威富公司 (VFC) 2010 Q1 法說會逐字稿

Good day everyone and welcome to the VF Corporation first quarter 2010 earnings conference call.

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

At this time I would like to turn the conference over to Ms.

Melissa McKay of ICR.

Please go ahead, ma'am.

Thank you, good morning.

Thanks for participating in VF Corporation's first quarter 2010 conference call.

By now, you should have received today's earning 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, I would like to remind participants certain statements included in today's remarks in the Q and A session may constitute forward-looking statements within the meaning of Federal Securities laws.

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

Important factors that could cause 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.

Thanks Melissa.

Good morning, everyone and thanks for joining us today.

Following my opening comments, Bob Shearer is going to review the quarter's results in more detail.

We also have with us today Karl Heinz Salzburger, President of our International business who's going to provide a recap of our results in Europe and in Asia.

This is a very good day for VF.

It's a day that we announce record first quarter earnings that surpassed both our, and the street's expectation, and it's a day that we increase our full year guidance for revenues, gross margins, brand investment, and earnings per share.

The hard work of last year to reduce cost and inventories while investing appropriately to keep our brand strong, all that within the context of a a deep global recession, is paying off.

Certainly we all expected the first quarter to benefit from comparisons to last year's results, when earnings declined sharply.

The 60% increase in earnings per share reported this morning, is a solid reflection on the strength of our business model, our brands, our operations and, of course, our people as evidenced by the fact that we achieved an all time record high in first quarter earnings.

As all of us are aware, economic conditions are stabilizing with consumer spending showing signs of recovery in the first 3 months of the year.

But given the volatility and certainty of the past year, it's important to keep in mind that we have still have three quarters to go.

In the economic recovery remains fragile.

We must expect that we're going to need to react quickly to changing conditions that could present any combination of both challenges and opportunities globally.

So we'll continue to invest prudently and stay laser focused on execution.

As our earnings power has strength, so has our ability to fund the continued global growth and expansion of our brands, which are some of the strongest and most powerful in the world.

In February, we committed an additional $50 million in investment spending focused on our biggest and most profitable growth opportunities.

We specifically cited the North Face and Vans and China as key areas for investment.

Those investments, which began in the first quarter, are beginning to pay off.

Today, we raised our revenue growth expectations in total for VF and specifically for our Outdoor and Action Sports businesses and our business in China.

And given this momentum we also announced today that we're increasing our brand investments by an additional $35 million.

These investments will be in very targeted areas to further strengthen the connection between our brands and consumers around the world.

Investments designed to drive strong, profitable growth this year and beyond.

All told, our marketing spending is expected to rise about 20% over last year's levels.

In today's release we noted some of the areas targeted for this spending.

To summarize, in the North Face, we're looking forward to launching the brand's first ever television advertising in the US and a driving market share gains in Europe.

Our rapidly growing Vans brand is also targeted for additional spending, for example, Europe still remains a big opportunity for Vans, and we're planning increased media campaigns in key in cities across Europe, new in-store events, and enhanced visual merchandising in Vans European stores.

The brand's a leader here in the US in its use of digital and social media and we'll be enhancing these capabilities in the US and in Europe as well.

We've talked a lot about our opportunities in China, and the substantial growth we're seeing in this very important market.

We remain on track to increase the number of doors in China by 40% this year.

And we noted in our release, that we're now targeting the increase in revenues of more than 25% across Asia driven by China.

To continue our momentum there, we'll be increasing the spending behind our key brands including Lee, the North Face and Vans.

We also noted in the release, that we would continue to invest in building our strategic capabilities in such areas as innovations.

So, yes, there's a lot of activity and investment taking place this year.

But these are the right investments behind the right opportunities at the right time for our shareholders.

We're confident that the payoff will be evident in strong top and bottom line growth both this year and beyond, and in greater connectivity between our brands and consumers around the world.

So let me summarize a few key take a ways.

First, based on very strong results in the quarter, we're now increasing our target for top line growth by 100 basis points, from 2% to 3% growth to 3% to 4% growth.

And that includes a 50 basis point expected negative impact from currency that was not anticipated in our initial guidance.

Second, we're also raising our gross margin target for the year and now expect gross margins to reach a record 46%.

This is a statement about the strength of our business model.

Third, based on our confidence in the growth potential of our brands.

We're raising our brand investment spending by an additional $35 million.

And last, we expect to fund this additional investment and deliver substantial increase in operating margins and a 14% increase in earnings per share to all time record high levels.

Now let's hear more about our financial performance in the quarter from Bob Shearer.

Bob?

Thanks Eric.

I'll start at the top with revenues.

We were obviously pleased with the quarter's increase.

Which was slightly better than we had anticipated and we look forward to stronger comparisons beginning in the second quarter.

I will point out that first quarter revenue comparisons were impacted by a total of $35 million in revenues related to Jeanswear programs that were discontinued last year.

A good portion of those revenues provided minimal profit accordingly, the reduction contributed to the overall improvement and profitability in Jeanswear in this quarter.

We're especially proud of the gross margin achieved in the first quarter.

Gross margins row by 450 basis points to a record of 46.7%.

As in the fourth quarter of 2010 we achieved higher gross margins across all coalitions.

We noted in the release that there were three factors contributing to the increase.

The first was lower product costs, which we anticipated given that our product costs in 2009 were lower in the second half of last year than in the first.

Those lower costs are carrying into the first half of this year.

The second factor was the continued expansion and improved gross margins in our retail stores.

The first quarter is a seasonally low quarter for retail revenues, but it's worth noting that our retail gross margin increased by over 400 basis points in the quarter.

And finally gross margins benefited from very clean inventories across our businesses.

SG&A as a percent of revenues rose by 110 basis points, about half of the increase, was due to the planned increase in marketing investments that we discussed in February 2010.

Marketing spending rose 12% in the quarter.

Our SG&A ratio also continued to reflect the changing mix of our business.

Operating margins rose to 12.8%, from 9.4% in the prior year's quarter.

Restructuring costs, which were primarily directed at reducing product costs, impacting operating margins by 60 basis points in the current quarter.

Now, working our way down to P&L, the increase in the miscellaneous line results from $5.7 million gain related to the purchase of the remaining equity interest of a joint venture.

They marketed the Vans brand in Mexico, and while this transaction will have little impact on 2010 results, having full control of our brand in this country will prove beneficial in future periods.

And also of note is a tax credit recognized in the quarter related to the settlement of an open tax issue from a prior period.

This credit was worth $0.11 per share resulting in the lower tax rate recognized in the quarter.

Our annual tax rate, excluding this credit, remains at our previous guidance of approximately 26%.

In terms of bottom line, EPS rose by a very strong 60% in the quarter.

