威富公司 (VFC) 2009 Q4 法說會逐字稿

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

Please be aware today's conference is being recorded.

At this time, for opening remarks and introductions I would like to turn the conference over to Jean Fontana.

Please go ahead.

Thank you, good morning.

Thanks for participating in VF Corporation's fourth quarter and full 2009 conference call.

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

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

Hosting the call today this morning 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.

I would like to turn the call over to Eric Wiseman.

Good morning everyone.

Thank you for joining us.

Following my opening comments, you are going to hear a recap of the quarter's results and 2010 outlook from Bob Shearer.

Karl Heinz Salzburger, who is President of our International Business is also on our call today from Italy and he is going to comment on the international performance in the 2009 and key international priorities for 2010.

As you saw in the release this morning our fourth quarter and therefore our year came in much stronger than was anticipated.

I will comment on the impairment charge in a moment.

But for now, I will base my comments on our results excluding that charge.

The upside in the quarter was fairly broad based in nature.

Our outdoor action sports, jeanswear America, sportswear and imagewear is contributed.

You are well aware of a variety of factors impacting the comparisons this year including last year's $0.30 per share charge to reduce costs and this year's higher pension expense as well as the impairment.

In the release we noted that if you adjusted for all these factors our fourth quarter earnings per share would be up 28%.

In terms of our full year earnings picture it's important to remember that the $5.16 per share in 2009 included twin head winds of higher pension expense and foreign currency translation which combined impacted our earnings per share by $0.66.

We also noted in the release that if you compared 2009 with 2008, and excluded the 2008 charge as well as this year's pension, foreign currency and impairment, 2009 earnings per share would have risen 2% from 2008 levels on an apples-to-apples basis.

2009 was a year unlike any other we've experienced.

Looking back, I believe we struck the right balance between cautiousness, related to managing costs and inventories and assertiveness relating to investing behind our brands to keep them strong and healthy and investing in growth markets.

Let me take just a moment to recap the many accomplishments achieved by our outstanding teams during this very challenging year.

First we continued the momentum in our outdoor and action sports businesses globally.

Next, we gained share in our core Wrangler and Lee brands in the US.

In Asia, VF's total revenues grew by 28%.

During the year we extended our contemporary brands portfolio by completing the acquisition of Splendid and Ella Moss brands and we are thrilled to have these brands and these people as part of VF Corporation.

We continued to grow our direct to consumer business with a 6% increase in direct to consumer revenues and the addition of 90 new stores.

We improved the profitability of our sportswear coalition achieving double digit margins for both the quarter and the year.

Our gross margins reached record levels.

We committed to and achieved $100 million in cost reductions.

We reduced inventories by 17%, well above our prior guidance of a 13% reduction.

We achieved an all time high in cash flow from operations of $973 million.

And we delivered our 37th year of higher dividend payments to shareholders.

We are real proud of these accomplishments but we also saw our share of challenges and disappointments during the year.

Our revenues declined 6% or 4% on a constant currency basis in 2009 reflecting recessionary conditions around the world.

Our European jeans business had a much more difficult year than we envisioned.

Particularly in eastern Europe, where we had experienced significant growth in recent years.

Our image, or our uniform business was hurt disproportionately during this downturn by higher than anticipated levels of unemployment in key sectors.

While we are encouraged by the profit improvement in sportswear, our revenue trend is still not where we want it to be.

And, our earnings were meaningfully impacted by higher pension and foreign currency translation rates and finally our year end impairment analysis resulted in a charge to earnings in the fourth quarter which substantially reduced our earnings on a GAAP basis.

In terms of the impairment charge, we noted in the release that the charge is related to our Nautica, Lucy and Reef brands, where results since acquisition not met our expectations, due in part to the pressures imposed by the global recession.

As you are all aware VF Corporation is a Company with a decades long history of growth through acquisitions and acquisitions will continue to play an important part in our growth plans for the future.

We are committed to improving the performance of our Nautica, Lucy and Reef brands and we are encouraged about the opportunities for improved performance in each.

So with 2009 finally behind us, we are energized about our opportunities for 2010 and very focused in our approach to delivering solid top and bottom line growth.

We have a lot to look forward to this year.

Bob will talk you through a number of points related to our guidance for 2010.

I do want to spend a minute though on a very important point highlighted in the release.

That's the fact we are ramping up investment behind our brands to fuel market share gains and accelerated growth now and into the future.

The release noted that we are increasing spending this year by $50 million.

The bulk of the spending will be concentrated in brand marketing but we also plan to invest behind building our product, innovation and sustainability platforms.

Our spending is going to be very focused on specific initiatives within our most important and most profitable businesses.

Let me give you just a couple of examples.

Vans has been our most successful brand to date in leveraging social media to enable a richer more interactive relationship with consumers.

In fact, the Vans brands was recently recognized as part of the Facebook 50 -- the ranking of brands that are making the best use of the Facebook social networking site.

The inaugural ranking was developed by Slate magazine's The Big Money -- it's an online business news site.

We are going to continue to build our social and digital media capabilities this year, by investing behind proprietary content on our web sites, creating new mobile applications and ramping up our social media networking.

On the product development side, Vans will be introducing a new line of footwear in the surf category that is extremely lightweight packable and washable.

We also a new upscale collection, that's called the California collection with upgraded design and materials that's designed to extend the reach of the brand.

In terms of The North Face we will significantly increase our North American marketing investment in 2010, to drive brand equity and growth.

We've identified a dozen markets across the US where we are going to concentrate regional advertising featuring the brand's premier athletes and products in outdoor, performance, action sports and youth.

And, for the first time, we are adding TV and on line video to our marketing mix.

Like Vans, North Face has continued to expand its social media and mobile marketing efforts.

For example North Face's iPhone snow report app was one of the top rated applications on Apple's iTunes stores in 2009.

In 2010, we will invest in upgrades here and in other mobile communication tools to expand the reach of our social media.

We are also planning a substantial increase in marketing for our brands in Asia.

Where we are focusing on the Lee, North Face and Vans brands.

For example, we will be making a substantial invest in retail fixturing and visual merchandising to support our planned 40% increase in distribution in China.

Which will be mainly via shop in shops.

We are also funding a new media campaign for Lee in a number of key cities and rolling out additional North Face sponsored events such as 100-kilometer race in Beijing.

Complimenting our brand initiatives in the US will significantly expand Vans consumer marketing into tier one cities focusing primarily on digital and event marketing.

These are the right investments to make and this is the right time to make them.

And the good news is that we can fund these investments and we expect to deliver earnings per share growth of 9% to 11% this year.

