V.F. Corporation (VFC) Q4 2011 Earnings Report, Transcript and Summary

Jean Fontana - Senior Vice President Eric C. Wiseman - Chairman, Chief Executive Officer, President, Ex-Officio Member of Finance Committee Robert K. Shearer - Chief Financial Officer and Senior Vice President Steven E. Rendle - Vice President, Group President of Outdoor & Action Sports Americas and Member of Operating Committee Karl Heinz Salzburger - Vice President, Group President of International and Member of Operating Committee Scott Baxter - Vice President, Group President of Jeanswear Americas & Imagewear and Member of Operating Committee Karen Murray - President of Sportswear Coalition Susan Kellogg - President of Contemporary Brands Coalition Unknown Executive -

Michael Binetti - UBS Investment Bank, Research Division Jim Duffy - Stifel, Nicolaus & Co., Inc., Research Division Joseph Parkhill - Morgan Stanley, Research Division Robert F. Ohmes - BofA Merrill Lynch, Research Division Mitchel J. Kummetz - Robert W. Baird & Co. Incorporated, Research Division Kate McShane - Citigroup Inc, Research Division John D. Kernan - Cowen and Company, LLC, Research Division Robert S. Drbul - Barclays Capital, Research Division Omar Saad - ISI Group Inc., Research Division Kenneth M. Stumphauzer - Sterne Agee & Leach Inc., Research Division Michelle Tan - Goldman Sachs Group Inc., Research Division

Good day, everyone, and welcome to the VF Corporation Fourth Quarter Fiscal 2011 Earnings Conference Call. Please be aware that today's conference is being recorded. And now, your host for today's call, Ms. Jean Fontana. Ms. Fontana, please go ahead, ma'am.

Thank you. Good morning, everyone. Thank you for participating in VF Corporation's fourth quarter and full year 2011 conference call. By now, you should have received today's earnings press release. If not, please call (203) 682-8200, and we'll send you a copy immediately following the call. Hosting the call today is Eric Wiseman, Chairman and CEO of VF Corp. Before we begin, I would like to remind participants that certain statements included in today's remarks and the Q&A session may constitute forward-looking statements within the meaning of the federal securities laws. Forward-looking statements include management's current expectations, estimates and projections about business and results of operations and the industries in which VF operates. Actual results may differ materially from those projected in the forward-looking statements. Important factors that could cause actual results to differ materially from those projected in the forward-looking statements are discussed in the documents filed by the company in the SEC. I would now like to turn the call over to Eric Wiseman.

Thanks, Jean. Good morning, everyone and thanks for joining us. With me today are Bob Shearer, our Chief Financial Officer; our 3 group presidents, Steve Rendle, Karl Heinz Salzburger and Scott Baxter; as well as Karen Murray, President of VF Sportswear; and Susan Kellogg, President of VF Contemporary Brands. I'd like to start off today's call by answering a question I know has been on everyone's mind lately. That question relates to the impact of unseasonably warm weather on VF in general and on The North Face, in particular. I'm delighted to report that in the fourth quarter of 2011, The North Face achieved a 22% increase in global revenues, and this was no easy comp. In the fourth quarter of 2010, The North Face achieved global revenue growth of 25% during an exceptionally cold and snowy winter season globally. Here are some additional numbers. The North Face Americas business grew by 24%. European revenues rose 12% in constant dollars, and Asia revenues increased 41% in constant dollars. I hope that this helps put to rest concerns about the ability of this powerful brand to grow, even in less-than-ideal conditions. We are confident that The North Face's momentum will continue in the years to come, and we look forward to achieving our 2015 revenue goal of $3 billion. Now with that piece of the picture behind us, let's talk some about the year and the quarter just ended. 2011 was a year of records: record revenues, record earnings, record cash flow from operations both on an organic basis and, of course, including Timberland, which represents another VF record, the largest acquisition in VF's history. We continue to be thrilled about the opportunities that Timberland and SmartWool offer VF and our shareholders. We delivered revenues and earnings accretion in 2011 above…

