V.F. Q1 2010 Earnings Call Transcript

Apr.30.10 | About: V.F. Corporation (VFC)

V.F. (NYSE:VFC)

Q1 2010 Earnings Call

April 30, 2010 8:30 am ET

Executives

Robert Shearer - Chief Financial Officer and Senior Vice President

Company Speaker -

Karl Salzburger - Vice President and President of VF International

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

Analysts

Maggie Gilliam - Gilliam and Company

Paula Torch - Needham & Company, LLC

Kate McShane - Citigroup Inc

Jim Duffy - Thomas Weisel Partners Equity Research

Omar Saad - Crédit Suisse First Boston, Inc.

Robert Drbul - Lehman Brothers

Kenneth Stumphauzer - Sterne Agee & Leach Inc.

Michael Binetti - UBS Investment Bank

Jeffrey Klinefelter - Piper Jaffray Companies

Christopher Svezia - Susquehanna Financial Group, LLLP

David Glick - Buckingham Research

Eric Tracy - FBR Capital Markets & Co.

Operator

Good day, everyone, and welcome to the VF Corporation First Quarter 2010 Earnings Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Melissa Mckay of ICR. Please go ahead, ma'am.

Company Speaker

Thank you. Good morning. Thanks for participating in VF Corporation's First Quarter 2010 Conference Call. By now you should have received today's earning 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 today, this morning, is Mr. Eric Wiseman, Chairman and CEO of VF.

Before we begin, I 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.

I would like to turn the call over to Eric Wiseman.

Eric Wiseman

Thanks, Melissa. Good morning, everyone and thanks for joining us today. Following my opening comments, Bob Shearer is going to review the quarter’s results in more detail. We also have with us today Karl Salzburger, President of our International Businesses, who's going to provide a recap of our results in Europe and in Asia.

This is a very good day for VF. It’s the day that we announced record first quarter earnings that surpassed both our industry's expectation and it’s a day that we increase our full year guidance for revenues, gross margins, brand investment and earnings per share. The hard work of last year to reduce cost and inventories, while investing appropriately to keep our brands strong all that within the context of a deep global recession is paying off. Certainly, we all expected the first quarter to benefit from comparisons to last year's results when earnings declined sharply. The 60% increase in earnings per share reported this morning is a solid reflection on the strength of our business model, our brands, our operations and of course our people, as evidenced by the fact that we achieved an all-time record high in first quarter earnings.

As all of us are aware, economic conditions are stabilizing with consumer spending showing signs of recovery in the first three months of the year. But given the volatility and uncertainty of the past year, it's important to keep in mind that we still have three quarters to go and the economic recovery remains fragile. We must expect that we're going to need to react quickly to changing conditions that could prevent any combination of those challenges and opportunities globally. So we'll continue to invest prudently and stay laser-focused on execution.

As our earnings power has strengthened, so has our ability to fund the continued global growth and expansion of our brands, which are some of the strongest and most powerful in the world. In February, we committed an additional $50 million in investment spending, focused on our biggest and most profitable growth opportunities. We specifically cited The North Face and Vans and China as key areas for investment. Those investments, which began in the first quarter, are beginning to pay off. Today, we raised our revenue growth expectations in total for VF and specifically for Outdoor and Action Sports businesses and our business in China. And given this momentum, we also announced today that we're increasing our brand investments by an additional $35 million.

These investments will be in very targeted areas to further strengthen the connection between our brands and consumers around the world. Investments designed to drive strong, profitable growth this year and beyond. All told, our marketing spending is expected to rise about 20% over last year's levels. In today's release, we noted some of the areas targeted for this spending. To summarize, in The North Face, we’re looking forward to launching the brand's first-ever television advertising in the U.S. and a driving market share gains in Europe.

Our rapidly growing Vans brand is also targeted for additional spending. For example, Europe still remains a big opportunity for Vans. And we're planning increased immediate campaigns in key cities across Europe, new in-store events and enhanced visual merchandising in Vans European stores. The brand’s a leader here in the U.S. in its use of digital and social media and we'll be enhancing these capabilities in the U.S. and in Europe as well.

We've talked a lot about our opportunities in China and the substantial growth we're seeing in this very important market. We remain on track to increase the number of doors in China by 40% this year. And we noted in our release that we're now targeting the increase in revenues of more than 25% across Asia, driven by China. To continue our momentum there, we'll be increasing the spending behind our key brands including; Lee, The North Face and Vans. We also noted in the release that we would continue to invest in building our strategic capabilities in such areas as innovation. So yes, there's a lot of activity and investment taking place this year. But these are the right investments behind the right opportunities at the right time for our shareholders. We are confident that the pay off will be evident in strong top and bottom line growth, both this year and beyond, and in greater connectivity between our brands and consumers around the world.

So let me summarize a few key takeaways. First, based on very strong results in the quarter, we're now increasing our target for top line growth by 100 basis points from 2% to 3% growth, to 3% to 4% growth. And that includes a 50 basis point expected negative impact from currency that was not anticipated in our initial guidance.

Second, we're also raising our gross margin target for the year and now expect gross margins to reach a record 46%. This is a statement about the strength of our business model. Third, based on our confidence in the growth potential of our brands, we're raising our brand investment spending by an additional $35 million. And last, we expect to fund this additional investment, and deliver a substantial increase in operating margins, and a 14% increase in earnings per share, to all-time record high levels. Now let's hear more about our financial performance in the quarter from Bob Shearer.

Robert Shearer

Thanks, Eric. I'll start at the top with revenues. We were obviously pleased with the quarter’s increase, which was slightly better than we had anticipated and we look forward to stronger comparisons beginning in the second quarter. I will point out that first quarter revenue comparisons were impacted by a total of $35 million in revenues related to Jeanswear programs that were discontinued last year. A good portion of those revenues provided minimal profit, accordingly the reduction contributed to the overall improvement in profitability in Jeanswear in this quarter.

We're especially proud of the gross margin achieved in the first quarter. Gross margins rose by 450 basis points to a record 46.7%. As in the fourth quarter of 2010, we achieved higher gross margins across all coalitions. We noted in the release that there were three factors contributing to the increase. The first was lower product costs, which we anticipated given that our product costs in 2009 were lower in the second half of last year than in the first. Those lower costs are carrying into the first half of this year.

The second factor was the continued expansion and improved gross margins in our retail stores. The first quarter is a seasonally low quarter for retail revenues, but it's worth noting that our retail gross margins increased by over 400 basis points in the quarter. And finally, gross margins benefited from very clean inventories across our businesses.

