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Executives

Lance Allega - Director of Investor Relations

Eric C. Wiseman - Chairman, Chief Executive Officer, President and Ex Officio Member of Finance Committee

Steven E. Rendle - Group President of Outdoor & Action Sports Americas and Vice President

Karl Heinz Salzburger - Group President of International and Vice President

Scott H. Baxter - Group President of Jeanswear Americas & Imagewear and Vice President

Robert K. Shearer - Chief Financial Officer and Senior Vice President

Analysts

Michael Binetti - UBS Investment Bank, Research Division

Robert F. Ohmes - BofA Merrill Lynch, Research Division

Omar Saad - ISI Group Inc., Research Division

Robert S. Drbul - Barclays Capital, Research Division

Mitchel J. Kummetz - Robert W. Baird & Co. Incorporated, Research Division

Kate McShane - Citigroup Inc, Research Division

Lindsay Drucker Mann - Goldman Sachs Group Inc., Research Division

Jim Duffy - Stifel, Nicolaus & Co., Inc., Research Division

David J. Glick - The Buckingham Research Group Incorporated

David Weiner - Deutsche Bank AG, Research Division

Christian Buss - Crédit Suisse AG, Research Division

VF Corp (VFC) Q2 2013 Earnings Call July 19, 2013 8:30 AM ET

Operator

Good day, and welcome to VF Corporation's Second Quarter 2013 Earnings Conference Call. Today's conference is being recorded. And at this time, I would now like to turn the conference over to Mr. Lance Allega, Director of IR. You may begin.

Lance Allega

Thank you, operator. Hello, everyone, and thank you for joining us today to discuss VF's second quarter 2013 results.

Before we begin today, I'd like to remind participants that certain commentary included in today's prepared remarks and the Q&A session may constitute forward-looking statements under the definition of federal securities law. Forward-looking statements include management's current expectations, estimates and other projections about our business, results of operations and the industries in which VF operates. Actual results may differ materially from those projected in the forward-looking statements. Important factors that could cause actual results to differ materially from these projected in the forward-looking statements are discussed in the documents filed with the SEC.

Additionally, participants on today's call may discuss non-GAAP financial measures. You will find the appropriate reconciliations in our press release, which was issued about an hour ago, and at our website at vfc.com.

Joining us on today's call will be VF's Chairman and Chief Executive Officer, Eric Wiseman; Bob Shearer, our Chief Financial Officer; and our Group Presidents, Scott Baxter, Steve Rendle and Karl Heinz Salzburger.

Following our prepared remarks, we'll take your questions. [Operator Instructions] And now I'll turn the call over to VF's Chairman and CEO, Eric Wiseman. Eric?

Eric C. Wiseman

Thanks, Lance. Good morning, everyone. Thank you for joining us. At our Investor Day last month, where we outlined our new 5-year growth plan, I made the comment that we believe we're really just beginning to achieve the potential that we have to grow and deliver shareholder value. Based on today's strong results, I can say with great confidence that our ability to drive growth and long-term sustainable profit is right on track. And at the halfway mark of 2013, we're also right on track with our expectations for the first year of that 5-year plan. We are on track for 6% revenue growth to $11.5 billion; on track to deliver a significant improvement in full year gross and operating margin; on track to deliver 13% earnings per share growth, consistent with our long-term target; and on track to deliver very solid cash flow generation, with more than $1.4 billion expected this year.

In the second quarter, we grew revenues by 4% to $2.2 billion, and we remain very comfortable holding to our full year guidance. With positive results across both our wholesale and direct-to-consumer channels and low single-digit increases in our U.S. and European businesses, coupled with greater than 10% growth in both our Asia Pacific and our non-U.S. Americas region, we're pleased with our balanced performance. Gross margin for the quarter hit 48.5%, an all-time VF record for any quarter, driven by lower product costs and mix. That's an improvement of 240 basis points over last year's second quarter, a result we're truly proud of, and certainly, a higher bar is now set for the future. With improvements in nearly every coalition, our adjusted operating margin also showed significant improvement, up 140 basis points despite a heavier investment in advertising and our direct-to-consumer business on a year-over-year basis. And finally, all of this translates to second quarter adjusted earnings per share being up 14% to $1.27.

Looking at the balance of the year, while the economic environment remains a bit uncertain and a bit of a headwind, we're confident that our powerful brands and powerful platforms are among the best positioned in the industry to deliver fantastic products to consumers and strong profits to our shareholders. In fact, based on strong first half results, with margins and EPS exceeding our original plan, we're raising our full year adjusted earnings per share guidance by $0.10 per share to $10.85. This is a 13% increase over 2012, which is directly in line with the 5-year plan we just announced last month. And we now expect our gross margin to improve slightly more than 100 basis points for the full year.

The consistent improvement in our gross margin over the past few years has allowed us to make meaningful investments in our brands, products and our innovation strategy that have proven very effective in building our business around the world. This year, we've taken our full year guidance from $10.70 to $10.85, demonstrating, once again, strong improvement in gross margin.

If we were to see further gross margin expansion in the second half of the year, we would likely invest those dollars against new marketing and product initiatives to support our 5-year growth commitment to our shareholders. This is a strategic balance that you come to know and expect from us and one that's proven effective many times in the past.

So a great first half. We're on track across nearly all key measures. We're improving profitability and, by all accounts, well on our way to another record year.

And with that, I'll turn the call over to Steve, Karl Heinz and Scott, who'll take us through VF's top 5 brands. And then Bob will close out with a deeper look at our financials. Steve?

Steven E. Rendle

Thank you, Eric. Second quarter global revenues for The North Face were up 5%, fueled by moderate growth in the wholesale sales, a 15% increase in the brand's D2C business and a more than 20% increase in international sales.

In the Americas region, revenues were down slightly, with a mid-single-digit decline in wholesale business, which was expected given seasonal lower demand and coupled with retailer caution. Our D2C performance in the quarter was ahead of expectations, growing at a mid-teen rate, a result that creates great momentum that we expect to carry into the balance of the year. Recent investments in our frequent shopper and loyalty program are really paying off. And overall, we were encouraged by the strong sell-through of fleece, rainwear and other spring items, including color updates on key styles.

Now let's review our progress against the key growth drivers for The North Face brand in 2013: product innovation, marketing and D2C. First, product. This fall, The North Face is bringing consumers breakthrough innovations, including Thermoball, a proprietary, athlete-tested, synthetic insulation technology that is lightweight and compressible like down but continues to insulate even when wet. Equivalent to 600 fill down, Thermoball was reviewed last week by Climbing Magazine, who dubbed it handmade down, noting that testers immediately thought it was down. Thermoball will be featured in over 5,000 stores in North America this fall.

Also new for fall 2013 for our snowsports category is our new Steep Series, a line of big mountain outerwear designed with and for the next-generation of riders who are rising -- or raising the bar on what's possible in the biggest and harshest terrain.

And finally, the evolution of Flash Dry continues as the ultrafast drying standard for moisture moving technology expands even deeper into our product line. In less than 1 year, 3/4 of our accounts now carry Flash Dry.

All right, let's move to marketing. Launching in the fourth quarter, our new Never Stop Exploring campaign will amplify connections with existing consumers and forge fresh relationships with new ones. And as I mentioned earlier, we're seeing great returns in our D2C business from our investments in our loyalty program. The North Face VIP program, which combines web and store transactions to accumulate points toward future transactions, is now active in all full-price stores and continues to see very healthy customer sign-up rates. So we're definitely pleased with our progress during the first half of the year in the Americas.