Those of you who heard our presentation last month at the ICR Xchange heard us talk about our long-term priorities for growth and investment.

To reiterate, we have a clearly identified list of priorities, they include maintaining momentum in outdoor and action sports brands, super charging growth in China, growing and gaining share in Europe, a disciplined expansion of our retail initiatives, intensified e-Commerce and digital media support, building on our best in class talent management and development, intensifying and integrating innovation, consumer insight and brand building across VF and developing and implementing a global approach to sustainability.

With that I will turn the call over to Bob.

Thanks Eric, good morning everyone.

I will make a few comments about the quarter before moving on to specific points regarding our outlook for 2010.

First, related to the noncash impairment charge, Eric pretty well covered the details.

I will just reiterate that we are confident that these businesses will deliver improved operating results going forward.

In fact in the case of Nautica and Reef, that progress has already begun.

I will also point out my comments that follow will mostly relate to VF's operating results before the impact of the charge.

Revenues came in stronger than expected and we are a bit above last year's fourth quarter, continuing the improvement in comparisons that we have been seeing throughout the year.

Gross margins reached a record 46.3% for the quarter.

Representing an increase of 380 basis points over the prior year quarter.

Full year gross margins also expanded over the prior year to 44.3%, also represents a historical high for VF.

We are particularly pleased considering the pressures faced in this challenging environment that each of our coalitions achieved higher gross margins in the quarter.

Our direct to consumer business which expanded the 22% of total revenues in the quarter, continues to be a significant factor in driving these gross margin improvements.

Our direct to consumer business provides considerably stronger gross margin percentages than VF averages.

In addition, our reductions in inventories not only provide a source of cash, but translated to gross margin improvement, due to the lower risk of obsolescence.

SG&A as a percent of revenue has declined by 40 basis point in the quarter.

There are a couple unusual factors influencing this comparison.

This year's SG&A included 110 basis point impact from higher pension expense, while last year's fourth quarter reflected a 190 basis point impact from the charge to reduce costs.

In addition our SG&A ratios continued to reflect the changing mix of our business particularly related to our growing direct to consumer business where the ratios are higher.

Our operating margin excluding the impairment charge rebounded to 13.6% in the quarter, which was stronger than we initially anticipated.

The improvement over last year's quarter was driven by the factors I just discussed in addition to our intense focus on expense control in the SG&A area, throughout 2009.

Our full year operating margin again excluding the impairment charge was 11.9%.

Our higher pension expense impacted the full year 2009 margin, as it did in the fourth quarter by 110 basis points.

Excluding unusuals, specifically the cost reduction charge in 2008, and the higher pension expense in 2009, we are seeing improvements in our operating margin comparisons despite the challenges created by a difficult economic environment.

Our effective tax rate for the year was about.

30%.

That included a negative impact for a rate increase from the impairment charge.

Our tax rate on earnings excluding the impairment charge approximated 26%, which is in line with our prior guidance.

Our tax rate has been declining over past several years.

For 2010, we expect our rate to again be at about the 26% level.

We also provided comparisons in the release, that took into account the unusual items, specifically the charge for cost reduction actions in 2008, and the impairment charge pension expense increase and impact from foreign currency in 2009.

Excluding these items, fourth quarter earnings per share would have increased by 28%.

Full year earnings per share would be up by 2%.

Our coalition results were pretty well spelled out in the release I won't reiterate them here.

We will be happy to answer questions you may have during the q-and-a session.

Now a couple of comments regarding our international and direct to consumer businesses.

We noted in the release international revenues were up slightly in the quarter on a constant currency basis.

Now just to provide more color on that.

International revenues of our outdoor and action sports coalition rose by 9% in constant dollars and 7 For All Mankind's international revenues grew by 23% in constant dollars.

These businesses continued to grow not only in Europe but in Asia as well where our total revenues increased 40%.

Now as indicated in our release offsetting these gains was a decline in our European jeans business, which continues to be affected by a very difficult jeans market across Europe.

In terms of our direct to consumer business, we achieved another quarter of strong growth with revenues up 7%.

We opened 31 new stores in the quarter.

We experienced strong growth albeit off of a relatively small base in our e-Commerce business.

We continue to be really pleased by the return on investment generated by our direct to consumer business which remained above the 20% level in 2009.

Turning now to our balance sheet and cash flow.

We put a lot of focus on managing our balance sheet and cash flow this year, and our efforts clearly paid off.

Our cash balance which exceeded $700 million at year end, nearly doubled the 2008 level, inventories were reduced by 17%, and our cash flow from operations reached nearly $1 billion in 2009, and that is a new all time high for us.

We are particularly pleased with our strong cash flow given that in 2009 we contributed $200 million to our pension plan.

In addition our strong cash generation supported a $108 million spend to repurchase 1.5 million shares, and increase in our dividend payments to $262 million.

Our dividend payout ratio for 2009 was 46%.

So that's a look back at 2009.

Let's move on to 2010.

In today's release we announced expectation for 2% to 3% growth in revenues and 9% to 11% growth in earnings per share.

Now I would like to state right up front that our highest currency exposure is to the euro and for purposes of our projections, we assume the 140 rate for the year 2010.

That means that the impact from translating foreign currencies into US dollars will be about neutral to revenues and earnings in 2010, with some benefit to the first quarter which diminishes throughout the last three quarters of the year.

A couple of comments about our pension expense.

We do expect pension expense in 2010 to be $0.20 per share or lower compared to 2009.

Which reflects not only the improvement in valuation of our pension assets in 2009, compared with 2008, but also the benefit from a $200 million contribution to our pension plan we made in the latter half of the year.

Despite the improvement, earnings in 2010 will still reflect an incremental $0.30 per share impact from pension expense compared with the more normalized level in 2008.

Highlights regarding our guidance.

We are looking forward to first, continued momentum in outdoor and action sports coalition and strong growth in our contemporary brands coalition We expect relatively stable revenues in jeanswear, sportswear, imagewear with higher margins in each.

Next expect another year of higher gross margins.

In 2010 we are projecting gross margin expansion of more than 100 basis points largely driven by the continued change in our mix towards higher growth, higher margin lifestyle brands, and our growing direct to consumer business.

As was the case in our fourth quarter of 2009, we expect to see gross margin expansion across all of our coalitions in 2010.

Lower product costs will play a part in driving the improvement in gross margin ratios.

Eric talked about this as well but just to reiterate we will step up our investments to drive future growth.

These investments totaling $50 million will be very targeted and concentrated in those businesses with the strongest opportunities for growth including The North Face, Vans and 7 For All Mankind brands and our business in Asia.