SG&A, as a percent of revenues, rose by 110 basis points. About half of the increase was due to the planned increase in marketing investments that we discussed in February. Marketing spending rose 12% in the quarter. Our SG&A ratio also continue to reflect the changing mix of our business. Operating margins rose to 12.8% from 9.4% in the prior year's quarter. Restructuring costs, which were primarily directed at reducing product costs, impacted operating margins by 60 basis points in the current quarter.

Now working our way down to P&L, the increase in the miscellaneous line results from a $5.7 million gain related to the purchase of the remaining equity interest of a joint venture, then marketed the Vans brand in Mexico. Now while this transaction will have little impact on 2010 results, having full control of our brand in this country will prove beneficial in future periods. And also of note, is a tax credit recognized in the quarter related to the settlement of an open-tax issue from a prior period. This credit was worth $0.11 per share, resulting in the lower tax rate recognized in the quarter. Our annual tax rate, excluding this credit, remains at our previous guidance of approximately 26%.

And in terms of the bottom line, EPS rose by a very strong 60% in the quarter, we spelled out in the release certain factors that impacted EPS, both positively and negatively in the quarter, and the benefits earnings from lower pension costs and foreign currency translation versus the 2009 quarter, were of course, as anticipated. And the tax credit of $0.11 per share was mostly offset by the $0.09 per share in restructuring. So the good news for earnings in the first quarter is that the substantial improvement was driven by solid increases in profitably, in the majority of our businesses, on better than anticipated revenues.

Now a few points about our coalition results. It's clear that the momentum in our Outdoor and Action Sports coalition continues to be very strong. With revenues of our two largest brands, The North Face and Vans, up 9% and 20%, respectively. Other highlights of this coalition are; first, the increase in annual revenue guidance to over 10%; and second, the fact that operating margins reached a record level of nearly 20% in the quarter, including a more than 20% increase in marketing investment.

Despite the success we experienced in many areas of our global Jeanswear businesses, revenues declined in the quarter primarily due to the discontinued programs that I mentioned earlier. The great news here is that we have mostly anniversaried these declines. And we expect revenues to grow beginning in the second quarter. Global Jeanswear margins were also very strong in the quarter, partly due to the European mass-market exit but also reflecting lower product costs, particularly for our U.S. businesses and very clean inventories.

Turning now to Sportswear. We're encouraged by the continued progress that we are making with our Nautica brand, recent trends, in both their Wholesale and Retail businesses, remained positive. Revenues over Contemporary Brand coalition rose 16%. And much of that increase came from last year's acquisition of the Splendid and Ella Moss brands. We are seeing a rebound in the Contemporary channel with consumers responding to our brands' new product offerings.

Double-digit growth in the 7 For All Mankind direct-to-consumer business was driven by both new store openings, as well as very strong comp store increases. We're looking forward to double digit revenue growth for our 7 For All Mankind brand, starting in the second quarter.

The Contemporary Brands' operating margins deserves some explanation. In the release, we indicated that the decline was due to two primary factors. First, last year's first quarter included a $3.9 million favorable resolution of a 2008 tax and duty matter. In addition, while investments in new 7 For All Mankind retail stores reduced margins in this seasonally low period for revenues, these new stores are expected to contribute to significantly stronger margins throughout the remainder of the year. In fact, we expect total coalition margins rising to mid-teen levels in the second half of the year.

And that brings us to Imagewear. The revenue declines in our Imagewear coalition have eased, as economic conditions have gradually improved. We expect to return to growth for this coalition beginning in the second quarter. Our Imagewear business remains well-positioned to benefit in a significant way from improvements and revenue comparisons, considering the efficient cost structure that is in place.

Well that wraps up my comments in our coalition results and again, we're really pleased with the great performance achieved by our leaders and associates across all our businesses.

Our press release highlighted the key points related to our international and direct-to-consumer businesses, so I won't repeat them here. But I will point out that our International businesses should show better comparisons throughout the remainder of the year from, first, the continuous stabilization in our European Jeans business; second, the strong momentum in our Outdoor & Action Sports businesses; and then finally, the continued expansion of our Asian Jeans business. And with regard to the 23% increase in our direct-to-consumer business, that strong increase in revenue was driven by both, new store openings and strong comp store performance.

So let's move on to our balance sheet, which is as strong as it has ever been. Cash and equivalents were up more than $400 million from this time last year. And inventories were down 15%. We continue to expect, that for the full year, inventories will grow roughly in line with our sales. Our cash generation was well above average for our first quarter and accordingly, we now see the opportunity to exceed our previous guidance for cash generation of $800 million.

Eric touched on the increase in our earnings guidance, but to add just a few additional details. We increased our revenue guidance by a full percentage point. Our revenue guidance is now for a 3% to 4% increase versus the prior guidance of an increase of 2% to 3%. This revised guidance covers about a half point negative impact from a stronger dollar versus the euro that was assumed in our February guidance. Our euro rate assumption for the remainder of the year is 133.

The strong momentum in our Outdoor and Action Sports coalition was a key factor in the revenue guidance increase. And we indicated that we now expect Outdoor and Action Sports revenues to grow by more than 10% in 2010 versus our prior expectation of a high single-digit revenue increase.

We've also raised our outlook for gross margin expansion this year. Today, we indicated that gross margin should approach 46%, which represents an increase of 170 basis points over 2009 levels. Now as we expect some product cost pressures for the second half of 2010, gross margin comparisons should be slightly stronger in our first half versus second.

Given the strengthening trends in our businesses and stronger expectations for both revenue growth and gross margin expansion, we are committing additional funding to fuel accelerated growth in our strongest brands, as well support investments in other key strategic areas such as innovation and sustainability. In February, we committed to an increase of $50 million in spending, which returned our marketing spend to more historic levels.

Accordingly, the additional $35 million in spending announced today represents an incremental investment in growth given the global growth potential of our brands.

In the first quarter, I indicated that marketing spending increased by 12% with the incremental spending noted above, we are now targeting an increase of 20% over 2009's reduced spending level. We're confident of a very strong return on these investments, as Eric indicated in his opening comments. And accordingly, we're also adjusting our expected SG&A ratio for this year. In our February call, we guided to an SG&A to revenue ratio of 33%, given the higher spend, we're now targeting a 50 basis point increase to 33.5%.