And now here's Karl Heinz.

Karl Heinz Salzburger

Thanks, Steven. Good morning, everyone. Outside the Americas, The North Face brand grew more than 20%, which is strength in both the D2C and wholesale businesses. In Europe, The North Face grew 10%, driven by balanced strength in both our D2C business and the wholesale channel. We also continue to see very strong results in our e-commerce business, with more than 60% growth in online sales as the brand continues to gain significant traction with and connection to consumers.

Europe is a very large and well-developed outdoor sports market, and The North Face is the best positioned brand in the market to realize consistent, sustainable growth. Hereto, our new products are being received very positively. For example, we saw incredible response to our new Summit Series Verto Micro Hoodie, which is sold out in both the D2C and wholesale channels. We're also continuing to see great response from and opportunities to expand to European-specific products positioned to best meet the regionally specific needs and preferences.

The North Face in Asia Pacific also had a strong second quarter, with revenues up more than 40%, driven primarily by outstanding growth in China. As I've mentioned before, we are focused on building brand awareness and engaging consumers in the outdoor market. And to support this effort, this fall, we will be launching a North Face TV campaign in China. We are excited to connect this way with consumers.

Additionally, membership for kisheba.com [ph], our website providing an interactive social hub, connecting consumers with outdoor clubs, activities and the ability to purchase North Face products, has grown to 300,000 people. In June, we launched a kisheba [ph] mobile app, allowing members to connect to the online community, browse products and photos and locate a store, all from their mobile phone. We have seen great response to the app so far, with 690,000 downloads in the first 6 weeks.

So our retail experience is improving. Consumers are joining us to explore the outdoors. And most importantly, we continue to deliver the products and experiences the consumer want. We remain confident in the remainder of 2013. And speaking of the rest of the year, Steve, you wanted to make a few comments about revenue cadence?

Steven E. Rendle

Looking towards the balance of the year, we continue to expect The North Face to achieve high single-digit revenue growth globally in 2013. However, the shape of that revenue in the Americas business will look a little bit different than years past. This is due to 2 reasons: first, as we've discussed throughout the year, retailers have remained cautious about fall orders, which has caused those orders to be pushed later into the year. Specifically, there will be a meaningful shift in North Face revenue that would've normally fall in the third quarter that will now occur in the fourth quarter. Second and separately, our wholesale partners' monthly calendars have shifted out 1 week, which pushes orders that are historically shipped in our fiscal September into our fiscal October. This is an issue specific to 2013 for The North Face Americas.

So based on these 2 reasons, later orders and a September with 1 less week this year. Due to fiscal alignments, we're expecting third quarter global revenues for The North Face to be up at a low single-digit rate over last year and a low double-digit increase in the fourth quarter. We're on track for high single-digit global revenue growth for the full year.

Now onto Vans. Global revenue for Vans in the second quarter was up a healthy 15%, with balanced mid-teen wholesale and D2C growth. During the quarter, momentum continued in the Americas region, where we saw balanced growth across our D2C and wholesale channels. We saw strength during the quarter from both the footwear and apparel categories.

On the footwear side, we continue to perform very well. Our LXVI product has really shown customers what Vans can do in terms of innovation. And we've taken some of the key innovations from the LXVI line, particularly the RapidWeld stitch-less construction and the UltraCush footbed lining technology, and incorporated them in key styles across our classics and Pro Skate footwear collections. Additionally, our new DURACAP underlays added tremendous amount of durability. Combined, these innovations create the next Off the Wall evolution of skate footwear, engineered for comfort and wear and tear while maintaining excellent board feel.

In terms of apparel, we are leveraging our VF supply chain to improve speed to market while continuing to evolve our products to be more relevant for the environments and seasons they're used in. By taking classic action sports products, the consumers are already connected to and adding performance benefits to them, such as weatherization, we're equipping the Vans consumer with a whole new level of quality and technology in both warm and cold weather. This allows us to have more relevant, year-round offerings as we extend our reach into cold-weather months and cold-weather markets.

And speaking of new markets, I want to mention that our focus on geographic expansion continues to be a success. Our unique process of partnering with key players in each region ensures authentic brand building and establishes credibility in each new market we enter. This year, in our Americas business, we are focused on expanding the Vans business in the Boston and Atlanta markets of East Coast, as well as Canada and Mexico, where we have seen strong acceptance by those consumers. We're very happy with the progress we're making there.

We also continue to engage consumers in unique ways to further their connection with the brand. The Vans U.S. Open of Surfing, which starts tomorrow in Huntington Beach, is an iconic event and the largest surf contest of its kind in the United States. With this, our inaugural event, we've put together a great cultural experience in action sports, music, art and fashion that we're excited to share, not only with those in attendance but with millions of fans across the globe through live webcasts, photos and videos at Vans' usopenofsurfing.com. We're incredibly excited to bring the Vans Off the Wall culture to the epicenter of surf.

Great results in the first half, and we're very excited to get into the second part of the year. Now I'll pass it over to Karl Heinz, who will take us through some international highlights.

Karl Heinz Salzburger

Outside the Americas, Vans second quarter revenues were up more than 20%. D2C growth was north of 40%, and we also saw very strong growth in wholesale. Vans continued its outstanding momentum in Europe, with revenues up 20%. The strong growth gives us great confidence that we'll deliver another year of impressive results.

We recently launched an inspirational collaboration with Kenzo, a premier retail fashion brand. This collaboration allows us to bring regionally relevant products to European consumers while also driving regional awareness of the brand.

On the D2C front, we opened new stores in Cologne, Edinburgh and Bluewater in London and completed a major retrofit of our West Ridge [ph] store in London, to showcase our new Vans retail concept.

Vans Asia Pacific business also posted strong results in the second quarter, growing more than 20%. Here we launched Asia Art Tees, a program that supports local artists, where we bring their designs to life on T-shirts. We have also continued to see our regional and local product collaborations drive both brand awareness and sell-throughs. Both of these programs are part of our ongoing efforts to ensure that the brand remains relevant in the region and inspirational to the youth culture there. We also are using special events to drive consumer interest and lead the conversation of youth culture. During the quarter, the House of Vans experience at the Beijing Midi Music drew over 50,000 attendees.

So great first half for Vans around the world and much more to come in the second half of this year. With that, let's move on to Timberland.

Steven E. Rendle

Global revenues for Timberland were down 3% in the second quarter, which was in line with our expectations. We remain sharply focused on the strategic initiatives we have put in place to create a platform for long-term growth in both the D2C and wholesale channels. Our expectations for full year revenue growth remain unchanged in the mid-single-digit constant dollar range.

In the Americas, revenues were up in the low single digits, driven by a high single-digit increase in D2C, partially offset by a modest decline in wholesale results. These results, too, were essentially in line with the expectations and really driven by ongoing strategic enhancements to optimize our distribution in both the D2C and wholesale channels.

Turning to product. Both core and new programs continued to perform well. And while we will continue to capitalize on the iconic status of the yellow boot, we are also focused on delivering new innovative products. Our efforts to increase year-round relevance is paying off. In fact, the Hookset Handcrafted collection of casual, low-profile footwear, which is a central part of our year-round strategy, performed exceptionally well at both retail and wholesale. The Hookset collection was also the focus of our advertising campaigns during the quarter, and we are very pleased with the returns on the investments we've made there.

