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V. F. Corporation (NYSE:VFC)

Q4 2009 Earnings Call

February 11, 2010 8:30 am ET

Executives

Jean Fontana – Investor Relations

Eric C. Wiseman – Chairman of the Board, President & Chief Executive Officer

Robert K. Shearer – Chief Financial Officer & Senior Vice President

Karl Heinz Salzburger – Vice President & President International

Analysts

Jim Duffy – Thomas Weisel Partners

Jeffery Klinefelter – Piper Jaffray

Robert S. Drbul – Barclays Capital

Kate McShane – Citigroup

Omar Saad – Credit Suisse

Benjamin H. Rowbotham – Goldman Sachs

David J. Glick – Buckingham Research Group

Michael Binetti – UBS

Mitch Kummetz – Robert W. Baird

Christopher Svezia – Susquehanna Investment Group

Paula Torch – Needham & Company

Maggie Gilliam – Gilliam & Company

Kenneth M. Stumphauzer – Sterne Agee Capital Markets

Operator

Welcome to the V.F. Corporation fourth quarter 2009 earnings conference call. Please be aware that today’s conference call is being recorded. At this time for opening remarks and introductions, I’d like to turn the conference over to Jean Fontana.

Jean Fontana

Thanks for participating in V.F. Corporation’s fourth quarter and full year 2009 conference call. By now you should have received today’s earnings press release. If you have not, please call 203-682-8200 and we will send you a copy immediately following the call. Hosting the call this morning is Mr. Eric Wiseman, Chairman and CEO of V.F..

Before we begin we would like to remind participants, certain statements included in today’s remarks in the Q&A session may constitute forward-looking statements within the meaning of the federal securities laws. Forward-looking statements are not guarantees and actual results may differ materially from those expressed or implied in the forward-looking statements. Important factors that could cause actual results, collaborations or financial conditions of the company to differ are discussed in the documents filed with the company and the SEC.

At this time I would now like to turn the call over to Eric Wiseman.

Eric C. Wiseman

Following my opening comments you’re going to hear a recap of the quarter’s results and 2010 outlook from Bob Shearer. Karl Heinz Salzburger who’s President of our International Business is also on our call today from Italy and he’s going to comment on our international performance in 2009 and our key international priorities for 2010.

As you saw in the release this morning, our fourth quarter and therefore our year came in much stronger than we anticipated. I’ll comment on the impairment charge in a moment but for now I’ll base my comments on our results excluding that charge. The upside in the quarter was fairly broad based in nature. Our outdoor action sports, jeanswear America, sportswear and imagewear businesses all contributed.

You’re well aware of a variety of factors impacting the comparisons this year including last year’s $0.30 per share charge to reduce costs and this year’s higher pension expense as well as the impairment. In the release we noted that if you adjusted for all these factors, our fourth quarter earnings per share would be up 28%.

In terms of our full year earnings picture it’s important to remember that the $5.16 per share in 2009 included twin headwinds of higher pension expense and foreign currency translation which combined impacted earnings per share by $0.66. We also noted in the release that if you compared 2009 with 2008 and exclude the 2008 charge as well as this year’s pension, foreign currency and impairment, 2009 earnings per share would have risen 2% from 2008 levels on an apples-to-apples basis.

2009 was a year unlike any other we’ve experienced. Looking back, I believe we struck the right balance between cautiousness related to managing costs and inventories and assertiveness related to investing behind our brands to keep them strong and healthy and investing in growth markets. Let me take just a moment to recap the many accomplishments achieved by our outstanding teams during this very challenging year.

First, we continued the momentum in our outdoor and action sports businesses globally. Next, we gained share in our core Wrangler and Lee brands in the US. In Asia, V.F.’s total revenues grew by 28%. During the year we extended our contemporary brands portfolio by completing the acquisition of the Splendid and Ella Moss brands and we are thrilled to have these brands and these people as part of V.F. Corporation.

We continued to grow our direct-to-consumer business with a 6% increase in direct-to-consumer revenues and the addition of 90 new stores. We improved the profitability of our sportswear coalition, achieving double digit margins for both the quarter and the year. Our gross margins reached record levels. We committed to and achieved $100 million in cost reductions. We reduced inventories by 17%, well above our prior guidance of a 13% reduction. We achieved an all time high in cash flow from operations of $973 million and we delivered our 37th year of higher dividend payments to shareholders.

We’re real proud of these accomplishments but we also saw our shares of challenges and disappointments during the year. Our revenues declined 6% or 4% on a constant currency basis in 2009 reflecting recessionary conditions around the world. 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 our uniform business was hurt disproportionately during this down turn than by higher than anticipated levels of unemployment in key sectors.

While we’re encouraged by the profit improvement in sportswear, our revenue trend is still not where we want it to be and our earnings were meaningfully impacted by higher pension expense and foreign currency translation rates. Finally our yearend impairment analysis resulted in a charge to earnings in the fourth quarter which substantially reduced our earnings on a GAAP basis.

In terms of the impairment charge, we noted in the release that the charge is related to our Nautica, lucy and Reef brands where results since acquisition have not met our expectations due in part to the pressures imposed by this global recession. As you are all aware, V.F. is a company with a decade’s long history of growth through acquisitions and acquisitions will continue to play an important part in our growth plans for the future. We’re committed to improving the performance of our Nautica, lucy and Reef brand and we’re encouraged about the opportunities for improved performance in each.

So with 2009 finally behind us we are energized about our opportunities for 2010 and very focused in our approach to delivering solid top and bottom line growth. We have a lot to look forward to this year. Bob will talk you through a number of points related to our guidance for 2010. I do want to spend a minute though on a very important point highlighted in the release and that’s the fact that we’re ramping up investment behind our brands to fuel market share gains and accelerated growth now and in to the future.

The release noted that we’re increasing spending this year by $50 million. The bulk of this spending will be concentrated in brand marketing but we also plan to invest behind building our product, innovation and sustainability platforms. Our spending is going to be very focused on specific initiatives within our most important and most profitable businesses.

Let me give you just a couple of examples. Vans has been our most successful brand to date in leveraging social media to enable a richer, more interactive relationship with consumers. In fact, the Vans brand was recently recognized as part of the Facebook 50, a ranking of brands that are making the best use of the Facebook social networking slight. The inaugural ranking was developed by Slate Magazine’s The Big Money, an online business news site.

We’re going to continue to build our social and digital media capabilities this year by investing behind proprietary content on our websites, creating new mobile applications and ramping up our social media networking. On the product development side, Vans will be introducing a new line of footwear in the surf category that is extremely lightweight, packable and washable. We also have a new upscale collection that’s called the California Collection with upgraded design and materials designed to extend the reach of the brand.