We spilled out in the release certain factors that impacted EPS both positively and negative in the quarter and the benefit to earnings from lower pension cost and foreign currency translation versus the 2009 quarter were of course, as anticipated.

And tax credit of $0.11 per share were offset by the $0.09 per share in restructuring.

So the good news for earnings in the first quarter is that the substantial improvement was driven by solid increases in profitability in the majority of our businesses on better than anticipated revenues.

Now a few point about our coalition results it's clear that the momentum and in our Outdoor and Action Sports coalition continues to be very strong.

With revenues of our two largest brands, the North Face and Vans, up 9% and 20% respectively.

Other highlights of this coalition are, first the increases in annual revenue guidance to over 10% and second, the fact that operating margins reached a record level of nearly 20% in the quarter, including a more than 20% increase in marketing investment.

Despite the success we experienced in many areas of our global Jeanswear businesses, revenues declined in the quarter, primarily due to the discontinued programs that I mentioned earlier.

The great news her is that we have mostly anniversaried these declines and we expect revenues to grow beginning in the second quarter.

Global Jeanswear margins were also very strong in the quarter, partly due to the European mass market exit, but also reflecting lower product costs particularly for our US businesses and very clean inventories.

Turning now to Sportswear.

We're encouraged by the continued progress that we're making with our Nautica brand.

Recent trends in both their wholesale and retail businesses remain positive.

Revenues over contemporary brand coalition rose 16%, and much of that increase came from last year's acquisition of the Splendid and Ella Moss brands, we are seeing a rebound in the contemporary channel with consumers responding to our brands new product offerings.

Double digit growth in the 7 For All Mankind direct to consumer business was driven by both new store openings as well as very strong comp store increases.

We're looking forward to double digit revenue growth for our 7 For All Mankind brand starting in the second quarter.

The contemporary brands operating margins deserve some explanation.

In the release we indicated that the decline was due to two primary factors.

First last year's first quarter included a $3.9 million favorable resolution of a 2008 tax and duty matter.

In addition, while investments in new 7 For All Mankind retail stores reduced margins in this seasonally low period for revenues, these new stores are expected to contribute to significantly stronger margins throughout the remainder of the year.

In fact, we expect total coalition margins rising to mid-teen levels in the second half of the year.

And that brings us to Imagewear.

The revenue declines in our Imagewear coalition have eased as economic conditions have gradually improved.

We expect to return to growth for this coalition beginning in the second quarter.

Our Imagewear business remains well positioned to benefit in a significant way from improvements in revenue comparisons considering the efficient cost structure that is in place.

Well that wraps up my comments in our coalition results and again we're really pleased with the great performance achieved by our leaders and associates across all our businesses.

Our press release highlighted the key points related to our international and direct to consumer businesses, so I won't repeat them here.

But I will point out that our international businesses should show better comparisons throughout the remainder of the year from, first, the continued stabilization in our European jeans business.

Second, the strong momentum in our Outdoor and Action Sports businesses and then finally, the continue expansion of our Asian jeans business.

And with regard to the 23% increase in our direct to consumer business, that strong increase in revenue was driven by both new store openings and strong comp store performance.

So let's move onto our balance sheet, which is a strong as it has ever been.

Cash and he equivalent were up more than $400 million from this time last year.

And inventories were down 15%.

We continued to expect for the full year inventories will grow roughly in line with our sales.

Our cash generation was well above average for first quarter, and accordingly we now see the opportunity to exceed our previous guidance for cash generation of $800 million.

Eric touched on the increase in our earnings guidance, but to add ust a few additional details.

We increased our revenue guidance by a full percentage appointment.

Our revenue guidance is now for 3% to 4% increase versus the prior guidance of an increase of 2% to 3%.

This revised guidance covers about 0.5 point negative impact from a stronger dollar versus the Euro than was assumed in our February guidance.

Our Euro rate assumption for the remainder of the year is 133.

The strong momentum in our Outdoor and Action Sports coalition was a key factor in the revenue guidance increase and we indicated that we now expect Outdoor and Action Sports revenues to grow by more than 10% in 2010 versus you our prior expectation of a high single digit revenue increase.

We've also raised our outlook for gross margin expansion this year.

Today we indicated the gross margin should approach 46%.

Which represents an increase of 170 basis points over 2009 levels.

Now as we expect some product costs pressures for the second half of 2010, gross margin comparisons should be slightly stronger in our first half versus second.

Given the strengthening trends in our businesses and stronger expectations for both revenue growth and gross margin expansion, we are committing additional funding to fuel accelerated growth in our strongest brands, as well as support investments in other key strategic areas such as innovations sustainability.

In February we committed to a increase of $50 million in spending which returned our marketing spend to more historic levels.

Accordingly the additional $35 million in spending announced today, represents an incremental investment in growth given the global growth potential of our brands.

In the first quarter I indicated that marketing spending increased by 12% with the incremental spending noted above, we are now targeting an increase of 20% over 2009's reduced spending level.

We're confident of a very strong return on these investments, as Eric indicated in his opening comments.

And accordingly we're also adjusting our expected SG&A ratio for this year.

In our February call we guided to an SG&A to revenue ratio 33%.

Given the higher spend we're few far getting a 50-basis point increase to 33.5%.

Now bringing it all down at the bottom line.

We announced today that we expect to achieve earnings per share of approximately $5.90, a $0.20 to $0.30 increase over our prior guidance, and a 14% increase over the 2009 EPS of $5.16, which excludes the impairment charge.

As we pointed out in the release, this higher EPS guidance includes the additional $35 million in marketing spending, which equates to $0.20 per share.

I referenced earlier the increase in our cash flow guidance.

Given our expectation for another very strong year of cash flow generation, we will consider adding to our current 3 million share re-purchase commitment, of course, we're continuing to look at a variety of acquisitions, particularly in the Outdoor and Action Sports areas.

Valuations still a appear a bit challenging, but we're hopeful that we will see some easing over the coming months.

So in summary, we were obviously really pleased with our first quarter, and we are particularly excited about the improving revenue comparisons and the significantly stronger gross margin trends that we've been seeing since the fourth quarter of last year.

And we know that our investments will not only contribute to our 2010 bottom line, but also put us in an even stronger competitive position going forward.

Eric?

Thanks Bob.

Now let's hear from Karl Heinz Salsburger, President of our International business.

Thank you Eric.

Just to remind the group, my comments will cover our International businesses in Europe, th Middle East and Asia, the markets for which I have responsibility.

We had a very good first quarter, with solid revenue growth in many brands in Europe, particularly in the North Face and Vans.

In addition, as noted in today's release, a highlight of the quarter was the 31% revenue increase in Asia.

We were especially pleased by the very healthy improvement in profitability in the quarter.