A partnership with GQ Magazine, along with several new digital media partnerships with key influencers, are generating even more consumer touch points for the brand.

Additionally, we saw a very strong performance in men's boots, which were up 50%. With Timberland PRO, we continue to gain traction with great innovations like our anti-fatigue technology. Strong sales in the category helped fuel the launch of an aftermarket insole product, which saw very strong shipments in its first season. PRO continues to set the standard for comfort and protection needs for the very demanding industrial consumer.

As I mentioned, Timberland's D2C business achieved strong growth in the Americas in the quarter as our targeted operational initiatives designed to drive conversion took hold. Our product to zero [ph] campaign, featuring Hookset in store windows, on our e-commerce platform and throughout our direct digital marketing, was incredibly successful in driving conversion. Conversion was up in all formats throughout the quarter.

Overall, we're very pleased with Timberland's progress and the advances we've made on our strategic initiatives to position the brand for long-term growth.

Now here's Karl Heinz to take you through Timberland's International business.

Karl Heinz Salzburger

Timberland's revenues outside of the Americas were down at the high single-digit rate, with revenues in Europe down at the low double-digit rate, with sales in Asia up about 10% on a constant dollar basis. In Europe, conditions remained especially tough with Timberland, with the wholesale business down at the mid-teen rate due to challenging economic conditions. We've been particularly encouraged by our D2C results for Timberland in Europe, with positive comps in the first half. And regardless of top line, we achieved much stronger profitability, which points to underlying operational health, so good confidence there.

For the balance of the year, we expect to see improving trends. Similar to the Americas, we continue to make progress on our plans to extend the brand's year-round relevance. Here too, the men's Hookset collection performed incredibly well in the quarter, particularly in the wholesale channel, giving us great confidence in the future. On the women's side, boat shoes saw very strong sell-throughs during the quarter, and sales were also robust in women's sneaker in both our wholesale and retail channels.

In Asia, growth came from both women's and men's footwear. In particular, we saw strength in core yellow boots and heritage boot shows -- boot shoes on the men's side. Growth in women's came from core yellow boots, Classic Unlined Boat Shoes and the Casco Bay collection.

We also expanded our direct-to-consumer business with 4 new retail doors during the quarter, as well as 3 shop-in-shops and 2 outlet stores. Very strong growth for the quarter in China, with revenues up nearly 40%. And we continue to feel confident about our future expansion opportunities.

And with that, I'll turn it over to Scott to take a look at Wrangler.

Scott H. Baxter

Thank you, Karl Heinz, and good morning, everyone. Second quarter global revenues for Wrangler were down 1%, with about flat results in our overall Americas business. These results were in line with our expectations, and the Wrangler business is on track to meet our full year goals.

By channel, our Western business saw solid results, with revenues up mid-single digits, driven by continued momentum in our premium performance Cowboy Cut jeans. We continue to prove to this very important and growing customer base that we know what they want: comfort, durability and unique style.

To push this momentum, we are gearing up for a comprehensive launch of the premium performance Cowboy Cut with advanced comfort in the fourth quarter, including in-store print, radio and TV marketing. The product will also be featured in our new patch campaign, which we'll launch in the third quarter.

Our mass channel business was down slightly, primarily due to a shift in shipments from the second into the third quarter. Accordingly, this business is expected to be up around 10% in the third quarter.

We're also making meaningful headway working with our key retail partners to enhance our brand's in-store presentation. In fact, we have a number of initiatives and programs geared at enhancing the way that consumers experience the Wrangler brand and ensuring that they fully understand the Wrangler story of innovation, authenticity and value.

Our Americas non-U.S. business, which is one of the fastest-growing regions for the Wrangler brand, also showed solid, high single-digit growth, and it's well on its way to posting the highest growth rate of any of our regions for the full year.

And now here's Karl Heinz with a few words on Europe.

Karl Heinz Salzburger

Our Wrangler business in Europe was up slightly compared with last year, and our gross margin and profitability continues to improve. On the product front, we are starting to see some bright spots. Our innovation focus on denim performance and fit is paying off. And our new products are selling too well. We are also experiencing pockets of strength in a few of our key markets across Europe, particularly in Germany, Poland and Russia.

Now back to Scott with Lee.

Scott H. Baxter

Our Lee brand delivered exceptional growth of 10% on a global basis during the quarter. Revenues in the Americas were up mid-teens, driven by great response to our seasonal business, as well as very strong growth in our core business, particularly in men's. Our hard work to create new growth opportunities, particularly in the mid-tier channel, is also starting to pay off, with the launch of 7 new product innovations and really strong orders for fall shipments. We are spot on in terms of giving our customers and wholesale partners what they want. And we're particularly proud of the results that we're seeing at our Comfort Fit for women and Modern Series for men, 2 lines I speak frequently about, and for good reason: they're driving success. We're also really pleased with our Platinum Label collection's ability to generate continued momentum, a product line that continues to open new doors. In fact, by the end of this year, the line will be in more than 450 locations with our key department store partners.

We also want to make sure that consumers can more easily discover the brand and understand the story, so we're working with some of our major partners to roll out enhanced brand signage and merchandising, which you'll begin to see in August. We anticipate that these enhancements will raise visibility and ultimately drive higher volume in these accounts.

Now back to Karl Heinz to discuss Lee's international business.

Karl Heinz Salzburger

In Europe, Lee brand revenues were up slightly during the second quarter. And similar to the Americas, we are very encouraged with the early success we have seen with our new product innovations.

During the quarter, we were very pleased with the solid sell-through of our new Stretch Deluxe women's product, leading to growth in the women's category overall. Additionally, our new men's collection, Blue Label, is outperforming expectations, with great response to the product's outstanding fit and comfort.

In Asia, as expected, business was challenging in the first half as the wholesale channel continues to work through its denim inventory overhang. While business was still down in the second quarter, there was a sequential improvement and, in line with our expectation of the business, beginning to normalize in the fourth quarter of this year. And even with the decline in revenues, our profitability was up as it benefited from lower product costs and favorable product mix, so a nice offset there.

Our spring '13 collection was well received by consumers, especially our Urban Riders and vintage laundry [ph] products.

Overall, based on the strong response to our product offerings so far, we are confident that we'll begin to see healthy growth once we get the channel inventory levels properly aligned.

And now here's Bob, who will take you through our financial highlights.

Robert K. Shearer

Yes, thanks, K.H. During our Investor Day last month, we had the opportunity to showcase our powerful brands and our powerful platforms. And as I mentioned at that meeting, having the right strategies, the right brands and the ability to deliver consistently on our promise to shareholders, well, that's worked pretty well for us. Our second quarter and first half results demonstrate these strengths, so let's take a look at how we did.

Let me start with revenues. Total revenues grew 4%. We remain on track with our full year guidance of $11.5 billion. On a regional basis, revenues in the U.S. were up 3%, with growth in both our direct-to-consumer and wholesale businesses. Total international revenues were up 6% in the quarter, driven by 10% growth in both the Americas, that's non-U.S., and Asia-Pacific regions, including 17% growth in China.

Revenues in Europe were up 2%. And to remind you, Timberland's European business, which is VF's largest European brand, continues to be impacted by challenging economic conditions. So Timberland did have a fairly significant negative impact to VF's total European revenues in the quarter. In fact, excluding Timberland, total European revenues grew by 8%.