In terms of the North Face we will significantly increase our North American marketing investment in 2010 to drive brand equity and growth. We’ve identified a dozen markets across the US where we’re going to concentrate regional advertising feature the brands, premier athletes and products in outdoor, performance, action sports and youth. For the first time, we’re adding TV and online video to our marketing mix. Like Vans, North Face is continuing to expand its social media and mobile marketing efforts.

For example North Face’s iPhone snow report app was one of the top rated applications on Apple’s iTune stores in 2009. In 2010 we’ll invest in upgrades here and in other mobile communication tools to expand the reach of our social media. We’re also planning a substantial increase in marketing for our brands in Asia where we’re focusing on the Lee, North Face and Vans brands.

For example, we’ll be making a substantial investment in retail fixturing and visual merchandising to support our planned 40% increase in distribution in China which will be mainly via shop in shops. We’re also funding a new media campaign for Lee in a number of key cities and rolling out additional North Face sponsored events such as a 100 kilometer race in Beijing.

Complementary our brand initiatives here in the US, we’ll significantly expand Vans consumer marketing in tier-1 cities focusing primarily on digital and event marketing. These are the right investments to make and this is the right time to make them and the good news is that we can fund these investments and we expect to deliver earnings per share growth of 9% to 11% this year.

Those of you who heard our presentation last month at the ITR Exchange, heard us talk about our long term priorities for growth and investment. To reiterate, we have a clearly identified list of priorities. They include maintaining momentum in our outdoor and active sports brands, super charging growth in China, growing and gaining share in Europe, a disciplined expansion of our retail initiatives, intensified eCommerce and digital media support, building on our best in class talent management and development, intensifying an integrated innovation, consumer insight and brand building across V.F. and developing and implementing a global approach to sustainability.

With that, I’ll turn the call over to Bob.

Robert K. Shearer

I’ll make a few comments about the quarter before moving on to specific points regarding our outlook in 2010. First, related to the non-cash impairment charge, Eric pretty well covered the details, I’ll just reiterate that we are confident that these businesses will deliver improved operating results going forward. In fact, in the case of Nautica and Reef, that progress has already begun. I’ll also point out that my comments that follow will mostly related to V.F.’s operating results before the impact of the charge.

Revenues came in stronger than expected and were a bit above last year’s fourth quarter continuing the improvement in comparisons that we’ve been seeing throughout the year. Gross margins reached a record 46.3% for the quarter representing an increase of 380 basis points over the prior year quarter. Full year gross margins also expanded over the prior year to 44.3% which also represents a historical high for V.F..

We are particularly pleased considering the pressures faced in this challenging environment that each of our coalitions achieved higher gross margins in the quarter. Our direct-to-consumer business which expanded to 22% of total revenues in the quarter continues to be a significant factor in driving these gross margin improvements. Our direct-to-consumer business provides considerably stronger gross margin percentages that V.F. averages. In addition, our reductions in inventories not only provided a source of cash but translated to gross margin improvement due to the lower risk of obsolesces.

Now, SG&A as a percentage of revenues declined by 40 basis points in the quarter. Now, there are a couple of unusual factors influencing this comparison. This year’s SG&A included a 110 basis point impact from higher pension expense while last year’s fourth quarter reflected a 190 basis point impact from the charge to reduce costs. In addition, our SG&A ratios continue to reflect the changing mix of our business particularly related to our growing direct-to-consumer business where the ratios are higher.

Our operating margin excluding the impairment charge rebounded to 13.6% in the quarter which was stronger than we initially anticipated. The improvement over last year’s quarter was driven by the factors that I just discussed in addition to our intense focus on expense control in the SG&A area throughout 2009. Our full year operating margin, again excluding the impairment charge was 11.9%. Our higher pension expense impacted the full year 2009 margin as it did in the fourth quarter by 110 basis points.

Excluding unusual, specifically the cost reduction charge in 2008 and the higher pension expense in 2009 we are seeing improvements in our operating margin comparisons despite the challenges created by a difficult economic environment. Our effective tax rate for the year was about 30%, that included a negative impact for a rate increase from the impairment charge. Our tax rate on earnings excluding the impairment charge approximated 26% which is in line with our prior guidance. Our tax rate has been declining over the past several years. For 2010 we expect our rate to again be at about the 26% level.

We also provided comparisons in the release that took in to account the unusual items. Specifically, the charge for cost reduction actions in 2008 and the impairment charge, pension expense increase and impact from foreign currency in 2009. Excluding these items, fourth quarter earnings per share would have increased by 28% and full year earnings per share would be up by 2%.

Our coalition results were pretty well spelled on in the release so I won’t reiterate them here. We’ll be happy to answer any questions you may have during the Q and A session. Now, a couple of comments regarding our international and direct-to-consumer businesses, we noted in the release that international revenues were up slightly in the quarter on a constant currency basis. Now, just to provide more color on that, international revenues of our outdoor and action sports coalition rose by 9% in constant dollars and 7 For All Mankind international revenues grew by 23% in constant dollars.

These businesses continued to grow not only in Europe but in Asia as well where our total revenues increased 40%. Now, as indicated in our release, offsetting these gains was a decline in our European jeans business which continues to be affected by a very difficult jeans market across Europe. Now, in terms of our direct-to-consumer business, we achieved another quarter of strong growth with revenues up 7%. We opened 31 new stores in the quarter and we experienced strong growth, albeit off of a relatively small base in our eCommerce business. We continue to be really pleased by the return on investment generated by our direct-to-consumer business which remained above the 20% level in 2009.

Turning now to our balance sheet and cash flow, we put a lot of focus on managing our balance sheet and cash flow this year and our efforts clearly paid off. Our cash balance which exceeded $700 million at yearend, nearly doubled the 2008 level, inventories were reduced by 17% and our cash flow from operation reached nearly $1 billion in 2009 and that is a new all time high for us. We are particularly pleased with our strong cash flow given that in 2009 we contributed $200 million to our pension plan. In addition, our strong cash generation supported a $108 million spend to repurchase 1.5 million shares and an increase in our dividend payments to $262 million. Our dividend payout ratio for 2009 was 46%. So that’s a look back at 2009.

Now, let’s move on to 2010; in today’s release we announced our expectation for 2% to 3% growth in revenues and 9% to 11% growth in earnings per share. Now, I’d like to state right up front that our highest currency exposure is to the Euro and for purposes of our projections we assume the $1.40 rate for the year 2010. That means that the impact from translating foreign currencies in to US dollars will be about neutral to revenues and earnings in 2010 with some benefit to the first quarter which diminishes throughout the last three quarters of the year.

A couple of comments about our pension expense; we do expect pension expense in 2010 to be $0.20 per share lower compared to 2009 which reflects not only the improvement in valuation of our pension assets in 2009 compared with 2008 but also the benefit from a $200 million contribution to our pension plan that we made in the latter half of the year. Despite the improvement, earnings in 2010 will still reflect an incremental $0.30 per share impact from pension expense compared with the more normalized level in 2008.