Now bringing it all down to the bottom line. We announced today that we expect to achieve earnings per share of approximately $5.90 a $0.20 to $0.30 increase over our prior guidance and a 14% increase over the 2009 EPS of $5.16, which excludes the impairment charge.

As we pointed out in the release, this higher EPS guidance includes the additional $35 million in marketing spending which equates to $0.20 per share. I referenced earlier the increase in our cash flow guidance, given our expectation for another very strong year of cash flow generation, we will consider adding to our current 3 million share repurchase commitment, of course we're continuing to look at a variety of acquisitions, particularly in the Outdoor and Action Sports areas. Valuations still appear a bit challenging but we're hopeful that we will see some easing over the coming months.

So in summary, we were obviously really pleased with our first quarter. And we're particularly excited about the improving revenue comparisons and the significantly stronger gross margin trends that we've been seeing since the fourth quarter of last year. And we know that our investments will not only contribute to our 2010 bottom line, but also put us in an even stronger competitive position going forward. Eric?

Eric Wiseman

Thanks, Bob. Now let's hear from Karl Heinz Salzburger President of our International business.

Karl Salzburger

Thank you, Eric. Just to remind the group, my comments will cover our International Businesses in Europe, the Middle East and Asia, the markets for which I have responsibility. We had a very good first quarter with solid revenue growth in many brands in Europe, particularly in The North Face and Vans. In addition, as noted in today's release, a highlight of the quarter was the 31% revenue increase in Asia.

We were especially pleased by the very healthy improvement in profitability in the quarter. Gross margins rose significantly, with a substantial turnaround in the profitability of our European Jeans business. We also achieved strong increases in the operating margins of our Outdoor and Action Sports business in Europe.

The direct-to-consumer businesses of The North Face, Vans and Napapijri are off to a very strong start with double digit comp store increases and significantly improved profitability in each during the first quarter.

We're also expanding the direct-to-consumer business for 7 For All Mankind to the opening of a combined total of over 15 owned and partnership retail stores in key European cities this year. For Napapijri, we expect to open 20 partnership stores.

In our past calls, we've talked a fair amount about our European Jeans business, which continues to be our most challenging business. The good news is, that conditions continue to stabilize and as I mentioned previously, profitability has improved significantly. In fact, gross margins in our European Jeans business increased by over 700 basis points in the first quarter and are approaching those in our Outdoor business.

In Asia, revenues in China, by far our largest market, were up 46% in the quarter due to organic growth, distribution expansion, and in part, to the timing of seasonal shipments that benefited the quarter. Looking ahead, our full rate of bookings are up sharply with double digit increases in most of our Outdoor and Action Sports and Sportswear brands in both Europe and Asia. In fact, in Europe, The North Face and Vans brand bookings are up 25% and 20%, respectively, which points to another very strong year for two of our largest brands. We're also seeing very strong growth in the bookings for both Napapijri and Kipling.

In Asia, we are seeing similar strength in bookings for The North Face, while our Vans bookings are nearly double those of the prior year. Our leading brand also continues to show good momentum, with bookings in Asia up 30%.

As you heard today, we are targeting additional marketing investments in both Europe and Asia. And we have raised our revenue growth target for Asia to 25%. During '10, we will aggressively rollout new distribution in China. We have targeted 40% increase in door count for year end for a total of 1,400 doors.

In summary, with one quarter of the year behind us, we're looking forward to a very good year in '10, substantial growth in nearly all our key brands, baked by specific investments to further strengthen our brands across key geographies.

Eric Wiseman

Thank you, Karl Heinz. And that concludes our prepared comments. With that, we'd love to open the call to take any questions that you have.

Question-and-Answer Session

Operator

[Operator Instructions] We'll first hear from Jeff Klinefelter of Piper Jaffray.

Jeffrey Klinefelter - Piper Jaffray Companies

Karl Heinz, touching a little bit more detail in International. It's impressive, not only performance, but bookings in the second half and I think Europe in particular might be surprising on a general level just given the volatility in some of those markets. Could you give a little bit more color on where in Europe you're seeing particular strength? Are there any areas that continue to be challenging in terms of specific countries, just to give a little more color? And then on China, I know that it's far more of a distributor-based system and the upside, is that coming from regions of China in particular or is it pretty consistent across all regions and it's just distributors taking up product at a faster rate than you anticipated?

Karl Salzburger

First on the bookings in Europe, I would say clearly, they're up strongly in the larger countries like Germany, Central Europe, Scandinavia, U.K. We do some weakness in the so-called big countries where there’s lots of debate in the press in the latest days. The good news is those markets, particularly Greece and Portugal, are very limited for our business. So I would say to sum up the bookings are up all over and a good healthy markets. As far as China is concerned, we see two things. We see organic growth in our current stores, it's a retail based market, which is good news. And then we also see additional growth due to our expanded distribution. We don't see particular areas in China, which are stronger than others. The growth is pretty consistent all over China.

Jeffrey Klinefelter - Piper Jaffray Companies

The product cost improvements, the restructuring charge, can you just a bit more color on what that was exactly? And how that will benefit your costs, second half and longer term?

Robert Shearer

Yes, Jeff. Not so much impact in terms of 2010. Given the sensitivity around the issue, we're not going to go into a lot of detail related to the specific actions. But going forward, we'll see a nice benefit in terms of our overall product costs. And also, part of the restructuring was related to a tax benefit that we'll also see going forward, not so much in 2010, but going forward. So we'll get a real nice payback from both standpoint, both from a cost reduction standpoint, in terms of improving our gross margins going forward and also a lower tax rate.

Operator

Next we'll hear from Omar Saad of Crédit Suisse.

Omar Saad - Crédit Suisse First Boston, Inc.

On the sales follow-through, I mean, you're obviously your sales trends are improving. We're seeing kind of accelerating sales of retail over the last few months. What's kind of the timeframe? Are you seeing retailers step it up in terms of being a little bit more aggressive and what sort of the timeframe for your kind of wholesale side of your business, at least, to follow that trend?

Eric Wiseman

We obviously are seeing some of the improvement in trend in half for the first quarter. Now a lot of things driving that. One, just consumers are more engaged in economy and by buying apparel obviously. Second, we did have favorable weather in the quarter. And we had a counter ship from Easter but there is genuine improvement and retailers are obviously incorporating some of that into their fall buying patterns. And we are expecting, for example, our business for the remainder of the year to be up 4%, which is bigger than it was in the first quarter of the year, which gets us to our 3% to 4% guidance for the year. So we are seeing that pickup happen around our world. But we are seeing that pick up. And with the static I lost the second part of your question.

