Q4 2016 Real-Time Call Brief

Highlights

Revenue at $12 billion was up 1%.

Our international business remains strong despite significant currency pressures with international revenue up 6% including double digit growth in the non-US Americas and in China.

Our direct to consumer business continued it's strong momentum with growth of 9% including more than 20% growth in e-commerce and double digit increases in our outdoor and action sports and international was up a solid 7% with growth accelerating throughout the year reaching 15% in the fourth quarter.

Gross margin improved a 120 basis points to 49.4% including record fourth quarter performance and inline with our expectations.

Earnings per share was up 7%.

VF's global business model and diverse brand portfolio enabled the company to deliver solid results during the year including cash flow reaching $1.5 billion, returning $1.6 billion to shareholders, and demonstrating our operational excellence by keeping inventories in check.

Outdoor & Action Sports Coalition: Revenue was up 2% during the quarter.

Global revenue was down 7% during the quarter with the mid teen increase in B2C offset by more than a 20% decline in wholesale.

In the Americas revenue was down at a low double-digit rate during the quarter with a low double-digit D-to-C growth offset by a 30% decline in wholesale.

Our North Face business in Europe had another strong quarter with revenue up at a high teen rate driven by an almost 30% increase in DTC and a low double digit increase in our wholesale business.

In Asia fourth quarter revenue was down at the mid single digit rates.

Our retail business had low double-digit growth which was offset by more than 20% decline in wholesale.

To wrap up the North Face, revenues for the year were down 1% globally in 2016 to $2.3 billion.

Excluding the inventory actions and the impact of bankruptcies, the North Face was up at the low single-digit rate.

For 2017, we expect revenue growth in the mid single-digit range up mid-teens in Europe and a mid single-digit increase in the Americas and Asia.

Vans, VF's largest brand and our fastest growing brand in 2016 and during the fourth quarter, up 7% and 15% respectively.

For the quarter, Vans Americas growth was balanced across the region and channels.

Our strong momentum continued with 17% growth including more than 20% growth in D-to-C and low single digit growth in wholesale.

D-to-C comps were up at a high teen rate including 40% growth in our e-commerce business.

As expected Van's European business returned to growth during the quarter and was up at the low single-digit rate.

Our D-to-C business remained strong with more than 20% revenue growth.

Wholesale declined at the mid-single-digit rate at inventory levels in the channel continued to moderate.

In Asia, Vans revenue continued to impress with more than 25% growth.

This was fueled by almost 50% growth in D-to-C and a low-teen increase in our wholesale business.

In 2016, Vans global revenue was up 7% to $2.3 billion.

Looking at 2017, we expect Vans revenues to increase at the low double-digit rate driven by a high single digit increase in both Americas and Europe and up high-teens in Asia.

For the quarter, Timberland global revenue increased at a mid single-digit rate.

This result was driven by a low double-digit increase in D-to-C and a low single-digit growth in wholesale.

Revenue in the Americas increased at a low single-digit rate including a low double-digit in our D-to-C business which was partially offset by a low single-digit decline in wholesale.

Timberland Pro increased at a high single digit rate as we saw improvement in the industrial sector.

Timberland revenue in Europe was strong with revenue up at a low double digit rate with high teen growth in B2C and mid single digit growth in wholesale.

In our apparel category, we saw a 20% increase sparked by winter Outdoor ware and Sportswear collections.

Revenue in Timberland's Asia business was up at the mid single digit In 2016, Timberland revenue was up 1% globally to $1.8 billion, in line with expectations.

Our global Jeanswear business declined 4% during the quarter.

In the Americas Wrangler increased at increased at a low single digit rate offset by a high teen decline in Lee.

Revenue for the women business increased more than 25%.

Imagewear revenue grew 15% during the fourth quarter of 2016, driven by a more than 20% increase in our licensed sports goods business and a mid single-digit increase in Workwear.

For the year, Imagewear increased 2% to $1.1 billion.

Our sportswear business was down 17% in the quarter due to weakness in both wholesale and D-to-C.

Revenue at Nautica was down 20%.

However, adjusting for the strategic decision to license that women's sleepwear and men's underwear business, the brand was down 14%.

Kipling's North America business was down 2%.

Kipling's international business was up 7% and globally the Kipling brand achieved mid single digit growth.

Unusual Items: We took a $80 million pretax non-cash impairment charge to reduce the carry-in value of the intangible assets related to the Lucy brand.

During the fourth quarter, we also incurred $58 million of pretax restructuring charges in light of the divestiture of contemporary brands, the ongoing strategic review of our LSG business and Lucy initiative just mentioned, we are realigning our cost structure.

We elected to take a $51 million, pre-tax non-cash pension settlement charge during the quarter.

This action reduced our total pension liability by $225 million, the pension was fully funded as of December 31, 2016.

Our fourth quarter results I will focus on adjusted results excluding the unusual items just mentioned.

Revenue was up 1% on a currency neutral basis to $3.3 billion.

Inventory is under control up less than 1% versus last year.

Direct to consumer revenue was up 12%.

On a geographic basis, the Americas was down 2%, EMEA up 7%, Asia was up 8%, including low double-digit growth in China.

Gross margin on an adjusted basis was especially strong, 49.8% up a 160 basis points which included a 90-basis-point negative impact from changes in foreign currency.

We are clearly benefiting that the gross margin line from the higher full price sell-through, as evidenced by an almost 250 basis point increase in gross margin on a currency neutral basis.

SG&A as a percentage of revenue was up 250 basis points, on an adjusted basis to 34.5%.

Fourth quarter adjusted operating margin declined 90 basis points to 15.3% the majority of which was due to a 60-basis-point negative impact from FX.

Our adjusted EPS grew 8% on a currency neutral basis to $0.97 in the quarter.

To recap the full year, 2016 grew 1% on a currency neutral basis driven by 6% growth in our international business and 9% growth in D-to-C.

This was despite the impact of bankruptcies and reduced sales to the oft-price channel compared with 2015.

These two actions alone accounted for almost 2% of top-line growth.

Adjusted gross margin was up 40 basis points to 48.6% including an 80-basis-point headwind from changes in foreign currency.

Our gross margin improvement was driven primarily by a 50-basis-point benefit due to mix shift toward our highest margin businesses.

SG&A for the year was up 130 basis points as we continue to balance appropriate short term expense control with investments in our long-term growth priorities.

Full year adjusted operating margin was 14% compared to 14.9% in 2015 and includes a 50-basis-point headwind from changes in FX.

Full year adjusted EPS was $3.11, a 7% increase of our 2015 on a currency neutral basis.

We ended the year with less than 1% inventory growth.

In 2016 we generated almost $1.5 billion in cash from operations and returned more than $1.6 billion to shareholders through dividends and share repurchases.

We expect full year reported revenue to be up at a low single-digit rate including about a 2-percentage-point negative impact from foreign currency.

For the year, we expect to add approximately 50 stores.

Comp sales growth is expected to be in the mid single digit range including more than 25% growth in e-commerce.

We expect our reported gross margin to approximate 2016 levels at about 48.6%.

Changes in foreign currency are expected to negatively impact our gross margin rate by about 70 basis points.

Our operating margin is expected to remain relatively flat on a currency neutral basis at approximately 14% as our gross margin improvement is partially offset by continued investments in our strategic growth priorities.

We expect our tax rate to be in the low 20% range.

Moving to the bottom-line, we expect currency neutral EPS to be up at mid-single-digit range in 2017 or down at low-single-digit rate compared to 2016 adjusted EPS of $3.11.

As a reminder, the first quarter of 2016 benefited from about $0.05 of earnings per share due to discrete tax items.