Now, some highlights regarding our guidance; we’re looking forward to first, continued momentum in our outdoor and action sports coalition and strong growth in our contemporary brands coalition. We expect relatively stable revenues in jeanswear, sportswear and imagewear with higher margins in each. Next, we expect another year of higher gross margins. In 2010 we’re projecting gross margin expansion of more than 100 basis points largely driven by the continued change in our mix towards higher growth, higher margin lifestyle brands and our growing direct-to-consumer business.

As was the case in our fourth quarter 2009, we expect to see gross margin expansion across all of our coalitions in 2010. Lower product costs will also play a part in driving the improvement in gross margin ratios. Now, Eric talked about this as well but just to reiterate, this year we will step up our investments to drive future growth. These investments totaling $50 million will be very targeted and concentrated in those businesses with the strongest opportunities for growth including the North Face, Vans and 7 For All Mankind brands and our business in Asia.

A portion of these investments will be targeted at further strengthening our product innovation and sustainability platforms. These investments together with the higher level of expenses associated with our growing base of retail stores will result in an increase in the ratio of SG&A as a percent of sales compared with last year’s level.

Now, I know this is an area of particular interest so let’s take a moment to talk about our SG&A comparisons. In 2009 our SG&A expense ratio to revenues was 32.4%. In 2010 the SG&A ratio is expected to be about 33% or a 60 basis point increase over the 2009 ratio. Pension expense is estimated to be $35 million lower in 2010 than in 2009 which will benefit the year-over-year ratio by about 50 basis points. So, on an adjusted basis, that would point to more than a full point increase in the SG&A ratio in 2010.

Here’s the breakdown of that increase, the $50 million in investment spending translates to roughly 70 basis points of the increase. The remainder relates to the higher level of direct-to-consumer business in our mix. Our direct to consumer business provides higher gross margins and yes, higher SG&A ratios as well. But, most importantly, stronger operating margins than V.F. averages so the growth in our store base over the last couple of years has and will continue to impact our SG&A expense ratios. However, we also expect our store growth to continue to positively impact our gross margin and operating margin ratios.

We believe our overall cost structure is in very good shape and is reflected in our expanding margins expectations. Cost reduction is an everyday exercise at V.F. and we continue to scrutinize all aspects of our businesses for cost efficiencies.

Now, to summarize our margin expectations, gross margins should expand. Operating expense ratios will also increase, a result of our planned investment spend and some impact from our direct-to-consumer business as I just discussed and operating margins should improve by 50 to 60 basis points.

Now internationally, we expect revenues to grow in line with total revenues. Now, that comparison is impacted however by the exit of the mass jeans business in Europe. Excluding that impact international revenues would increase by a considerably higher rate than total V.F. revenues. Now, I’m sure you noticed that very importantly we raised our long term target for international revenues to 40% of total revenues, up from the 33% we’ve talked about in the past.

We continue to gain confidence in the opportunities abroad for our strong brand within the V.F. portfolio. Important also are the higher operating margins provided by our international businesses. Our direct-to-consumer business should increase by more than 10% in 2010. We’re planning to open 80 to 90 new stores and expect low single digit comp store growth. This expansion should drive direct-to-consumer revenues up to 19% of total revenues in 2010.

Over the next several years we continue to anticipate that our direct-to-consumer revenues will reach 20% or more of total revenues. Important to our expansion plans in this area, are a higher than average gross margins and operating margins as well as a strong returns on investment of our direct-to-consumer businesses.

For 2010 we expect to generate approximately $800 million in cash from operations. While not at the 2009 level, this would mark another very strong year of cash generation for V.F.. Dividends and share repurchases are drivers of TSR or total shareholder returns. Our industry leading dividend payout will exceed 40% of earnings in 2010 and continuing in the share repurchases of the third and fourth quarters of 2009, this year we plan to repurchase at least three million shares which is above the level of the past several years and will reduce our number of average shares outstanding.

In fact, we indicated in today’s release that our board has authorized an additional 10 million shares for repurchase given that only 1.7 million shares remained in the previous authorization at the end of 2009. Finally, to get in front of a few likely questions, our capital spend will approximately $110 million in 2010 with about half of that total devoted to new store expansion. We have $200 million of debt repayments scheduled for October of 2010 that will be repaid from existing cash and amortization and depreciation will approximate $175 million for the year.

So in summary, we ended 2009 on a strong note with better revenue and earnings comparison. But, of particular importance to us was the gross margin expansion that we reported in the fourth quarter especially when considering the economic climate, we look at our expanding gross margins as a sign of strength for our brands and our business model. We’ll be making investments in 2010 to further build our brands equities and provide a platform for industry leading product innovation while still providing solid returns for our shareholders.

Now, for some final words from Karl Heinz Salzburger on our international business.

Karl Heinz Salzburger

Let me begin by reiterating some highlights for the quarter and for the year specific to our international business outside of North and South America. Asia is our primary growth market and we are very encouraged by our results there. Revenues grew by 40% in the fourth quarter with operating income more than doubling. This growth was broad based with very strong increases across our Lee, North Face, Vans and 7 For All Mankind brands. For the year, we noted in our press release that revenues rose by 28%.

Our outdoor and action sports and our contemporary and sportswear businesses achieved growth in revenues on a constant currency basis in the fourth quarter. The strongest growth was in our 7 For All Mankind, [inaudible], Vans and the North Face brands. As you are all well aware our European jeans business continues to be quite challenging reflecting market conditions that are affecting not only our brands but also those of our competitors. Our fourth quarter revenues continued the trend of the last several quarters with revenues below those of last year.

I’ll talk about 2010 which is off to a strong start and we are looking forward to making good progress on many fronts. We’re working on five key initiatives in ’10. The first is outdoor and action sports growth. We are planning a year of solid growth from both the North Face and Vans brands and both our wholesale and retail businesses as well as in Asia. The second key theme is direct-to-consumer. About half of the growth we are targeting in ’10 will come from our direct-to-consumer businesses including new store openings, including partnership stores and eCommerce.

We continue to invest in building our retail infrastructure and systems which will contribute to improvements in profitability. Asia of course is a substantial opportunity for us and marks our third biggest initiative. ’10 should be another very good year for us there. We are planning 20% plus growth and a 40% increase in doors for a total of 1,400 by yearend supported by substantial increase in marketing investment.

Given its premium, authentic and technical positioning, the North Face brand has a unique opportunity to build and lead the outdoor category in China. During ’10 we’ll continue to build the brand’s visibility by focusing on core outdoor exhibits and events such as the 100 Kilometer Beijing Race cited by Eric earlier. We continue to open additional partnership stores while at the same time improving the productivity of existing stores with better assortment planning and customized products.

