VF Corp. Q42007 Conference Call Transcript

| About: V.F. Corporation (VFC)

VF Corp. (NYSE:VFC)

Q42007 Conference Call

February 05, 2008 4:30 pm ET

Executives

David Griffith - ICR

Eric Wiseman - President and CEO

Mackey McDonald - Chairman of theBoard

Bob Shearer - CFO

Analysts

Jeffrey Edelman - UBS

Bob Drbul - Lehman Brothers

Brian McGough - Morgan Stanley

Virginia Genereux - Merrill Lynch

Eric Tracy - BB&T CapitalMarkets

Todd Slater - Lazard CapitalMarkets

Jim Duffy - Thomas WeiselPartners

Robert Ohmes - Banc of AmericaSecurities

Neil Harper - Jeff ReportingCompany

Operator

Good day and welcome to the VFCorporation Fourth Quarter 2007 Earnings Call. Today's call is being recorded.At this time, I'd like to turn the conference over to David Griffith of ICR.Please go ahead.

David Griffith

Thanks, Tom. Good afternoon andthanks for participating in VF Corporation's fourth quarter 2007 earningsconference call. By now, you should have received today's earnings pressrelease. If not, please call my office at 203-682-8200 and I'll get you a copyimmediately following the conference call.

Hosting our call this afternoonis Mr. Eric Wiseman, President and CEO of VF.

Before we begin, we would like toremind participants that certain statements included in today's remarks and inthe Q&A session may constitute forward-looking statements within themeaning of federal securities laws. Forward-looking statements are notguarantees and actual results may differ materially from those expressed orimplied in the forward-looking statements. Important factors that could causethe actual results of operations or financial condition of the company todiffer are discussed in documents filed by the company with the SEC.

At this time, I'd like to turnthe call over to Eric Wiseman.

Eric Wiseman

Thank you, David. Good afternoon.Thank you all for joining us today to discuss another record quarterperformance for VF Corporation. Mackey will speak today that the highlights of2007 and I will provide some perspective of what we are currently seeing outthere.

In addition toBob Shearer, our Chief Financial Officer, who we also have in our coalitionwith us today, each of whom will spend a few minutes discussing their 2007results and their outlook for 2008.

I will turnthe call over to Mackey.

Mackey McDonald

Thank you,Eric. 2007 was an exceptional year for VF with achievements in many differentareas. As you saw on this afternoon's release, 2007 marked our fifth consecutiveyear of record revenues and earnings. And we passed the $7 billion mile mark inrevenues for the first time in our history.

Our fourthquarter results came in even stronger than we had initially anticipated, whichin this market underscores what you can do when you have great people managinggreat brands. To reemphasize, our fourth quarter performance revenues were up22%, our earnings per share rose 18%. Our product guidance for revenue andearnings per share increases of 18% and 13% respectively.

We alsosubstantially exceeded our guidance for cash flow from operations, which is arecord $834 million in 2007. During the year, we significantly enhanced VF'sportfolio of businesses selling our intimate business, completing theacquisition of four growing brands and creating contemporary brands as a newgrowth platform.

We alsoenhanced our capital structure and liquidity through our debt financing. Wehave been very focused on building the tower and infrastructure needed tosupport future growth, particularly in critical areas such as International andRetail and 2007 was no exception. More than anything else, it is theexceptional leadership in our businesses, in our operations that made oursuccess possible in 2007.

Eric Wiseman

Thanks Mackey.As you know, we had an investor meeting and webcast back on January 9th and atthat meeting, we raised our five year growth targets and provided our initialguidance for 2008.

I'd like to start today's call bytaking just a few minutes to go over the main questions we have been hearingsince that meeting. First question, which will come as no surprise is, so it'sjust can't be or is it out there? Well, there is no question that the currentenvironment is very challenging. It was challenging during the fourth quarter,and we expected to continue to be difficult.

All of you note the Decemberretail sales reports, which were anything, but positive. We are coming off ahighly promotional holiday season and our customers are planning very cautiouslyfor 2008. But we are not seeing any unusual amounts of order delays orcancellations. We work very closely with our retail partners to develop moreconservative plans that we, and they, believe are achievable for 2008.

Our headwinds are out there andthey are affecting some of our businesses more than others. But they haven'tstopped us from delivering strong results overall and we believe we willcontinue to do so.

Second question, do we expectthings to get better, stay the same or get a lot worse? We are not planning anybig recovery in 2008. We have taken into account the difficult environment andplanned accordingly, with what we believe, is an appropriate amount ofconservatism.