Omar Saad - Crédit Suisse First Boston, Inc.

The other piece is M&A. So there's been some really high-profile activity in the sector and shareholders are getting rewarded for that. How are you guys thinking about it, anything different, any changes on that front? Things loosening up, tightening up?

Robert Shearer

Yes, I'll comment and Eric may want to follow up as well. Omar, I'd say not a lot of change. We're looking of course and that is continuous in -- or as we have been in the Outdoor and Action Sports areas. And pricing is still a little strong here, given the overall ratio. So pricing is still one of the challenges that we see. But yes, we are seeing some moderation, some moderation in terms of the pricing. So we're optimistic going forward that we'll get some deals done. But not any changes in terms of where we're looking or the size of deals there we're looking at, that kind of thing is consistent.

Eric Wiseman

The strategy remains the same, focused on Outdoor and Action Sports and the good news is that our balance sheet continues to get stronger to support it. So we are as anxious as you are, at least, in making that happen.

Omar Saad - Crédit Suisse First Boston, Inc.

So still looking kind of smaller to medium-sized deals, not necessarily any sort of big sort of transformative deals?

Eric Wiseman

I'm not sure how you describe it in [indiscernible]. But we've said all along, our sweet spot is in the $300 million to $400 million range, but we can go up from there and down from there if makes a lot of sense for us shareholders, we'll do that.

Operator

Bob Drbul, Barclays Capital.

Robert Drbul - Lehman Brothers

On the Outdoor and Action Sports, I think you gave North Face Asia and Europe, can you talk a little bit about the domestic North Face bookings? And I guess, kind of more on the contribution, when you look at the double digit expectations for 2010 in those businesses, I guess Vans contribution versus The North Face contribution?

Eric Wiseman

Karl Heinz mentioned the bookings in Asia and in Europe both being in the north of 20%. The U.S. bookings are also in that league. That's where they are. So we have kind of numbers that start with a 20 around the world for The North Face. And we're thrilled by that and that I think reflects some of the -- our customer's confidence in how well that brand did last year and the uplift they're seeing in consumer spending. So we're thrilled with that. Your question in comparing Vans to The North Face, was that a revenue question or a...

Robert Drbul - Lehman Brothers

In terms of the contribution, like when you look at the double digit, are they equally -- are they both going to be sort of in the 20s or -- in terms of the growth year-over-year? Or was one leading the other in the double-digit number that you're talking out?

Robert Shearer

They're both quite strong.

Eric Wiseman

Yes, they're both in the league. Different with it by region, Karl Heinz mentioned how strong Vans in Asia right now, and China. But it's different with it by region, but they're both real strong.

Robert Drbul - Lehman Brothers

On the 7 business, can you talk a little bit about the 7 Wholesale business and sort of where the trends are? Are you starting to see retailers come back in to that segment of the business? I guess, you just want to spread that out on the contemporary side as well?

Eric Wiseman

Sure, the 7 Wholesale business is getting better than it was last -- over the last year for sure. Last year was a particularly tough year. But we still don't have positive trend in our Wholesale Shipments business. The strategy, and part of the reason for that, Bob, is we lost a lot of customers to bankruptcy over the -- small customers, specialty stores over the recession. And that's part of reason we've invested in some of our own specialty store business and that business is strong for us, our comps are good and our overall global trend in opening 7 For All Mankind stores is strong.

Operator

Jim Duffy of Thomas Weisel Partners.

Jim Duffy - Thomas Weisel Partners Equity Research

I'm hoping we can kind of retrace some of what you said about coalition growth expectations. So Outdoor and Action Sports you're talking about 10% plus. You've mentioned you got North Face backlogs in the 20s on a global basis. I think you mentioned a return to growth in Jeanswear, Imagewear and Sportswear. Are you thinking that each of those can be growth coalitions for the entire year?

Robert Shearer

Well, Jim, we said -- in February we indicated that high-single digit for Outdoor and Action Sports and 10% to 15% for Contemporary and then about flattish numbers for the other coalitions. So yes, we are seeing some improvement as we mentioned in the comments, especially in the first quarter and as we look out for the full year, a lot of the improvement and the increase in the guidance is related to Outdoor and Action Sports. But also our Jeanswear businesses are showing some improvement. And were part of the guidance increase, as well as our Sportswear business. So both are going to show better comparisons than where we started the year. And for the rest of the year, as we indicated, for the rest of the year, in 2010, in Jeanswear, for example, we will be positive on the positive side.

Jim Duffy - Thomas Weisel Partners Equity Research

So I guess I'm having a hard time holding revenue growth to 4% for the year, is there something I'm missing in one of the coalitions where I might want to be more conservative?

Robert Shearer

I don't know of anything. I just don't know what you might be missing.

Eric Wiseman

A bit of color that I'll add because I think Bob's been accurate about the Imagewear, Sportswear and Jeanswear business are going to be flattish. So you have to put that into your model. And when we talk about bookings for business like Vans, you know that Vans has globally a lot of retail stores. So we don't have a bookings number for that at all. Bookings are a much smaller percent of the Vans operating model than our other businesses. And in The North Face, we still do reel outs [ph] and replenishment, particularly in Outerwear during fall season. So you can't correlate the strong bookings necessarily with what the total number will be.

Jim Duffy - Thomas Weisel Partners Equity Research

Question on the first quarter. Do you think your inventory position coming out of the year served is a governor on revenue in the first quarter? And then I guess related to that, do you feel like you have enough inventory into an improving demand environment here in the second quarter and into the fall?

Eric Wiseman

I would describe our inventory position coming into the year as an accelerant to gross margin improvement first, that's how I see. We came out of year with really, really clean inventories and the right inventories. A lot of inventory reduction that we ended the year with, the 17% was an elimination of excess and distressed inventory, which we forced through the system last year in fact, that affected our wholesale revenues in the first quarter because we didn't have a lot of stress to sell this year and we were selling a lot last year. We're not having any material service issues. I can't remember a year where we didn't have something we could point out that said, well, we're missing something on that, but it's immaterial overall.

Robert Shearer

We continue to service the business really well and obviously our inventories line up given that improved service line up with the guidance that's out there and if we needed the chase, we can do so in some categories, not necessarily all, but areas like Jeanswear, we can.

Operator

Mitch Kummetz of Robert W. Baird.