And global direct-to-consumer revenues were up 8% in the quarter, or 9%, excluding the impact from the sale of the John Varvatos brand. With positive direct-to-consumer results for nearly every brand in the entire VF portfolio, we are really pleased with the revenues and earnings that our D2C businesses continue to drive.

Okay, let's turn to gross margin. So even after the press release and also Eric's comments, yes, I'm going to mention it a third time, our gross margin rate for the quarter came in at 48.5%, an all-time VF record. The 240-basis-point improvement reflects an even better performance than we originally anticipated and as a result of lower product costs and a favorable mix shift toward higher-margin businesses. And consistent with our first quarter, we saw a gross margin improvement in almost every business.

Our SG&A ratio as a percent of revenues rose 100 basis points to 39.4% in the second quarter, with approximately half of the increase stemming from our growing D2C business and about half due to increased marketing investments in our brands.

As we've said in the past, this is an investment year in direct-to-consumer, with a record high number of store openings planned. As you know, our D2C business is strongest in the second half and particularly in the fourth quarter, so that's when we expect the lion's share of benefit to come through from these investments. Rest assured, we remain vigilant about controlling costs and managing our investments to ensure the right balance of growth and profitability across each of our brands and businesses.

Adjusted operating margin improved 140 basis points to 9.3%, driven by our strong gross margin performance. Taking this down to the bottom line, adjusted earnings per share grew 14% to $1.27 from $1.11 during last year's same period. Additionally, if you consider that last year's second quarter included a non-recurring $0.10 per share discrete tax benefit, our adjusted EPS was 16 -- was 26%. Growth was 26%. So overall, a very, very strong quarter.

So let's dig in a bit deeper on overall coalition results, starting with our largest contributor to growth, Outdoor & Action Sports. Total second quarter revenue growth of 6% was in line with expectations and included solid results from The North Face, Vans, Kipling and Reef. On the whole, the growth was pretty well balanced across geographies in between D2C and wholesale channels. And in addition to strong top line growth, Outdoor & Action Sports delivered outstanding profit growth of 22%, with a 120-basis-point improvement in operating margin in the quarter to 9.1%.

And as Steve noted, and this bears repeating, the revenue cadence for The North Face, in particular, for the balance of the year will look a bit different than what you've seen in the past. Retailer caution is pushing out what typically would've been third quarter orders into the first quarter. Also, our retail calendar shift will reduce this year's September shipments, moving a week's worth of shipments into October. So as a result, revenues for The North Face should be up at a low single-digit rate in the third quarter. Excluding the calendar shift and the impact of retailers pushing back their shipments to as close to need as possible, The North Face's growth rate in the third quarter would be closer to our full year revenue growth expectation of a high single-digit rate. On the whole, we continue to expect our Outdoor & Action Sports coalition revenues to increase about 10% for the full year.

Jeanswear revenue grew 3%, benefiting, in part, from the normalized shipping cadence of seasonal product in the Americas, where revenues grew 4% in the quarter. Jeanswear revenues for the European business were up 1%. And in our Asia-Pacific region, second quarter revenues declined at a mid-single-digit rate, which marks the sequential improvement over the first quarter as the Lee brand continues to work through the channel inventory issues that Karl Heinz mentioned previously. And of course, with the 17% increase in operating income, resulting in a 17.8% operating margin and improvement across all regions, well, I'd say a job well done to the Jeanswear team. I'm happy to report that we now expect the global Jeanswear revenue to increase at a low single-digit percentage rate for the full year, with our U.S. jeans business expected to grow at a mid-single-digit rate.

Next, let's review Imagewear. Revenues declined 4% versus last year. This is the result of a delay of a program renewal that we discussed on last quarter's call, a program that we now have orders against for the second half of the year. If we adjust for revenue related to this program, Imagewear revenues were up modestly in the quarter. Operating margin increased 240 basis points to 14.5%, driven by improved gross margin due to lower product costs. We're looking forward to progressively stronger top line results in our Imagewear coalition for the balance of the year. Based on orders in hand and a strong pipeline of new product initiatives in both the Image and Licensed Sports sides of the business, we expect Imagewear revenues to grow at a low single-digit rate for the full year.

Sportswear delivered a strong performance in the second quarter, with revenues up 14%, right about where we expected. This 14% growth benefited from a 3-percentage-point shift in timing of shipments for the Nautica brand from the previous quarter. Kipling delivered outstanding growth of nearly 30%, with particular strength in its D2C business. Improved profitability at both wholesale and retail drove a 42% increase in operating income to $16 million or a 240-basis-point improvement in operating margin to 12.2%. For the full year, we now expect Sportswear revenues to increase about 10%. That's up from our original expectation of high single-digit growth.

And finally, revenues for our Contemporary Brands coalition, which represents less than 4% of VF's total annual revenues, were down 9% in the quarter to $99 million, with 4 percentage points of the decline due to the exit of John Varvatos. The softness in our Contemporary Brands business is primarily attributable to weakness in premium denim in the high-end department store channel. Operating income fell 34% to $8 million in the second quarter, and operating margin fell 310 basis points to 8%. We continue to expect improved performance in the second half for this coalition, given the strong reception to our fall product collections. However, we now expect low single-digit revenue growth versus our previous expectation of high single-digit growth for the year.

Now finishing off with some balance sheet and cash flow highlights, we remain extremely disciplined around inventory management. And as a result, inventories were down 3% year-over-year. Also happy to report that VF's pension plan is nearly fully funded. And with respect to cash from operations, we anticipate another year of exceptional cash generation, with the full year expected to top $1.4 billion. In the third quarter, we'll further strengthen our balance sheet by paying off $400 million in debt associated with the Timberland acquisition. And finally, we'll be out of commercial paper by the end of the year, resulting in a balance sheet that's ready to support future investment.

And with that, let's turn to our full year outlook. While we see some shifting in our outlook for revenues at the coalition level, there is no change to our February expectation of growing total VF revenues by 6% to $11.5 billion in 2013. And given our strong gross margin results thus far, full year gross margin is now expected to slightly exceed the previously anticipated 100-basis-point improvement over 2012. Factoring all of this in, our adjusted earnings per share is now expected to rise to $10.85, $0.10 higher than our previous guidance of $10.75, representing a 13% increase over 2012.

And as Eric mentioned, if we see additional strength in our gross margin, we will likely make investments in our business now that will yield future returns. By investing to strengthen our core capabilities, including product innovation, technology, supply chain, direct-to-consumer and sustainability efforts, we're ensuring our ability to deliver consistent, long-term growth and returns to our shareholders.

And looking at the revenue cadence for the remainder of the year, we expect third quarter revenue growth to be consistent with our full year growth expectation. If you consider the previously mentioned retailer caution, which will affect shipments for The North Face, and the impact of the September into October calendar shift, which affects both The North Face and our Sportswear businesses, third quarter revenue comparisons would be more balanced with fourth quarter. So accordingly, we expect to see the strongest revenue comparisons of the year in the fourth quarter given these timing shifts, as well as the expansion of our direct-to-consumer business, which really comes together in the fourth quarter.

So in closing, our first half performance exceeded our expectations. We are firing on all cylinders with a terrific portfolio of brands, expanding our business internationally, growing our D2C business and focusing on innovation and, most importantly, our consumers, all of which gives us great confidence that we'll deliver yet another year of record growth for VF and our shareholders.