Our Lee brand has been a primary growth driver of our jeans business in China and in ’10 we will leverage our success with a significant increase in advertising and additional store openings. China is still a relatively new market for Vans but we have seen tremendous growth since launching the brand in December of ’08. In ’10 we will double the footprint of the brand to more than 200 doors, still a small number in a big market where the brand has a lot of room to grow.

Our 7 For All Mankind brand has also gotten off to a fast start in Asia. We have 15 new freestanding partnership stores planned in ’10 and we’ve also been investing to support out distributors in both China and Korea to build market leadership in the premium jeans category. Our fourth initiative is addressing the challenges of our European jeanswear businesses. As you know conditions deteriorated sharply in key markets earlier last year but have stabilized since and we expect better performance in ’10.

We have adjusted our product mix and price points to address specific market segments with a limited premium product offering for a halo effect. This should provide a significant boost in gross margins in ’10. And, as you know, we closed our European mass jeans business in ’09 which had not been profitable.

Lastly, we will continue to invest in people and infrastructure to drive the growth of our businesses in the future and ensure we have the best talent and leadership in place for our great brands.

Eric C. Wiseman

That concludes our comments and we will now open the line to any questions you have.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Jim Duffy – Thomas Weisel Partners.

Jim Duffy – Thomas Weisel Partners

I’m going to ask you if you would just speak in a little more detail about the jeanswear outlook as you look to the expectations of flat revenue in 2010 what does that presume for the European business? Is the European business in jeanswear, has it stabilized, do you see it getting worse? What kind of outlook do you have there ex the departure of the European mass business?

Eric C. Wiseman

Jim, is your question exclusively about the European jeanswear business or also about our US business?

Jim Duffy – Thomas Weisel Partners

About the global jeanswear business, kind of the different components that get you to a flat revenue expectation.

Eric C. Wiseman

Well let me touch on the domestic jeanswear business and then I’ll pass it off to Karl Heinz. Obviously, our biggest business in the US is our mass jeans business where we have momentum in our core male business. We are clearly the leader in men’s and boy’s jeans in the United States in the mass channel and we continue to win in that channel of distribution. Now, there’s a difference, as you know Jim, between what we ship in and what we sell through but our sell throughs are strong and our core Wrangler and Wrangler Jeans Company brands are doing very well, particularly behind new product innovations.

In men’s we have a comfort solutions program and in the misses business we have a slender stretch program and all of those are working at retail. Next, on to Lee, Lee really has momentum in the US market in the mid tier channel. They have had a really strong year. You’ll note, I’m not sure if it’s visible but our Lee business in 2009 was down slightly less than 1% in our shipments but at retail we absolutely gained share in the channel. It was also about product innovation behind mostly our slender secret program which has been our most successful denim launch ever in the Lee brand.

It was feature on Oprah and that program is an innovation that is relevant to their consumer and it’s working for them. The weakest part of the US business understandably is our specialty business. It’s a western specialty business, it lives in the cowboy part of the west and along the border. Those are as you know heavy duty tough jeans and they’re used a lot in the construction trade along the border and that’s a tough place for us right now. With that, I’ll turn it over to Karl Heinz to comment on Asia and Europe.

Karl Heinz Salzburger

Starting with Europe, Asia is actually doing well so we’ll focus on Europe. The European jeans business over the past several years has been fueled by premium priced products which has been disproportionately affected by this global recession in the last year. What we also have, we benefitted over the last several years by a strong and very profitable growth in Eastern Europe where we have in most Eastern European companies we have subsidiaries and owned businesses.

This market, as we know especially in Q1 last year were down sharply in ’09. We had certain markets like Russia which literally collapsed and we have currency issues for instance in markets like Poland where we have a meaningful presence. That is one factor. Now, going forward what we expect in terms of revenues in ’10, we still expect to be down partly due to our mass exit in ’09. Excluding that impact we expect to be down mid single digit. However, what we see is a slight uptick in orders which is positive even if we remain very cautious on replenishment.

Eric C. Wiseman

Jim, one thing I’ll add to the US picture because at some point in this call it should come out and we’ve talked about all last year. We lost this one program in the mass channel, our Riders program and it was a big program and we lost it. We are actually gaining that back inch by inch but it’s going to be a big headwind for us particularly in the first quarter where that program was still active and at retail last year. Once we get through the first quarter the second quarter will be kind of a slighter impact and then in the back half of the year there’s no impact at all. But, we still have one more quarter of a big impact from the loss of that business and you’ll see that reflected in our first quarter domestic jeanswear numbers.

Jim Duffy – Thomas Weisel Partners

I have a follow up with regards to the US business. There was an element of destocking that occurred particularly in the first half of last year. Does your guidance presume any restocking or easy comparisons with regard to that? The destocking that occurred last year?

Eric C. Wiseman

I think in general across all of our domestic businesses, retailers are planning to further improve their inventory turns in 2010 and I think that’s smart. Which implies that they’ll be buying slightly less than they’re selling again. Now, I think the gap is going to be more narrow but we have not built any restocking in to our business. We learned, and we think our customers learned that they can service their consumers without carrying as much inventory as we once thought was necessary.

We’re not restocking though our inventories were down almost $200 million last year. We serviced at record high levels, we serviced our retail partners. We think that the retail partners that we sell to are going to do the same. We have no restocking built in to our forecast.

Jim Duffy – Thomas Weisel Partners

Then a follow up for Karl Heinz, looking at your guidance for the international business as a whole to be consistent with corporate growth and yet 20% growth in Asia that implies declines in Europe. Are you seeing declines in Europe in other brands besides the jeanswear or is that exclusive to the jeanswear business?

Karl Heinz Salzburger

I would say it’s exclusive to the jeanswear business. Remember, we closed our mass business last year and clearly that has a meaningful impact. We see our outdoor and sportswear businesses growing in ’10.

Robert K. Shearer

Jim, let me just make sure it’s clear that in the numbers, as we indicated that comparable growth overall for V.F., that includes the exit of the mass channel, of the mass jeans business.

Operator

Your next question comes from Jeffery Klinefelter – Piper Jaffray.

Jeffery Klinefelter – Piper Jaffray

Just a couple of questions, one we have a focus on Asia, clearly a growth focus of yours for 2010, I wonder if you could share a little bit more detail on for example the op margin trends in that region compared to say Europe and the US giving your shop in shop model which I know is different than both other markets. Give us a sense of sort of the profitability or how you think of the economic model as you’re ramping these new shop in shop doors? Then also China being the primary focus, I believe most of your direct businesses in China and India, can you share a little color on China versus India and then also anything else about the balance of the Asian markets, your licensed markets, how they’re performing?

Eric C. Wiseman

Karl Heinz, maybe I can start, I’ll start off on the profitability. Our profitability particularly in China is actually at the highest level in the company. It’s essentially a retail model and what makes it so good for us is it’s a retail model without all of the expense associated with retail ownership. So what that does is it provides us with a very strong operating margin and again, it’s at the highest level across all of V.F.. Karl Heinz, you may want to comment on the other stuff?