Unidentified Analyst

This is actually Kevin Ken, calling in for Mitch. So a few questions, one, in terms of the full year outlook, Eric, I think on the Q1 call, you mentioned that you weren't billing any restocking into your forecast and I'm sure you saw some of that in Q1. But in terms of the revision to full year guidance, does that reflect some back step or restocking?

Eric Wiseman

Yes, we talked about this topic a lot, Kevin. We don't have retailers that are deliberately reducing their inventory turns by building warehouses full of inventory. We do have retailers who are looking at brands that are exceeding their plan assumptions; Nautica's a good example of that right now. Nautica is running ahead of its plans with its major customer. And that customer is buying more inventory for fall and revising their trend upwards. So we will see an increase in Nautica's business as a result of that. But it's not that they're increasing inventory they're holding, they're recognizing the trend. So does that add the color that you're looking for?

Unidentified Analyst

Yes, I suppose.

Eric Wiseman

The other comment Kevin, if we talked about our bookings for The North Face and Vans and those are pretty strong bookings numbers, so I think that, that reflects the strength of the brand and how comparable retailers are carrying inventory in those two brands that are performing so highly.

Unidentified Analyst

And speaking of The North Face and Vans, in terms of the Outdoor and Action Sports coalition, the profitability was strong this quarter. Can you explain why that was up so much? And kind of what the target should be for the year, should that be north of 20%?

Robert Shearer

I can talk about that. Kevin, there are numbers of things that contributed not just to the Outdoor and Action Sports but these are comments that pretty much all the businesses, in terms of gross margin improvement. First of all, we talked about the inventory as being very, very clean. That was -- versus where we were in the prior year's quarter, that was a considerable impact. And product costs were also lower. And again, not just in Outdoor and Action Sports but across the board, lower in this first quarter versus where they were last year. Retail continues to drive a really nice improvement as well. And that certainly applies to the Outdoor and Action Sports businesses as our Retail business grows. We talked about the 400 basis point improvement in our retail gross margins, so once again, certainly impacting the Outdoor and Action Sports. And also in that business, you might recall that in last year's first quarter, we had some negative impact from currency transaction side of things. And that was also a contributing factor, which impacted the Outdoor and Action Sports margins last year and had a lot to do with the big improvement this year. So some of it's the comparisons to last year, but the business is, as much as anything, it just shows the strength of the brands that we have within those businesses. And relative to the full year, now the first quarter, given product costs and all those kinds of things, was exceptionally strong. The number is 19.6%. But we expect to hold pretty close to that, it might be a little bit lower than that given the product cost pressures that we're seeing in the latter part of the year. But it's going to hold at a very, very strong number.

Unidentified Analyst

And then in terms of the five-year plan, I think you guys were saying that you guys would provide a Q1 update. Is there any detail on that, that you can provide?

Robert Shearer

We didn't specifically say Q1, what we did say was that we're hopefully at some point in time this year, probably in the later part of the year that we'd provide an update on the five-year.

Operator

Our next question today will be from Michael Binetti, UBS.

Michael Binetti - UBS Investment Bank

Bob, I just wanted to zero in on the Jeans for a second. Fairly impressive, the Jeans are going positive I think ahead of what most people were expecting this year. If I remember you guys still manufacture about maybe 25% of your own products and I think it's concentrated in the Jeans business if I remembered correctly. So I think you guys are now completely out of the unprofitable mass channel in Europe with Jeans and then the overall coalition revenue seemed to be going positive a little bit faster. Should we think about that as potentially being a source of some leverage if that continues to improve in a high fixed cost part of your business through the year here?

Robert Shearer

Well it would be, we have a very, very low cost structure. Your numbers are right on in terms of the manufacturing side of our Jeans businesses, it's obviously the business in the coalition where we produce more of our goods. And sure, if we can put more product through the facilities that we own, that helps us. But as we just talked about, we're seeing improvements there and the improvements we saw in the first quarter in terms of profitability have a lot to do with the same kinds of things that I just talked about, product costs and not so much retail of course, but product cost for sure. So yes, we have a very, very efficient cost structure, product cost structure. And from a manufacturing side, that is helping produce the strong margins that we have. So leverage throughout the year, just like any other business yes, we leverage our cost structure with higher revenues than if they were higher than we're projecting right now but again I think we'd see that across the board.

Michael Binetti - UBS Investment Bank

And then if I could just follow-up quickly on the 7 business. Is there any way -- I think last time we talked to you guys, you thought maybe you were off trend for a while. So maybe a comment on what's giving you confidence that you guys are getting that straightened out on 7 business and then any kind of idea you could give us and how the unit economics that the 7 stores are opening have been trending from quarter-to-quarter like on a sequential basis in the past few quarters?

Eric Wiseman

Yes, I can comment on what gives us confidence in our product direction be back on track. And that is the performance of the products we have in our own stores where we get, obviously, instant feedback on whether or not we're on trend. And our own stores are performing well. So that tells us that consumers are relating to the products we have in the stores. And our team out there has done a nice job of getting the brand back into the right product mix. Unfortunately, we have a lot less customers to sell those products to because of the massive amount of closures in the specialty store industry during the recession. I don't have like quarter-to-quarter trends. We have the whole 7 For All Mankind retail initiative is about 18 months old I think. That's right. So we don't have a lot of history in our stores. We have 30-some stores right now. But we just don't have a lot of history. It's all -- everything is kind of new and evolving. But the products are selling in the stores, that the good news.

Robert Shearer

What we can say is later in the year is when we'll see the most substantial improvement in terms of the retail side of things. So as Eric said, we're in a pretty early stages of our overall Retail business within 7 For All Mankind and especially in a lower quarter of revenues, which is, as you know, this is a low retail quarter for us and it picks up in the third and fourth quarters and that's true for our 7 For All Mankind business as well. So we'll see some substantial improvement in terms of the profitability of those stores beginning in the second half of this year.

Operator

Next, we'll hear from Kate McShane with Citi.

Kate McShane - Citigroup Inc

It's been brought up a couple of times, but in terms of rising product costs, when do you start entering into new contracts with your suppliers? And will we see inflation in the back half of this year? Is this more of a 2011 headwind?

Robert Shearer

It is more of 2011 headwind. So for 2010, and the reason we've talked about it just relative to the gross margins as we go through the year, what we're seeing is that the biggest and the lowest costs, the lowest product costs will be the first quarter. And costs will increase somewhat throughout the year all of that of course built into our guidance. And just a couple of other factors there, for us on a full year basis, our net product costs will be lower on a full year basis in 2010 versus 2009. So again, that's on a full year basis. But as the year goes on, that benefit that we saw in the first quarter will of course narrow so that in the fourth quarter, our product costs will be fairly neutral to even a little higher than they were last year. So again, most of the impact that we're referencing is, will fall into 2011.

