quarter and the remainder would be in the third quarter.

Lastly and continuing internationally I believe you said down 5% in the constant dollar in Q1.

What was it in reported dollars?

Let me look at that.

And that's all I had.

We are searching for that number.

It was around the 15% range obviously.

Okay.

That's helpful.

Thanks.

Good luck.

Thanks.

We will now go to Chris Svezia with Susquehanna.

Thanks for taking my call and good afternoon.

A couple of questions.

I guess first just if you can all comment on your domestic bookings as you look at some of your key brands, The North Face, Vans, Wrangler, just trying to get your confidence in the second half.

Aside from the favorable comparison, given how the fourth quarter looked from last year, I guess a little color about what retailers are saying to you about how they are looking at back to school plans or even if they are looking at holiday, any color on how your key retailers are talking about those key event and how they are looking at the second half based upon your businesses?

I think the best and most comprehensive way to answer the question is to, what we know about fall bookings a lot of our business doesn't have advance bookings, but our fall bookings since we have them are accurately reflected in the guidance we gave for the year.

The year will be down 5 to 7% on a global basis.

We have given you a lot of color around that and inside that have is what we know about the bookings across all of our brands for fall.

That's how we get to the guidance.

Okay.

That's helpful.

And then just on The North Face business, very strong here in the quarter.

I know you have gotten into some new channels of distribution and testing some new retailers.

I wonder if you can talk about any color in the existing channel for the brand and how these new channels are performing domestically for the brand.

I'm not sure what you are referring to about new channels for the brand.

I think you are doing a test with [Hibit] Sporting Goods and Finish Line on the apparel side?

I can't comment on that.

It's not because I'm unwilling to but I'm unable to.

In the context of the brand, but I just don't know.

Fair enough.

The last question I have is on the $100 million in savings for the year.

Can you maybe just update us in terms how that is going to flow?

Is that still equally spread between each one in the quarters?

No change in that.

And as I pointed out in my comments, it's really healthy the first quarter and it will continue to help the latter quarters.

But it is evenly spread.

Thank you very much gentlemen.

I appreciate it.

You bet.

That does conclude today's question-and-answer session.

I will now turn the call back over to Mr.

Eric Wiseman for any closing remarks.

Sure I'll end quickly.

Thank you very much for sharing the call with us, we appreciate your interest and your questions, and we look forward to talking to you again in about 90 days.

Thanks a bunch.

That concludes today's conference.

Thank you for your participation.