Karl Heinz Salzburger

There were a couple of questions so we’ll see whether I remember them all. The model, China as Bob said is a retail model. We had in ’09 about 1,000 doors which we’re going to expand to 1,400. Now, the majority, 90% of those stores are operated by partners. We call them franchisees. It’s a good model, they buy the inventory and run the store basically and we sell to them based on a discount to retail so it’s a great model. China, the difference between China and India, China we started very early, in the mid 90s we owned [inaudible] subsidiary. India came a little bit later.

I would say these two markets are in different stages of evolution. China is a little bit ahead in terms of consumer consumptions. We have a large platform, we have many brands there, we’re doing well. In India we focus on the two jeans brands Lee and Wrangler. The model is relatively similar, it’s a retail franchise based model but I would say we’re at an earlier stage in terms of growth and even size of that market. For the rest in Asia, we have owned subsidiary in our sportswear business in Japan which is primarily 7 For All Mankind and [inaudible] and in the rest of Asia we work with distributors primarily.

Eric C. Wiseman

I don’t think you were following V.F. Corporation back 15 years ago. 15 years ago we launched our owned subsidiary in China and we’re benefitting now from being at this for 15 years and having built the infrastructure and team. We learned a lot of lessons along the way but those who have followed us for a long time, we lost money for the first seven years and we’re now benefitting from all those investments that were made in the late 90s and first part of 2000s.

Jeffery Klinefelter – Piper Jaffray

In terms of the balance of Asia, as a percent of total revenue right now it is relatively small to your entire enterprise but that is because a lot of the markets are licensed. Are there other opportunities to take back in house directly distributors and licensees and if you trued all of that up to wholesale, just how big on a wholesale equivalent basis in the Asian market right now for you?

Eric C. Wiseman

We agree with your observation that it is not the size it has a potential to be at V.F. and we’re very focused on making investments and our team there has made huge progress in the last two or three years. We really are gathering growth momentum now off of big numbers and as Bob said, it’s very profitable for us to do that. I’m not going to comment specifically on other arrangements we have with partners.

We do have some other partners, licensees and distributors in all of our brands scattered around the region in different kinds of models and we try to do what is best for our shareholders. So if it is best for our shareholders to have a partner running the business, that’s what we’ll do. If it’s best for our shareholders to have us running the business than that’s what we’ll get to ultimately.

Jeffery Klinefelter – Piper Jaffray

Eric, just one other question, any updates on the licensing business that you launched last year? Any thoughts there on new initiatives?

Eric C. Wiseman

No, nothing to announce there Jeff. That’s something that we continue to work on. My sincere hope is that by the end of this year we’ll have accomplished what we set out to do which is to establish a proprietary brand business with one of our retail partners. But, no progress to report yet.

Operator

Your next question comes from Robert S. Drbul – Barclays Capital.

Robert S. Drbul – Barclays Capital

I have a couple of questions, the first one, on the goodwill impairment charge, does this temper your appetite for acquisitions in the future when you look at some of those write downs?

Eric C. Wiseman

Really not at all Bob, it doesn’t temper our appetite for the brands that were impaired and it doesn’t temper our appetite for future acquisitions. You know how the impairment calculations that work, it’s an exercise that we go through every year and really the size of this impairment at $120 million against our balance sheet balance on goodwill and intangibles of over $3 billion is a very small impairment charge against what our balance sheet has for goodwill and intangibles.

Robert S. Drbul – Barclays Capital

I guess following on that one Eric, when you look at the three that were included, I guess 7 For All Mankind from when you acquired it and the trends in that business versus the trends at the high end, I guess I’m a little surprised that there wasn’t anything included on 7 in this review. Can you talk to that maybe?

Eric C. Wiseman

Well, it’s a mathematical calculation on what the value of the business is given our current plans for the business and I’m way in over my head from an accounting standpoint but what that says to me is that the plans that we have in that business, even though we’re at a different starting point because of the recession, the plans still support the value that we paid for it.

Robert K. Shearer

That’s right. Bob, it’s reflective of the expectations that we have for the business on a global basis. It’s really fairly straightforward.

Robert S. Drbul – Barclays Capital

I’m not sure if I missed it but did you guys give your comp store sales performance in your stores? And maybe any color on some of the different brands?

Eric C. Wiseman

I’ll give you some general – I mean, when we look at the fourth quarter, I think we’ve talked about it on and off during the year, what I know is that during the fourth quarter our comps globally were flat. Obviously there’s mixed numbers in there with all the retail formats that we have around the world. As you’d expect our retail formats in businesses like the North Face and Vans and 7 For All Mankind posted stronger comps, lucy, Nautica, a few others posted weaker comps. The add up for all of that for the fourth quarter was flat.

Robert S. Drbul – Barclays Capital

Then just one final question, it’s a first quarter question on imagewear. So with the Saints winning the Super Bowl versus the Steelers last year how does that impact the imagewear results for the first quarter?

Eric C. Wiseman

There’s no team that we prefer to the Steelers and I think you will appreciate that comment Bob. That’s as good as it gets for us. While the Saints have been good for us this year, not as good as your Pittsburgh Steelers.

Operator

Your next question comes from Kate McShane – Citigroup.

Kate McShane – Citigroup

I just have a quick question on the $50 million investment. Can you talk a little bit about how much more is that in terms of marketing dollars? How much more is it than 2009 or has there been some shift in marketing dollars from maybe the smaller lower return brands to these higher return brands?

Robert K. Shearer

In terms of the marketing side, just to take a step back, the $50 million is broken out by about $40 million of the $50 being on the marketing side, the advertising side and the other $10 are in the areas that Eric mentioned, specifically the product development area and also sustainability. A couple of details on the advertising piece, the investments as we’ve been saying are clearly against our fastest growing brands so the biggest portion of that $40 million will go to the North Face brand and then Vans, and 7 For All Mankind and some Nautica as well. It is, it’s all incremental to the 2009 spend so the $40 million, that’s really the definition of the additional marketing that’s incremental to the 2009 level.

Kate McShane – Citigroup

Then with gross margins for Q4 I know there are a lot of moving parts with gross margins so I wondered if you could give a little more detail in terms of how much was a benefit from having more retail, how much was a benefit from outdoor and action sports growing more rapidly? How much was an impact from it being a better environment with lower inventories? And, how much was a benefit from deflation and how can we think about that for 2010?

Robert K. Shearer

A little hard to break out all of those pieces but what I can tell you is this, the retail itself drove nearly half of the overall gross margin improvement so of the 400 basis point, nearly 400 basis point retail was about half of that. It’s the point that we made during the comments that retail continues to be such a strong driver for us in terms of gross margins. I might also add in terms of our operating margin as well. Retail was a contributor to operating margin improvement in 2009.

