VF looking for outdoor/sportswear apparel acquisition in '03

During a webcast presentation of the Lehman Brothers Sixth Annual Retail Seminar, VF Corp. (NYSE:VFC) CEO Mackey McDonald told investors and participating media that the company is very interested in acquiring a "middle-tier outerwear brand and sportswear brand" to strengthen the company's position...
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During a webcast presentation of the Lehman Brothers Sixth Annual Retail Seminar, VF Corp. (NYSE:VFC) CEO Mackey McDonald told investors and participating media that the company is very interested in acquiring a "middle-tier outerwear brand and sportswear brand" to strengthen the company's position in an area VF is not currently a significant player.

McDonald went on to say that, "We believe we're going to have acquisitions available to us in the coming year" and that those acquisitions "will be expected to contribute to earnings within a relatively short time."

During the presentation, McDonald voiced enthusiasm for VF's record first quarter EPS and gave every indication the company expects year-end EPS to be up 5 percent to 10 percent. In addition, McDonald feels the operating margins for his company are likely to be 13 percent with a cash flow of $400 million, and that will place the company in a strong position for its acquisition moves.

As he has been for the last year, McDonald continued to be very high on The North Face's performance, pointing to spring bookings being up 23 percent, in part to the successful introduction of the A5 brand and expansion of the footwear line. McDonald also was very bullish on the performance of the recently opened Manhattan TNF store that he said has been "very successful" and an indication of TNF's future retail strategy.

One other interesting note in the webcast was McDonald's comments pertaining to a VF logoing initiative, which he believes will further grow consumer and brand awareness. VF is pouring resources into further connecting with businesses to offer logoed products with VF brands, including The North Face. While purists might snicker, savvy investors were salivating knowing that VF cashed in following the most recent Super Bowl, shipping logoed products to consumers with the winning team's logo within hours of the game's end. TNF branded fleece and A5 apparel with NFL team logos? Don't laugh.

SNEWS View: Hmmm…let's see. Columbia Sportswear just acquired Mountain Hardwear. Russell is on a tear snapping up Moving Comfort, Jagged Edge and then Bike Athletic -- with no signs that company is done yet. VF might be feeling a little as though it needs to wade into the pool and begin splashing around too before it gets left out of the party. It currently has no middle-tier apparel brand in either outdoor or sportswear -- a major gap in the company's portfolio and one that has certainly not gone unnoticed by investors. So, the company has two choices -- add apparel as part of an existing brand line (JanSport tried that a few years ago with little success) or buy a brand that is successful but needs stronger backing to continue to grow. Little wonder VF is opting for the buy-now strategy. The market conditions favor the bigger fish that can go on a diet from economic belt-tightening yet still remain strong enough to swallow up weakened competition. But who is a strong enough brand that would fill the bill VF requires of meeting return expectations, accretive in a short period and a strategic fit? Royal Robbins, Pearl Izumi and even Cloudveil jump to mind as companies that VF might be interested in. The question remains if any of them are interested in VF? VF ownership has done marvelous things for TNF, though one wonders if it would be anywhere near as bright a turnaround story without the leadership of current pres Mike Egeck.

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