VF Corporation Earnings Call Nuggets: Vans and The North Face, Inventory
Vans and The North Face
Robert Drbul – Barclays Capital: First question that I have is on the outlook for the full year, can you elaborate a little bit more in terms of the way that you guys are positioned around the orders and open to buy throughout Europe and just sort of are there any stretches to what you were assuming in that or is there any risk that you see around the plans for the European business, specifically Vans and The North Face?
Karl Heinz Salzburger – VP and Group President, International: So we had said just in the release before, we had expected a little bit softer fall bookings, which is what actually happened. Having said that, we still expect The North Face to grow in the full year. I mean this is a firm statement. Vans, Vans operates a little bit on a different business model than The North Face. We have multiple collections. So we had to work on four rather than two. So, we don’t have the full visibility yet on the fall and back-to-school book, but what we have at the moment, we said, we experienced a 50% growth in the first quarter makes us very confident that we’ll have again after last year a very strong year on Vans. Did I answer you?
Investing Insights: VF Corp Earnings: Double-Digit Revenue Growth Continues
Robert Drbul – Barclays Capital: That’s helpful, yes. I think you said The North Face, the global fall bookings were up low double. Is there a big discrepancy, can you just give us any numbers around the U.S. versus the international order book on that one?
Eric C. Wiseman – Chairman, President and CEO: Do you want to split this one?
Karl Heinz Salzburger – VP and Group President, International: Yeah, I can start maybe with my part, which is Europe and Asia. We sold very strong numbers in Asia, which were – they mirror historical numbers. So, we mentioned double-digit, very strong numbers. Europe was little bit softer and we had a few exceptional items, not only in the economy, which everybody knows about and the bad weather which really didn’t help the business, but we also saw, particularly in the U.K., we had some major customers who had some bankruptcies which affected us. Now, this has been little soft and if you neutralize this extraordinary events we also pulled out from distribution which we didn’t believe was good short-term and long-term for the brand. So, if you neutralize this extraordinary factors we still see a few percent of growth also in Europe.
Steve Rendle – VP and Group President, Outdoor & Action Sports Americas: Bob, in the Americas, we are actually seeing fall bookings comparable to prior season. So, we’re really on a nice trend and in fact as you heard there is no change to our full year expectations of mid-teen growth for the brand on global basis. I think it really speaks to the brands diversified strategy, both from a region standpoint as well as the activity based model that was deployed 3, 3.5 years ago, as well as the different categories of business that we sell onto retail.
Eric C. Wiseman – Chairman, President and CEO: Bob, the other piece is Asia, where the brand is really strong in Asia, and also very new in Asia. So, we’ve got nothing but opportunity there and our team is capitalizing on the opportunity.
Michael Binetti – UBS: So, I am curious about your comments that there was a bit of a gross margin headwind due to Timberland inventories being a bit of a challenge. You didn’t see similar thing materialize for the North Face yet we have – it sounds like your plan on doing some clearing of low productivity skews for the North Face at the same time. So, I was just hoping you could help us reconcile that as far as how we are thinking about, it sounds like you have a lot of confidence in the second half earnings, that’s usually very closely tied in the North Face we are trying to think about little bit – how conservative we are or how much risk there is sort of back half potentially from inventories for North Face in the channel still that might show up from last year from the warm winter.
Steve Rendle – VP and Group President, Outdoor & Action Sports Americas: This is Steve. On the North Face, I’ll deal with that first; we saw really strong close to 2011 where we moved through the standard seasonal inventories at that point and as we came into the first quarter we saw solid growth of the seasonal categories as well. From a brand standpoint, we’ve seen really good sell-through. Inventories at retail are in good position. There are some retailers that are sitting on slightly higher, but from our standpoint we’ve seen such a good sell-through that we feel we’re in the best position as we move into the second half and our fall bookings would gives us that confidence. I think it’s important to say that retailers book sales for coming seasons based on prior seasons sales, not necessarily prior seasons bookings or receipts but on what they sold through and our future bookings in fall really reinforce how well we’ve done in the first quarter and how we expect to enter into the second half. In the case of Timberland, we’re still learning what it means to own a business. It’s primarily a winter boot brand. The impacts of the warm dry winter were somewhat greater than we expected. That has left us with a slightly higher inventory position now, but as Bob mentioned, we’ll work our way through that by the end of the second quarter, but I think, it also is important to say that this really reinforces our long-term strategy to accelerate innovation in both footwear and apparel to build a business. It has a more diversified assortment, not only in the fall, but year around.