In terms of the rest of the pieces, you’ve pretty much touched on all of them. The continual expansion in our higher margin, gross margin businesses, for example outdoor and action sports and also in Asia where the bulk of the remainder, the other half in terms of the growth. But, I will also tell you that you’re right on in terms of product cost, lower product costs and also just running the business more efficiently than in the fourth quarter of 2008. In other words, with the lower inventory levels and the efficiencies that that brings, those were factors as well. The biggest piece retail and then everything else was kind of an equal contributor in terms of the better mix and also efficiencies.

Operator

Your next question comes from Omar Saad – Credit Suisse.

Omar Saad – Credit Suisse

I wanted to follow up on Bob’s question a little bit on the three brands you took the charge on, not so much on the accounting side but Eric could you discuss some of the strategies on those three brands, kind of where they stand, how you view the opportunity there, where the opportunities are or what can be done to drive the performance?

Eric C. Wiseman

First, we still believe that each brand has good long term potential and I’ll just comment briefly on each I guess. Nautica, I’ll start there, Nautica is in a much better place sitting here in January 2010 than it was in January 2009. We got the business back to double digit profitability and that was our number one objective. We’ve also improved price value equation of our products there, that was a big issue for us coming in to 2009. We solved that during the year and it showed up in our holiday sales. We were on plan and had the best comps that we had from the middle of December through the end of January the brand performed very well at its largest customer.

The challenge we had last year, the area we need to address is our outlook business. We didn’t achieve our potential in our outlook business and we are changing our model. Bob mentioned there’s some marketing investment going in to Nautica and some of that is going to go in to our stores. We have new leadership there. We think we’re in a pretty good spot right now and it will show up in an improvement in operating margins again in 2010.

On to lucy, we reassigned lucy in to our outdoor coalition in the fall Omar and we did that for a couple of reasons. When we looked at what would help the business most we thought having it aligned with a strong technical performance product engine and a mature retailing group which we have in outdoor, what would be the best way for it to leverage V.F. capabilities. So we moved it in to the outdoor coalition and it is working with our outdoor teams on how to take what they know about activity based product development and what they know about retail so they can benefit from that.

We still think that women’s active wear, particularly yoga inspired active wear is a viable proposition and we’re committed to its future. Reef is the easiest one actually to talk about. The Reef team has momentum right now. They had a really difficult 2008 there, we went through a substantial restructuring of the organization including at the leadership level but that whole team is putting together an agenda that is really starting to pay off.

There’s a long lead time on it, it’s obviously a spring/summer oriented business but our spring summer number are coming in as planned and there’s momentum going in to 2011 in the product and brand area that we’re quite frankly excited by. We think all of those businesses had some challenges that resulted in the impairments but we think we’ve addressed them and are confident in their future.

Omar Saad – Credit Suisse

One more question, when you kind of look at the trends in your own retail business and the wholesale business and you can see the monthly comps coming out of department stores and a lot of the other retailers in the US, what’s your sense on retailers attitude towards inventory, towards replenishment? Are they still using them to lever? Have they kind of reached the end of the rope so to speak in using inventory to lever?

Eric C. Wiseman

Well, in 2009 there was a pretty big separation between what was sold and what was purchased. I mean sold by our retail partners and purchased from us by our retail partners. But, what we all learned during that is that we can operate these businesses more efficiently. The retailers that we’re working with, they’re all planning on getting improved turns, another vocabulary for that is better inventory productivity in 2010. I think the gap is going to be smaller than the big gap we had in 2009.

I think we’re all learning that speed to market is our buddy. Designing later, executing quicker and being on trend are important to us. Everybody is working on speed and being more responsive in our inventory management and that will continue we think. We do not see a restocking taking place. I don’t think that’s a smart way for anyone to proceed actually.

Operator

Your next question comes from Benjamin H. Rowbotham – Goldman Sachs.

Benjamin H. Rowbotham – Goldman Sachs

I just wanted to revisit an earlier question around the gross margin guidance of up 100 basis points for 2010. Is there any way we can decompose that between the mix shift to DTC versus just absolute year-over-year strength? Then also, how should we think about the weighting of that on a quarterly basis throughout the year?

Robert K. Shearer

Once again, in 2010 we pointed to more than 100 basis point improvement in our gross margins and as we responded to 2009 about half of that will in fact come from our higher gross margins in our direct-to-consumer businesses. So once again, a driving factor to be sure. The other improvements, especially early in the year we’ll see those lower product costs helping us. What happened in 2009 was we went in to the year, product costs were up a little bit. In the latter part of 2009 product costs came down a little bit.

As we enter early 2010 product costs are still at the lower levels, a little lower. In other words at the levels in terms of where they were in the latter part of 2009. But, we are seeing some costs pressures in the second half of 2010. We think that will all net out to a slightly improved product cost picture for us over the year and then the remainder is driven by the mix factors that we’ve talked about. The stronger growth in outdoor and action sports in particular with its higher gross margins.

You also asked a question about how that lays out on the full year basis. It will be a little bit stronger in the first quarter and one of the reasons for that, in other words the improvement in the first quarter will be a little stronger than what we’ll see for the rest of the year which will be fairly evenly spread as we look at the remainder of the year but the first quarter should stand out a little bit in terms of improvement.

One of the factors behind that is last year we talked about the impact of currency particularly on the transaction side. We said that impacted our first quarter last year. We’re not making up all of that necessarily. You make that up in terms of pricing, we won’t necessarily make up all of that but some of that and some of that will come through in the first quarter. We expect the first quarter margin improvement to be a little stronger than we see for the rest of the year but the rest of the year pretty evenly spread in terms of the percentage improvement.

Operator

Your next question comes from David J. Glick – Buckingham Research Group.

David J. Glick – Buckingham Research Group

Eric, we’ve heard from some other apparel manufacturers about how they see the revenue trends playing out through 2010 being more back half weighted as retailers are a little more aggressive in placing orders second half versus first half. Given your commentary about the Q1 jeans business headwind, should we think about the year unfolding as a gradual improvement maybe starting out on the top line down low singles and improving by the end of the year to the up low single to up mid single range? Is that a good way to think about the flow for the year?

Eric C. Wiseman

Yes David, that is a good way to think about the flow for the year. We have a few unusual things like the mass business in Europe kind of faded away from us last year and the issue with the mass channel in the US. Given the strength in fall we’re hoping that we get pretty strong bookings for this fall. We don’t know all of that yet but we do see it improving over the course of the year.

David J. Glick – Buckingham Research Group

Then a follow up on North Face in the US, are you seeing organic growth with some of your key customers in the US? Obviously, that is a mature business, the weather certainly helped the sell through on outerwear this fourth quarter. Are retailers being a little more conservative in the US next year or are you seeing organic growth?