Thanks, Eric. These are truly exciting times for VF, with strong momentum across our brands globally. I'd also point out another big milestone reached this year. With the Timberland acquisition, VF will have more than half its revenues coming from Outdoor & Action Sports. The portfolio transformation that we envisioned several years ago has become a fast-growing, highly profitable reality. Quick point before I dive in. The release contains financial data on an adjusted basis. The adjusted data excludes 2 items: expenses related to the Timberland acquisition in 2011 and 2012 and the impairment charges recorded in 2010. We hope that this helps you better interpret our results. Now let's start at the top with revenues. Revenues in the quarter increased 37%, with 26 percentage points of the growth, more than $0.5 billion, coming from Timberland. So organic revenues grew at a very healthy rate of 11% this quarter, and that is on top of a strong Q4 in 2010. The momentum continues. And for the year, revenues grew 23%, with 9 percentage points of the growth coming from Timberland. We exceeded the $700 million in revenues targeted for Timberland in 2011. Their total contribution was $713 million. Organic revenues grew 14% in 2011, which is substantially above our long-term organic revenue growth target of 10% that we established in early 2011. The power of the VF portfolio, diversified, global and growing, is clearly evident in these results. So onto gross margin. Our original gross margin guidance on a full year basis was a decline of just less than 100 basis points. So we're really pleased that on a full year basis, we navigated our way through the challenges related to higher product costs, with full year gross margin down 90 basis points. In terms of the fourth quarter, we…

Thank you, Bob. On our third quarter call, I emphasized the momentum that our global Outdoor & Action Sports business continues to build, a momentum we're particularly proud of as we finish out a record year and enter 2012 with our strongest portfolio ever. Our fourth quarter and full year results demonstrates the investments we continue to make in our brands, our infrastructure and our ability to connect with consumers is contributing to a very exciting long-term growth story. Clearly, our results for both the quarter and year benefited tremendously from the Timberland acquisition, but we're just as excited about the organic growth we achieved during both periods. Excluding Timberland and SmartWool, our core Outdoor & Action Sports Americas revenues grew near 20% in the fourth quarter, including double-digit revenue increases from The North Face, Vans, lucy and Reef. For the full year, again excluding Timberland and SmartWool, our Outdoor & Action Sports Americas revenues grew nearly 15%, with solid growth achieved at The North Face, Vans, JanSport, lucy and Reef. Taking a quick look at some of the brand highlights, it's easy to understand why we believe 2012 will be another great year for us. Starting with The North Face. As Eric mentioned in his opening remarks, the brand showed amazing resilience in the fourth quarter in the face of unusually warm weather, with a 22% increase in global revenues. In fact, The North Face Americas fourth quarter revenue growth was the strongest we've seen all year and included strong double-digit d-to-c growth in both retail and e-commerce channels, as well as mid-teen increases in our wholesale business. For the year, The North Face Americas revenue growth finished ahead of our global 5-year compounded growth goal of 16%. And as noted on our last call, spring 2012 bookings for…

Thank you, Steve. On our last call, I mentioned that VF's 2011 international business was shaping up to be the strongest I had seen in my 12-year career with the company. Today, I'm happy to say that is, in fact, the case. With 20% organic growth in constant currency revenues, including double-digit increases in Europe, Asia and India, growth across nearly every brand in our portfolio and significant gains in our direct-to-consumer business, 2011 was a record year for our international business. My review of our businesses today will focus on results in constant dollars. In Europe, each of our 3 businesses, Outdoor & Action Sports, Sportswear and Contemporary and Jeanswear, achieved organic revenue growth in both the fourth quarter and full year. Taking a deeper dive into our European Outdoor & Action Sports business, excluding Timberland and SmartWool, we achieved revenue growth of over 25% in both the fourth quarter and full year, driven by tremendous momentum at Vans, where revenues grew more than 50% in both periods. Spring bookings support another strong year in 2012 as well. The North Face also enjoyed a strong finish to 2011, with a double-digit revenue increase in the fourth quarter and nearly 20% growth for the full year. The momentum continues here as well, with solid spring 2012 bookings pointing to another strong year. I would also like to congratulate the Vans team in Europe, whose passion for the brand and hard work contributed to growth well above the 24% revenue increase that Steve referenced earlier. In their first full quarter as part of our portfolio, Timberland and SmartWool Europe enjoyed very healthy growth. For the full fourth quarter period, revenues increased at the mid-teen rate. Timberland is now the largest brand in our European portfolio, and while market conditions are still…

