vf corporation merrill lynch...
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FD Statement FD Statement Certain statements included in today's remarks and in the question and answer 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 the actual results of operations or financial condition of the company to differ are discussed in the documents filed by the company with the Securities and Exchange Commission.
Certain statements included in today's remarks and in the question and answer 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 the actual results of operations or financial condition of the company to differ are discussed in the documents filed by the company with the Securities and Exchange Commission.
Transforming VFTransforming VFOur Growth Plan is working
• 3 consecutive years of record sales & earnings …looking forward to 4th
• Rapidly changing mix of business
Our acquisition strategy is working• Have added 4 dynamic, growing lifestyle brands• Each has strong potential for growth• Each will benefit from VF’s exceptional brand
building, operational & financial disciplines• Most are exceeding our acquisition plans
Our direct-to-consumer plan is working• Current base of 525 monobrand stores• Plan to double number to nearly 1000• Very good profit model
Our Growth Plan is working•• 3 consecutive years of record sales & earnings 3 consecutive years of record sales & earnings ……
looking forward to 4looking forward to 4thth
•• Rapidly changing mix of businessRapidly changing mix of business
Our acquisition strategy is working•• Have added 4 dynamic, growing lifestyle brandsHave added 4 dynamic, growing lifestyle brands•• Each has strong potential for growthEach has strong potential for growth•• Each will benefit from VFEach will benefit from VF’’s exceptional brand s exceptional brand
building, operational & financial disciplinesbuilding, operational & financial disciplines•• Most are exceeding our acquisition plansMost are exceeding our acquisition plans
Our direct-to-consumer plan is working•• Current base of 525 Current base of 525 monobrandmonobrand storesstores•• Plan to double number to nearly 1000Plan to double number to nearly 1000•• Very good profit modelVery good profit model
®
Jeanswear GlobalIntimates
Outdoor Imagewear Sportswear
VF Corporation
VF BrandsVF Brands
*licensed
*
*
*
Our Growth GoalsOur Growth Goals
6 - 8 % Sales Growth3 3 -- 4% organic4% organic3 3 -- 4% acquisitions4% acquisitions
Lifestyle Businesses•• Outdoor Outdoor •• SportswearSportswear
Heritage Businesses•• JeanswearJeanswear•• IntimatesIntimates•• ImagewearImagewear
High single-digit to low double-digit growth
Flat to low single-digit growth
Growth DriversGrowth DriversBuild More Global, Growing Lifestyle BrandsFocus: younger and more female
1.
Expand Our Share With Winning CustomersFocus: new cross coalition customer team organization
2.
Stretch Brands & Customers to New GeographiesFocus: China, India, Japan, Western Europe
Fuel the Growth Focus: leverage VF supply chain capabilities
3.
4.
5.
Build New Growth EnablersFocus: leadership development & new capabilities6.
Expand Our Direct to Consumer Business Focus: owned monobrand retail and e:commerce
Steady Progress On Steady Progress On Our Growth Plan (I)Our Growth Plan (I)
Build more global lifestyle brands
20002000
20032003
20042004
20052005
1
Steady Progress On Steady Progress On Our Growth PlanOur Growth Plan
Expand our share with winning customers
New Customer Teams Organization
•Expand breadth and depth of relationships with customers•Become the world class expert on their strategies•Build strategies aligned with each retailer•Leverage best practices and capabilities•Go to market as total VF Corp
2
Steady Progress On Steady Progress On Our Growth PlanOur Growth Plan
Stretch brands & customers to new geographies
International sales continue to grow
0%
5%
10%
15%
20%
25%
30%
2001 2002 2003 2004 2005
19% 20%23%
25%
International Sales as Percent of Total
3
22%
Steady Progress On Steady Progress On Our Growth PlanOur Growth Plan
4
Expand our direct to consumer business
Focus:Owned monobrand retail and e:commerce
NEW!