Gross margins rose significantly with a substantial turnaround in the profitability of our European jeans business.

We also achieved strong increases in the operating margin of our Outdoor and Action Sports business in Europe.

The direct to consumer businesses of the North Face, Vans and Napapijri are off to a very strong start, with double digit comp store increases and significantly improved profitability in each during the first quarter.

We are also expecting the direct to consumer business for 7 For All Mankind to the opening of a combined total of over fifteen owned and partnership retail stores in key European cities this year.

For Napapijri, we expect to open twenty partnership stores.

In our past calls we've talk a fair amount about our jeans -- our European jeans business, which continues to be our most challenging business.

The good news is that conditions continue to stabilize, and as I mentioned previously, profitability has improved significantly.

In fact, gross margins in our European jeans business increased by over 700 basis points in the first quarter, and are now approaching those in our Outdoor business.

In Asia, revenues in China, by far our largest market were up 46% in the quarter due to organic growth, distribution expansion, and in part, to the timing of seasonal shipments that benefited the quarter.

Looking ahead, our full winter bookings are up sharply with double digit increases in most of our Outdoor and Action Sports and Sportswear brands in both Europe an Asia.

In fact, in Europe, the North Face and Vans brand bookings are up 25% and 20% respectively, which points to another very strong year for two of our largest brands.

We're also seeing very strong growth in the bookings for both Napapijri and Kipling.

In Asia, we are seeing similar strength in bookings for the North Face, while our Vans bookings are nearly double those of the prior year.

Our Lee brand also continues to show good momentum with bookings in Asia up 30%.

As you heard today, we're targeting additional marketing investments in both Europe and Asia and we've raised our revenue growth target for Asia to 25%.

During 2010 we will aggressively roll out new distribution in China, with a targeted 40% increase in door count by year-end to a total of 1,400 doors.

In summary, with one quarter of the year behind us, we are looking forward to a very good year in 2010, with substantial growth in nearly all our key brands, backed by specific investments to further strengthen our brands across key geographies.

Thank you, Karl Heinz.

That concludes our prepared comments.

With that, we'd love to open the call to take any questions that you have.

Thank you.

The question and answer session will be conducted electronically.

(Operator Instructions) We'll first hear from Jeff Klinefelter of Piper Jaffray.

Good morning Jeff.

Good morning.

Congratulations, everyone.

It's a a great quarter and off to a great year.

Thank you.

So first off, maybe Karl Heinz, touching a little bit more detail in International.

You know, it's impressive not only performance, but bookings in the second half and I think Europe in particular might be surprising on a general level just given the volatility in some of those markets.

Could you give a little bit more color on where in Europe you're seeing particular strength?

Are there any areas that continue to be challenging, you know, in term of specific countries?

Just to give a little more color.

And then on China, I know that it's far more of a distributor based system, and the upside, is that coming from regions of China particular?

Or is it pretty consistent across all regions and it's just distributors taking up product at a faster rate than you anticipated?

Okay.

Thanks for the questions, Jeff.

First one, the bookings in Europe.

I would say clearly they're up strongly in the larger countries like Germany, Central Europe, Scandinavia, UK.

We do have some stronger weakness in the so-called (inaudible) countries where there's a lot of debate in the press the latest days.

The good news is those markets, particularly Greece and Portugal, are very limited for our business.

So I would say, to sum up, the bookings are all all over in a good healthy markets.

As far as China is concerned, we see two things.

We see organic growth in our current stores, you know it's a retail based market, which is good news.

And then we also see additional growth due to our expanded distribution.

We don't see particular areas in, in China.

Which are stronger than others.

You know the growth is coming, it's pretty consistent all over China.

Okay.

Just one follow-up as well.

The product cost improvements, the restructuring charge?

Bob, can you give us a little more color on what that was exactly?

And how that will benefit you're, you're, your cost second half and longer term?

Yes, Jeff, not so much impact in terms of 2010.

Given the sensitivity around the issue, you know, we're not going into you a lot of detail related to the specific actions, but going forward, we'll see, we'll see a nice benefit in terms of our overall product costs.

And also, also part of the, part of the restructuring was related to a tax benefit that we'll also see going forward, not so much in 2010 but going forward.

So we'll get a a really nice payback on, from both standpoints, both from a cost reduction standpoint in terms of improving our gross margins going forward and also a lower tax rate.

Okay.

Great.

Thank you very much.

Thank you.

Next, we'll here from Omar Saad of Credit Suisse.

Thanks, nice job on the quarter.

Especially impressive on the gross margin line.

Thanks Omar.

Two questions.

One is, on the, the sales follow through.

I mean, you know, obviously you're sales trends are improving.

You know, we're seeing kind of accelerating sales at retail over the last few months.

What's kind of the time frame?

Are you seeing retailers step it up in term of being more aggressive?

What's sort of the time frame for your, your wholesale side of your business at least to follow that trend?

And then I have another question on M&A.

Sure, the, we obviously are seeing some of the improvement in trend in and have for the first quarter.

A lot of things driving that.

One just consumers were more engaged in the economy and in buying apparel, obviously.

Second, we did have favorable weather in the quarter and we had a [calendar] ship from Easter, but there is genuine improvement.

And retailers are obviously incorporating some of that into their fall buying patterns, and we are expecting for example our, our business for the remainder of the year to be up 4%, which is bigger than it was in the first quarter of the year, which gets us to our 3% to 4% guidance for the year, so we are seeing that pick up happen around our world.

I'm not sure where that static's coming from.

But we are seeing that pick up.

And with the static I lost the second part of your question.

I'm sorry Omar.

Yes, the -- sorry about that.

That's probably my stupid Blackberry.

That's all right.

The other piece is M&A.

You know there's been really high profile activity in the sector, and you know, shareholders are getting rewarded for that.

How are you are guys thinking about it?

Anything different?

Any changes on that front?

Things loosening up?

Tightening up?

Yes.

I'll comment on part and Eric may want to follow up as well.

Omar I'd say not a lot of change.

You know, where we're looking of course, and that is continuously, or as we have been in the Outdoor and Action Sports areas.

And pricing is still a little strong given the overall, given the overall ratios so pricing is still one of the challenges that we see, but, yes, we are seeing some moderation.

Some moderation in terms of, in terms of pricing, so we're optimistic going forward that we'll get some deals done.

Not any changes in terms of where we're looking or the size of deals that we're looking at that, kind of thing, is consistent.

Yes the strategy remain the same, focused on Outdoor and Action Sports and the good our balance sheet continue to get stronger to support it.

So, we're as anxious as you are, at least, in making something happen.

So still looking kind of smaller to medium sized deals?

Not necessarily any big, sort of transformative deals?