Thank you, Karl Heinz, and good morning, everyone. I'll start with our Jeanswear America business first, which includes our Lee, Western Specialty and Mass businesses, and then discuss our Imagewear results. We entered 2011 with our key Jeanswear brands as strong and well positioned for growth as they have ever been, yet with the sharp rise in product costs you are all familiar with, we knew we faced a tough year and an unprecedented margin pressure. Accordingly, we went heads down and devised a short- and long-term plan to navigate through an environment, the likes of which we have never seen. We implemented strategic pricing actions to help mitigate costs while growing our retail floor space and market share. We elevated our product innovation agenda to ensure industry-leading style, construction and performance, and we supported our brands with strong, targeted demand-creation efforts, investing marketing dollars to forge even stronger connections with our consumers. So how did we do? We did well. The year ended on a strong note, with the fourth consecutive quarter of top line growth and full year revenues up with mid-single digits, with growth from all brands and geographies in our Jeanswear Americas business. As expected, profitability was hindered by exceptionally high raw material costs, and unit volume was impacted by price increases. Despite these challenges, our brands gained market share across all channels, mass, mid-tier and specialty. Top line growth, profitability in line with our expectations and market share gains in arguably the toughest cost environment we've ever seen. I am very proud of the performance we achieved in 2011 and more importantly, how well positioned we are for continued success in 2012. Now let's dig a little bit deeper. The Lee brand had a very strong year, with 8% growth in 2011. Our success was…

Thank you, Scott. Our Sportswear coalition, which consists of the Nautica brand and Kipling's U.S. business, performed very well in 2011, growing total revenues by 9%. Here's a quick recap of some highlights for both of these brands in the fourth quarter and full year, starting with Nautica. Nautica ended the year with revenues up 5%, including gains In our Sportswear license and outlet businesses. We've been working hard to evolve our product offering to a more differentiated, performance-based positioning around water, the core of the Nautica brand, and it's working, with our momentum building with our biggest retail partner and consumers. We're also telling our product stories more effectively, particularly online, with a new fully refreshed and integrated website. Our brand connection with consumers is strengthening as well. Our YouTube holiday ad generated over 1 million views. In addition, we saw a significant increase in Facebook fans in 2011, and most importantly, we are engaging with these fans and driving meaningful traffic to nautica.com. Nautica is truly a global brand, sold in over 75 countries and in 155 freestanding stores. Our international business is licensed, and the strength of the brand is evidenced by the 30% increase in international retail sales in our key markets in 2011 and over 1,200 points of sale. Nautica's outlet business continues its turnaround, ending the year with comps up at a mid-single-digit rate. The growth is due directly to successful test concepts we've executed at our highest volume locations, where we've worked to reset the consumer experience, updated our store navigation and appearance and most importantly, improved the store allocation process. We're looking forward to continuing this momentum in 2012. Now onto Kipling, a fast-growing and very profitable success story in the United States, particularly since we joined forces with Macy's as our exclusive department store partner for handbags in 2010. Kipling achieved 49% revenue growth in the quarter and 56% growth for the full year. We're currently in 420 Macy's doors. Additional door expansion in 2012 and increased penetration, coupled with a growing direct-to-consumer business, should fuel another year of exceptional growth for Kipling in the U.S. To sum up, the Sportswear coalition is well positioned to grow revenues at a mid-single-digit rate in 2012, with gains in both our Nautica and Kipling brands, and we're planning improved profitability as we, too, begin to benefit from lower product costs. Now my colleague, Susan Kellogg, will take you through Contemporary Brands.