Next question, are we seeing ourinternational businesses affected by the trends here in the US? I willanswer to that, no. We have posted 30% gain in international revenues in thequarter, 20% adjusted for currency and our international leaders continue tosee plenty of opportunity for growth.

And finally, what makes us thinkwe can deliver 9% top line growth and 10% bottom line growth in 2008? And theanswer to that wise, in our uniquely diversified business model, we have tremendousdiversity in terms of our brands, our products, our channels and distribution,and our geographies.

We have powerful brands with roomto grow and experienced people in place to drive that growth. I'd remind youthat the 5% organic growth in 2008 is below what we achieved in 2007. So we areclearly not immune to what's going on out there. And of course the year, itjust began, and we'll have greater visibility into both the upside anddownsides to our plan, as the year progresses.

Now to give us some more color onthe fourth quarter results, here is Bob Shearer.

Bob Shearer

Hi, thanks, Eric. Mackey touchedon our overall results for the quarter and for the year; our coalition leaderswill provide more perspective on their businesses. So, I'll key my remarks tothe few key areas and an overview of particular interest to you.

In terms of our revenues in thequarter, we did exceed our prior guidance with revenues up 22% versus the 18%we originally forecast. The upside came from our outdoor and contemporary brandcoalitions. Next, there were two items that affected our results that were notincluded in our prior guidance. First, we realized the tax credit related tothe settlement of important tax year of a foreign operation that reduced ourtax expense by $12 million that benefit was worth $0.11 per share. This taxcredit allows us to take a number of specific actions primarily within ourinternational Jeanswear operation to strengthen our sales and marketing organizationto maximize efficiencies within our distribution infrastructure.

Total expenses incurred in thefourth quarter related to these actions were $13 million, worth $0.09 per shareof which $8 million related to those described within our Jeanswear coalition.The remainder of this spend was spread across various businesses and was notmaterial to anyone business segment.

Now you might recall that we hada similar tax credit in 2006, which added $0.15 to EPS in the fourth quarter oflast year and similarly last year, we put those tax credits to work for us in anumber of areas. The expenses incurred in the 2006 quarter represented $0.12per share, so that the benefit of the tax credit net of the spending was $0.03per share last year versus the $0.02 net benefit in the current year's quarter.

You can see the impact of the taxcredits reflected in our tax rates for both periods, which were lower thanthose we reported during the first three quarters of each year. Expenses inboth years are reflected in the individual coalition results, as reported inthe segment data that's attached to the press release.

Now obviously, the incrementalspending did impact Jeanswear margins in the quarter, but I'll remind you thatlast year's Jeanswear margins were also impacted by expenses totaling $14million related to restructuring activities. Despite these expenses our globalJeanswear businesses continued to deliver very healthy margins and very strongcash flow. And these actions were taken to assure there is solid P&L, cashgeneration performance going forward. So, these two items, the tax settlementand the related spending actions nearly offset each other, when comparingyear-on-year performance for the quarter and full year.

Our gross margins in the quarterimproved slightly to 43.5% from 43.2% due primarily to the beneficial mixedimpact from our lifestyle businesses representing a higher percent of totalsales along with the impact of acquisitions completed during the past year. Now,let shift to operating margins. The improvement in the operating margin of ouroutdoor businesses reflects the global strength of our outdoor brands alongwith our ability to leverage expenses within these fast growing businesses.

The improvement in our Jeanswearoperating margin reflects increases in both our US and international jeansoperations. In addition, our newest coalition contemporary brands posted astrong operating margin in their first full quarter for VF and provided astronger than anticipated gain in EPS for the quarter.

In terms of sportswear, thedecline in operating income was greater than we had anticipated, as noted inthe release the decline relates, to high levels of promotional activity in ourNautica brand particularly in their outlet stores and to a lesser degree indepartment stores, that's likely not a surprise to those of you who closelyfollow this retail sector.

As to the decline in ourImagewear operating margin is due to the Majestic Athletic acquisition, wherefourth quarter margins are lower than the coalitions average. Without Majesticmargins would have essentially been flat with those of the prior year'squarter. Majestic is a highly seasonal business and this businesses fourthquarter profitability is significantly low its annual average. And while theseresults were as anticipated, improving the profitability of Majestic remains anopportunity for us and we expect to make progress in this area in 2008.

