Chairman, President & CEO
2009 was the kind of year that tests business models and management teams. The recessionary conditions around the world presented extraordinary challenges. And the strength of VF’s diverse business model and management team was evident in our results. Our long history of disciplined execution continued to serve us well, allowing us to strengthen our financial position and advance our long-term strategies for growth.
Looking back, I believe we struck the appropriate balance between cautiousness and assertiveness. We carefully managed costs and inventories, achieving significant reductions in both. At the same time, we continued to invest in our strongest brands and businesses to drive growth and gains in market share.
Revenues in 2009 were down 6%, with foreign currency translation accounting for two percentage points of the decline. Despite lower revenues, gross margins rose to
record levels, underscoring the strength of our brands. Earnings per share were $5.16 excluding a $1.03 per share noncash impairment charge for goodwill and intangible assets. Our earnings in both 2009 and 2008 included unusual items. In 2009, earnings were impacted by higher pension expenses, foreign currency translation effects, and the impairment charge. 2008 earnings included expenses to reduce costs. Excluding these items in both years, earnings per share would have risen by 2% in 2009.
We’re proud of our long dividend history, but I’m particularly proud that despite the challenging environment, 2009 marked the 37th year of higher dividend payments to shareholders.
We took decisive action in 2009 to ensure that our company remained strong and well positioned for future growth. We reduced costs by more than $100 million and cut inventories by 17%, all while maintaining the highest levels of customer service. We further strengthened our balance sheet, nearly doubling our cash position by year-end. We reported record cash flow from operations of nearly $1 billion.
Focused investments drove solid results in many areas of our business. For example, we continued the global momentum in our Outdoor & Action Sports businesses, with revenue growth in our two largest brands — The North Face® was up 6%, and Vans® grew by 5%. We gained share in our core Wrangler® and Lee® brands in the United States with successful new product innovations and compelling in-store presentations. Conditions in upper-tier department and specialty stores have been very difficult, but international revenues of our premium 7 For All Mankind® brand increased in 2009.
Our growth in Asia continued, with 2009 revenues increasing by 28%. Finally, we grew our direct-to-consumer business, with a 6% increase in revenues and the opening of 90 new stores. Acquisitions are always an important component of our long-term growth plans. In 2009 we completed the acquisition of the Splendid® and Ella Moss® brands, further expanding our Contemporary Brands coalition. We continue to seek acquisitions of high growth, high-margin lifestyle brands, particularly activity-based brands that could complement our Outdoor & Action Sports portfolio.
We’re proud of our accomplishments in 2009, but we also had our share of challenges. Our European jeans business had a much more difficult year than we had envisioned, particularly in Eastern Europe, where we had experienced significant growth in recent years. Our Image (or uniform) business was hurt disproportionately during the economic downturn by higher than anticipated levels of unemployment in key sectors. And while we are encouraged by improving profitability in our Sportswear coalition, where operating margins returned to double-digit levels, the Sportswear revenue trend is still not where we want it to be.
VF has a decades-long history of growth through acquisitions. Due in part to the pressures imposed by the global recession, we recorded an impairment charge in 2009 to write down a portion of the goodwill and intangible asset values for three of our acquired brands: Nautica®, lucy® and Reef®. Performance of these brands since acquisition has not met our expectations, but we are encouraged about the opportunities for improved results in each.
While our overall outlook is tempered by ongoing concerns over weak global market conditions, we look forward to resuming both top- and bottom-line growth in 2010. Our confidence in the global growth potential of our brands has led to a planned increase of approximately $50 million in investment spending. Our approach is disciplined and concentrated on our fastest growing and most profitable opportunities. In addition to continuing to fuel the growth of our Outdoor & Action Sports businesses, which have delivered consistently superior performance, we will invest in our Contemporary Brands business and in high-growth, high-profit international markets such as Asia. The bulk of the investment will be concentrated in brand marketing, but we also plan to strengthen our innovation and sustainability platforms. We believe that these are the right investments to make, and this is the right time to make them. And we expect to fund these investments while delivering higher margins and solid earnings per share growth.
Longer term, we have a clearly identified set of priorities for growth and investment. Maintaining the momentum of our Outdoor & Action Sports brands is at the top of the list. We will focus on supercharging our growth in China and growing and gaining market share in Europe. Our direct-to-consumer business will continue to expand, with the addition of new stores and a growing e-commerce business. To support these initiatives, we will build on our best-in-class talent management and development programs and intensify our innovation, consumer insight and brand-building capabilities. And we are enthusiastic about developing and implementing a global approach to sustainability across our brands and businesses.
2010 will be a pivotal year for VF Corporation as we resume growth, expand margins and invest in our future. Our strong cash flow will enable us to repurchase at least 3 million shares in 2010, continue our industry-leading dividend payout and repay $200 million in long-term debt — all without compromising our ability to add more financially and strategically attractive brands to our portfolio. We are fortunate to have a world-class leadership team in place that is passionate about success. Their outstanding efforts in 2009 have made VF stronger than ever, and I am confident in their ability to achieve even more in 2010.