Thanks, Karen. We're in the homestretch. Our Contemporary Brands coalition, which consists of 7 For All Mankind, Splendid, Ella Moss and John Varvatos, saw growth across all brands in the fourth quarter, with global revenues up 12% and full year revenues up 11%. We continue to improve the profitability of our coalition with positive operating comparisons in both the quarter and for the year. 7 For All Mankind achieved mid-single-digit growth in the fourth quarter, driven by increases in DTC business. In fact, our Americas business saw mid-single-digit comp growth in our U.S. retail stores and nearly 30% increased online revenue. For the year, the brand continues to grow both in the U.S. and in Europe, fueled by DTC revenues that increased almost 40%. Looking forward to spring, be on the lookout for 7 For All Mankind's new ad campaign shot by Oscar-nominated actor James Franco. The campaign, which features both print and video, rolls out this week and really elevates our brand story to a uniquely fresh, California-inspired style. Together with future innovations in fit, fabric and finish, we're feeling great about 7 For All Mankind's brand outlook for 2012. Our Splendid and Ella Moss brands continued to experience tremendous growth, with fourth quarter and full year revenues each rising in excess of 20%. In 2011, wholesale revenues grew at a mid-teen rate, and our DTC business nearly doubled with the addition of 6 new stores and rapid growth in our e-com business. We're barely scratching the surface of this potential of these 2 brands, and we're excited about the outlook for 2012 as well. Innovation is what drives and it takes to win Contemporary, and we're driving more innovation than ever before across all of our brands, particularly with emphasis on color and fabric. Supported by marketing investments and continued DTC expansion in 2012, the global Contemporary Brands coalition is working and looking forward to a year of healthy, mid-single-digit growth combined with our substantial increase in profitability. And with that, we conclude today's comments and turn it back over to the operator to open up for Q&A. Operator?

[Operator Instructions] And for our first question, we go to Michael Binetti with UBS.

So, I might have missed it. Did you guys give North Face and Vans bookings yet on the call?

What's the question?

Is that a question about fall 2012 bookings?

I just wanted to see if we can get an update on what the bookings are for North Face and Vans right now.

Yes, well, we spoke about The North Face bookings for spring, which we did mention on our third quarter call, up 15% globally. But in case of fall, it's too early to call. We're very encouraged, but our teams are all actually in the field continuing to sell with our wholesale dealer partners. It's something we'd update you in our Q1 call.

Okay. Obviously, that was a volatile winter for those guys. Do you have any better visibility on Vans bookings for the fall yet?

No, we don't. They actually come in slightly later than our other business.

And for our next question, we go to Jim Duffy with Stifel, Nicolaus. Jim Duffy - Stifel, Nicolaus & Co., Inc., Research Division: A couple of questions around Timberland. The accretion for '12 is projected ahead of original plans, though the revenue outlook doesn't appear any more aggressive. Where is the incremental margin benefit that you're finding?

Jim, it's actually in a couple of places. In the gross margin as well as in the expense levels, you might notice that we're going to spend just a little bit more than we previously indicated, and of course, that's giving us nice benefits in terms of the operating margin. So we're seeing some stronger opportunities in the gross margin, and we're realizing those. And also, relative to the expense reduction, meaning SG&A reductions, we've seen a little bit more opportunity there as well. So it's really in both of those areas that's driving the improved profitability over our initial guidance. Jim Duffy - Stifel, Nicolaus & Co., Inc., Research Division: Okay, great. And Timberland's clearly tracking quite well. It's a bigger acquisition than you've done in the past. At what point do you see the organization ready to take on another acquisition of any size? Can you guys, at this juncture, be a serious bidder for any properties that might come to market near term?

Yes, Jim, it's Eric, obviously, we have the capacity to be engaged right now in additional acquisition activities, both financial capacity and organization resource capacity. Something the size of Timberland, probably unlikely in the next 12 months. There aren't a lot of opportunities that are that big out there, but we remain active as always and continuing relationships and discussions around future opportunities.

And we go next to Joseph Parkhill with Morgan Stanley.

I just also wanted to ask about Timberland. I think there's a lot of opportunity for you to improve retail operating margins there. But I was wondering if that improvement is dependent on improving the apparel offering, so that really won't come until after 2013, or is there something that you can do in the meantime to improve profitability at retail?

You're absolutely right, Joe, that the serious improvement will come as we start to introduce apparel, but we do see opportunities to improve this year. In fact, we have a very talented team of both Timberland and VF outdoor retail expertise focused on our direct-to-consumer channel operationally, as well as looking to merchandising strategy to bring improvement in this year.

Okay. And if I could just ask some quick modeling questions, I was wondering if you could quantify the impact of the onetime charge in Jeanswear. Also, give your tax rate that you expect in 2012 and what your plan for marketing is as a percentage of sales.

Sure, Joe. All in, the impact of that charge was -- really, the Jeanswear was 40 or 50 basis points. So again, it accounted for most of the difference in terms of what we guided toward. And the tax rate for 2012, 25% to 25.5% is what we're planning.

Great. And your marketing?