Interest expense in the 2007quarter was up about $11 million due to borrowings related to acquisitions. AndI've commented already on the tax rate in the quarter and the credits thatbenefited us there.

Now, turning to our cash flow andbalance sheet, the real standout here is our cash flow from operations. As youknow, we had originally targeted $625 million in cash flow from operations and,in fact, achieved $834 million. This stronger than expected performance was aresult of focused attention on working capital levels as well as our overallstrong financial performance for the year. This is an all time high from a cashgeneration standpoint for VF actually by a fairly wide margin.

And our balance sheet remains inexcellent shape. Inventories were up 19% versus the 22% increase in fourthquarter sales. The majority of the increase in inventories resulted from theacquisitions made during the year. Increases in inventories of organicbusinesses were well below comparable sales increases. We are comfortable withthe quality and quantity of inventories that are both reflected on our balancesheet and our brands inventory levels at retail.

Cash in the balance sheet atyearend was $322 million, which also points to our financial health, when youconsider that we spend over $1 billion on acquisitions in 2007, increased ourdebt by less than $500 million paid a healthy dividend and kept our cash onhand at near prior year levels.

Turning next to our guidance, toreiterate what we said on January 9th, we expect the year 2008 revenue growthto be 9% and EPS growth to be 10%. We expect 5% organic growth on the top line,with balance coming from our 2007 acquisitions.

Now, let our coalition leadersspeak more their plans for 2008, but we do expect to see organic growth in eachcoalition in 2008 and higher operating margins in nearly all our businesses. Wedid point out in our release, that we expect Sportswear margins to berelatively flat with those denim levels.

During 2008 we are making avariety of investments to strengthen the Nauticabrand as well as to support the on going growth we expect in our Kipling US andJohn Varvatos businesses. And of course, we expect theconditions in the department store sectors will continue to bechallenging, which is also reflected in our margin expectations for Sportswear.

Now in terms of our first quarterguidance, we expect to continue our strong performance with an increase inrevenues of 8% to 10% and growth in earnings per share of 8% to 10% as well.Those expectations are in line with our new long-term targets, as noted in therelease revenue and profit drivers for the quarter will be our Outdoor andImagewear businesses as well as from our new contemporary brands coalition.

Jeanswear and Sportswearcontributions will likely remain more challenging based on our expectations,the conditions in the mass market, mid year and department store channels ofdistribution will remain challenging.

We are looking for another verystrong year of cash flow from operations, which could exceed $700 million. Interms of our plans for share repurchases, we currently expect to repurchase 2million shares in 2008 and expect to complete this repurchase by mid-year.

To-date we have purchased 500,000of the 2 million shares. Given our strong cash flow and our depressed share price,we will continue to revisit the opportunity for share repurchases and balanceany decision in this area against acquisition opportunities, which continue tobe a priority for us.

And finally, just wanted to covera few miscellaneous items, CapEx should be about $145 million this year, upfrom $114 million in 2007. Obviously our spending plans include a significantinvestment in our own retail operations. Depreciation and amortization shouldbe in the area of $160 million and our tax rate should approximately 34%. Eric?

Eric Wiseman

Thanks Bob. Now, we are going tohave each of our coalition presidents provide a perspective on 2007 results andthe outlook for their business in 2008. We start today with Dave Gatto,President of our Outdoor Americascoalition. Dave?

Dave Gatto

Thanks, Eric.The Outdoor Americas had another very solid year, growing revenues by 24% witheven higher growth in operating income. We are pleased with the progress of allof our brands, but particularly delighted by the strength of our two largestbrands, The North Face and Vans.

In addition,our growth in 2007 benefited by 11 months of results from the Eagle Creekacquisition, but even without Eagle Creek our business was up about 20%.Despite well founded concerns about the economy and consumer spending, we alsodelivered an outstanding fourth quarter with revenue growth of over 30%.

I think that is a real testament tothe power of our brands and the great people behind them. Although 2008 posessome challenging economic times, I am looking forward to our strong brandscontinuing their success.

The North Face brand continues toshow impressive year-over-year revenue growth, up higher than 24% our coalitionachieved in average. With solid double-digit gains in both wholesale and retailbusinesses, I should note that we opened five new full price retail stores andlocations that complement our wholesale business and to-date these stores haveexceeded our plans.

Fourth quarter growth for theNorth Face was even stronger with growth across all segments of the business. TheNorth Face products sellthroughs and our inventory positions are very good. Moreover, our backlogs for both spring-summer and fall were up solid digit doublegrowth and in line with our expectations.