A portion of these investments will be targeted at further strengthening our product innovation and sustainability platforms.

These investments together with the higher level of expenses associated with the growing base of retail stores will result in an increase in the ratio of SG&A as a percent of sales compared with last year's level.

Now I know this is an area of particular interest, so let's take a moment to talk about our SG&A comparisons.

In 2009 our SG&A expense ratio to revenues was 32.4%.

In 2010 the SG&A ratio is expected to be about 33%.

Or a 60 basis point increase over the 2009 ratio.

Pension expense is estimated to be $35 million lower in 2010 than in 2009.

Which will benefit the year-over-year ratio by about 50 basis points.

So on an adjusted basis, that would point to more than a full point increase in the SG&A ratio in 2010.

Here is the break down of that increase.

The $50 million in investment spending translates to roughly 70 basis points of the increase.

The remainder relates to the higher level of direct to consumer business in our mix.

Our direct to consumer business provides higher gross margins, and yes, higher SG&A ratios as well.

But most importantly, stronger operating margins than VF averages.

So the growth in our store base over the last couple of years has and will continue to impact SG&A expense ratios.

However we also expect our store growth to continue to positively impact our gross margin and operating margin ratios.

We believe our overall cost structure is in very good shape and is reflected in our expanding margin expectations.

Cost reduction is an every day exercise at VF Corporation and we continue to scrutinize all aspects of our businesses for cost efficiencies.

Now to summarize our margin expectations, gross margin should expand, operating expense ratios will also increase the result of our planned investment spend and some impact from our direct to consumer business as I just discussed, and operating margins should improve by 50 to 60 basis points.

Internationally we expect revenues to grow in line with total revenues.

That comparison is impacted however by the exit of the mass jeans business in Europe.

Excluding that impact international revenues would increase by a considerably higher rate than total VF revenues.

Now I'm sure you noted that very importantly, we raised our long-term target for international revenues to 40% of total revenues, up from the 33% we had talked abut in the past.

We continue to gain confidence in the opportunities abroad for the strong brands within the VF Corporation portfolio.

Important also are the higher operating margins provided by our international businesses.

Our direct to consumer business should increase by more than 10% in 2010.

We are planning to open 80 to 90 new stores and expect low single digit comp store growth.

This expansion should drive direct to consumer revenues up to 19% of total revenues in 2010.

Over the next several years, we continue to anticipate that our direct to consumer revenues will reach 20% or more of total revenues.

Important to our expansion plans in this area are higher than average gross margins and operating margins as well as the strong returns on investment of our direct to consumer businesses.

For 2010 we expect to generate approximately $800 million in cash from operations.

While not at the 2009 level, this would mark another very strong year of cash generation for VF Corporation.

Dividends and share repurchases are drivers of TSR or total shareholder return.

Our industry leading dividend payout will exceed 40% of earnings in 2010, and continuing in the share repurchases of the third and fourth quarters of 2009, this year we plan to repurchase at least three million shares.

Which is above the level of the past several years and will reduce our number of average shares outstanding.

In fact we indicated in today's release, that our board has authorized an additional 10 million shares for repurchase, given that only 1.7 million shares remained in the previous authorization at the end of 2009.

Finally to get in front of a few likely questions, our capital spend will approximate $110 million in 2010, with about half of that total devoted to new store expansion.

We have $200 million of debt repayments scheduled for October of 2010 that will be repaid from existing cash.

Amortization and depreciation, will approximate $175 million for the year.

So in summary we ended 2009 on a strong note, with better revenue and earnings comparisons, but of particular importance to us was the gross margin expansion that we reported in the fourth quarter.

Especially when considering the economic climate, we look at our expanding gross margins as a sign of strength for our brands and our business model.

We will be making investments in 2010 to further build our brands equities, and provide a platform for industry leading product innovation while still providing solid returns for our share holders.

And now some final words from Karl Heinz Salzburger on our international business.

Thank you, Bob and Eric.

Let me begin by reiterating some highlights for the quarter and for the year specific to our international business outside of North and South America.

Asia is our primary growth market and we are very encouraged by our results there.

Revenues grew by 40% in the fourth quarter with operating income more than doubling.

This growth was broad based with very strong increases across our Lee, The North Face, Vans and 7 For All Mankind brands.

For the year, we noted in our press release that revenues rose by 28%.

Our outdoor and action sports and our contemporary and sportswear businesses achieved growth in revenues on a constant currency basis in the fourth quarter.

The strongest growth was in our 7 For All Mankind, Eastpak, Vans, and The North Face brands.

As you are all well aware, our European jeans business continues to be quite challenging, reflecting market conditions that are affecting not only our brands but also those of our competitors.

Our fourth quarter revenues continued to trend over the last several quarters with revenues below those of last year.

I will talk about 2010 which is off to a strong start and we are looking forward to making good progress on many fronts.

We are working on five key initiatives in 2010.

The first is outdoor and action sports growth.

We are planning a year of solid growth for both The North Face, and Vans brands in both our wholesale and retail businesses as well as in Asia.

The second key theme is direct to consumer.

About half of the growth we are targeting in 2010, will come from our direct to consumer businesses including new store openings, including partnership stores and e-Commerce.

We continue to invest in building our international infrastructure and systems which will contribute to improvement in profitability.

Asia of course is a substantial opportunity for us and marks our third big initiative.

2010 should be another very good year for us there.

We are planning 20% plus growth and a 40% increase indoors for a total of 1400 by year end year end, supported by a substantial increase in marketing investment.

Given its premium authentic and technical position The North Face brand has a unique opportunity to build and lead the outdoor category in China.

During 2010, we will continue to build the brand's visibility by focusing on core outdoor activities and events, such as 100-kilometer Beijing race cited by Eric earlier.

We continue to open additional partnership stores while at the same time improving the productivity of existing stores with better assortment planning and customized products.

Our Lee brand has been the primary growth driver of our jeans business in China and in 2010 we will leverage our success with a significant increase in advertising and additional store openings.

China is still a relatively new market for Vans, but we have seen tremendous growth since launching the brand in December of '08.

In 2010 we will double the footprint of the brand to more than 200 doors, still a small number in a big market but the brand has a lot of room to grow.

Our 7 For All Mankind brand has also gotten off to a fast start in Asia.

We have 15 new free standing partnership stores planned in 2010 and we also have been investing to support our distributors in both China and Korea to build market leadership in the premium jeans category.

Our fourth initiative is addressing the challenges of our European jeanswear business.

Conditions deteriorated sharply in key markets earlier last year, but have stabilized since and we expect better performance in 2010.