And with that, I'll turn it back over to Eric.

Eric C. Wiseman

Thanks, Bob. That concludes our prepared comments. Operator, we'd love to open the lines for the questions.

Question-and-Answer Session

Operator

[Operator Instructions] And we'll take our first question from Michael Binetti with UBS.

Michael Binetti - UBS Investment Bank, Research Division

Bob, can I just clarify quickly the comments you made on the revenue guidance just there. I think you're saying that -- maybe you were saying this third quarter would be in line with the annual 6% guidance, excluding the shifts, and -- but then be lower if you include the shifts. Is that -- did I read that correctly?

Robert K. Shearer

No -- yes, you're right, Michael. What we're saying is that third quarter revenues will be in line, right, with the 6% annual guidance. That includes the impact, obviously, of the shifts that we mentioned. So what we're saying is the third quarter, otherwise, would've been stronger. We said the third quarter would've been more balanced with the fourth quarter had it not been for the revenue shifts. So the 6% includes those shifts.

Michael Binetti - UBS Investment Bank, Research Division

Okay. And then can you help us gross up the comments on The North Face cadence that you talked about to the overall Outdoor coalition outlook for third and fourth quarter?

Steven E. Rendle

So Michael, I'm not sure I completely understand what you mean by gross up.

Michael Binetti - UBS Investment Bank, Research Division

So it sounds like there's going to be some North Face order growth shifted into fourth quarter from the third quarter. How does that trend -- how does that fit within the guidance for the Outdoor revenue growth in the back half between third quarter and fourth quarter?

Steven E. Rendle

Sure, sure, okay. So the shifts that we've mentioned in the calendar, coupled with the retailer caution, we see a shift from Q3, what we've seen historically in Q3 to Q4. Without those shifts, we'd see a much more balanced order flow, shipment flow, with -- but as we're looking at it today, we've got a low single-digit for Q3 and a high -- or a low double-digit for Q4.

Robert K. Shearer

Yes, Michael, so for the third quarter for Outdoor & Action Sports, I think this is -- I want to make sure we answer your question. So the third quarter would look pretty much in line with -- once again, with our annual guidance of the 6%, to be more in line. And then obviously, the fourth quarter will be considerably stronger.

Michael Binetti - UBS Investment Bank, Research Division

Okay. And can you comment on where the backlogs are today for The North Face?

Steven E. Rendle

Sure. The backlog for The North Face, the shape of our order window this year is a bit different. As I mentioned, the calendar shift and the caution. The order book we have in hand is in line with our expectations. It was absolutely understood and calculated in the high single-digit full year guidance that we provided in February.

Operator

And we'll take our next question from Robbie Ohmes with Bank of America.

Robert F. Ohmes - BofA Merrill Lynch, Research Division

Actually, a couple of questions. The -- just the first question is, you've mentioned retailer cautiousness in the Americas for North Face several times. Are you seeing retailer cautiousness across other brands, and why or why not? And then the second question is just on the gross margin outlook. I think you guys said something to the effect of you could see more -- I think, Bob, you might have said you could see more gross margin upside, but you may invest in that further upside. Can you walk us through what could drive further gross margin upside versus your guidance and then, also, what kind of spending you would envision implementing beyond what's in the plan right now if you get that gross margin upside?

Eric C. Wiseman

Okay, Robbie. Bob and I will go back and forth on some of these. First question about retailer cautiousness, is it just for The North Face. And if not, it's not a North Face issue, it's an outdoor industry issue. The outdoor industry in North America has suffered 2 much warmer-than-normal winters. And because of that -- and there's been inventory overhang at the end of each season, as you have seen. This year, we got a little lucky in that spring was cool, and we sold a lot of that stuff through. So it's not The North Face, it's for all the brands that play in that space. Retailers are buying much closer to demand. They're going to wait and see how the weather unfolds. However, the orders that we have don't assume a frigid winter. It assumes a modest improvement in the weather patterns for this year. Notice we didn't talk about that for Europe, and the reason for that is Europe had a cold winter last year. They had a nice, healthy, cold, wet winter. And so the buying there from our -- from the retailers who buy our brands, this is just at a much more normal cadence, so they didn't have that issue to deal with. Bob, do you want to talk about the gross margin?

Robert K. Shearer

Sure. Yes, Robbie, so one of the things that we've been seeing relative to our gross margin is the mix has been very favorable. In the second quarter, for example, you know that mix has been averaging around 60 or 70 basis points on a full year basis of benefit. And in the second quarter, it was more like 80. So that's been one of the factors that's been very positive to us. And our gross margins have just been running very, very strongly all year long. And we talk a lot about reductions in product costs, the mix piece, of course, and this will be there and is there. The product cost reductions as well have especially benefited the first half. But the other thing that's been very strong for us is our inventory management. So we talked in the third -- in the second quarter that our inventories were down by 3%. Lower inventories means less risks. It means we sell off less at lower prices, and it improves our gross margin. So those are the kind of things that could help us as we look to the third and fourth quarters. In addition to that, we're always going to be a little cautious on our gross margin and our gross margin expectations. There's still a lot of the year to go. Now relative to those investments, they'd be the same kind of investments that we've been making in the past. This is the same kind of thing that we've done. When we're seeing some room in the gross margin, we've taken that opportunity to make investments, particularly, I'd say, in 2 areas, primarily in the marketing side as well as product. And it's also very, very likely that a lot of those investments would be made behind our 5 largest brands, which is what we've been doing, especially behind our 3 -- the top 3 brands that are in the Outdoor & Action Sports area. But beyond that, to address opportunities, for example, in Asia and China specifically, as we see the opportunities there, we would make investments against those opportunities as well. So very consistent with what we've done. Again, it's been very good for us over the past, and we'd do the same kinds of things looking forward.

Eric C. Wiseman

Yes, Robbie, we talk a lot about that one of the strengths of VF is the number of levers that we have to pull to keep moving forward. We clearly have places in geographies in the world that are not conducive to additional investment, and we have some many that are. Bob mentioned a really important one, which is China. We -- as you know, with that fantastic growth Karl Heinz mentioned that in Asia Pacific, our North Face business was up 40% in the quarter, and that business is really moving. So one of the places we might invest would be behind The North Face in China. And we look at each brand and each geography and look at brands like Kipling or The North Face or any of the top 5, where we have a lot of momentum. And we need to keep that momentum going because there's some markets that are just struggling right now. Does that help you?

Robert F. Ohmes - BofA Merrill Lynch, Research Division

Yes, that's very helpful. That's terrific.

Operator

And we'll take our next question from Omar Saad with ISI Group.

Omar Saad - ISI Group Inc., Research Division

Another question or a follow-up, guys, on the really strong gross margin. Are you seeing -- are lower input costs really still a driver there? Are there new technologies, platforms, efficiencies in your supply chain that are also benefiting?

Robert K. Shearer

Well, Rob -- well, Omar, especially in the second quarter and in the first half of the year, the product cost benefit was a big driver. So it was a combination of mix and then product cost was a significant driver, as well as the efficiencies that we saw. So yes, in addition to that, however, our supply chain is a competitive weapon, and we've talked about that very consistently. And as others are feeling the pinch of higher costs, we're, in many, many cases, able to offset those costs through efficiencies in our own plants. We make more product in our plants than any of our competitors. So it is a combination of things. And yes, we do think that that competitive advantage is clearly a benefit for us and has been helping us in the gross margin, not just this year but in the past as well.

