CEO Letter

VF Corp 2014 Annual Report – Eric Wiseman

To Our Shareholders

2014 was our 115th year of doing business. And I’m pleased to report that it was a very good year for VF Corporation.

Our financial performance was strong: Revenue grew 8 percent to reach a record $12.3 billion, led by 13 percent growth in our Outdoor & Action Sports coalition. VF’s international business grew 9 percent; our direct-to-consumer business was up 19 percent; and, our full-year gross margin improved by 70 basis points – reaching 48.8 percent.

Operating income, on an adjusted basis, reached $1.8 billion*, up 11 percent or $1.4 billion on a GAAP basis. Adjusted net income totaled $1.4 billion* or $1.0 billion on a GAAP basis. Adjusted earnings per share of $3.08* represent a 14 percent year-over-year increase. On a GAAP basis, full-year earnings per share were $2.38.

Our dividend remains a high priority. In 2014, we increased VF’s quarterly dividend rate by 22 percent. It was our 42nd consecutive year of higher dividend payments to shareholders. Our dividend, combined with share buybacks, returned more than $1.2 billion in cash to shareholders.

We’re proud of VF’s track record of total shareholder return (TSR) as benchmarked against the S&P 500 Index. Our TSR in 2014 was 22 percent compared with 14 percent for the S&P 500. Annualized TSR during the past three- and five-year periods was 36 percent compared with 20 percent and 15 percent, respectively, for the S&P 500.

Beyond the Numbers

As usual, what our company achieved in 2014 went beyond traditional financial metrics. Here’s a sampling:

  • We opened a new distribution center in Kunshan, China, demonstrating our commitment to growth in China and our persistent focus on operational excellence throughout our global supply chain.
  • Our Asia Pacific operations surpassed $1 billion in annual revenue for the first time in 2014. Revenue in the region has grown by more than 600 percent since 2007, and we expect it to continue to be our fastest-growing region.
  • The Vans® brand became the second $2 billion brand in our portfolio – The North Face® brand was our first.
  • We released our first comprehensive global Sustainability & Responsibility report, highlighting VF’s achievements and those of our brands, many of which are already known as sustainability leaders, including The North Face® and Timberland® brands. The report reviews our goals and our progress across three sustainability pillars: planet, products and people.
  • VF was named one of the 2014 Aon Hewitt Top Companies for Leaders® in North America. I often say that we try to learn from the past and live in the future. This recognition acknowledges our efforts to do just that, as we identify and develop future generations of VF leaders.
  • We refreshed our innovation strategy to seek new and better ways to deliver what consumers want. In doing so, we're going to rely more than ever on VF's greatest strength: the depth and diversity of our people across brands and regions. We'll be placing a much heavier emphasis on sharing new ideas – within and between organizations – to make them even bigger and better.

Beating the Drum

You may have noted that the theme for this report to shareholders remains consistent with the recent past: Powerful Brands. Powerful Platforms. One VF. That’s not for lack of creativity; it’s because of our intense commitment to leveraging the core strengths of our organization around the world – strengths that differentiate us and give us a clear competitive advantage.

You might recall that at VF we define a powerful brand as having strong equity with consumers, a self-funding business model and a consistent record of generating solid returns for our shareholders. Our powerful business platforms include: international, direct-to-consumer, strategy and innovation, supply chain and sustainability. When we put it all together, our success equation is efficient and effective: VF Brands + VF Platforms = Value-Creating Differentiation. You’ll read more about our brands and platforms in the following pages.

Looking Ahead

We’re not shy about sharing our annual expectations. They serve as our North Star and provide you with a sense of anticipated performance.

In 2015, we’re prepared to deliver another record year of financial results for shareholders. On a currency-neutral basis, we expect:

  • Revenues to be up 8 percent, in line with our 2017 organic growth rate target;
  • Gross margin to improve by at least 70 basis points to reach 49.5 percent;
  • Operating margin to reach 15.3 percent;
  • Earnings per share to grow 12 percent over 2014’s adjusted earnings per share of $3.08; and importantly,
  • To return more than $1.2 billion to you, our shareholders, through share repurchases and dividends.

Now, that sounds like a lot to deliver. And it is. But we’re confident we’ll reach those targets. How will we grow? Through four essential VF growth drivers:

  • We will lead in innovation by increasing our pipeline of compelling new products and technologies;
  • We will connect with consumers by consistently engaging with them in new and compelling ways;
  • We will serve consumers directly, reaching them across multiple channels – wherever and whenever they shop; and
  • We will expand geographically, taking full advantage of our scale within every region and channel in which we operate.

These efforts and more will keep us on track to deliver on the five-year plan that we first presented in 2013. As you know, our 17x17 Plan aims at reaching $17 billion in global revenue by 2017 and reaching other milestones that will further position VF as a top performer.

One VF

On this site you will find an interview with our Senior Vice President & Chief Financial Officer Bob Shearer. I ask you to read it. Bob is retiring at the end of March, and it has truly been an honor to work with him. He’s been my thought partner and, most important, my friend. During his nearly 30-year tenure at VF, he’s been instrumental to the success and complete transformation of this company. He’s an author of VF’s business playbook. He’s a man of integrity and financial discipline. He’s just a good person ... and we’ll miss him. Bob, thank you for everything.

Scott Roe, our Vice President, Controller & Chief Accounting Officer, will succeed Bob. I’ve worked with Scott for nearly two decades at VF. He knows our company; he’s battle-tested and an extraordinary leader. He will make significant contributions as our next CFO.

Finally, to our shareholders, our 59,000 associates around the world and the customers and consumers that inspire us, I say thank you. Collectively, you are the power behind our One VF approach to business – an approach consistently focused on doing the right things, doing them together and doing them well.

Eric C. Wiseman

Eric C. Wiseman

Chairman, President and Chief Executive Officer

*Adjusted numbers are reconciled to GAAP in Footnote 1 of the 5-Year Financial Summary5-Year Financial Summary (PDF).

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