We have adjusted our product mix and price points to address specific market segments with a limited premium product offering for our [Holoubek].

This should provide a significant boost in gross margins in 2010.

And we closed our European mass Jeanswear business in '09 which had not been profitable.

Lastly we will continue to invest in people and infrastructure to drive the growth of our businesses in the future and ensure we have the best talent and leadership in place for our great brands.

Thank you, Karl Heinz.

That concludes our comments, and we will now open the line to any questions you have.

Thank you.

(Operator Instructions) We will go first to Jim Duffy of Thomas Weisel Partners.

Thank you, good morning.

Good morning Jim.

Thanks for all the detail.

I'm going to ask you if you would to speak in a little more detail about the Jeanswear outlook as you look to expectations for flat revenue in 2010, what does that presume for the European business.

Is the European business in Jeanswear -- has it stabilized, do you see it getting worse.

What kind of outlook do you have there X departure of the European mass business.

Is your question exclusively about the European Jeanswear business or also about our US business?

About the global Jeanswear business.

The different components that get you to a flat revenue expectation.

Let me touch on the domestic Jeanswear business and then I will pass it off to Karl Heinz.

Obviously our biggest business in the US is our mass jeans business where we have momentum in our core male business, we are clearly the leader in men's and boys' jeans in the mass channel and we continued to win in that channel of distribution.

There is a difference Jim between what we ship in and what is selling through.

But our sell throughs are strong and our core Wrangler and Wrangler Jeans company brands are doing very well.

Particularly behind new product innovations -- in mens we have a comfort solutions program, in the missy business, we have a slender stretch program, and all those are working at retail for us.

Next on to Lee, where Lee has momentum in the US market in the mid tier channel.

They have had a really strong year.

You will note -- I'm not sure if this is visibility -- but our Lee business in 2009 was down slightly -- less than 1% in our shipments.

But at retail we absolutely gained share in the channel and it was also about product innovation behind mostly our slender secret program which has been our most successful denim launch ever in the Lee brand.

It was featured on Oprah, and that program is an innovation that's relevant to their consumer and is working for them.

The weakest part of the US business understandably is our specially business.

It's a western specialty business, it lives in the cowboy part of the west and along the border and those are heavy duty tough jeans and used a lot in the construction trade along the border and that's a tough place for us right now.

With that I will turn it over to Karl Heinz to comment on Asia and Europe.

Starting with Europe -- Asia is actually doing well -- so we will focus on Europe.

The European jeans business over the past several years has been fueled by premium price products which have been disproportionately affected by this global recession in the last years.

What we also had -- we benefited over the last several years by a strong and very profitable growth in eastern Europe where we have in most eastern European countries we have subsidiaries and owned businesses.

And this market as we know especially in Q1 last year, we are down sharply in '09.

We had certain markets like Russia which literally collapsed and we had currency issues in markets like Poland where we have a meaningful presence.

So that is one factor

Now, going forward, what we expect in terms of revenues in 2010, we still expect to be down, partly due to our mass exit in '09.

Excluding that impact we expect to be down mid single digit.

However what we see is a slight uptick in orders which is positive.

Even if we remain very cautious in replenishment.

Jim, one thing I will add to the US picture because at some point in this call this should come out.

We talked about all of last year -- we lost this one program in the mass channel, our Riders program.

It was a big program and we lost it.

We actually are gaining that back inch by inch.

It's going to be a big head wind for us particularly in the first quarter.

Where that program was still active and at retail last year, once we get through the first quarter, the second quarter will be a slighter impact and back half of the year no impact at all.

We have one more quarter of a big impact from the loss of that business and you will see that reflected in our first quarter domestic Jeanswear business numbers.

Did that answer your question, Jim?

It does, I have a follow up with regards to the US business.

There was an element of destocking that occurred particularly in the first half of last year, does your guidance presume any restocking or easy comparisons with regards to that?

The destocking that occurred last year.

I think in general across all of our domestic businesses, retailers are planning to further improve their inventory turns in 2010.

I think that's smart.

Which implies that they will be buying slightly less than their selling again.

I think the GAAP is going to be more narrow but we have not built any restocking into our business.

We learned and we think our customers learned they can service their consumers without carrying as much inventory as we once felt was necessary.

We are not restocking -- though our inventories were down almost $200 million last year, we serviced at record high levels -- we serviced our retail partners -- and we think that the retail partners that we sell are going to do the same.

We have no restocking built into our forecast.

Helpful.

Then a follow up for Karl Heinz -- looking at your guidance for the international business as a whole to be consistent with corporate growth, and yet 20% growth in Asia, that implies declines in Europe, are you seeing declines in Europe in other brands besides the Jeanswear or is is that exclusive to the Jeanswear business?

I would say it's exclusive to the Jeanswear business, Jim, remember we closed our mass business last year and clearly that has a meaningful impact.

We see our outdoor and sportswear businesses growing in 2010.

Thanks.

I will let someone else jump in.

Jim, let me make sure it's clear in the numbers as we indicated that comparable growth to overall VF, that includes the exit of the mass channel.

The mass jeans business.

Thank you.

We will go next Jeff Klinefelter of Piper Jaffray.

Thank you.

Also thanks for all the great detail today.

A couple of questions, wanted to focus on Asia, clearly a growth focus of yours for 2010.

I was wondering if you could share a little more detail for example the up margin trends in that region compared to say Europe and the US, given your shop in shop model.

Which I know is different than both other markets.

Give us a sense for the profitability or how you think of the economic model as you're ramping these new shop in shop doors.

And also China being the primary focus -- I believe your -- most of your direct business is in China and India, you shared a little color on China versus India.

And also anything else about the balance of the Asian markets, your licensed markets, how they are performing.

I will start off on the profitability.

Our profitability particularly in China is actually at the highest level in the Company.

It's essentially a retail model.

It's a -- what makes it so good for us is it's a retail model without all of the expenses associated with retail ownership.

So what that does is it provides us with a very strong operating margin and again it's the highest level across all of VF.

Karl Heinz you may want to comment on the other.

There were a couple of questions see if I remember them all.

The model, China as Bob said is a retail model.

We had in '09 about 1000 doors, which we are going to expand to 1400.

The majority -- 90% of the stores are operated by partners we call them franchisees.

It's a great model.

They buy the inventory and run the store basically.

And, we sell to them based on a discounted retail.

So it's a good model.

China -- the difference between China and India, China we started very early in the mid-90s we owned (inaudible) subsidiary.

Asia, India came later.

I would say those two markets are in different stages of evolution.

China is a little bit ahead in terms of consumer consumptions.