Marketing spend should -- will stay relatively stable as a percent of overall revenues, which was right at about 5.7% in 2011, 5.7% of revenues.

For our next question, we go to Robby Ohmes with Bank of America Merrill Lynch.

Two quick questions. I was hoping Scott could talk about the average -- looking back at 2011, what the average ASP in Jeanswear looked like in both U.S. and Europe and then maybe thoughts on holding that as costs come down in the back half and into 2013. And the second question, I was hoping you guys could give a little more detail on the Vans outlook for 2012. Two things. Can you tell us how many doors you have in China and how many more doors you hope to add in 2012, or remind us that, and then the mix of growth for Vans in 2012, sort of China versus Europe versus U.S. I know there's a lot there, but I appreciate the help.

It's Scott. Robby, I'm going to go ahead and answer the first part of the first question, and then I'll have Karl Heinz address the European part of the question. But as expected, Robby, 2011 came in as expected and flow-through as expected. And 2012, we feel real good about our plans, feel real confident we're going to be able to hold our AURs. And we're seeing those trends all the way through January right now, and we feel real good about what's going on for the rest of the year. So as expected in '11 and feel good about '12.

And was it some sort of a single-digit or double-digit AUR increase?

Double-digit.

In 2011, you're saying?

Yes.

Yes, on average, it was. It was right around 10% overall in the U.S. Jeans business, right.

And then how did Europe look on that?

Jeans have price increases in Europe.

Yes. Karl Heinz here, Robby. Jeans, we had some price increases in Europe in the lower, around mid-teens. On the second question, the China doors, we said we have about 1,700 doors, which we ended up in 2011, and we plan to open 500 -- around 550 doors, which would bring us to around 2,250. Now to put this in perspective, this is 2,200 doors with 4 main brands: The North Face, Vans, Kipling and our Jeans business. And if we benchmark that to what -- presence, is a meaningful presence in China, we see some competitors, large companies having around 5,000 to 6,000 doors.

Per brand.

Per brand, per single brand.

And can you give me just the Vans breakout on that?

We did say in our announcement we expect Vans to grow about in the mid-teens for 2012.

And for our next question, we go to Mitch Kummetz with Robert Baird. Mitchel J. Kummetz - Robert W. Baird & Co. Incorporated, Research Division: Bob, let me start with you. In terms of your gross margin guidance for this year, up 70 basis points, a couple of things. Can you break that down by puts and takes in terms of what do you expect in terms of sort of basis point increases, decreases on costs, pricing, mix and FX? And then you've also said that you expect the improvement to come in the back half. Should I assume that means flat to down in the first half? And then I have a follow-up.

Okay, relative to the gross margin percentage, in terms of the puts and takes, I think is what you asked. What we're seeing there, Mitch, is just as we've been seeing over the past couple of years. Most of the improvement that we expect to see is from mix, right? So in 2011, we gained about 80 points from mix, and when I talk about mix, it's higher revenues in our Outdoor & Action Sports businesses. In retail, on the international side, becoming a bigger piece of the overall business. And I referenced that in my comments. So again, most of that improvement comes from the mix side. Relative to cost and pricing, what we're seeing there, it's relatively neutral. It could be a little bit of upside from prices exceeding cost increases. Obviously, we're not looking for the same kind of cost increases that we saw in 2011, substantially less. But overall, relatively a neutral impact from pricing, net of costs. And the other question was? Mitchel J. Kummetz - Robert W. Baird & Co. Incorporated, Research Division: Gross margin first half versus second half.

Gross margin first half, second half. Clearly, what we'll see is in the first quarter, our gross margins, we expect still to be below the prior year's first quarter. I'd remind you there that in the first quarter of 2011, it was a really good quarter for us, and part of that was that we bought a lot of denim well in advance, right? So we carried low-cost denim into the early part of 2011, really benefited from that. So clearly, the toughest comparison will be in the first quarter of the year, and we do expect our gross margins to be down. It could be about 100 basis points. In the second quarter, we expect the gross margins then to flatten out. That's where we really see the stabilization. Third quarter, improvement, up obviously, and then the fourth quarter, more improvement over the third quarter. Mitchel J. Kummetz - Robert W. Baird & Co. Incorporated, Research Division: Okay. And then my follow-up, on your sales outlook for the year, 8% constant dollar or 6% reported dollar growth, again, can you talk a little bit how you expect that to play out first half, second half? Should I assume maybe stronger growth on a year-over-year basis, percentage-wise, in the first half or at least better visibility on that first half growth at this point, not knowing how your prebooks are coming in for fall just yet?