I'm not sure how you trans-- how you're describing the dollars, but we have said all long our sweet spot is $300 million to $400 million range, but we can go up from there and down it from there.

If it make a lot of sense for our shareholders, we'll do that

Great, thanks.

Good luck

Thank you.

Bob Drbul, Barclays Capital.

Hi, good morning.

Good morning.

Couple questions.

On the Outdoor and Action Sports, I think you gave North Face Asia and Europe, can you talk a little bit about the domestic North Face bookings?

And I guess, more on the contribution, when you look at the double digit expectations for 2010 in those businesses, Vans contribution versus the North Face contribution?

On the, Carl Hines mentioned the bookings in Asia and in Europe both between in the normal 20%.

The US bookings are also in that league, that's where they are.

So we have kind of numbers that start with a 20% around the world for the North Face, and -- you know, we're thrilled by that.

And that, I think, reflects some of the, our customer's confidence in how well that brand did last year and the uplift they're seeing in consumer spending, so you know, we're thrilled with that.

Your question on comparing Vans to the North Face, I'm not -- was that a revenue question?

Or a --

Just in term of the contribution, like when you look at the double digit, are they equally -- are they both going to be sort in the 20s in terms of growth year over year?

Was one leading the other for that -- you know in, the double digit number you're talking about?

They're both quite strong.

Yes they're both in the same league.

Yes.

Different (inaudible) by regions.

You know, Karl Hines mentioned how strong Vans is in Asia right now, and China.

But the difference is by region, but they're both real strong.

Okay.

And than on the 7 business, can you talk a little bit about the 7 wholesale business in sort of, you know, where the trends are?

Are you starting to see retailers come back into that segment of the business?

I guess, and just want to spread that out on the contemporary side as well.

Sure, the 7, the 7 wholesale business is getting better than it was last -- over the last year for sure.

Last year was a particularly tough year, but we still don't have positive, positive trend in our wholesale shipments business.

The strategy, and part of the reason for that, Bob, is we lost a lot of customers to bankruptcy over, small customers, specialty stores, over the recession.

And that's part of the reason we've invested in some of our own specialty store business, that business is strong for us.

Our comps are good and our overall global trend for opening 7 For All Mankind stores is strong.

Great.

Thank you very much.

All right.

Take care.

Jim Duffy of Thomas Weisel Partners

Good morning, everyone.

Morning Jim.

Good start to the year.

I'm hoping we can kind of retrace some of what you said about coalition growth expectations.

So Outdoor and Action Sports you're talking about 10% plus.

You have mentioned you've got North Face backlogs in the 20s on a global business.

Did you -- I think you mentioned a return to growth in Jeanswear, Imagewear and Sportswear.

Are you thinking that each of those can be, you know, growth coalitions for the entire year?

Well, Jim, we said in February, we indicated that, you know, high single digits for Outdoor and Action Sports and 10% to 15% for contemporary and then about, about flattish numbers for, you know, for the other coalitions.

So, so yes, we are, we are seeing some improvement as, as we mentioned in the comments.

Especially in the first quarter and as we look at for the full year, a lot of the, a lot of the improvement and the increase in the guidance is related to Outdoor and Action Sports.

But also, also our Jeanswear businesses are showing some improvement and we're part of the guidance increase as well as our Sportswear business, so, so both are going to show better comparisons than where, than where we started the year.

Okay.

And for the rest of the year, as we indicated, for the rest of the year in 2010 in Jeanswear for example, we do -- we will be, we will be positive on the positive side.

I guess I'm having a hard time holding revenue growth to 4% for the year.

Is there something I'm missing in one of coalitions where I might want to be more conservative?

I don't know of anything.

I don't know of -- you might be missing

One-- a bit of color that I'll add, I think Bob's been accurate about the Imagewear, Sportswear and Jeanswear business are going to be, you know, flattish, so you have to put that into your model.

And when we talk about bookings for, you know, business like Vans, you know that Vans has, you know, globally a lot of retail stores.

So we don't have a bookings number for that at all.

Bookings are much smaller percent of the Vans operating model than, than our other businesses and in the North Face, we do, we still do reply on some replenishment particularly in Outerwear during the fall season.

So, you can't correlate the strong bookings, necessarily, with what the total number would be.

Got you.

Is that helpful?

Yes that's helpful thanks.

And then a question on the first quarter.

Do you think you're inventory position coming out of the year served as a governor on revenue in the first quarter?

And then, I guess related to that, do you feel like you have enough inventory into an improving demand environment here in the second quarter and into the fall?

I would describe our inventory position coming into the year as an accelerant to gross margin improvement first, that's how I see it.

Okay.

We came out of the year with really, really clean inventories and the right inventories.

A lot of the inventory reduction that we ended the year with, the 17%, was an elimination of excess and distressed inventory, which we forced through the system last year.

In fact, that affected our wholesale revenues in the first , in the first quarter because we didn't have a lot of distressed to sell this year and we were selling a lot last year.

We're not having any material service issues.

I can't remember a year we didn't have something we could point out that said, well we're missing something on that, but it's immaterial

Jim, I think that's it.

You know, so we continue to service the business really, really well and obviously our inventories line up, you know given that improved service lined up with the guidance that's out there, and if we needed to chase, we can do so in some categories, not necessarily all, but areas like Jeanswear we can.

Great.

You guys are doing a great job.

Keep it up.

Thanks Jim

Mitch Kummetz of Robert W.

Baird.

Hi, morning, guys.

This is actually Kevin Ken calling in for Mitch.

So, a few questions.

One, in terms of the full year outlook ,Eric, I think on the Q1 call you mentioned that you weren't building any restocking into your forecast and I'm sure you saw some of that in Q1.

But in terms of the revision to full year guidance, does that reflect some back, or restocking or -- ?

Yes, we get, we get -- we talk about this topical a lot, Kevin.

One of the, one of the -- we don't have retailers that are deliberately reducing their inventory returns by building warehouses full of inventory.

We do have retailers who are looking at brands that are exceeding their plan assumptions.

Nautica is a good example of that right now.

Nautica is running ahead of its plans and with its major customer, and that customer's buying more inventory for fall and revising their trend upwards.

So we will, we'll see an increase in, in, in Nautica's business as a result of that, but it's not that they're increasing the inventory they're holing, they're recognizing the trend.

So does that add the color that you're looking for?

Yes.

I suppose.

And then --

And, you -- I'm sorry, got a comment Kevin is, if we talked about our bookings for the North Face and Vans, and, and, you know, that those are pretty strong bookings numbers so.

Sure.

So I think that, that that reflects the strength of the brand and how comfortable retailers are carrying inventory in those two brands that are performing so highly.

Sure.