Karl Heinz Salzburger – VP and Group President, International: Michael, I’d just add to that that obviously right now we’re instilling a lot of discipline in the – especially in the inventory management area at Timberland, and we’re seeing a little bit of short term impact from that, but we’re going to see big benefits going forward as we get the inventory levels down, which are quite high right now, and as we work those down by mid-year, and then move forward in the second half of the year.
Eric C. Wiseman – Chairman, President and CEO: Michael, it’s Eric, just to make sure there is clarity about the situation in North America with the North Face. We did have a few retailers that put some inventory back to hold on to it to sell it in the fall, all of that’s reflected in their bookings. They obviously wrote their bookings knowing exactly what they had, and so our outlook for the fall we have pretty clear visibility to the outlook and we’re really encouraged.
Michael Binetti – UBS: Okay, and then just since we’re going to be – I think, the next time we’ll chat with you guys will be at the Vans analyst day, maybe a Vans question. I think, we’ve heard that you guys are – you have the e-commerce platform set up in Europe now, and I think, it becomes quite leverageable that you have the back of house supply chain and order fulfillment set up, and I think, you’re going to be turning on quite a few markets for Vans now that you have North Face on in the near term. Could you tell us a little bit about the plans for Vans as you roll that out across Europe on e-commerce and perhaps what you’re seeing early on with North Face that we could think about as you do that for Vans?
Eric C. Wiseman – Chairman, President and CEO: Go ahead, Karl Heinz.
Karl Heinz Salzburger – VP and Group President, International: Sorry. Michael, you said it all, right. We do work and we have a leverage on our what we call the back end on e-com. We started about 15 months ago with the first trial market on The North Face, and what we do now, we are rolling out other markets and brands, we use the back hand which includes not only the system but also the order fulfillment and the deliveries to supply chain, it’s all backed and it’s leveraged. What we do keep in focus though is the brand part. So, every site has it’s relevant part, so we could speak to the relevant consumers. We don’t know yet what is going to happen on Vans because we mentioned we are rolling it out next month, but I did mention that in my script, the experience we had on The North Face, once we improve the first initial difficulties, is great, and it’s much over what we had planned and what our expectations were. It’s a very fast, rapidly growing channel.
Eric C. Wiseman – Chairman, President and CEO: That’s all upside in Europe around the e-commerce thing. This will not come as a surprise to you, we’ve been pretty conservative in our expectations this year as we start watching the Vans e-commerce sites in Europe, but it’s all upside, the right thing for us to be doing.
Michael Binetti – UBS: Since one last question I don’t want you guys to run but since we are on the topic of field trips, we’re going to – you guys are taking investors to China in September, why now, why is now the right time? You guys have been there for decades, it’s a single digit part of the revenues, but I’m just curious is there an inflection point you had or why is now the time to showcase the work you guys have done in China?
Eric C. Wiseman – Chairman, President and CEO: We’ve been thinking about when was the right time to go to Asia and talk about our Asian business and our focus on China in particular, and Timberland was actually an inflection point because they are so successful in that region that we thought now was the right time to go over and talk about our Asia-Pacific business and share with you just how much progress we’re making. We are getting very close to that $1 billion mark in the region and we thought that was something to talk about and show you how we’re doing that centered – of course, our biggest market is China, but wanted to share all of that with you, so looking forward to that trip in September.