Omar Saad - ISI Group Inc., Research Division

Okay. And then, Eric, real quick, I know you guys highlighted the long-term growth plan, including both organic and acquisitive growth. As your -- is the M&A focus, still broadly speaking, still generally focused on the Outdoor & Action Sports area? Are you seeing any interesting opportunities outside of that segment?

Eric C. Wiseman

Yes, Omar, we've consistently said that the focus of our M&A activity would be in the Outdoor & Action Sports area. But that is -- that does not exclude other opportunities. There are clearly other opportunities out there that we are always poking around and seeing what makes sense. We look at it from the standpoint of what will be complementary to our portfolio that would enable us to deliver consistently strong earnings per share growth to our shareholders and where we can add some value. I know that's vague, but I guess what I'm trying to say is that it's not just in Outdoor & Action Sports, but that is a place where we have big global platforms and a lot of success and momentum and would be a place which we're always looking there. Does that help you?

Omar Saad - ISI Group Inc., Research Division

Yes, that's really helpful, guys.

Operator

And we'll take our next question from Bob Drbul with Barclays.

Robert S. Drbul - Barclays Capital, Research Division

The -- I guess the first question there is, to go back on the gross margin reinvestment, would those decisions on the reinvestment be made intra-quarter or sort of in following quarters? So if gross margin is tracking ahead of, let's say, the third quarter, would you reinvest those dollars in that quarter or would you wait and sort of change the plan for the fourth quarter?

Robert K. Shearer

We -- I think we'd make those decisions when the opportunity for a good investment comes along. And if matched with the additional gross margin, we need to fund it. We're looking at the back half of the year. Obviously, at some point, we'll run out of runway to make investments, so we have to make some of those decisions. We can't make them all in December, obviously.

Steven E. Rendle

But what we do, Bob, is we have -- constantly, we have a list of those areas that we'd like to invest, right, that have either proven really good investments for us in the past or where, with our current judgment, we think they will be great investments. So we keep that on hand consistently and look for these opportunities. And when they arise, we release the funding.

Robert S. Drbul - Barclays Capital, Research Division

Okay. And then just have a question on The North Face as well. Historically, The North Face has really been consistently stronger than the outdoor industry. And has anything really changed within the brand performance? Because you just appear to be talking a little bit more of an industry concern impacting that brand than we've been accustomed to over the last 10 years. So I'm just trying to understand if there's anything else at play from the brand perspective as you look at the back half of this year.

Steven E. Rendle

Yes, Bob, this is Steve. There is nothing additional at play with The North Face as we look at the back half or even as we look into next year. As Eric had mentioned, the outdoor industry really has been impacted as -- with these last 2 winters. The impact of the warmer, drier winters and the consumer demand and product sell-through has really been significant. We've talked about it quite often. We couldn't be more confident about the product pipeline that we have in play for fall '13. That's feeding into 2014 our ability to build brand awareness and then help drive conversion not only within our own stores but within our partner stores. We're very, very confident with where The North Face is, and it's really just navigating through these last 2 years of warm, dry winters.

Karl Heinz Salzburger

And Bob, if I may aid, this is Karl Heinz. I guess, a 40% growth in China and a 10% growth in Europe, which is not the easiest market at the moment, as we all know, proves that The North Face is still performing extremely well.

Robert K. Shearer

On a global basis, Bob, being up high single digits for the year, we think, is taking share.

Robert S. Drbul - Barclays Capital, Research Division

Okay. And then if I could just sneak in a question for Scott, on the -- in the Lee business in the U.S., mid-teens growth in -- I guess, in the Americas, can you just elaborate a little bit more than you did in your prepared remarks around that strong performance and sort of where that growth exactly is coming from?

Scott H. Baxter

Bob, yes, no problem at all. One -- or a couple of things. We had really strong seasonal sales, which we talked a little bit about the shift in the first quarter, so that all came in. We're real pleased. But I think the single most important thing for the Lee business in all the Americas is product. Our product is really terrific. And as we come in to the back-to-school, fall holiday season, you're going to see several new innovations and introductions from us, most notably the Modern Series product for men and the Comfort Fit for women. But our order book for those and the orders for those upcoming are just outstanding, and it's really resonating with the consumers. So what we've done is, knowing that we've got such good product in the pipeline, we've really enhanced our in-store imagery and our in-store POS. And on top of that, our marketing campaigns and advertising for the fall and the winter, I think you'll be real pleased with. So I look at it holistically and think about the business, and I just couldn't be more pleased with what the people are doing because, at the end of the day, it's about the product. And it's really resonating with our consumers, and we're really, really happy with where we are right now in the Lee business.

Steven E. Rendle

Yes, I agree with Scott, Bob. And what -- there's a channel thing going on here, too. The mid-tier channel is stronger right now than it was earlier this year. And as you are probably aware, we've been launching -- or introducing, I guess, is a better way to put it -- the Lee brand into the department store channel with several national department stores here. And those -- what were tests last year are getting additional roll out this year. So we're -- we've got the brand in a new channel, department stores, and the mid-tier channel is healthier. And that's supported by all these great products. And the in-store marketing, as Scott was talking about, is delivering pretty terrific results for that business right now.

Operator

And we'll take our next question from Mitch Kummetz with Robert Baird.

Mitchel J. Kummetz - Robert W. Baird & Co. Incorporated, Research Division

I guess first question, just in terms of your guidance -- kind of implied guidance for the back half, I think Steve already made the comment that fall orders on The North Face are sort of tracking in line with expectations for the year. I would assume that comment probably applies to kind of the overall business as a whole in terms of backlog. So how do you guys -- how are you guys thinking about in terms of reorders and maybe your comp on your DTC business? I mean, do you expect reorders to be better in the back half than a year ago? Are you expecting a positive comp on DTC? And kind of what's the underlying sort of weather assumption behind all of that? Are you guys assuming a normal winter? Are you assuming the winter that's similar to last year?

Steven E. Rendle

Yes, the assumption about winter is we're assuming a modest improvement in the North American winter from what we've seen in the last 2 years. As I mentioned to a response from an earlier question, the winter in Europe last year was fine. It was kind of an average European winter. And we're expecting an average Europe winter this year, with a modest improvement in the U.S.

Eric C. Wiseman

Mitch, was the rest of your question specifically about North Face?

Mitchel J. Kummetz - Robert W. Baird & Co. Incorporated, Research Division

No, it's kind of the company as a whole. I mean, I guess if you're assuming a modest improvement in the winter in North America, then that would suggest that you expect sort of reorders to be better than what they were a year ago, kind of across all of your business.

Steven E. Rendle

Well, Mitch, I can -- let me kind of start with The North Face because I think The North Face is probably the brand that -- I know you've asked quite a bit over the years about our reorder. We do not see a dramatic shift in our fall reorder demand. We are prepared for a little bit more on the historical high level of maybe high single digits when, normally, we've been in the mid-single digits. We've got a great insight into our order book. It's a stickier order book than last year. As Eric mentioned, we are expecting a more normalized winter. And with the innovations that we've put into the marketplace, as we've showed in the last spring's trade shows, in each of our activities, outdoors, snow sports, as well as our performance, we really feel we've got a great balance of new innovations that meet the needs of consumers in these -- in the warmer climates, colder climates, and that were set up very, very well to deliver that high single-digit growth rate for the year.

