To Our Shareholders:
2013 was a terrific year at VF Corporation.
It's difficult to pick one or two things that we're most proud of. We turned in a strong financial performance: record annual revenues of $11.4 billion, up 5 percent; record gross margin performance, improving 160 basis points to 48.1 percent; and record adjusted earnings per share of $2.73, representing an increase of 13 percent. VF's reported earnings per share reached $2.71 — also a record. Meanwhile, operating income increased, reaching $1.6 billion, and net income reached $1.2 billion.
Beyond our performance by the numbers, we also opened an ideally situated — and environmentally responsible — international headquarters in Stabio, Switzerland; successfully integrated the Timberland® brand's European operations into our international business; completed five SAP implementations that will enable our continued growth in Asia; placed 11th on Chief Executive magazine's "Best Companies for Leaders," and, once again, were selected as one of FORTUNE magazine's "World's Most Admired Companies."
Simply put, it was quite a year — a year that saw our stock price increase 65 percent, hitting record highs. And that's compared with a benchmark S&P 500 Index that rose 30 percent in its best performance since 1997. To the extent that our share price is a proxy for investor satisfaction and confidence, we're pleased with the strong response to our performance and the outlook for our company.
Our dividend remains a high priority for us, and in 2013 we announced a 21 percent increase in our quarterly dividend rate. That marked our 41st consecutive year of higher dividend payments to shareholders. Our track record of returning cash to shareholders is solid. In 2013, we returned nearly $700 million to shareholders in the form of cash and share buybacks.
Powerful Brands. Powerful Platforms.
We define a powerful brand as one that has strong equity with consumers, that has a business model that is capable of self-funding its future and that consistently generates superior returns for our shareholders. In other words, we've set the bar high.
At VF, we have powerful brands. They are diverse, iconic and positioned to serve customers and consumers around the world. We treasure our brands. We value their uniqueness. And we invest in them, so that — collectively and individually — our brands can continue to engage people wherever they live and however they shop. The insights we have into consumers' wants and needs help us innovate, merchandise and tell stories that bring our brands to life in our consumers' hearts and minds. We work hard to connect with people around the world. The strength of those connections is measured by our growth.
VF's business platforms also play a vital role in that growth. Across our company, our teams collaborate and share, providing capabilities that include: strategy and innovation counsel, leadership development, direct-to-consumer expertise, supply chain leadership, international know-how and sustainability excellence. Their contributions consistently make our strong brands stronger.
Achieving Near- and Long-Term Growth
In 2011, we established a five-year plan that was intended to be in place through 2015. But by early 2013, it was evident that we would surpass many of the five-year goals earlier than planned. The right thing for us to do was to challenge ourselves, to rethink what's possible and to introduce a new five-year plan.
In June 2013, we presented what we call our 17 x 17 Plan, aimed at achieving $17 billion in revenue by 2017. The plan defines targets for the years 2013 through 2017 and outlines the actions we'll take to create an even more successful VF.
In summary, starting with 2012 as the baseline, by 2017 we plan to achieve:
- Revenue of $17.3 billion, representing a five-year compound annual growth rate (CAGR) of 10 percent, with organic growth representing eight percentage points and acquisitions representing two points;
- International revenues of $7.4 billion, equating to 43 percent of total VF revenues, based on a five-year CAGR of 13 percent;
- Direct-to-consumer revenues of $4.4 billion, representing 25 percent of total VF revenues, based on a five-year CAGR of 14 percent;
- Gross margin of 49.5 percent, up 300 basis points compared with 2012;
- Operating margin of 16 percent, up 250 basis points compared with 2012;
- Earnings per share of $4.50, equating to a five-year CAGR of 13 percent;
- Return on invested capital of 20 percent, up 360 basis points compared with 2012;
- Cash flow from operations reaching $2.4 billion, with a five-year cumulative total of $9.5 billion; and,
- An annual dividend of $1.80, at a payout ratio of 40 percent. We are confident that our 17 x 17 Plan is achievable. We've delivered this rate of growth before, and we plan to do it again. Underlying our plan is our focus on four of VF's growth drivers.
First, we will lead in innovation. That means developing a constant stream of new and better products, new and better store environments, and new and better digital experiences that deliver what consumers want.
Second, we will connect with consumers. We're confident in our ability to do that, not just because we understand our consumers, but also because we listen to them. We ask, and they tell us what they want, what inspires them and how best to communicate with them.
Third, we will serve our consumers directly, wherever and however they want to engage our brands.
Fourth, we will expand geographically. We will grow in more mature markets by leveraging our platforms and extending our strong brands. And we will continue to develop our brands in emerging markets where we have abundant opportunity and the means to capture that opportunity.
One VF: Our Culture, Our Advantage
Before I close, a few words about the business culture that is a true competitive advantage for VF. It's a culture of respect, of treating people the way you'd want to be treated. It's a culture of listening more than talking. It's a culture of collaboration and sharing. And it didn't happen overnight. We will turn 115 years old in 2014. Our culture has been carefully nurtured by the tens of thousands of people who came before us.
It's a culture that enables us. It enables us to take risks, and it allows us to fail ... because we know that those around us will help pick us up, dust us off and push us to do better. That VF culture gives us strength; it unites us and gives us great potential to succeed and grow as One VF.
We sum up our story in six simple words: Powerful Brands. Powerful Platforms. One VF. Those words represent who we are and how we will seize the opportunities ahead. And, after a truly exceptional 2013, those opportunities are exciting.
I'm grateful to you, our shareholders, to our 59,000 associates and to our customers and consumers around the globe for choosing to join us on our journey.
Eric C. Wiseman
Chairman, President & Chief Executive Officer
"Simply put, it was quite a year — a year that saw our stock price increase 65 percent, hitting record highs. And that's compared with a benchmark S&P 500 Index that rose 30 percent in its best performance since 1997."
"We define a powerful brand as one that has strong equity with consumers, that has a business model that is capable of self-funding its future and that consistently generates superior returns for our shareholders. … At VF, we have powerful brands. They are diverse, iconic and positioned to serve customers and consumers around the world."
"VF's business platforms play a vital role in [our] growth. Across our company, our teams collaborate and share, providing capabilities that … consistently make our strong brands stronger."