We have a large platform and many brands there, we are doing well, [we heard it].

In India we focus on the two jeans brands, Lee and Wrangler.

The model is relatively similar -- it's a retail franchise based model.

But I would say we are at an earlier stage in the terms of growth and even size of that market.

For the rest in Asia we have an owned subsidiary in our sportswear business in Japan which is primarily 7 For All Mankind and Napapijri and the in rest of Asia we are working with distributors primarily.

This is Eric, I don't think you were following VF Corporation back 15 years ago, 15 years ago we launched our own subsidiary in China.

We are benefiting now from being at this for 15 years and having built the infrastructure and team.

We learned a lot of lessons along the way.

But, as those who followed us for a long time know, we lost money for the first seven years.

And we are now benefiting from all those investments that were made in the late 90s and the first part of 2000.

In terms of the balance of Asia as a percent of total revenue right now, it's relatively small within your entire enterprise, but that because a lot of the markets are licensed.

Are there other opportunities to take back in house directly -- distributors and licensees -- if you trued all of that up to wholesale, just how big on a wholesale equivalent basis is the Asian market right now for you.

We agree with your observation that it is not the size that it has the potential to be at VF.

And we are very focused on making investment and our team there has made huge progress in the last two or three years.

We are gathering growth momentum off of big numbers.

As Bob said it's very profitable for us to do that.

I'm not going to comment specifically on other arrangements we have with partners.

We do have some other partners -- licensees and distributors -- on all of our brands scattered around the region in different models.

We try to do what is best for shareholders.

So if it's best for us and for our shareholders to have a partner running the business that's what we will do, if it's best for our shareholders for us to run the business that's what we get to ultimately.

One other question -- any updates on the licensing business you launched last year any thoughts there on new initiatives?

Nothing to announce there, Jeff.

That's something we continue to work on.

My sincere hope is that by the end of this year we will have accomplished what we set out to do -- which is to establish a proprietary brand business with one of our retail partners but no progress to report yet.

Thank you.

Thank you.

(Operator Instructions) Next question is from Bob Drbul from Barclays Capital.

Hi good morning.

Couple of questions, first one, on the goodwill impairment charge, does this temper your appetite for acquisitions in the future when you look at some of those write downs.

No really not at all, Bob.

It doesn't temper our appetite for the brands that were impaired.

It doesn't temper our appetite for future acquisitions.

You know how the impairment calculations work.

It's an exercise we go through every year.

Really the size of this impairment at $120 something million against our balance sheet balance on goodwill and intangibles of over $3 billion -- is a very small impairment charge against what our balance sheet has for goodwill and intangibles.

Following on that one Eric when you look at the three that were included -- 7 For All Mankind from when you acquired it and the trends in that business versus the trends at the high end -- I'm little surprised there wasn't included anything on 7 For All Mankind in this review.

Can you talk to that maybe.

It's a mathematical calculation on what the value of the business is given our current plans for the business and I'm way in over my head from an accounting standpoint.

But what that says to me is the plans that we have at that business even though we are at a different starting point because of the recession, the plans still support the value we paid for it.

Bob, am I --?

No, that's right.

Bob it's reflective of the expectations that we have for the business on a global basis.

So it's really fairly straightforward.

Okay.

I'm not sure if I missed it but did you guys give your comp store sales performance in your stores and any color on the different brands.

I will give you some general -- we look at the fourth quarter, we talked about that on and off during the year.

What I know is that during the fourth quarter, our comps globally were flat.

Obviously there is mixed numbers in there with all the retail formats we have around the world.

And as you would expect our retail formats in businesses like The North Face, and Vans, and 7 For All Mankind, posted stronger comps.

Lucy, Nautica, a few others posted weaker comps.

The add up of all that for the fourth quarter was flat.

Then, just one final question.

It's a first quarter question -- on imagewear with the Saints winning the Super Bowl versus the Steelers last year, how does that impact the imagewear result for the first quarter?

There is no team we prefer to the Steelers.

You will appreciate that comment, Bob.

That's as good as it gets for us.

We will -- while the Saints have been good for us this year, not as good as your Pittsburgh Steelers.

Thanks, guys, see you later.

Next to Kate McShane of Citi Investment Research.

Hi, Kate.

Just a quick question on the $50 million investment, can you talk a little bit about how much more is that in terms of marketing dollars -- how much more is it than 2009 or has there been shift in marketing dollars from some maybe the smaller -- lower return brands to these higher return brands?

Kate, it is in terms of the marketing side, just to take a step back, the $50 million is broken out by about $40 million of the $50 million being on the marketing side, the advertising side.

And, the other $10 million are in the areas that Eric mentioned, specifically the product development area and also sustainability.

A couple details on the advertising piece, the investments as we have been saying are clearly against our fastest growing brands so that the biggest portion of that $40 million will go to The North Face brand, then Vans and 7 For All Mankind and some Nautica as well.

It's all incremental to the 2009 spend.

So the $40 million that's really the definition of the additional marketing that's incremental to the 2009 level.

Okay.

Thank you.

With gross margins for Q4 I know there are a lot of moving parts with gross margins.

So I wondered if you could give a little bit more detail in terms of how much was a benefit from having more retail, how much was a benefit from outdoor and action sports growing more rapidly, how much was impact from it being better environment with lower inventories and how much was a benefit from deflation.

Hard to breakout all of those pieces but what I can tell you is this -- that the retail itself drove nearly half of the overall gross margin improvement.

Of the 400 basis point retail, retail was about half of that.

It's is point that we made during the comments that retail continues to be such a strong driver for us in terms of gross margins.

And I might also add in terms of operating margin as well -- retail was a contribute to our operating margin -- to operating margin improvement in 2000 -- 2009.

In terms of the rest of the pieces you pretty much touched on all of them -- the continual expansion in our higher margin, gross margin businesses -- for example outdoor and action sports and also in Asia, where the bulk of the remainder, the other half, in terms of the growth.

But I will also tell you that you're right on in terms of product costs -- lower product costs and also just running the business more efficiently than the fourth quarter of 2008.

In other words with the lower inventory levels and the efficiencies that that brings those were factors as well.

So the biggest piece retail and then everything else was an equal contributor in terms of the better mix and also efficiencies.

Okay, thanks very much.

Thanks, Kate.

(Operator Instructions) We'll go next to Omar Saad of Credit Suisse.

Thanks, good morning.

Wanted to follow up on Bob's question a little bit on the three brands you took the charge on.

Not so much on the accounting side but Eric can you discuss some of the strategies for those three brands -- where they stand, how you view the opportunity there, what the opportunities are, what can be done to drive the performance.

