VF Corporation reported financial results for its fourth quarter and full year ended December 29, 2012. All per share amounts are presented on a diluted basis. All references to “Timberland” include the Timberland and Smartwool brands. “Adjusted” amounts refer to non-GAAP measures that exclude Timberland acquisition-related expenses and the gain on the sale of John Varvatos Enterprises, Inc. (“John Varvatos”) as described in the “Adjusted Amounts” paragraph at the end of this release.
“2012 was another year of record revenues and profits for VF, with solid results across nearly every coalition, channel and geography,” said Eric Wiseman, VF Chairman and Chief Executive Officer. “Our performance is confirmation of our greatest competitive advantage – the diversity of our portfolio. It’s this strength, along with our focus on driving operational excellence into all areas of our business, that enables our brands to deliver the industry’s most innovative and meaningful products while deepening relationships with our customers and consumers, and consistently returning value to our shareholders.”
Full Year 2012 Review
Revenues increased 15 percent to a record $10.9 billion from $9.5 billion in 2011. On a constant dollar basis, full year revenues increased 17 percent. The Timberland acquisition accounted for 9 percentage points, or $907 million, of the revenue growth in 2012.
International revenues on a constant dollar basis were up 29 percent, of which Timberland accounted for 17 percent. Direct-to-consumer revenues were up 25 percent, with Timberland accounting for 15 percentage points of the growth. Full year revenue comparisons include a negative impact of about 1 percentage point from the sale of John Varvatos.
Gross margin rose by 75 basis points to a record 46.5 percent, compared with 45.8 percent in 2011, with improvements in nearly every business. The improvement in gross margin reflects the continued shift in our revenue mix towards higher margin businesses.
Operating income on an adjusted basis increased 17 percent to $1.5 billion in 2012. The Timberland acquisition accounted for 6 percentage points of the increase. On a GAAP basis, full year operating income rose 18 percent to $1.5 billion from $1.2 billion in 2011. Acquisition-related expenses for Timberland in 2012 and 2011 were $31 million and $33 million, respectively.
Adjusted operating margin was 13.8 percent compared to 13.5 percent in 2011. On a GAAP basis, operating margin was 13.5 percent versus 13.2 percent in 2011. Excluding Timberland, the full year operating margin was 14.4 percent in 2012 and 13.6 percent in 2011.
Net income on an adjusted basis rose 18 percent to $1.1 billion compared to $913 million in 2011. Adjusted earnings per share – which excludes a $0.32 gain from the sale of John Varvatos and $0.25 in Timberland acquisition-related expenses – increased 17 percent to $9.63 from $8.20 in 2011.
This increase includes the negative impacts of foreign currency translation ($0.32 per share) and higher pension expense ($0.19 per share). Timberland contributed $1.12 to adjusted earnings per share in 2012, up from $0.60 per share in 2011. On a GAAP basis, full year net income was $1.1 billion while earnings per share grew 22 percent to $9.70 per share.
Fourth Quarter 2012 Review
Revenues rose 4 percent (5 percent in constant dollars) to a record $3.0 billion from $2.9 billion in the same period of 2011 driven by strength in the Outdoor & Action Sports and Sportswear coalitions, and in our international and direct-to-consumer businesses. The sale of John Varvatos in April 2012 negatively impacted VF’s revenue growth by 1 percentage point in the fourth quarter.
Gross margin rose by 220 basis points to a record 47.4 percent, compared with 45.2 percent in the same period of 2011, reflecting improvements in every coalition. The higher gross margin reflects the continued shift in our revenue mix towards higher margin businesses and lower year over year product costs.
Operating income on an adjusted basis grew 28 percent to $457 million in the fourth quarter of 2012 compared with $358 million in the same period of 2011. On a GAAP basis, fourth quarter operating income increased 28 percent to $450 million, compared with $351 million in last year’s same period.
Acquisition-related expenses for Timberland were $7 million in the fourth quarters of both 2012 and 2011. Adjusted operating margin was 15.1 percent compared to 12.3 percent in the fourth quarter of 2011. On a GAAP basis, operating margin rose to 14.8 percent from 12.1 percent in the fourth quarter of 2011.
Net income on an adjusted basis grew by 32 percent to $344 million, compared with $262 million in the fourth quarter of 2011. Adjusted earnings per share – which excludes Timberland acquisition-related items of $0.09 per share in 2012 and $0.04 per share in 2011 – also increased 32 percent, to $3.07 from $2.32 during last year’s same period.
This increase includes the negative impacts of foreign currency translation of $0.04 per share and higher pension expense of $0.05 per share. On a GAAP basis, fourth quarter net income was $334 million, with a 31 percent increase in earnings per share to $2.98.