And speaking of the North Face and Vans, in terms of Outdoor coalition, or Outdoor and Action Sports coalition, the profitability was strong this quarter.

Can you explain why that was up so much?

And kind of what the target should be for the year?

Should that be north of 20%?

I can talk about that.

Kevin there are a number of things that contributed.

Not just to the Outdoor and Action Sports but these are, these are comments that, that fit pretty much all the businesses in terms of gross margin improvement.

You know, first of all, we talked about the inventories being very, very clean.

That was, versus where we were in, in the prior year's quarter, that was, that was a considerable impact.

And product costs, product costs were also lower, again not just in Outdoor and Action Sports across the board,but lower in this first quarter versus, versus where they were last year.

Retail continues to drive really nice improvement as well.

And that certainly applies to the Outdoor and Action Sports businesses as our retail business grows, we talked about the 400-basis point improvement in our, in our retail gross margins, so once, again, certainly impacting the Outdoor and Action Sports.

And also in that business, you might recall that, and last year's in last year's first quarter we had some negative impact from currency transaction side of things and that was also a contributing factor which impacted the Outdoor and Action Sports margins last year and had a lot to do with the big improvement this year.

So some of it it's a comparisons to last year, but the business is, as much as anything it's shows the strength of the brands that we have within, within those businesses and relative to the full year.

Now the first quarter, given product costs and all those kinds of things was exceptionally strong the numbers's 19.6%.

But we we expect to hold pretty close to that.

It might be a bit little lower than that, given the product costs pressures that we're seeing in the latter part of the year, but, you know, it's going to hold at a very, very strong number.

Sure.

Thanks Bob.

And then in terms of the five-year plan, I think you guys were saying that you guys would provide a Q1 update.

Is there any detail on that that you can provide?

Go ahead Bob.

We didn't, we didn't specifically say Q1, what we did say was that we're hopeful at some point in time in this year, probably in the later part of the year that we'll provide an update on the five-year.

All right.

Okay, thanks, guys.

You bet.

Thanks Kevin.

Our next question to today will be Michael Binetti, UBS.

Hi guys.

Congrats on a really strong quarter there.

Thanks Michael.

Sure.

Bob, I just wanted to zero in on the jeans for a second.

Fairly impressive, the jeans are going positive, I think, ahead of what most people were expecting this year.

If I remember you guys still manufacture about maybe 25% of your own product and I think it's concentrated in the jeans business, if I remember correctly.

So I think you guys are now completely out of the unprofitable mass channel in Europe with jeans and then the overall coalition revenues seem to be going positive a little faster.

Is there, should we think about that as potentially being, you know, a source of some leverage if that continues to improve, you know, in a high fixed cost part of your business through the year here?

Well, well it would be.

I mean, we have a very a very, very low cost structure.

Y our numbers are right on in terms of the manufacturing side of our jeans businesses, it's obviously the business in the coalition where we produce more of our goods.

And, and sure, if we can put more product through the facilities that we own, that helps us.

But we're, you know, as we just talked about, we're seeing improvements there and the improvements that we saw in the first quarter in terms of profitability have a lot to do with the same kinds of things that I just talked about.

Product cost, not so much retail, of course, but product cost for sure.

So yes, we have a very, very efficient cost structure, product cost structure and from a manufacturing side, that, is helping produce the strong margins that we have.

So leverage throughout the year, just like any other business, yes, we'd leverage our cost structure with, with higher revenues than if they were higher than we're projecting right now, but again I think we'd see that across the board

Then on the -- if I could just follow-up quickly on the 7 business.

Is there any, I think last time we talked to you guys, you thought maybe you were off trend for a while.

So maybe a comment on what's giving you confidence that you guys are getting that straightened out in the 7 business?

And then any kind of idea you can give us on how the unit economics at the 7 stores you're opening have been trending from quarter to quarter, like on a sequential basis in the past few quarters?

Thanks.

Yes I can comment on what gives us confidence in the product, in our product direction being back on track and that is the performance of the products we have in our own stores.

Where we get, obviously, instant feedback on, on, on whether or not we're on trend.

And, you know, our own stores are performing well.

So that tells us that consumers are relating to the products we have in the stores.

And our team out there has done a nice job of getting the brand back, into the right product mix.

Unfortunately, we have a lot customers to sell those product to because of the massive amount of closure in the specialty store industry during the recession.

I don't have, like, quarter to quarter trends.

We have, the whole 7 For All Mankind retail initiative is about 18 months old, I think.

Well.

That's right.

So we don't have a lot of history in our stores.

We have 30 some stores right now, but we just don't have a lot of history.

It's all, everything is kind of new and evolving.

But, but the product are selling in the stores.

That's the good news.

And what we can say is that later in the year is when we'll see the, the most substantial improvement in terms of the retail side of things.

So, as Eric said, we're, we're in a pretty early stages of our overall retail business within 7 For All Mankind, and especially in a lower quarter of, of revenues, which is, as you know, this is the low retail quarter for us, and it picks up in the third and fourth quarters and that's true for our 7 For All Mankind business as well.

So we will see, we'll see some substantial improvement in terms of the profitability of those stores beginning in the second half of this year.

Thanks again guys.

Great quarter.

Thanks a lot.

Next we'll here from Kate McShane from Citi.

Hi, good morning.

Hi Kate.

Hi Kate.

It's been brought up a couple times -- excuse my voice -- but in terms of rising product costs.

What do you start entering into new contracts with your suppliers?

And will we see inflation in the back half of this year?

Is this a more, is this more of a 2011 head wind?

It is more of a 2011 head wind.

So for, for 2010 -- and the reason we've talked about it just relative to the gross margins as we go through the year, what we're seeing is, that the biggest -- and the lowest costs, the lowest product costs, will be in the first quarter, and, and costs will increase somewhat throughout the year.

All of that of course, built into, built into our guidance.

And just a couple other factors there.

For is you on a full year basis, our net product costs will be lower.

Will be lower on a full year basis in 2010 versus 2009.

So again, that's, that's on a full year basis, but as the year goes on, that benefit that we saw in the first quarter, will of course, narrow.

So that in the fourth quarter, our product costs will, will be fairly neutral to even a little higher than they were last year.

So, so again most of, most of the impact that we're referencing is, will fall into, will fall into 2011.

Okay.

Great.

And then you had said during your acquisition M&A comments, that you might expect valuations to ease over the next several months.

And I was wondering if that was something specific that you expect in the environment with these particular industries?

Or is it something specific to maybe what you're looking at?

No, it's not necessarily specific to what we're looking at, just as we look at multiples in the sectors that we're looking in, where we're hunting, and that is Outdoor and Action Sports.

We've just seen a little bit more balance in the multiples.