Sure, Omar, good question.

First we still believe that each brand has good long-term potential and I will comment briefly on each I guess.

Nautica, start there.

Nautica is a much better place sitting here in January in 2010 than it was in January 2009.

We got the business back to double digit profitability and that was our number one objective.

We've also improved the price value equation of our products there -- that was a big issue for us coming in to 2009, we solved that during the year and it showed up in our holiday sales.

We were on plan and had the best comps that we've had from the middle of December through the end of January.

The brand performed very well at its largest customer.

The challenge we had last year, the area we need to address first is our outlet business.

We didn't achieve our potential in our outlet business and we are changing our model.

Bob mentioned there is some marketing investment going into Nautica and some of that is going to go into our stores.

We have new leadership there, so we are in a pretty good spot there and will show up an improvement in operating margins again in 2010.

Onto Lucy.

We reassigned Lucy in to our outdoor coalition in the fall Omar, and we did that for a couple of reasons.

When we looked at what would help the business most, we thought having it aligned with a strong technical performance product engine and a mature retailing group which we have in outdoor, what would be the best way to leverage VF's capabilities.

So, we moved it into the outdoor coalition and it's working with our outdoor times in San Leandro on how to take what they know about activity based product development and what they know about retail so we -- they can benefit from that.

And we still think women's activewear, particularly yoga inspired activewear, is a viable proposition.

And, we are committed to its future.

Reef is easiest to talk about.

The Reef team has momentum right now.

They had a really difficult 2008 there.

We went through substantial restructuring of the organization including the leadership level.

But that whole team is putting together an agenda that is really starting to pay off.

There is a long lead time on it.

It's obviously a spring summer oriented business but our spring summer numbers are coming in as planned and there is momentum going into 2011 in the product and brand area we are quite frankly excited by.

We think all of those businesses had some challenges that resulted in the impairment but we think we have addressed them and are confident in their future.

Thanks, that's helpful.

One more question.

When you look at the trends in your own retail business and the wholesale business and you can see the monthly comps out of the department stores and a lot of the other retailers in the US, what is your sense on retailers attitude towards inventories, towards replenishment.

Are they still using it as a lever, have they reached the end of the rope so to speak in using inventory as a lever.

In 2009 it was a big separation between what was sold and what was purchased.

Sold by our retail partners and then purchased from us by our retail partners.

But what we all learned during that is that we can operate these businesses more efficiently.

The retailers that we are working with -- they are planning on getting improved turns -- better vocabulary for that is better inventory productivity -- in 2010, I think the GAAP is going to be smaller than the big GAAP we had in 2009.

But I think we are all learning that speed to market is our buddy.

Designing later, executing quicker and being on trend are important to us.

So everybody is working on speed and being more responsive in our inventory management.

That will continue we think.

We do not see a restocking taking place -- don't think that's a smart way for anybody to proceed actually.

Great.

Thank you.

Thanks Omar.

We'll go next to Benjamin Rowbotham of Goldman Sachs.

Thank you.

Just wanted to revisit an earlier question, around the gross margin guidance of up 100 basis points for 2010.

Is there anyway we can decompose that between the mix shift to DTC versus just absolute year-over-year strength.

And also how should we think about the weighting on that of a quarterly basis throughout the year.

Thank you.

Ben I will take that.

Once again in 2010 we pointed more than a 100 basis point improvement in the gross margin as we responded to in 2009, about half of that will in fact come from our higher gross margins in our direct to consumer businesses.

So once again a driving factor to be sure.

The other improvements, especially earlier in the year we will see those lower product costs helping us.

What happened in 2009 was we went in to the year, product costs were up a little bit, in the latter part of 2009, product costs came down a little bit.

As we enter early 2010, product costs are still at the lower levels, a little lower -- in other words at the levels in terms of where they were in the latter part of 2009.

But we are seeing some cost pressures in the second half of 2010.

So we think that will add net out to a slightly improved product cost picture for us over the year .

And then the remainder is driven by the mix factors we talked about.

Stronger growth in outdoor and action sports in particular with its higher gross

Helpful, thank you very much.

You also asked about how that lays out on the full year basis.

It will be a little bit stronger in the first quarter, one of the reasons for that -- in other words the improvement in the first quarter will be a little stronger than what we will see for the rest of the year which will be fairly evenly spread as we look at the remainder of the year.

But the first quarter should stand out a little bit in terms of improvement.

One of the factors behind that is last year we talked about the impact of currency, particularly on the transaction side.

We said that impacted our first quarter last year.

We are not making up all of that necessarily.

You make that up in terms of pricing -- we won't necessarily make up all of that, but some of that and some of that will come through in the first quarter.

So we expect the first quarter margin improvement to be stronger than we see for the rest of the year.

But the rest of the year pretty evenly spread in terms of the percentage improvement.

That's very helpful, thank you so much.

Thank you.

Next we will hear from David Glick of Buckingham Research Group.

Good morning, thank you.

Eric, we've heard from some other apparel manufacturers about how they see the revenue trends playing out through 2010 -- being more back half weighted as retailers are a little more aggressive in placing orders second half versus first half.

Given your commentary about the Q1 jeans business, head wind, should we think about the year unfolding as a gradual improvement, maybe starting out on the type line, down low singles and improving by the end of the year to the up low single to up mid single range.

Is that a good way to think about the flow for the year.

Yes, David that's is a good way to think about the flow for the year.

We have a few unusual things like the mass business in Europe, faded away from us last year and the issue of the mass channel in the US.

And given the strength in fall, we are hoping that we get pretty strong bookings for this coming fall.

We don't know all of that yet, but we do see it improving over the course of the year.

On the follow up on North Face in the US, are you seeing organic growth with some of your key customers in the US -- obviously that is a mature business, the weather certainly helped the sell through on outerwear this fourth quarter.

Are retailers being a little bit more conservative in the US next year or are you seeing organic growth?

We are absolutely seeing organic growth.

That's the first comment.

Second comment, spring bookings were a little more conservative.

Now you have to put yourself back in time to when spring bookings were taking place last spring -- or last summer -- and at that time everybody was anxious, so -- but we did have positive spring bookings.

But they weren't strong positives.

Now fast forward to our sell throughs this fall.

We had an unbelievably strong sell through this fall.

Not just because of the cold weather but because we had the right products.

We are confident that that sell through we had this fall is going to translate into strong bookings for next fall.

We are in the middle of writing those orders right now.

But, the early indications are that we are going to see some strong bookings for fall 2010.

Are you seeing some -- I know Nautica you probably would have had your market by now.