VF Owned Retail StoresVF Owned Retail Stores
# of Stores 2005 2009 Goal*
Regular 305 649Outlet 220 279
Total 525 928
% of Total VF Sales 12% 18%
* Before Acquisitions
Steady Progress On Steady Progress On Our Growth Plan Our Growth Plan
5
Fuel the growth
6
Build new growth enablers
New talent in strategy, M&A, customer teams and HR
33.2%36.3%37.8%
40.5%41.8%
0
10
20
30
40
50
'01 '02 '03 '04 '05
Gross Margins
Capability platformsCapability platforms
Total Shareholder ReturnTotal Shareholder Return
Remain Focused on Shareholder Remain Focused on Shareholder Value As We Transform VFValue As We Transform VF
4. P/E multiple
3. Free Cash Flow
Financial StrategyFinancial Strategy
1. Growth
PortfolioPortfolio
2. Margins
Operational Excellence
Operational Excellence
Capability platformsCapability platforms
Total Shareholder ReturnTotal Shareholder Return
Remain Focused on Shareholder Remain Focused on Shareholder Value As We Transform VFValue As We Transform VF
1. Growth 2. Margins 3. Free Cash Flow
4. P/E multiple
Financial StrategyFinancial StrategyPortfolioPortfolio Operational Excellence
Operational Excellence
Clear Criteria For AcquisitionsClear Criteria For Acquisitions
Strategic criteria
Financial Criteria
• Reinforce VF’s lifestyle brand strategy
• Add to VF’s capability set
• Leverage existing VF capabilities and platforms
• International growth potential
• Ideally, dual gender or female appeal
• TSR accretive (no growth for growth’s sake!)
• Expected Return on Capital > 17 %
• Minimum high single-digit sales growth potential
• Operating margin potential > 14 %
• Limited and manageable financial risk
Focus On Two Types Of DealsFocus On Two Types Of Deals
< $100M deal sizeEasy to integrateAdd new capabilities to VFLeverage existing capabilitiesNew product categoriesProbably lower growth
“Tuck-ins”Substantial
Lifestyle PlaysUp to $1B deal sizeStrong lifestyle brandOutdoor or SportswearOpportunity for retailHigher growthHigher gross marginsStrong operating margin opportunities
Superior M&A Track RecordSuperior M&A Track Record
... To
10%
22%
9%
ROC2005
Sales of $238M
Significant operating losses
Sales >$540M
Operating margin >18%
Sales of $536M
Operating margin ~7%
Sales >$570M
Operating margin >16%
Sales of $353M
Operating margin ~3%
Sales >$390M
Operating margin >13%
From ...
2000
2003
2004
Capability platformsCapability platforms
Total Shareholder ReturnTotal Shareholder Return
Remain Focused on Shareholder Remain Focused on Shareholder Value As We Transform VFValue As We Transform VF
1. Growth 2. Margins 3. Free Cash Flow
4. P/E multiple
Financial StrategyFinancial StrategyPortfolioPortfolio Operational Excellence
Operational Excellence
$100M
Advanced Global Procurement
Distribution Network Optimization
Best In Class Inventory
Management
IS/IT Strategies
‘‘Fuel The GrowthFuel The Growth’’: : $100M in Savings$100M in Savings
Improved our Gross margins from 37.8% in 2003 to 41.8% in 2005Improved our Gross margins from 37.8% in 2003 to 41.8% in 2005
$100M run-rate savings are expected by 2009
To date, we have realized over $15M
Savings will be back-end loaded
Reinvest majority of savings
Capability platformsCapability platforms
Total Shareholder ReturnTotal Shareholder Return
Remain Focused on Shareholder Remain Focused on Shareholder Value As We Transform VFValue As We Transform VF
1. Growth 2. Margins 3. Free Cash Flow
4. P/E multiple
Financial StrategyFinancial StrategyPortfolioPortfolio Operational Excellence
Operational Excellence
Free Cash Flow Important Driver Free Cash Flow Important Driver of Strong TSR Performanceof Strong TSR Performance
Cumulative Free Cash Flow of $1.6B from 2003-2005 for VF
Strong ability to fund growth and return cash to investors
VF2004
ApparelMedian
2004
10.7%
5.9%
Free Cash Flow Margin
S&P 500Median
2004
8.4%
Clear Priorities For Use of Clear Priorities For Use of Future Free Cash FlowFuture Free Cash Flow
• Acquisitions
• Dividends
• Buybacks
2005 2009
~450
~600
Free Cash Flow ($M)
Balanced Portfolio: Internally Balanced Portfolio: Internally Generated Cash Funds GrowthGenerated Cash Funds Growth
Heritage Businesses Lifestyle Businesses
Growth Flat to low single-digit
High single-digit to low double-digit
Returnon
Capital
Outstanding - well above cost of capital ~ 20%
Strong - slightly above cost of capital ~10%
Free Cash Flow
$1.3B(2003-2005)
$0.3B(2003-2005)
2006 FY and Q1 Guidance2006 FY and Q1 Guidance
Revenue growth: +4 to 5%~$6.7B
EPS growth: +6%~$4.80
Revenue growth: +5%
EPS growth: Flat to up slightly
2006 Guidance 1Q 2006 Guidance
VF has Made Significant Progress VF has Made Significant Progress in Portfolio Transformationin Portfolio Transformation
Business mix: 2005
70 %30 %
Lifestyle businessesHeritage businesses
Future
40 %
60 %85 %
15 %
Business mix: 2000