Not really. Actually, first half versus second half, and of course, I'll speak to the core business, right, Timberland is a different story for the subperiod. But speaking to the core business, actually, first half, second half, we expect the top line growth to be relatively even, maybe a little stronger in the second half but not a lot stronger. But the point is what's happening here is that as our business -- especially with Timberland and the growth in Outdoor & Action Sports, the seasonality of our business continues to change. So the first half is becoming a little bit less than it has been in the past, and that's particularly so with Timberland, as you probably know. The second quarter, for example, in Timberland is less than 15% of their total year. So again, all of that impacts the overall seasonality.

We go next to Kate McShane with Citi Investment Research.

I wondered, Steve, if you could walk us through a little bit with what has been done with the Timberland brand so far in the U.S. I wondered if there had been a notable increase in distribution of some of the smaller brands like nonathletic and Earthkeepers so far, or is that still yet to come in 2012?

Sure, Kate. From a product distribution, the classics part of the Timberland merchandise mix continues to be important, but the major, major emphasis previous and now within VF is the Earthkeepers collection and what that means, not just to the footwear product but to the overall brand and its brand strategy. I will tell you there's a heightened focus on our wholesale/retail partnerships. The team has been extremely diligent over the last couple of months, meeting with and beginning to update and set strategies in motion to start to drive growth not only this year but to build the base for the years to come.

Okay. And the operating margin you reported for Timberland of 9%, was this for the year or the quarter? And whatever the case, I'm just wondering if you could, again, highlight what the pressure was on the operating income margin this year versus last year despite some of the synergies.

Yes, the 9% for Timberland, Kate, was in the fourth quarter. And by the way, that's adjusted for the onetime costs. So it was only the quarter. On a full year, it was stronger than that, including the subperiod or the short period in the month of September. Overall there, on a full year basis, it was more like 12%, again, adjusted. In terms of the pressures on the margin, costs, just as we've been seeing in our businesses, product cost increases created some challenges to the Timberland team in 2011, for sure. So not really so different.

We go next to John Kernan with Cowen and Company.

I'm wondering if you could quantify the net unit growth for Timberland in terms of retail next year. I think in the press release, it said half of the 130 stores would be from Timberland. And then the geographic mix of that square footage growth for Timberland.

Actually, John, we don't break out our store growth targets by brand. We did say that of the 130 stores next year, over half of them are coming from our Outdoor & Action Sports brands combined globally, but we haven't in the past and don't give, by brand, store numbers. Sorry.

Okay. A little bit more on capital allocation next year. Obviously, the CapEx is coming in a little bit higher than we expected due to some headquarters and DC growth. But can you give us a sense as to what, I guess, the balance sheet's going to look like? You paid off almost $900 million of commercial paper in Q4. How do we look in terms of share repurchases? It sounds like you're still open to making an acquisition. And then in terms of the -- more in terms of the balance sheet, what is your guidance for interest expense next year, or in 2012, I should say?

Well, that's a lot. Okay, I hope I hit them all. In terms of the balance sheet, commercial paper, the $280 million or so, at the end of the year, we'd expect to pay that down, obviously. We indicated in the release that we expect another year of very, very strong cash generation. So we'd pay the CP down. That would be our plan. In terms of the buyback that you asked about, we did not buy any shares back in 2011 because of the acquisition, but in 2012, we expect to resume our practice of offsetting the impact of option exercises. That would indicate buying back about 2 million shares. That's what's included in our plan on a full year basis. And the interest guidance for the year is about $90 million.

Okay, great. And then one follow-up question. I think I heard Karl Heinz Salzburger say -- guides a 10% organic rev growth in Europe. What does that imply for organic growth in North America for the year, for 2012?

I mean, there's a lot of different factors there. We have Asia as well, but what we said overall was 8% in Europe. This is about 20% of our total business.

We go next to Robert Drbul with Barclays Capital.

I guess I want to focus on The North Face a little bit more, just on the outlook for The North Face. So I think you said mid-teens expectation for this year. Can you elaborate a little bit sort of in North America and Europe and the visibility around the expectations? I guess what I'm interested in is given the warm weather and the inventory levels at retail, just sort of what you're seeing on the order book and sort of how we should think about it geographically a little bit.