Kate McShane - Citigroup Inc

And then you have said during your acquisition, M&A comments, that you might expect valuations to ease over the next several months. And I was wondering if that was something specific that you expect in the environment with these particular industries or is it something specific to maybe what you're looking at?

Robert Shearer

No, it's not necessarily specific to what we're looking at, just as we look at multiples in the sectors that we're looking in, where we're hunting and that is Outdoor and Action Sports. We've just seen a little bit more balance in the multiples. What's been taking place in the multiples is earnings were down, right, and multiples were improving at a pretty fast pace as some money came back into the sector. So we're seeing that balance out a little bit. So as we enter conversations and using average multiples as a basis in many cases for pricing and pricing discussions, we're just seeing a little bit more balance come into those discussions. So that's why we're optimistic that we'll feel a little bit less pressure on the multiples going forward.

Operator

Eric Tracy of FBR Capital Markets.

Eric Tracy - FBR Capital Markets & Co.

If I could just follow up on the product cost side. Obviously, it sounds like most will sort of be incurred next year. But how should we think about the opportunity to implement price increases to sort of offset that and potential timing and the areas where you might be able to take that?

Robert Shearer

Yes, the pricing increases, I mean frankly, Eric, that's yet to be seen. And so as we said, most of that will be a 2011 discussion for sure. And it's a question. I think the important factor here is, is that we're not alone in feeling the cost pressures and I know you've been hearing this from a lot of our competitors but also, private label programs will feel the impact of the cost situation as well. So it's yet to seen. Is a little too early to make a call on that.

Eric Wiseman

And we will work, our supply-chain is real flexible and diverse and we'll work real hard to make sure that we manage our portfolio sourcing options to the way we build it, which is to give us a lot of flexible to move stuff around to give us as much advantage as we can. That'll be part of what we do in the next six months.

Eric Tracy - FBR Capital Markets & Co.

And then maybe, Eric, just to a broader question. I know you made some statements in the past of just feeling like as consumer demand stabilized, that inventories in the channel were finally reaching equilibrium, so there's a little bit better visibility to demand stabilization but just maybe, again a broader view on the consumer and the sustainability around this, beyond sort of replenishment and your position on how retailers are stepping up speculative buys from an inventory perspective and VF sort of take on that?

Eric Wiseman

Sure. I'll start with the overarching comment, we're still cautious about our overall outlook for the economy in consumer spending. I mentioned earlier, there were some things that really helped for the first quarter. One, most important was the genuine pickup in consumer spending but weather helped us, it was a miserable-weather quarter, that helps VF Corporation when that happens, Easter calendar shift helped us. We are seeing that reflected in how our retail partners are buying from us. And what they're doing is they're placing bigger bets with your best brands. So to the extent we have real strong brands in the mid-tier and mesh [ph], we're being rewarded with some of that, certainly in Vans and The North Face, we're being rewarded with that. And if you build strong brands and retailers are being selective about where they increase their investment in branded inventory, they're not doing that broadly but they're picking their strongest programs and our model delivers some of the strongest brands. So that does help us. But just to be clear, what that says to us is, we'll gain some market share. We've not built into our forecast, a robust, sustainable global recovery, nor do I think we should at this point.

Eric Tracy - FBR Capital Markets & Co.

Bob, from the incremental sort of investments behind marketing, can you talk about sort of the cadence of that from a quarterly perspective? And then just maybe the timing of The North Face TV campaign, when we should expect to see that?

Robert Shearer

I'll comment on the $35 million. The cadence of that will be reflected obviously in the last three quarters. None of that was in the first quarter. And it will be spread over the remaining part of the year based on revenues. So as -- in the stronger quarters of revenues, you'll see more of the marketing spend.

Eric Tracy - FBR Capital Markets & Co.

And in terms of The North Face, any color there in terms of when we might be able to see that?

Robert Shearer

The question is when we could see the TV?

Eric Wiseman

TV, yes it's in test actually in Boston right now, so if you run up there real quick, you could see it. But the markets we're going to be advertising in, that'll begin in October.

Operator

Next, we'll hear from Dana Telsey of Telsey Advisory Group.

Dana Telsey

Can you talk a little bit about if you think about retail expansion, what types of real estate cost changes are you seeing this year from last year, what's available in different types of malls? And then just on another topic, second half of the year in costs, are you seeing inflation? What do you see going forward to 2011?

Robert Shearer

Well, on the retail front, yes, costs from where they were a year and a half ago are lower. And as you'd imagine, availability has been better. So what we do, what we do with our Retail businesses at the beginning of each year and even before that, we lay out those areas that are right for our brands. And then began very early on, looking for the right locations. So yes, we are finding more attractive costs related to the Retail business for sure. And you're seeing some of that being reflected in the very significant improvement that we're seeing in our Retail businesses overall. Your second question was related to cost inflation that we're seeing in the second half. That is mostly related to product costs. And specifically, where we seeing the pressures are in fabrics and especially there, related to cotton-based fabrics. We're also seeing some cost pressures in terms of zippers, with the cost of copper going up. And then finally, just the higher demand that's being placed in areas like China. And China represents about 25% of our total product needs. But just the higher demands in China also have some impact on costs that we're seeing.

Operator

Paula Torch of Needham & Company.

Paula Torch - Needham & Company, LLC

I wanted to talk a little bit about the retail landscape and was wondering if you could give us some color on the performance of your outlet stores versus your full-price stores in general and probably cause your brands or your coalitions? And also if could comment graphically if you are seeing any strengths or weaknesses or if there are any surprises that you could share with us?

Eric Wiseman

Well, most of our owned Retail business is full-priced retail. And we are having strength in our full-price retail model and we have had strength for the last 12 months I would say. That trend strengthened in the last 90 to 120 days and that showed up in our quarterly results. Our outlet stores, all the outlet stores that we have our primarily a use for us to dispose of distressed inventory more than they are a growth vehicle for us, that's their primary focus. And we don't look to them to be a driver of our growth, we look to them to help us manage our distressed inventory.

Paula Torch - Needham & Company, LLC

And any comments on graphically on your full-price stores perhaps?

Eric Wiseman

Geographically? That's your question? No, actually, I'm not aware of any difference around -- not heard reported to us, so if there is one, I'm afraid I'm not aware of it.