You know, what's been taking place in the multiples is, is earnings were down, right, and multiples were, were improving at a pretty fast pace as some money came back into the, back into the sector.

So, so we're seeing that, we're seeing that balance out a little bit so as we, as we enter conversations and using, using average multiples as a basis in many cases for, for pricing, and pricing discussions, we're just seeing a little bit more balance come, come into those discussions.

So we're, that's why we're optimistic that, that we're, we'll feel a little less pressure on the multiples going forward.

Okay.

Thank you.

Mm-hmm.

Thank you Kate.

Feel better, Kate.

Eric Tracy of FBR Capital Markets.

Hi, good morning I'll add my congrats as well.

If I could just follow-up on the product cost side.

Obviously it sound like most will sort of be incurred next year, but how should we think about the, the opportunity to implement price increases to sort of offset that, and potential timing in the areas where you might be able to take that?

Yes, Yes, the pricing increases, I mean, and frankly, Eric, that's yet, yet to be seen.

And so as we said, you know, most of that, you know, most of that will be a 2011 discussion for sure.

And it's a question.

I think the, you know, the important factor here is is that that we're not alone in feeling the cost pressures I know you've been hearing this from a lot our competitors, but also private label programs will feel the impact of the cost situation as well.

So it's yet to be seen it's a little too early to make a call on that.

And we will work.

You know our supply chain is real flexible and diverse, and we'll work real hard to make sure that we manage our portfolio sourcing options to the way we build it, which is to give us a lot of flexibility to move stuff around to give us as much advantage as we can.

That will be part of what we do in the next six months.

Okay.

Maybe Eric just to a broader question.

You know, I know you made some statements in the past of just feeling like as consumer demand stabilized, that inventories in the channel were finally reaching equilibrium.

(Inaudible) there was a little bit better visibility to just demand stabilization, but just maybe again a broader view on the consumer, and the sustainability around this.

You know, beyond sort of replenishment and your position on how retailers are, are stepping up speculative buys from an inventory perspective and via sort of take on that?

Sure.

You know, start with the, the over arching comment.

We're still cautious, you know, about our overall outlook for the economy and consumer spending.

I mentioned earlier there were some things that really helped the first quarter.

One, the most important is it was a genuine pick up in consumer spending, but weather helped us.

It was a miserable weather quarter.

That helps VF Corporation when that happens.

Easter calendar shift helped us, we are seeing that reflected in how our retail partners are buying from us.

And they're, what they're doing is they're placing bigger bets with their best brands.

So to the extent we have, you know, real strong brands in the mid-tier and mass channel, we're being rewarded with this some of that.

Certainly in Vans and the North Face we're being rewarded with that.

If you build strong brands and the retailers are being selective about where they increase their investment in branded inventory -- they're not doing that broadly but they're picking their strongest programs.

And our model delivers some of the strongest brands.

So that does help us.

But, just to be clear, you know, what that says to us is we'll gain some market share.

We've not built into our forecast a robust sustainable global recovery.

Nor do you I think we should at this point.

Does that help you?

Okay.

Yes, absolutely.

No, that's fair.

And just lastly, Bob , you know from the incremental sort of investments behind marketing, can you talk about sort of the cadence of that from a quarterly perspective?

And then just maybe the timing of the North Face TV campaign?

When we should expect to see

I'll comment on the $35 million.

The, the cadence of that will be, will be reflected, obviously in the last three quarters, none of that was in the first quarter, and it will be spread over the, the remaining part of the year based on, based on revenues.

So as, in the stronger quarters of revenues, you'll see more of the marketing spend.

Okay.

And in terms of North Face any color there in terms of when we might be able to see that?

The question is when we could see the --

The TV.

Yes it's in test, actually, in Boston right now.

So if you run up there real quick you could see it.

But the markets we're going to be advertising, that will begin in October.

Okay.

Great.

Thanks, guys.

Best of luck.

Thank you.

Next we'll hear from Dana Telsey of Telsey Advisory Group.

Good morning everyone, and congratulations.

Thanks Dana.

Can you talk a little bit about -- if you think about retail expansion what types of real estate cost changes are you seeing this year from last year?

What's available in different types of malls?

And then, just on another topic, second half of the year in costs.

Are you seeing inflation?

What do you see going forward to 2011?

Thank you.

Well, on the retail, on the retail front, yes, costs, you know costs from where they were a year and a half ago are, are lower.

And, as you'd imagine the availability has been better.

So what we do, what we do with our retail business is at the beginning of each year and before that we layout those areas that are right for our brands.

And then begin very early on looking for the right, for the right locations.

So, so yes, we are finding more attractive costs related to, related to the retail business for sure, and, and you're seeing some of that being reflected in, in the very significant improvement that we're seeing in our retail businesses overall.

I think you're second question was related to costs inflation that we're seeing in the, in the second half.

That is mostly related to, mostly related to, you know, to product costs.

And specifically where we're seeing the pressures are in fabrics and especially there, related to cotton based fabrics.

We're also seeing some cost pressures in terms of zippers with the cost of copper going up.

And then finally, just the higher demand that's being placed in areas like China, and China represents about 25% of our total product needs.

But just the, the higher demands in China also have some impact on costs that we're seeing.

Thank you.

Thanks Dana.

Thank you.

Paula Torch of Needham and Company.

Yes good morning and congratulations.

I wanted to talk a little bit about the retail landscape and was wondering if you could give us some color on the performance of your outlet stores versus your full price stores in general probably across your brands or your coalitions?

And also if you could comment, geographically, if you're seeing any strengths or weaknesses, or if there's any surprises that you can share with us?

Most of our retail business is full price retail, and, and we're having strength in our full price retail model and we have had strength for the last twelve months, I would say.

The, that, that trend strengthened in the last 90 to 120 days and that showed up in our quarterly results.

Our outlet stores mall, the outlet stores we have are primarily a, a use for us to dispose of distressed inventory more than they are a growth vehicle for us.

That's their primary focus, and, and we don't look to them to be a driver of our growth.

We look to them to help us manage our distressed inventory.

And any comments geographically on your full price stores perhaps?

Geographically?

Is that --

Yes.

Is that your question?

Mm-hmm.

No actually I'm not aware of any difference around, in our, I've not heard reported to us.

So if there is one, I'm afraid I'm not aware of it.

Sorry.

No, meaning between the west or east coast, are you seeing, you know, any better comps in one area versus the other, across your full price stores?

No, I'm not aware of that.

I'm not aware of any change from the east coast to the west coast.

north, south, midwest -- I'm not aware of any trend like that.

Okay.

Great.

Good luck.

Thank you.

Ken Stumphauzer of Sterne Agee.

Good morning, everyone thank you for taking my questions.