Robert, this is Steve Rendle. North Face America, specifically, mentioned that our spring order book globally was up in the mid-teens, and that absolutely holds true for here in the Americas. Our teams are currently in the process of collecting our fall order book. I mentioned that we're extremely encouraged. Yes, our outdoor industry is coming out of a very difficult fourth quarter. Specifically, December was down 2% from an industry sell-through standpoint. I can tell you that our North Face business was positive, and was one of the leading brands from a sell-through standpoint in the industry. And as we've seen over the last few years, it's further consolidation around those brands that deliver very high product price value, and we're very confident what we will see for the balance of the year.

Yes, this is Karl Heinz. Let me start with Asia first. In Asia, we see The North Face as strong as ever. We're a little bit -- we have visibility on the fall bookings, and we can confirm that they will be as strong as we always had in the past. Europe is a little bit more different. Europe, there's a general trend in the market, as you mentioned before. We had a very late winter coming. We have a lot of snow now, but that caused a delay in the order intake process, not only for us but the entire industry. But we are confident to continue to grow in Europe as well based on strong spring bookings, and it's a little bit too early to say how fall would evolve. But again, the entire industry is a little bit later this year.

Okay, great. And then my second question is on Timberland. I think, Bob, the original cost synergy number was $35 million, and I think that you originally said maybe $0.90 of accretion for '12, and this year, it's $1.10. Can you just give us an update in terms of the cost synergy side, sort of what's embedded in the accretion numbers that you've provided us today for 2012?

Yes, sure, Bob. It's obviously more than that, right? So we've identified more opportunities. Remember, those are very early numbers, and you're exactly right. We indicated $35 million, and we're running at a rate that will be above that by $10 million or $15 million. So that is part of the increase in the accretion that you mentioned, the $1.10 versus the $0.90, as I said earlier on the call. Another factor, however, where we are seeing opportunity is in the gross margin area as well. It's a little more than we originally anticipated. Actually, in both areas, we're seeing some positive signs, and both are contributing to the higher accretion.

We go next to Omar Saad with the ISI Group.

To follow up on the Timberland discussion, you saw a little bit of the impact in the margin in the outdoor business, I think on the fact that Timberland is a lower-margin business. And I just wanted to kind of get your views. Is it structurally lower-margin business because it's footwear, or do you expect that, over the long-term, you should be able to get that Timberland margin up to more where your corporate average is, obviously, is one of the best in the industry. And then I have a follow-up, too.

Omar, we committed to 15% operating margin on Timberland by 2015. What we also indicated, when we issued our initial guidance, we said that there was opportunity beyond that, to the 18% level, pretty specifically, is what we said. Just as we said when we did the acquisition, the point that I always made was we looked at the gross margin. The gross margins are really strong, and as I just said on an earlier response, we continue to see opportunities in those gross margins. And we think that, that really does speak a lot to the strength of the brand. So no, the answer is there are no inherent or fundamental areas of concern or differences that we see relative to the model for Timberland versus the rest of our outdoor businesses. Steve, anything to add there?

Yes, Omar, we do see opportunity over time, as the apparel launch comes live in fall 2013 and beyond, to see a benefit to getting a higher mix of apparel.

And Omar, if I may add, Timberland has a very strong retail presence in Europe and Asia, which will further also improve the gross margins.

I understand. And then could you also talk about -- I thought I heard a comment in the prepared remarks about changing the outdoor -- new outdoor headquarters in Europe and the U.S. Are you changing the way the business is -- operationally is organized and where the different brands are located?

No, we're not changing where anybody is located or how the businesses are configured. As you would imagine, the buildings that we're in, we've been in the one in California for over a decade and the one in Lugano for 6 or 7 years, and we have outgrown that space. So it's simply -- it is a growth-driven need for more space. That's it.

We go next to Ken Stumphauzer with Sterne Agee. Kenneth M. Stumphauzer - Sterne Agee & Leach Inc., Research Division: First, Bob, I just wanted to touch on 2Q. Timberland obviously suffers a loss in 2Q, and I'm wondering if you could help us think through the magnitude of what that could mean for VF as a corporation. Would it be safe to assume that kind of the organic or the core EBIT grows 10% and then you layer on the loss you typically see for Timberland, and as such, maybe earnings could be around $1? Or is that too negative of an assumption?