Robert K. Shearer

Mitch, yes, I think the other factor is direct-to-consumer, right?

Mitchel J. Kummetz - Robert W. Baird & Co. Incorporated, Research Division

Right.

Robert K. Shearer

So I made the comment earlier that this is -- this will be a record year for us in terms of new store openings. Direct-to-consumer becomes a bigger part of VF Corporation not just from stores but also on the e-com side of things. As I said earlier, a lot of that comes together in the fourth quarter. So that's also -- I mean, that's also part of the revenue cadence that we're looking at in second half, for example, versus first half because it's a big piece of our business.

Eric C. Wiseman

We'll have a lot of new stores by the end of this year that didn't exist last year. To help you -- I think part of your question is like how aggressive is this assumption, right? And to help frame that for you, first half of the year, globally, our direct-to-consumer comps were mid-single-digit. Second half of the year, we're assuming high-single-digit. Is that driven by improvement? Not so much. It's driven by mix, where we have a lot of stores in cold weather brands, and we're expecting the winter mix to be -- that they'll be a bigger part of our business and we are expecting kind of a normal winter around -- in Europe and, as I said, a slight improvement in the U.S.

Mitchel J. Kummetz - Robert W. Baird & Co. Incorporated, Research Division

Got it. That's very helpful. And then my second question is on your growth on your margin. Maybe it's -- 2 parts to this. One, Bob, could you be more specific on the gross margin now for the year? I mean, you're looking at like 120-basis-points improvement versus the prior guidance of 100. How should we think about that kind of split-out in the back half? Would you expect more gross margin expansion in Q4 than Q3 because of the big impact on DTC?

Robert K. Shearer

Yes. So Mitch, I won't be quite that specific, right, in terms of the gross margin. But relative to the third and fourth quarters, you're absolutely right. The third quarter gross margin expansion will not be quite as strong as the fourth quarter, and that's driven by a couple of factors. Mix, number one. The mix and the shifting of those -- of the revenues, particularly North Face, which is a brand of ours that has very, very high gross margins, when we move some of those revenues into the fourth quarter, obviously, it pulls some margin away from third and puts it into fourth. And then the other big factor, of course, is direct-to-consumer. When all that comes together in the fourth quarter, with substantially higher gross margins in D2C, that will drive the fourth quarter gross margin expansion stronger than the third quarter.

Mitchel J. Kummetz - Robert W. Baird & Co. Incorporated, Research Division

And then the Jeanswear operating margin, I think it's tracking around 19% through the first half. Is that kind of a number that we should be thinking at on an annual basis? And if that's the case, I mean, that's a couple points better than what the prior high watermark was for that business. I mean, is that a sustainable level?

Robert K. Shearer

Yes, the jeans operating margins is what we're referring to. The jeans operating margins, right, will get back in the fourth quarter to the levels that we've been used to over the years. So high watermark for the year, we think about it as being a little bit more normalized with where we've been. Now when I say where we've been, in better years, right? So in our stronger years in the denim side of things in our Jeanswear business, yes, we're back on track with that, and we do think that that's a very sustainable level for us going forward.

Operator

And we'll take our next question from Kate McShane with Citi.

Kate McShane - Citigroup Inc, Research Division

I'm going to ask another question about The North Face. Now that you have a good read into the order book for that back half of the year, I was just wondering if the mix of orders are any different than you expected and if there's any impact to your margins and your delivery of the product as a result?

Steven E. Rendle

Yes, Kate, this is Steve. As we look at our order book, there is no dramatic shift in the mix. It's just really the timing that we've seen move from Q3 and Q4 for the reasons we've explained. So no dramatic shift there at all, very similar to years past.

Kate McShane - Citigroup Inc, Research Division

Okay, great. And then my second question is on Timberland. I think, Steve, you mentioned in your comments that there's still -- I interpreted it as cleanup of the brand. I just wondered how many more quarters we can expect of this. And also, just with regards to the Timberland apparel, is it in the stores yet and do you have any early reaction by customers?

Steven E. Rendle

Right. So from an Americas point, I can talk about it, and Karl Heinz can come back with the international side. But -- so on the -- what we see going on in our wholesale business, we put a tremendous amount of effort into product segmentation and very, very diligent about just putting the right product in the right channels, as well as bringing the disciplines of our go-to-market model into Timberland. And now as we come to our second year, I would tell you, you would -- you're going to hear us to talk very consistently about the impact and the positive benefits of that. On the apparel, it has yet to ship. We will be shipping here in the United States against our relaunch plan, which is very -- it's not a large amount of revenue this year, it's really a relaunch. And as I've mentioned before, just a very careful and thoughtful choice of retail partners across better department stores, specialty and outdoor specialty, that will be coming into the marketplace towards the end of August. And I know Lance will be talking here shortly about a preview that we'll be having in the New York City next month. And we're really excited to introduce you to the products that we'll be relaunching here in the U.S.

Karl Heinz Salzburger

From an international point of view, let's start, Kate, with Asia, which has been consistently strong. And even this quarter, we reported in constant dollars a 10% increase. So Asia is not a problem. Asia is performing well on most categories, footwear and apparel. The problem we have is in Europe. Timberland is our largest brand in Europe, and as we said in the past, it's pretty heavily exposed to Southern Europe. And we all know Southern Europe is not the strongest at the moment. It's hard to sell anything there at the moment. So that doesn't mean that we don't see opportunities. A lot happened with Timberland in the last 12 months. We moved headquarters, we changed systems there in our system, a lot of initiatives, which would put a lot of stress in other companies, but we managed it well. I mentioned in my script we see the situation improving. 2013 will still be negative from a growth point of view, but we have very good signals, which make us very confident also in Europe.

Operator

And we'll take our next question from Lindsay Drucker Mann.

Lindsay Drucker Mann - Goldman Sachs Group Inc., Research Division

I wanted to ask on the inventories. You had a nice spread between inventory growth and sales. How much of that is a function of the delayed shipment of North Face product or other things we should be aware of as it relates to those 2?

Robert K. Shearer

Yes, really not related to that, we continue to -- one of the bigger pieces in terms of the reduction in inventory was Timberland. We just continue to find ways to reduce those inventories and buying and producing product closer to needs. So it was a significant piece of it. And beyond that, it's just an area where we've put a lot of focus, and that focus is paying off. We're more efficient. We're just better at managing inventories and producing and buying product closer to needs. So really not related to some of the shifts that we've talked about from a revenue standpoint.

Lindsay Drucker Mann - Goldman Sachs Group Inc., Research Division

Okay. And then on Timberland, you've talked about the FX-neutral mid-single-digit guidance. Can you -- what -- based on where spot rates are, how you're thinking about currency on a all-in, including currency basis, what would be your expectation for revenue growth for the year?

Robert K. Shearer

I don't know that I have that in front of me for Timberland. So it -- although I can tell you this. I mean, based on the euro, it wouldn't be a significant difference. So actually, the difference -- the bigger difference was in Japan. It was Japan. So I think there, we were in mid- to high-single-digit growth for the full year.

Karl Heinz Salzburger

Yes. And as you know, Lindsay, Japan is our largest market in Asia for Timberland.

Robert K. Shearer

For the full year. Yes, overall, for the full year, not a big factor.