Just a couple of housekeeping clarification questions up front.

What do you anticipate for the tax rate for the year?

Yes the credit that we saw in the, in the current quarter will flow through, but generally we're staying with the 26% rate that we put out in February.

Okay.

And then secondly, the restructuring charge, am I correct to assume that it flowed through the SG&A line this quarter?

No actually most of it was in the gross margin.

Okay.

Yes.

It's related to product costs reductions, so most of the cost was in the gross margin line.

Okay.

And then if you could just maybe, as far as this quarter goes, talk through the puts and takes on gross margin?

Maybe a little bit more around the magnitude ranking them?

Sure.

The, we talked a lot about the product costs and product costs was, was roughly 200 basis points.

Retail was, was a little over 100 basis points, we're talking about gross margin.

That transactional piece that I mentioned before that impacted the first quarter of last year and did not impact this, this year was also about 100 basis points.

And then, just overall mix was, was another 50-basis point or so.

Okay.

And then secondly on, on SG&A it was up about $27 million year over year.

A little, little lower than I'd anticipated just given the FX impact, the incremental marketing and then the direct to consumer roll out.

Is there something structurely that was different this year versus last year?

Or have you fully anniversaried the, you know, restructuring trend you implemented last year?

We had, one thing was the pension.

There's a reduction in pension expense that helped us a little bit this year on the quarter.

I don't know if you had that in your, in your number.

I -- I guess I'd also add that the 110 basis points in the first quarter is very similar to what we're projecting on a full year basis, so it was very consistent.

Okay.

And then just one last question, following up on the restocking scenario question from earlier today, where you would you, where would you, if that were to occur, where would that primarily take place?

And then secondly, what would the order of magnitude be?

Would it be maybe in another week of sales or something along those lines?

If you could just put any, any parameters around that.

You know, I'll try.

I don't know, I don't know where it will show up.

I can't, I can't answer that question.

Obviously more in our replenishment businesses than in our, than in our seasonal outlets.

The people, the people who buy the season up front.

You know we're not expecting our retail customers to reduce their, their, to reduce their inventory turns by increasing bulk buys and inventory we're not expecting to see that.

We're not having any conversations around that.

Retailers are buying what's working, and you know, I said mentioned earlier, Nautica business is working and that's being bought more aggressively because it's performing better but it doesn't change the inventory turn assumption.

So we, we don't see that as an important driver of our total business globally.

Okay.

Thank you guys.

David Glick, Buckingham Research Group.

Good morning and my congratulations, great quarter.

Thanks David.

You I think we've kind of beaten the product costs question to death here.

But I think it begs a bigger question.

Good Bob was hoping there was one more.

And I think what we're all kind of dancing around here is you know the 46% gross margin is a incredible number for this year, and you know, is that sustainable?

I mean, I think that's what we're all trying to figure out?

I mean, you have, you know, very strong brands, I think the growth of those brands helps your mix.

Growth of retail helps your mix and no one knows exactly, I mean, you guys have better visibility obviously than we do about the rate of increase in product costs, and whether you can pass them through is a question that's difficult to, to answer at this point.

But when, you know, when you put that all in, and mix it up, you know, I mean, what, what's your sense at this point as to whether, you know, the puts offset the takes and you can sustain that kind of gross margin level?

Yes, David, we do think that the, the gross margin, you mentioned the 46% level is, is not only sustainable but also has, has expansion opportunities.

When you look, when you look at the pieces of, of, of our expanding gross margin, you look back over time as well, the expanding retail business is a big contributor.

The mix, the overall mix of our product, of our products in, in growth and Outdoor and Action Sports, and becoming a bigger mix and bigger part of the pie of overall VF.

Asia as well is a big contributor to expanding gross margins.

And I have to mention the strength of our brands, related to, related to the ability to improve and increase prices and offset the cost increases, I think that we've seen that that's been the case.

You know, even though we haven't, maybe we haven't faced, you know the cost, some of the cost pressures that -- who knows exactly what's going it take place going forward.

But, you know we think that are brands and the strength of our brands have shown a lot of resiliency in term of that side of things.

So, yes, I mean, as we look out over a longer term, and we're, we remain committed to a 14% or 15% operating margin, and, and we continue to believe that a fair amount of that improvement will come from our expanding gross margins going forward.

Great.

That's helpful.

Thanks.

Just a follow-up on the jeans business.

I mean, we've seen a lot of your peers who have these big, you know, value oriented national brands in the mass channel, you know, increasing market share.

You know, what are the white space opportunities for you guys given the strength of your brands?

And, you know, you've kind of hinted at some market share gains.

Your anniversarying some losses a year ago, and seem to have some momentum.

But, as you look forward, what are the opportunities to get market share?

David is that a mass channel question in particular in the US?

Yes.

Yes.

Okay.

I'll start with our biggest business there is our core Wrangler men's business -- which is clearly the dominant player in the space.

It continues to take shares from other brands.

Some brands were launched in the channel that no longer exists there.

That's because our team is really good at understanding the male consumer in that channel and continuing to, year after year, grabbing some more market share.

The second area, of course, is women's wear.

We have a less developed business, but we, it's where we expect to have our greatest momentum in the next twelve months.

We did lose some programs in the female side of our mass business.

And, they're material programs to that segment of our business.

And it looks like we're gaining some of those programs back.

We've been allowed to re-test those programs.

Those -- the tests have been successful, and we're getting some, some, you know, gradual roll out of doors.

We have to work across the doors we roll out into, but we're pretty confident we will clean us back to where we were when we lost those programs, ultimately, assuming those tests work.

Great.

Does that help you.

Yes that is helpful.

Thank you.

And then lastly, on Nautica, clearly sounds like a turn in that business.

What, -- A, what do you attribute it to?

And B, are you starting to see retailers, you know, recognize the improvement ?

And is that showing up in better forward

Sure.

We talked, you know, eighteen months ago that we we were taking the Nautica brand up to higher prices and taking the products up to much, to much more quality into the -- product quality is probably the wrong word -- much more make into the product.

And we did that right going into the recession, we talk about that.

That was the wrong things to do.

People looked for more value.

So we had to re-calibrate our product approach.

And our group was able to develop products that are really appropriate for the channel at a great value price.

And that took some time to get that in.

And, as we were coming off really weak, comp, comp performance with our big customers they were buying very conservatively and it takes a while for them to get more enthusiasm for buying more and we had to earn our way back to getting more open to buy, by putting in the right products for our customers at the right value price point.

We began that journey last fall.

It has done nothing but gather momentum since then.

Gather momentum with retailers assuming the business would be down.

The business is now posting year on year comps at retail and it's being bought for fall more aggressively in a way that reflect its current performance.

So, comes down to the having the right products at the right value price points.