Are you seeing good reaction to your revamped price points and new approach to the line?

Yes, we are.

As I mentioned earlier, Nautica had a good December and January at its largest customer and that's resulting in an improved outlook for fall.

How that plays out, too early to know.

But it's a better discussion now than it was -- would have been 12 months -- or 12 weeks ago.

Great, thanks a lot and good luck.

Thanks David.

[Oba Naddey] of UBS has our next question.

Hi guys.

Congrats on a nice quarter there.

Maybe you could help me -- I'm looking at the guidance for contemporary coalition and I apologize if you talked about this, I jumped on a little late.

For the year, the contemporary coalition if I was to maybe break that down between what you expect from new capacity growth or store growth versus like for like growth in the category could you give any color around that.

We didn't.

But I will give you some general color on it.

When you think about the US contemporary business, about half, slightly more than half -- of the growth will come from new stores and benefit of stores that were opened in 2009, but didn't have a full year in 2009.

There will be some comp store growth in our stores.

Okay.

Then we heard also from some other retailers you caution us not to try and correlate cotton cost with denim costs they don't necessarily correlate in the timing at least.

It looks like cotton futures are rising for the end of the year.

And, if I think about the jeans business -- do you think when you think about your retailers for the Wrangler and Lee jeans there could be an opportunity to take price --if those high cotton prices persist -- that might push up your product costs.

On -- are you talking about -- price adjustments.

Just in the jeans business alone.

To your point, we are seeing some cost pressures and that's one of the things I was mentioning earlier.

We are seeing some cost pressures from -- it is mostly on fabric by the way.

That is right on.

Related to the pricing side, it's a little early to tell.

We really have to wait and see just what happens on the cost side.

Okay.

If I could ask a quick follow up on the Nautica brands, is there any way you can help us think about the how the distribution of that brand may play out in 2010 as far as the mix of distribution through the different retailers versus your own channels.

Is there any big shift we should be aware of for 2010 versus 2009.

No, not a big shift.

It's a department store focused brand.

That's what it is and will continue to be.

In addition to that, we have a strong license business and our own outlet store business.

The area we have complete control over is our outlet stores and they under performed for us financially -- comps weren't what they should have been, but more importantly, the profitability wasn't what it should have been.

But, I think our new team there has -- I think they are organized around the right game plan and we are confident they are going to make progress, it shows up in their profitability and we are returning some of that to them in an increased brand investment funding.

Okay, thanks a lot guys.

We'll go next to Mitch Kummetz of Robert Baird.

Thank you.

A couple of questions, first on your own retail business, I think you ended the year at 757 stores, could you say how many of those are Vans and North Face stores.

And, then of the 80 to 90 stores you expect to open in 2010 how many of those do you expect to be Vans and North Face.

I don't have the specific numbers on the 700 and whatever stores you told me we had.

759 or something like that.

Vans is our largest global full priced retail format for sure.

It was when we acquired it.

Still it is.

And it's very successful.

The next question -- I don't have the breakout of that, Vans is over 200 stores of that total and that's on a global basis.

The 2010 outlook, the best way to deal with that -- we are looking at 80 to 90 stores -- two-thirds of those are going to be -- this is a global number -- between The North Face, Vans, and 7 For All Mankind.

We are very focused this year in our marketing spending and we are very focused supporting our strongest brand opportunities.

And so really it's 7 For All Mankind, North Face and Vans will be where we are focused in new stores.

A lot of them internationally.

I know The North Face number is -- I think two-thirds of the stores we are opening this year are outside of the US.

Where the brand is less well developed and where we have great opportunities for growth.

That's helpful.

On the $50 million incremental investment for 2010 I think Bob you said it was $40 million of that is marketing.

Is that going to be concentrated at any point over the year or should we think of that as hitting pretty consistently across the year.

It will hit pretty consistently across the year.

If you look at the revenue breakout it be spread pretty consistently with revenues.

Got it.

On your margin outlook by coalition for 2010, I think you mentioned that you -- even with sales flattish for sportswear, imagewear and Jeanswear, I think you said you expect some margin improvement there.

How should I think of that in the terms of the overall 50 to 60 basis point improvement that you expect for the year.

I'm assuming that outdoor and action sports and contemporary will see more improve in the operating margins than the other three coalitions.

Is that a fair assessment and can you give us some guidelines as to how we should be modeling the overall operating margin improvement by coalition.

A couple of points there, Mitch.

Actually, if you take outdoor and action sports as an example, we have been seeing really nice margin improvement.

We certainly saw that in the fourth quarter as well.

But that's also where most of the additional spend will be.

So otherwise yes you are absolutely right.

But with the additional spend while we expect to see margin improvement it won't be quite as strong as it might have been without the additional spend.

So, actually the margin improvement is more equally distributed across our coalitions as a result of that.

Okay.

That makes sense.

Also Mitch, there were some factors -- like the European jeans business is a tough year and we talked about some of the challenges we had in that business and how it impacted profitability earlier in the year.

Again, we expect improvement obviously in the profitability of our European jeans business.

So there's some factors like that about what took place in 2009 versus what shouldn't happen again in 2010 that will help those comparisons.

Okay, that's helpful.

Thanks good luck.

Thanks Mitch.

We'll go next to Chris Svezia of Susquehanna Financial Group.

Good morning everyone.

I just wanted to follow up on the international piece of the business for a moment.

When you think about your outlook in the international component growing roughly in line 2% to 3% with the Company overall.

And, I know you talked a lot about Asia Pacific and what's going on in China and obviously lapping the difficult comparisons in Europe, with the mass business.

I'm just wondering if you can talk about the other segments maybe either by coalition in terms of what is going on internationally in Europe to still get to that 2% to 3% growth.

Karl Heinz, maybe you want to comment on that, but Chris I would first just remind you of the exit of the European jeans business.

That is impacting that comparison.

In a fairly significant way.

So, as we said yes we expect the international revenues to grow consistently with overall VF averages but the exit of that mass jeans business which was about $45 million worth of revenues.

$45 million worth of revenues is a fairly significant impact on the comparison, that's why in my comments, I made the point that without that -- or if you try the put the numbers on more of an apples-to-apples comparison, the results will be considerably different and the revenue growth rate would be considerably higher.

Karl Heinz, do you want to add any color to that about outdoor and action sports and where you see --.

Yes, I will.

Chris we have three banks in Europe, one is the jeans which Bob just commented.

The other two -- one is outdoor and action sports, where we group The North Face and Vans as the two big brands.

Third one is sportswear and CBC -- we combine them because of size.

We talked about jeans and in sportswear and CBC we do see growth and also in outdoor and in action sports on The North Face and on Vans.