Eric C. Wiseman

We are absolutely seeing organic growth, that’s the first comment. Spring bookings were a little more conservative. Now, you have to put yourself back in time to when spring bookings were taking place last summer and at that time everybody was kind of anxious but we did have positive spring bookings but they weren’t strong positive. Now, fast forward to our sell throughs this fall. We had an unbelievably strong sell through this fall not just because of the cold weather but because we had the right products.

We’re confident that that sell through that we had this fall is going to translate in to strong bookings next fall. We are in the middle of writing those orders right now but the early indications are that we are going to see some strong bookings for fall 2010.

David J. Glick – Buckingham Research Group

Are you also seeing some – I know Nautica you would have probably had your market by now, are you seeing a good reaction to your revamped price points and new approach to the line?

Eric C. Wiseman

Yes we are. As I mentioned earlier, Nautica had a good December and January at its largest customer and that’s resulting in an improved outlook for it in fall. How that all plays out, it’s too early to know but it’s a better discussion now than it would have been 12 weeks ago.

Operator

Your next question comes from Michael Binetti – UBS.

Michael Binetti – UBS

Maybe you could just help me, I’m looking at the guidance for the contemporary coalition and I apologize if you talked about this, I jumped on a little late. For the year the contemporary coalition if I was to try and break that down between what you expect from new capacity growth or store growth versus I guess life or life growth in the category could you give any kind of color on that?

Eric C. Wiseman

We didn’t but I’ll give you some general color on it. When you think about the US contemporary business about slightly more than half of the growth will come from new stores and the benefit of stores that were opened in 2009 but didn’t have a full year in 2009. There will be some comp store growth in our stores.

Michael Binetti – UBS

Then we’ve heard also from some other retailers and I know you always caution us not to try and correlation cotton costs with denim costs, they don’t necessarily correlate with the timing at least but it looks like the cotton futures are rising for the end of the year and if I think about the jeans business, do you think when you think about your retailers for the Wrangler and Lee jeans there could be an opportunity to take price if those high cotton persists, that might push up your product costs? Just in the jeans business alone?

Robert K. Shearer

To your point, we are seeing some cost pressures and that’s one of the things I was mentioning earlier, we are seeing some cost pressures and it is mostly on fabric by the way so that is right on. Related to the pricing side, it’s a little early to tell. We really have to just wait and see just what happens on the cost side.

Michael Binetti – UBS

If I could just ask one last quick follow up, on the Nautica brand is there any way you could help us think about how maybe the distribution of that brand may play out in 2010 as far as the mix of the distribution through the different retailers versus through your own channels? Is there any kind of a big shift that we should be aware of for 2010 versus 2009?

Eric C. Wiseman

No, not a big shift, it’s a department store focused brand. That’s what it is and will continue to be. In addition to that, we have a strong license business and our own outlet store business. The area that we have complete control over is our outlet store business and they really underperformed for us financially. Comps weren’t what they should have been but really the profitability wasn’t what it should have been but I think our new team there is organized around the right game plan and we’re confident they’re going to make progress and it shows up in the profitability and we’re returning some of that to them in an increased brand investment funding.

Operator

Your next question comes from Mitch Kummetz – Robert W. Baird.

Mitch Kummetz – Robert W. Baird

A couple of questions, first on your owner retail business, I think you ended the year at 757 stores. Can you say how many of those are Vans and North Face stores? Then of the 80 to 90 stores you expect to open in 2010, how many of those you expect to be Vans and North Face?

Eric C. Wiseman

I don’t have the specific numbers on the 700 and whatever stores you just told me we had, 759 or something like that. Vans is our largest global full priced retail format for sure. It was when we acquired it, it still is and it is very successful. I just don’t’ have the break out of that but Vans is over 200 stores of that total and that’s on a global basis. The 2010 outlook, the best way I think to deal with that is we’re looking at 80 to 90 stores, two thirds of those is going to be – this is a global number between the North Face, Vans and 7 For All Mankind.

We’re very focused this year in our marketing spending and we’re very focused supporting the strongest brand opportunities. So really 7 For All Mankind, North Face and Vans will be where we’re focused in new stores. A lot of them internationally. I know that the North Face number is I think two thirds of the stores we’re opening this year are outside of the US where the brand is less well developed and where we have great opportunities for growth.

Mitch Kummetz – Robert W. Baird

Then on the $50 million incremental investment for 2010 I think Bob you said $40 million of that is marketing. Is that going to be concentrated at any point over the year or should we think of that as sort of hitting pretty consistently across the year?

Robert K. Shearer

It will hit pretty consistently across the year and if you look at the revenue breakout it will be spread pretty consistently with revenues.

Mitch Kummetz – Robert W. Baird

Then on your margin outlook by coalition for 2010, I think you mentioned that even with sales sort of flattish for sportswear, imagewear and jeanswear I think you said you expect some margin improvement there. How should I think of that in terms of the overall 50 to 60 basis point improvement you expect for the year? I’m assuming that outdoor and action sports and contemporary will see more improvement in the operating margins than the other three coalitions. Is that a fair assessment? And, can you maybe give us some guidelines there of how we should be modeling the overall operating margin improvement by coalition?

Eric C. Wiseman

Just a couple of points there Mitch, actually if you take outdoor and action sports as an example, yes we’ve been seeing a really nice margin improvement, we certainly saw that in the fourth quarter as well but that’s also where most of the additional spending will be. Otherwise, yes you’re absolutely right but with the additional spend while we expect to see margin improvement it won’t be quite as strong as it might have been without the additional spend.

So actually the margin improvement is more equally distributed across our coalitions as a result of that. Also Mitch there were some factors like the European jeans business was a tough year and we talked about some of the challenges that we had in that business and how it impacted profitability earlier in the year. Well again, we expect improvement obviously in the profitability of our European jeans business so there are some factors like that about what took place in 2009 versus what shouldn’t happen again in 2010 that will help those comparisons.

Operator

Your next question comes from Christopher Svezia – Susquehanna Investment Group.

Christopher Svezia – Susquehanna Investment Group

I guess I just wanted to follow up on the international piece of the business for a moment. When you think about your outlook and the international component growing roughly in line with 2% to 3% with the company overall and I know you talked a lot about Asia Pacific and what’s going on in China and obviously lapping the difficult comparisons in Europe with the mass business. I’m just wondering if you can talk about the other segments maybe either by coalition maybe in terms of what’s going on internationally in Europe to still get to that 2% to 3% growth?

Robert K. Shearer

Karl Heinz, maybe you want to comment on that but Chris I would first just remind you of the exit of the European jeans business. That is impacting that comparison in a fairly significant way. So as we said yes, we expect the international revenues to grow consistently with overall V.F. averages but the exit of that mass jeans business which was about $45 million worth of revenues, is a fairly significant impact on the comparison. That’s why in my comments I made the point that without that or if you try to put the numbers on a more of an apples-to-apples comparison the results will be considerably different and the revenue growth rate will be considerably higher.