Paula Torch - Needham & Company, LLC

No, maybe between the west or east coast, are you seeing any better comps in one area versus the other across on your full-price stores.

Eric Wiseman

No, I'm not aware of that, I'm not aware of any change from the east coast to the west coast north, south, mid-west, I'm not aware of any trend like that.

Operator

Ken Stumphauzer of Sterne Agee.

Kenneth Stumphauzer - Sterne Agee & Leach Inc.

Just a couple of housekeeping clarification questions up front. What do you anticipate for the tax rate for the year?

Robert Shearer

The credit that we saw in the current quarter will flow through. But generally, we're staying with the 26% rate that we put out in February.

Kenneth Stumphauzer - Sterne Agee & Leach Inc.

And then secondly, the restructuring charge, am I correct to assume that it flowed through the SG&A line this quarter?

Robert Shearer

No, actually most of it was in the gross margin. It's related to product cost reductions, so most of the cost was in the gross margin line.

Kenneth Stumphauzer - Sterne Agee & Leach Inc.

And then if you could just maybe, as far as this quarter goes, talk through the puts and takes on gross margin, maybe a little bit more around the magnitude and ranking them?

Robert Shearer

Sure. We talked a lot about the product cost. And product cost was roughly 200 basis points. Retail was a little over 100 basis points. We're talking about gross margin. That transactional piece that I mentioned before that impacted the first quarter of last year and did not impact this year, was also about 100 basis points. And then just overall, mix was another 50 basis points or so.

Kenneth Stumphauzer - Sterne Agee & Leach Inc.

And then secondly, on SG&A, it was up about $27 million year-over-year. A little lower than I had anticipated just given the FX impact, the incremental marketing and then the direct-to-consumer rollout. Is there something structurally that was different this year versus last year or have you fully anniversaried the restructuring plan you implemented last year?

Robert Shearer

We had. The one thing was the pension, there was a reduction in pension expense that helped us a little bit this year in the quarter, I don't know if you had that in your number. I guess I'd also add that the 110 basis points in the first quarter is very similar to what we're projecting on a full year basis. So it was very consistent.

Kenneth Stumphauzer - Sterne Agee & Leach Inc.

Following up on the restocking scenario question from earlier today. Where would you, if that were to occur, where would that primarily take place? And then secondly, what would the order of magnitude be? Would it be maybe another week of sales or something along those lines, if you could just put any parameters around that?

Eric Wiseman

I'll try, I don't know where it would show up, I can't answer that question. Obviously more in our replenishment businesses than in our seasonal outlets the people buy their season up front. We're not expecting our retail customers to reduce their inventory turns by increasing bulk buys in inventory. We're not expecting to see that, we're not having any conversations around that. Retailers are buying what's working. And I just mentioned earlier, our Nautica business is working. And that's been bought more aggressively because it's performing better, but it doesn't change the inventory turn assumptions. So we don't see that as an important driver of our total business globally.

Operator

David Glick, Buckingham Research Group.

David Glick - Buckingham Research

I think, we've kind of beaten the product cost question to death here, but I think it begs a bigger question. And I think we're all kind of dancing around here is the 46% gross margin is an incredible number for this year, and is that sustainable? I mean I think that's what we're all trying to figure out. I mean you have very strong brands I think the growth of those brands helps your mix, growth of retail helps your mix and no one knows exactly -- I mean you guys have better visibility obviously than we do about the rate of increase in product costs and whether you can pass them through is the question that's difficult to answer at this point. But when you put that all in and mix it up, I mean what's your sense at this point as to whether the puts offset the takes and you can sustain that kind of gross margin level?

Robert Shearer

Yes, David. We do think that the gross margin, you mentioned the 46% level, is not only sustainable but also has expansion opportunities. When you look at the pieces of our expanding gross margin, you look back over time as well. The expanding Retail business is a big contributor. The mix, the overall mix of our products in growth in Outdoor and Action Sports and becoming a bigger mix and bigger part of the pie of overall VF, Asia as well is a big contributor to expanding gross margins. And I have to mention the strength of our brands, related to the ability to improve and increase prices and offset the cost increases. I think that we've seen that, that's been the case even though we haven't faced some of the cost pressures that -- who knows exactly what's going to take place going forward. But we think that our brands and the strength of our brands have shown a lot of resiliency in terms of that side of things. So yes, I mean, as we look out over a longer term and we remain committed to a 14% or 15% operating margin and we continue to believe that a fair amount of that improvement will come from our expanding gross margins going forward.

David Glick - Buckingham Research

Just follow-up on the Jeans business I mean we've seen a lot of your peers who have these big value-oriented national brands in the mass channel increasing market share. What are the whitespace opportunities for you guys, given the strength of your brands and you've kind of hinted it's some market share gains, your anniversary-ing some losses a year ago and seemed to have some momentum. But how do you, as you look forward, what are the opportunities to get market share?

Eric Wiseman

David is that a mass channel question in particular?

David Glick - Buckingham Research

Yes.

Eric Wiseman

I'll start with it, our biggest business there is her core Wrangler Men's business, which is clearly the dominant player in the space. It continues to take share from other brands. Some brands were launched in the channel that no longer exist there and that's because our team is really good at understanding the male consumer in that channel and continuing to, year after year, grabbing some more market share. The second area, of course is women's where we have a less-developed business. But it's where we expect to have our greatest momentum in the next 12 months. We did lose some programs in the female side of our mass business. And they are material programs to that segment of our business. It looks like we're gaining some of those programs back. We've been allowed to retest those programs. The tests have been successful. And we're getting some gradual rollout of doors. We have to work across the door that we rollout into but we're pretty confident we will put us back to where we were when we lost his programs, ultimately assuming that those tests work.

David Glick - Buckingham Research

And then lastly, on Nautica, it clearly sounds like a turn in that business. A), what do you attribute it too? And B), are you starting to see retailers recognize the improvement and is that showing up in better forward bookings?

Eric Wiseman

Sure, we talked 18 months ago that we were taking the Nautica brand up to higher prices and taking the products up to much more quality into the products, quality is probably the wrong word, much more make in the product. And we did that right going into the recession, we talked about that, that was the wrong thing to do. People look for more value so we had to recalibrate our product approach. And our group was able to develop products that are really appropriate for the channel at a great value price. And that took some time to get that in and as we were coming off really week comp performance with our big customers, they were buying very conservatively and it takes a while for them to get more enthusiasm for buying more and we had to earn our way back to getting more open to buy by putting in the right products for our customers at the right value price point. We began the journey last fall, it has done nothing but gather momentum since then and it gathered momentum with retailers assuming the business would be down. The business is now posting year-on-year comps at retail and it's being bought for fall more aggressively and well, it reflects its current performance. So comes down to having the right products at the right value price points and our team at Nautica has done just a great job of weathering this storm and putting them in the position to get back on track.