We had good bookings for spring 2010 and we are in the midst of selling fall 2010 on The North Face and Vans and the trend is positive.

We are pretty confident it will be a good year.

Clearly we have -- Eric mentioned it before -- we have strong winter which is helping us but not only that we have great collections and a great business platform.

Same we see on the sportswear side -- two large brands are 7 For All Mankind.

Bob gave numbers before.

The other brand which we did not touch is Napapijri, where we also see good solid growth coming in.

We are selling as we speak fall but the trends are good.

Okay, thanks Karl.

A question for Eric -- as you look at the Jeanswear business domestically, and what Wal-Mart has been or striving to do, you talked about your Rider program and what happened last year and obviously it's starting to chip away again in terms of trying to build that business again.

Their decision to do some more of their business direct, the agreement they strong with Lee, your conversations with Wal-Mart and your business with a brand of Wrangler in terms of what is going on and how you think that's going to layout this year.

I think it's going to layout well for us.

Wal-Mart is -- they are an important customer and a good customer, we have a great relationship with them up and down their management ranks.

I will tell you, they understand what they are doing.

They are trying to build some of their own business as they understand the importance of having strong national brands in their store.

If you are a strong national brand and if you are relevant in a category, they give you full support.

In fact, in the last two years, while a lot has been written about Wal-Mart's efforts at building their own brands, our Wrangler displays in their stores are the best they've ever been in our history.

Wal-Mart has invested substantially in communicating to their consumers that they are a destination for the Wrangler brand.

I think what they are doing is they are focused on two things.

One is obviously building up their private brands business and doing that efficiently and second making sure that their strongest national brands are called out and we are fortunate that we have strong brands in there and we are going to win with that.

Eric, is it fair to say you would probably expect your business with Wal-Mart to grow this year based on that assumption?

Absent the program that we are missing -- we talked about that on this call -- it was a big program, we lost a big fixture and we are now trying to get some of that back and making some progress there -- absent that, our core men's jeans business, yes, we are expecting growth.

Thank you very much and good luck.

Thank you very much.

[Paula Burch] with Needham & Company has our next question.

Thank you for taking my question.

Congratulations on a nice finish to the year.

I wondered if you could update us on a little bit more on Splendid and Ella Moss.

I was wondering how you felt about the positioning of these brands versus the competition.

And if you could also share with us your learning since acquiring the brands and where you may be focusing most of your growth in 2010 in terms of distribution and have those plans changed significantly due to the environment.

The strategy for the Splendid and Ella Moss brands haven't changed.

Obviously they compete in the contemporary space and at high end of the contemporary space and that whole channel and the speciality store industry that supported that channel has had a really difficult two years.

Everybody in the space at the department store part of the business has had tough comps we all know that.

We also all know that the number of contemporary specialty stores has decreased significantly over the last two years.

Stores have just gone out of business.

Having said all of that, they have a good speed to market model, they have great product development skills and they do that very quickly, so they are on trend on a consistent basis and they are the leader in what they do.

They are very focused.

And, in addition to all of that we opened our first Splendid store on Robertson Boulevard.

It opened in November and it has been off to the races, it's exceeding our expectations and we are going to open a couple more this year.

We absolutely believe in the brand.

We think it is a perfect compliment to the brands.

We think it's a perfect compliment to our 7 For All Mankind business and we are going to invest in their future.

Okay.

Great, thank you.

Good luck.

Todd Slater with Lazard Capital has our next question.

Thanks, I can't believe people still have more questions.

But I salute you guys for going as long as it takes to answer them.

Neither can we.

I want to sign off by complimenting you guys on a very well managed year.

We will speak offline.

Thank you so much.

Moving on now to our second to last question in queue, this will come from Maggie Gilliam of Gilliam & Co.

Most of my questions have been answered.

But I did want to follow through on one thing -- on the subject of Nautica, and the impairment charges, with all the good things you've got going, I can't believe they insisted that you have to actually take an impairment charge at this point.

And second of all, was there a complete impairment charge on all the goodwill or is there still some left?

No Maggie, related to the charge, it represented only about 10% to 12% of the total -- of the total goodwill and intangibles on Nautica.

It was a relatively small percentage overall.

Okay.

Finally I just was wondering how the brand is fairing in the Macy's environment.

I'm sorry how the Nautica brand is fairing in the Macy's environment?

Yes.

Well, Macy's has gone through a lot of change.

More than I've seen any large corporation go through -- as much as I've seen any large corporation go through.

They've weathered and they've done that during a very difficult time and hats off to the management team at Macy's for getting through that.

They have focused on collaborating with a few big partners and VF Corporation is one of those partners and in that all of our brands are participating -- in that we have very strategic discussions about the roles of our brands in their stores.

And, I think that's going to be good for Macy's and good for VF over time.

We will now move to our last question from Ken Stumphauzer of Sterne, Agee & Leach.

Thank you.

Thanks for taking the question, guys.

Just a couple of quick ones.

First, as far as the $40 million of incremental advertising how much is a restoration of advertising expense that was maybe pulled back in 2009.

Secondarily, I was wondering if you could generally update us on the acquisition front if there is still a significant delta between sellers' expectations and what you are willing to pay.

Thank you.

Let me, I'm going take a shot at both questions.

At a macro level, meaning a total VF level we've restored advertising to where it was in 2008.

And, 2008 was a record year for us -- for advertising.

We are getting back in that direction, fueling the total VF advertising bucket to its former highest levels -- that's the neighborhood we are in.

What is different is that this is very focused on the brands that Bob talked about earlier on The North Face and Vans and increase in Nautica, in China.

But, if you look at The North Face, Vans, China, they are record levels and we are disproportionate -- we were less democratic with our advertising budget this year.

We focused it on our biggest and best opportunities and are funding those brands at all time record levels.

So, it depends on how you look at it -- at the brand level or total level.

And on acquisitions, we are very active -- there's not a lot of deals getting done that's probably a price -- pricing situation and valuation situation.

But we are still active in the same places -- we are looking real hard in the outdoor and action sports industries and that's we think our sweet spot.

And we are working hard at it, we're just not making any progress.

Hopefully by the end of the year we will have a different story to report.

Thank you.

Thanks Ken.

That concludes today's question-and-answer session.

For any additional or closing remarks I will turn the call back over to Mr.

Eric Wiseman.

No, I think we've probably said enough today.

I will thank you for your patience and your time and your interest and we will see you at the end of the first quarter.

Good bye.

Ladies and gentlemen, thank you again for your participation in today's conference call.

This does conclude the event.