Yes, I mean, it's just way too early to comment, Ken, on the second quarter. That's why we've kind of talked more about the first half. I can tell you this, though. I mean, you're absolutely on the right track relative to Timberland. You're right. I mean, historically, Timberland has incurred a loss in the second quarter of the year, and I've commented earlier on the seasonality of their business. So that obviously is going to be a hurdle for us. And could we be down quarter-over-quarter because of Timberland? Well, sure. It's a fairly significant amount. In 2011, for example, Timberland lost, I believe, $30 million-plus in the second quarter. So while we're improving the business and may not be quite there, still, that's a fairly significant hurdle for us in the second quarter. Kenneth M. Stumphauzer - Sterne Agee & Leach Inc., Research Division: Okay. And then, Steve, I was just wondering if I could ask you about The North Face and kind of what 4Q could potentially mean for 1Q. It looks like you guys came out of 4Q with actually pretty clean inventories. Do you feel like that's the case at retail given the warm weather? And if that's not the case, is there the potential for sales in 1Q to be a little bit light given the lack of replenishment?

Yes, Ken, we have follow-up on some of the discussions we had at the outdoor retailer show. We did come through fourth quarter really well. We talked about the need to see cold weather arrive across the U.S. to start to drive that positive sell-through, and fortunately, it did come. We got cold weather. We didn't necessarily get cold, snowy weather, but with those colder temperatures, we have seen an increase in sell-through, giving us confidence for not only the quarter but for what that means for the full year.

And Ken, we experienced a similar situation in Europe. Winter came -- it came late, but it helped us tremendously.

We go next to Michelle Tan with Goldman Sachs.

I was wondering -- it's really helpful to understand how you guys are thinking about the margin opportunity, long term, for Timberland. I was wondering if you could talk a little bit about the market opportunity from a top line perspective. I think, Steve, you mentioned The North Face experience and the acquisition there, but clearly, Timberland is a much bigger business today than North Face was when you bought it. So I was wondering if you could help us with a little more detail on what kind of big opportunities you see to expand the top line over time. What are the big kind of holes in the business?

Absolutely. Michelle, from an Americas standpoint, and then Karl Heinz can fill you in on the international piece, the opportunities that we see, and we've been really forthright from the beginning, is to just continue to expand the distribution opportunities for footwear, first and foremost, building behind the Earthkeepers strategy that the brand has in place. We do see great opportunity with apparel. That's one of the synergies that we believe we will bring and be able to really help that team not only vision the apparel assortment but certainly produce it in a way that will be very positive. We see great opportunities with our direct-to-consumer channel, both the in-store experience, which will help us tell that brand story, which will certainly help expand the brand over time, but the digital aspect of the brand driving not only the content but the commerce piece. So I think it's a combination of those elements that we see driving growth over the long term.

Yes, Michelle, it's very similar for us in Europe and Asia. I guess the only change is, we already have -- Timberland has a very well-developed apparel program, which is doing extremely well, especially in Asia, with a component between -- the ratio between apparel and footwear is nearly 50-50. So Earthkeepers in Europe resonates extremely well with consumers, and we are expanding that into more product categories, into apparel as well.

And is there a benchmark kind of thing you point to, whether it's another brand or another business that says, hey, this is how big we think it can be, or is it just too kind of soon or too early in the strategy rollout to say that?

No, I think we see, Michelle, some real similarities to our North Face business, which is heavily weighted to the apparel and equipment side and the footwear growing. But we see an opportunity to tell a very clear outdoor message, maybe not to the same technical level of The North Face but absolutely building on that New England outdoor heritage and building both footwear and apparel through wholesale and direct-to-consumer.

And ladies and gentlemen, that does conclude our question-and-answer session. I would now like to return the conference to Mr. Wiseman for any closing remarks.

Just thank all of you for your time and your interest and your questions. 2011 was a record year for VF Corporation in just about every way. And as we approach 2012, we expect to do significantly better despite headwinds from pension and foreign currency translation and uncertain economic environment. We'll give you an update in about 90 days. Thanks a lot.

And ladies and gentlemen, that does conclude today's conference call. Thank you for your participation.