Operator

Maggie Gilliam, Gilliam and company.

Maggie Gilliam - Gilliam and Company

I would like, if you would please, to elaborate on some of the direct-to-consumer stuff. You've given the external plans in your five-year plan but can you give us an update for the current year? And can you also talk about where you stand with the Internet and the important brands?

Eric Wiseman

Sure. Our direct-to-consumer growth in the first part of this year is obviously, part new store growth. We didn't open a lot of new stores in the first. I don't have all those numbers, Maggie. I know that The North Face and 7 For All Mankind each opened one store in the first quarter. Vans opened 10 stores in the first quarter and with the acquisition of our Vans in Mexico partner, we got 14 more stores through that. Our E-commerce business is a pretty small piece of our total corporate sales right now. But it is an important piece and it's growing nicely. So it's not big enough to comment on at this point. But we hope it'll get to that point pretty quickly.

Maggie Gilliam - Gilliam and Company

Are you open for business in all the brands at this juncture?

Eric Wiseman

I'm trying to think, all brands?

Maggie Gilliam - Gilliam and Company

The smaller ones I wouldn't expect you to be but the key ones?

Eric Wiseman

Yes. We talked a lot about -- Maggie, about our top five brands, and our top five brands are open for business.

Operator

We'll hear from Chris Dexia of Susquehanna Financial Group.

Christopher Svezia - Susquehanna Financial Group, LLLP

I just want to clarify something you had mentioned that you saw in your Retail business, I think particularly with regards to the Outdoor coalition, with regard to a 400 basis point improvement in the gross margin. I'm just curious how much of that is just because of comp growth and how much that of is just better execution? And then overall with your direct-to-consumer business, I think previously mentioned a low-single top growth, previously in your guidance. Has that changed, based on what you saw in the first quarter?

Robert Shearer

I'll take the first one, the first point you made in terms of the 400 basis points, the comps store growth wasn't the driver there. It was execution and it was also a better environment, helped as well in terms of the gross margins, lower markdowns, the whole cleaner inventory idea carries through to our Retail businesses as well. And I'd also say that our Retail business outside of the U.S. is less mature clearly than the U.S. business. And we're seeing, and we expected this, we're seeing very nice improvements in terms of gross margins and overall profitability of those businesses. And we expect further improvement as well.

Eric Wiseman

I'll deal with the second part of the question. Our comps in the first quarter across our retail entities worldwide were up 10%. It benefited from the things I've talked about already, strong consumer spending, weather, Easter shift. Also, that comp percentage benefited by how weak the first quarter was last year. It was coming up against a really, really easy comparison. So our assumption for the balance of the year is kind of mid-single digit growth for comp store growth. And we think that's a prudent assumption to make given, you know, the usual things that helped the first quarter.

Christopher Svezia - Susquehanna Financial Group, LLLP

Just a point of clarification, with regard to the Jeanswear, the Imagewear and Sportswear businesses, is that still expected to be flat in terms of revenue for this year just based on your comments about second quarter seeing a lot of improvement in terms of trend in some of these businesses. Is the year still expected flat or is there an opportunity to see some growth there?

Robert Shearer

Yes, again, a lot of our commentary was around the latter part of the year, right, over the next three quarters and versus what we saw in the first quarter. So in the first quarter, the revenue growth wasn't as strong as we expect to see in the last three quarters, not nearly as strong. So we do expect better comparisons going forward. Still, overall, for those businesses, in terms of meaningful growth, percentage growth in any one coalition, it's not going to be so large. But it's -- the important part here is the trend that we're seeing and the trend that we'll see over the remaining three quarters of the year, in terms of showing growth. The big drivers still will be, the big drivers will still be our Outdoor and Action Sports businesses and which we've increased that guidance as you're very much aware of and also the contemporary area.

Operator

Next we'll hear from Linda Gonalea, D. Brinkley Management Group [ph].

Unidentified Analyst

I wanted to confirm, are you still anticipating $175 million for depreciation and $110 million for capital expenditures?

Robert Shearer

I'm sorry, what were the numbers again, you said yes, $110 million to $115 million in terms of capital expenditures and I'm sorry what was these the first part?

Unidentified Analyst

Depreciation.

Robert Shearer

Yes, our depreciation and amortization combined is right around $170 million. That includes all amortization.

Unidentified Analyst

And I believe you gave a number you anticipate for free cash flow and I kind of missed it. Was it around $800 million?

Robert Shearer

Yes, actually what we said was and that's actually cash generation, cash generation from operations. And that number, in February, our guidance was $800 million and what we said was with the very strong quarter and also increased earnings that we now believe that it could be -- the number could be above $800 million.

Operator

Michael Binetti of UBS.

Michael Binetti - UBS Investment Bank

So you guys have talked a lot -- I'm sure you get a lot of questions about M&A and you guys have mentioned it a little bit here. But what about the potential to divest some of the brands that are underperforming based on how you expect your brands and I think you guys say you evaluate things as far as financial performance and strategic performance. And maybe you could give us just an update without upsetting any employees that may be listening or anything, but how are you thinking about the portfolio at this point and is there an opportunity for divestiture over the next 12 months here?

Eric Wiseman

Michael the only way I can deal with that in this form, and you obviously have been listening to what we've been saying, we look at all of our businesses through a strategic lens and through a financial lens. And if they're not strategically relevant nor financially relevant we ask the question of why should this be part of the portfolio and we go through that evaluation on a constant basis. And then we look at, can we create better value for our shareholders by doing something else with the business but that's a constant, that's so different today than what it was 12 months ago or 24 months ago. It's what we do and we'll continue to do it. That's really all I can say.

Operator

And there are no further questions at this time. I'll turn the conference back to over to you for any additional or closing comments.

Eric Wiseman

Yes just quickly, thanks for joining us. We're obviously encouraged by the strength of our business in this environment. We talk a lot about the strength of our business model, the diversity of our model and how it helps us. We think that's showing up in our results and in our forecast for the year and we'll get back to work and try to deliver this year as called. Thanks a bunch.

Operator

That does conclude today's teleconference. Thank you, all for your participation.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!