Operator

And we'll take our next question from Jim Duffy with Stifel.

Jim Duffy - Stifel, Nicolaus & Co., Inc., Research Division

A couple questions. So some odd weather patterns this spring following what were odd weather patterns in the winter. Where we sit right now, what are retailer inventories looking like? And for those businesses, they're based on forward bookings. Are you getting any visibility that gives you confidence you can get back to that high single-digit organic growth objective looking into spring '14?

Steven E. Rendle

Jim, this is Steve. With the first half of 2013, yes, certainly, we had really good winter weather patterns, and we saw strong sell-through of the goods they've carried in. But even more importantly, we saw a really good sell-through of our spring products, specifically fleece, lightweight insulation and rain shells. And we were really happy with where we see retail inventories today, giving us the opportunity to really get our new product well positioned and upfront in front of the consumer as it starts to ship into our dealers this month and next month. We absolutely have confidence that we will return to the historic prebook rates that we've seen in the past. And some of that is weather, Jim, but it's also how we're focusing on our product pipeline, looking at both all 3 of the activities of outdoor, snow sports and performance, new introductions of footwear. We spoke last month about our Ultra Protection Series, a new training launch around mountain athletics as we're able to really start to increase penetration of spring, spring product, as well as new insulations like we have in Thermoball and other such innovations coming into fall. So very, very confident about -- as we move into more normalized weather patterns but also being able to wait our product offering across the categories to be able to mitigate anything in the future.

Operator

And we'll take our next question from David Glick with Buckingham Research.

David J. Glick - The Buckingham Research Group Incorporated

Eric, just a follow-up on kind of the U.S. consumer. I appreciate your commentary on the outdoor segment and kind of the retailer approach there. You mentioned the mid-tier as well, which I assume is some improvement in JCPenney. But just overall, I think investors are probably expecting a little better retail environment in Q2 versus Q1 based on how cool it was this year in Q1. It doesn't appear that that's necessarily played out. I just wondered, as the environment continue to be very uneven and choppy and what, if anything, does it say to you about the U.S. consumer heading into back-to-school?

Eric C. Wiseman

Yes, David, the U.S. consumer, a lot of people use the word resilient to talk about the U.S. consumer, and I think they use it because it's a fair word to describe what we're seeing. I would add inconsistent. You said choppy. We are absolutely seeing that in our business. From week to week, it's hard to see a consistent trend line. It's kind of up-and-down and up-and-down. But as it's coming out, a global comment, in the first half of the year, our direct-to-consumer business was up mid-single-digit, and it was up in the United States. So we are seeing growth in the United States market, but it's been a little choppy, using your words. But we're confident that we have the right numbers dialed into our forecast for the rest of this year. We absolutely are seeing both from our wholesale partners that we ship to and in our stores. The trend supports the forecast that we have for the balance of this year.

David J. Glick - The Buckingham Research Group Incorporated

And do you see an opportunity in the mid-tier in the second half? You're gaining some traction there, it sounds like.

Eric C. Wiseman

Yes, we are. That channel struggled, as everyone knows, the last 12 to 15 months, and it's coming back pretty nicely right now.

Operator

And we'll take our next question from Dave Weiner with Deutsche Bank.

David Weiner - Deutsche Bank AG, Research Division

And just a quick follow-up, actually, on Timberland. Karl, you had made some comments about Europe. I guess, could you just dig a little deeper as to why you're expecting improvement into the back half of the year? I think you've -- Karl, we talked about this in the past, but maybe just kind of recap us on what's going to drive the improvement and, importantly, if that's both at sales and margin or one more than another.

Karl Heinz Salzburger

Sure. Let me try to give you facts but also what we hear from -- in the market from our customers. The facts, I guess, I mentioned in our DTC comps were positive in the first half. That shows that the brand is doing pretty well. The big problem we have is really the exposure to certain markets in the Southern Hemisphere. There's a lot going on in those markets. A lot of small stores are simply dying, and we have to -- we are reacting to that. What we hear also from the brand, we went the first time to a pretty large show in Berlin called Bread and Butter, where the brand went out the very first time. And the response from -- we got from the customers was really, really strong. Karstadt is a large customer, a large chain in Germany. They started to list us again. We lost them a few years ago. So we see a lot of good signals, which makes us believe that 2014 will be better than we see today. And it's our highest priority because, as we know -- as we said, Timberland is our largest brand in Europe.

Robert K. Shearer

I think in Europe -- I think, David, in Europe, our footwear collection is stronger and more relevant, and that's why we got the bookings we got. And we're not relying on Southern European economies to rebound to get healthy. That's not in our assumptions. What we're doing is focused on economies where there's more active consumer engagement. Karl Heinz just mentioned Germany and selling -- getting back into a large customer there. That's we're doing to stabilize the business and make up for some of the Southern European economies where it's been so difficult.

David Weiner - Deutsche Bank AG, Research Division

Got you. So your internal plan is more -- or is kind of one part more, perhaps, weak but stable trends in Southern Europe, but then, really, what's driving the kind of sequential improvement would be kind of the shift into other better economies? Is that [indiscernible]

Eric C. Wiseman

Supported by much better product than we had last year.

Karl Heinz Salzburger

That is correct, yes. We have great presence with the brand in Central Europe, which is pretty stable. Germany, Austria, Switzerland is doing okay. In the U.K., it's doing good; well in Scandinavia. And also, there's a large presence, growing presence in the emerging markets, which spans from Russia down to Turkey.

Operator

And we'll take our next question from Christian Buss with Crédit Suisse.

Christian Buss - Crédit Suisse AG, Research Division

I was wondering if you could provide some perspective on how you feel about inventories in the channel, particularly in the Americas, if there are any call-outs? It would be helpful.

Eric C. Wiseman

In general, with the exception of the Jeanswear business in China, the channels are clean. We have an inventory overhang in denim in China that we've been -- had all year, started in late last year. But in North America, for sure, inventories are clean throughout the channels. In Europe, actually, there may be some places in Southern Europe where there's still a little bit of an inventory glut, economies where consumers have -- are not as engaged. But on the macro level for VF as a material issue, it is not overall for VF.

Christian Buss - Crédit Suisse AG, Research Division

How comfortable are you with your ability to supply the order book that you have and potentially capture any business if weather is favorable?

Eric C. Wiseman

We're completely comfortable with our ability to meet the order book that we have, completely. Our inventory is not only lean, but it's aligned. So we have pretty good visibility of our fall orders, and we're prepared to meet those orders. We've shipped really well all year. We have not had -- we've -- our service this year may end up at a record high despite the winter inventories. So we're in good shape.

Robert K. Shearer

And I'd also say we're better positioned than most to chase if needed, given our own manufacturing, as well as our scale and size, to chase orders.

Operator

And that does conclude our question-and-answer session today. And I'd like to turn the conference back over to your speakers for any closing or additional remarks.

Eric C. Wiseman

Sure. Thanks, Mary. Thank you for being on the call. I said during the call we're on track this year, and we are on track for this year. The orders are coming in as we thought. The one -- the revenue is where we thought it would be, and the cadence of that is as we thought it would be. The only thing we missed in our original plan for the year is our gross margin. We undershot the reality there, but we're not apologizing for that. So we'll talk to you in 90 days and tell you how the third quarter went. Thanks so much.

Operator

And that does conclude our conference. Thank you for your participation.

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