Karl Heinz Salzburger

Chris, we have three legs in Europe basically, one is the jeans which Bob just commented, the other two one is outdoor and action sports where we grew the North Face and Vans as the two big brands and the third one is sportswear and CBC. We just combined them because of size. We talked about jeans and as sportswear and CBC we do see growth and also in outdoor and in action sports on the North Face and on Vans.

We had good bookings for spring ’10 and we are in the midst of selling fall ’10 on the North Face and Vans and the trend is positive. We’re pretty confident it will be a good year. Clearly we have, as Eric mentioned before, strong winter which is helping us but not only that, we have great collections and a great business platform. The we see on the sportswear side which the two large brands are 7 For All Mankind, Bob gave some numbers before. The other brands which we did not touch is [inaudible] where we also see good solid growth coming in. Again, we are selling as we think fall but the trends are good.

Christopher Svezia – Susquehanna Investment Group

Then I guess a question just Eric, as you look at the jeanswear business domestically and what Wal-Mart has been or striving to do and I know you talked about your Rider program and what happened last year and obviously starting to chip away again in terms of starting to build that business again but their decision to do some more of their business direct, the agreement they struck with Li & Fung, I’m just curious your conversations with Wal-Mart and your business with the private brand of Wrangler in terms of what’s going on and how you think that’s going to lay out this year?

Eric C. Wiseman

I think it’s going to lay out well with us. Wal-Mart is an important customer and a good customer and we have a great relationship with them up and down their management ranks. I will tell you they understand what they are doing, they’re trying to build some of their own businesses, they understand the importance of having strong national brands in their store. If you are a strong national brand and if you’re relevant in the category, they give you full support.

In fact, in the last two years while a lot has been written about Wal-Mart’s efforts building their own brands, our Wrangler displays in their stores are the best they have ever been in our history and Wal-Mart has invested substantially in communicating to the consumers that they are a destination for the Wrangler brand. I think what they’re doing is they are focused on two things. One is obviously building up their private brands business and doing that efficiently and second, making sure that their strongest national brands are called out. We’re fortunate that we have really strong brands in there and we’re going to win with that.

Christopher Svezia – Susquehanna Investment Group

Eric, is it fair to say that you would probably expect your business with Wal-Mart to grow this year based on that assumption?

Eric C. Wiseman

Absent the program that we’re missing, we’ve talked about that on this call, which was a big program, we lost a big fixture and we’re now trying to get some of that back and making some progress there, absent that our core men’s jeans business yes, we’re expecting growth.

Operator

Your next question comes from Paula Torch – Needham & Company.

Paula Torch – Needham & Company

I wondered if you could update us a little bit more on Splendid and Ella Moss? I was just wondering how you felt about the positioning of these brands versus the competition and if you could also share with us your learning since acquiring the brands and where you may be focusing most of your growth in 2010 in terms of distribution and have those plans changed significantly due to the environment?

Eric C. Wiseman

No. I mean the strategy for the Splendid and Ella Moss brands haven’t changed. Obviously they compete in the contemporary space and at the high end of the contemporary space and that whole channel in the specialty store industry that supported that channel has had a really difficult two years. Everybody in the space at the department store part of the business has had tough comps, we all know that. We also all know that the number of contemporary specialty stores has decreased significantly over the last two years, stores have just gone out of business.

Having said all of that, they have a really good speed to market model. They have great product development skills and they do that very quickly so they’re on trend on a consistent basis and they’re the leader in what they do. They are very focused. In addition to all that, we’ve opened our first Splendid store on Robertson Boulevard. It opened in November and it has been off to the races since we opened. It is exceeding our expectations and we’re going to open a couple more of those this year.

We absolutely believe in the brand, we think it’s the perfect complement to our brands. We think it’s the perfect complement for our 7 For All Mankind business and we’re going to invest in their future.

Operator

Your next question comes from Maggie Gilliam – Gilliam & Company.

Maggie Gilliam – Gilliam & Company

I think most of my questions have been answered but I did want to follow through on one thing. On the subject of Nautica and the impairment charges, with all the good things you’ve got going I can’t believe they insisted that you actually have to take an impairment charge at this point. Second of all, was it a complete impairment charge on all the goodwill or is there still some left?

Robert K. Shearer

Maggie, related to the charge it represented only about 10% to 12% of the total goodwill and intangibles on Nautica, is how the computation works. Again it was a relatively small percentage overall.

Maggie Gilliam – Gilliam & Company

Finally, I was just wondering how the brand is fairing in the My Macys environment?

Eric C. Wiseman

Well, Macys has gone through a lot of change, more than I’ve seen any large corporation go through, as much as I’ve seen any large corporation go through and they’ve done that during a very difficult time and hats off to the management team at Macys for getting through that. They’ve focused on collaborating with a few big partners and V.F. Corporation is one of those partners and in that all of our brands are participating in that. We had very strategic discussions about the roles of our brands in their stores and I think that’s going to be good for Macys and good for V.F. over time.

Operator

Your last question comes from Kenneth M. Stumphauzer – Sterne Agee Capital Markets.

Kenneth M. Stumphauzer – Sterne Agee Capital Markets

Just a couple of quick ones, first as far as the $40 million of the incremental advertising, how much of that is a restoration of advertising expense that was maybe pulled back in 2009? Then secondarily, I was wondering if you guys could generally update us on the acquisition front, if there’s still a significant delta between seller’s expectations and what you guys are willing to pay?

Robert K. Shearer

I’m going to take a shot at both of those questions. Kenneth, at a macro level, meaning a total V.F. level, we’ve kind of restored advertising to where it was in 2008. 2008 was a record year for us for advertising expense so we’re getting back in that kind of direction. That’s filling the total V.F. advertising bucket to its former highest levels. That’s kind of the neighborhood that we’re in. What’s different is that this is very focused on the brands that Bob talked about earlier on the North Face, Vans and in through some Nautica and China.

But, if you look at the North Face, Vans China they are record levels and we were less democratic with our advertising budget this year. We focused it on our biggest invest opportunities and our funding those brands at all time record levels. So it depends on how you look at it, at the brand level or at the total level. On acquisitions, we are very active. There’s not a lot of deals getting done, that’s probably a pricing situation and valuation situation but we’re still active in the same kind of places.

We’re looking real hard in the outdoor and action sports industries and that’s we think our sweet spot. We’re working hard at it we’re just not making any progress. Hopefully by the end of the year we’ll have a different story to report.

Operator

That concludes today’s question and answer session. For any additional or closing remarks I’ll turn the call back over to Mr. Eric Wiseman.

Eric C. Wiseman

I think we’ve probably said enough today. I will thank you for your patience, and your time, and your interest. We’ll see you at the end of the first quarter.

Operator

Ladies and gentlemen thank you again for your participation in today’s conference call. This does conclude the event.

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