And our team at Nautica has done just a great job of weathering this storm and putting them in a position to get right back on track.

Great.

Thanks a lot for the color.

Good luck for the rest of the year.

Maggie Gilliam, Gilliam and Company.

Excuse me -- I just would like, if you would please, to elaborate on some of the direct to consumer stuff.

You've given the store opening plans and your five-year plan.

But can you give us an update for the current year?

And can you also talk about where you stand with the Internet and the important brands?

Sure.

Our, our direct to consumer growth in the first part of this year is obviously, you know, part, part new store growth.

We didn't open a lot of new stores in the first quarter.

And I don't have all of those numbers, Maggie.

I know that, the North Face and 7 For All Mankind each opened one store in the first quarter.

Okay.

Vans opened ten stores in the first quarter, and with the acquisition of our Vans in Mexico partner we got fourteen more stores through that.

Our e-commerce business is a pretty small piece of our total corporate sales right now, but it is an important piece and it's growing nicely.

So, it's not big enough to comment on at this point, but we hope it will get to that point pretty quickly.

Yes, is it, is it, are you open for business in, in all the brands at this juncture?

I'm trying to think of --

All the brands.

All brands?

I think that, that --

Well, not the smaller ones.

I wouldn't expect you to be, but the key ones?

Oh, Yes.

In, in our -- we talk a lot about, Maggie, about our top five brands.

Right.

Our top five brands are open for business.

Okay.

Does that answer your question?

Next we here from Chris Svezia of Susquehanna Financial Group.

Congratulations everyone.

Great job.

Thank you.

I have just a couple of questions.

Actually some housekeeping here, I guess, first, I just want to clarify something, you had mentioned that you saw in your retail business, I think particularly with regard to the Outdoor coalition, with regard to a 400-basis point improvement in the gross margin.

I'm just curious, what -- how much of that is just, because of comp growth and how much of that is just better execution?

And then, overall with your direct consumer business, I think previously you mentioned a low single digit comp growth previously in your guidance.

Has that changed based on what you saw in the first quarter?

I'll try to -- I'll take the first one.

The first point you made in terms of the 400, the 400 basis points, you know, the comp store growth wasn't, wasn't the driver there.

It was, it was execution, and it was, you know, it was also a better environment, helped as well in terms of the gross margins.

Lower markdowns, you know the whole cleaner inventory idea carries through to our retail businesses as well.

And I'd also say that our, our retail business outside of the US is, is less mature clearly than the, than the US business, and we're seeing and we expected this.

We're seeing very nice improvements in terms of gross margins and overall profitability of those businesses and we expect, we expect further improvement as well.

I'll deal with the second part of the question.

Okay.

And in our comps in the first quarter across our retail entities worldwide were up 10%.

You know it benefited from the things I've I talked about already.

Strong consumer spending, weather, Easter shift, also that percentage, that comp percentage, benefited by how weak the first quarter was last year.

It was, it was coming up against you know a really really easy comparison.

So our assumption for the balance of the year is kind of mid-single digit growth for comp store growth.

And we think that's a prudent assumption to make, given the unusual things that helped the first quarter.

Okay.

Helpful, thank you.

And then, one other follow-up question.

With just a point of clarification, with regard to the Jeanswear, the Imagewear and Sportswear businesses, is that still expected to be flat in terms of revenue for this year?

Just based on your comments about second quarter seeing a lot of improvement in terms of trend in some of these businesses, is the year still expected flat?

Or is there an opportunity to see some growth there?

Yes.

Again, a lot our commentary was around the latter part of the year, right, over the next three quarters, and versus what we saw in the first quarter.

So in the first quarter the revenue growth wasn't as strong as we expect to see, and the last three quarters, not nearly as strong.

So we do expect better comparisons going forward.

Still overall for those businesses in terms of meaningful growth percentage growth in any one, in any one coalition, you know, it's not going to be so large.

But it's, you know, the important part here is the trend that we're seeing and the trend that we'll see over the remaining three quarters of the year in term of showing, showing growth.

The big drivers still will be, the big drivers will still be our Outdoor and Action Sports businesses, which we've increased that guidance as you're very much aware of.

and also the contemporary area.

Next we'll here from Linda Donnelly from The Franklin Management Group.

Thank you.

I wanted to confirm, are you still anticipating $175 million for depreciation and $110 million for capital expenditures?

I'm sorry what were the numbers again?

You said -- yes, $110 million to $115 million in terms of capital expenditure.

And -- what was, I'm sorry, what was the first part?

Depreciation?

Yes our depreciation and amortization combined --

Yes?

-- Is right around $170 million.

$170 million, okay.

That includes all amortization.

Correct.

And I believe you gave a number, you anticipate for free cash flow, and I kind of missed it.

Got a click on my phone.

Was it around $800 million?

Yes.

Actually, what we said was and that's actually cash generation.

Cash generation from operations.

Mm-hmm.

And that number we -- in February, 2010, our guidance was $800 million and what we said was with, with the very strong quarter and also increased earnings that we now believe that it could be the number could be above $800 million.

Great.

Thank you for your time.

Thank you.

Thanks Linda

Michael Binetti of UBS.

Hi, guys, I didn't think I'd get a second one in there.

Couldn't get enough.

So you guys have talked a lot.

I'm sure you've had a lot of questions about M&A you guys have mentioned it a little bit here.

But what about the potential to divest some of the brands that are under-performing, based on, you know, how you expect your brands, I think you guys say you evaluate things as far as financial performance and strategic performance.

And you know maybe you can give us just an update without, without up setting any employees that may be listening or anything how are you thinking about the portfolio at this point, and is there an opportunity for divestiture over the next twelve months here?

Michael the only way to deal with that in this forum, is to say -- and you obviously have been listening to what we've been saying.

We look at our businesses from -- through a strategic lens, and through a finance lens, and if they're not strategically relevant or financially relevant we ask the question of why should this be part of the portfolio.

And we go through that evaluation on a constant basis, and then we know we look at, can we create better value for our shareholders by doing something else with the business.

But that's a constant, that's no different today than what it was twelve months ago or twenty-four months ago.

It's what we do, and we'll continue to do it.

That's really all I can say.

All right.

I appreciate it.

Thanks, guys.

All right.

Thanks Michael

And there are no further questions at this time.

I'll turn the conference back over to you and for any additional or closing comments.

Yes, just quickly, thanks for joining us.

We're obviously encourage by the strength of our business in this environment.

We talk a lot about the strength of our business model, the diversity of our model and how it helps us, we think that's showing up in our results and our forecast for the year.

And we'll get back to work and try to deliver this year as called.

Thanks a bunch

That does conclude today's teleconference.

Thank you all for you're participation.