Finally, we look forward tolaunching our own The North Face e-commerce website in early fall. Vans alsoenjoys another record year with its wholesale and retail businesses both morethan 20% and even stronger increases in wholesale footwear and wholesaleapparel segments.

We are pleased with our momentumin apparel and look to add to the product lines breadth in 2008. We opened 24price stores and two outlet stores in 2007 and our plans slightly exceed thosenumbers in 2008.

Our current cap backlog iscomparable to last years, reflecting the more challenging environment forwardlooking forward to another double-digit growth year from Vans. Reef andJanSport both continue to drive success with their core consumers and we remainencouraged by their future potential. But I should note, and bear in mind, thatcombined, these two brands account for less than 20% of our coalition’srevenue.

Eagle creek has transitioned intoour coalition and has achieved its revenue plans for the partial year 2007.Growth in Eagle Creek backlog for 2008 is slightly greater than our plannedrevenue growth and we're pleased with the early results of this acquisition.Our strong momentum is continuing and though I expect 2008 to be morechallenging than 2007, I'm also very confident it will be a successful one forour outdoor brands.

Eric Wiseman

Thanks, Dave. Now, let's hearfrom Karl Heinz Salzburger, who has responsibility for both our internationaloutdoor and Jeans businesses. Karl Heinz?

Karl Heinz Salzburger

Thank you, Eric. Let's start withinternational outdoor. '07 was another very successful year. Total revenuesincreasing 35% and all brands showing double digit growth. 2008 should also bea very successful year for us with double digit growth again expected acrossall our major brands.

Our fourth quarter was also verystrong with revenues up 28% versus the same period last year. The North Facebrand, our premium technically innovative outdoor apparel brands continues tobe our primary revenue driver; the revenues are up over 30% in '07.

During the year, we opened oneadditional owned store, 10 partnership stores, and 42 shop-in-shops. We arelooking for strong growth in '08 as well. In addition to continued growth inEurope, we are also building our business in Russia. '08 will be the first fullyear of owning The North Face brand businesses in China and we expect to nearlydouble our business there this year.

Particularly our high end outdoorinspired brand continues to be one of our fastest growing brands, with revenuesalso up over 30% in 2007. During the year, we opened two new stores in Europeand three in Asia. The store openings areplanned for 2008 inkey European cities such as Milan and Madrid.

Vans continues to do very well.The revenues are up over 50% in '07. Growth in 2008 will come from expandingour apparel business, through retail store openings in new geographies. We arelooking forward to launching Vans in China this fall.

Kipling is also a success story.Revenues are up over 30% in '07. In 2008, strong wholesale performance as wellas retail expansion will continue to drive this brands result with one newowned store and 33 partnership stores planned.

Looking across our outdoorbrands. As we look forward to another very strong year in '08, our focus willbe on three areas, geographical expansion, product diversification and categoryextension and the retail initiatives. Geographic expansion will continue to befocused on important emerging market such as Russia,China, Japan Korea and India.Product diversification will also play an important role in our growth.Specific apparel lines would be further developed and enhanced for Eastpak andReef. It appears it has had positive feedback on its footwear launch andgrowing The North Face footwear business continues to be a big initiative forus both in US and abroad.

One of our major builders forbrand momentum and visibility is our retail program. A total of 12 new ownedstores and 54 partnership stores were opened in '07 bring the total for outdoorinternational brand portfolio to 36 owned stores and 192 partnership stores.During '08, stores are planned to be opened in major European and Asian citiesincluding Amsterdam, Madrid,Milan and Beijingin China.

Now, I'll turn for a moment toour International Jeanswear business. 2007 was a good year for our InternationalJeanswear business, with an increase in revenues of 13%. The fourth quarter wassimilarly positive revenues also up 13%. This performance is due to the goodresults we have had both in Europe and Asia; particularly in China, Scandinavia,Russia and Eastern Europe.

2008 should be another year ofhealthy growth for both our Lee and Wrangler brands. Foreign currencytranslation did contribute to the strong gain in the fourth quarter. But ourLee and Wrangler businesses were both up on a constant currency basis in Europe.

Our Lee brand had strongincreasing revenues of 15% in Europe in '07.Under new leadership we significantly strengthened the brand positioning,filling of lifestyle brand values. Both consumers and the media have given theLee brand important definition.

The brand was both the bestselling brand of the year and we seek Express Readers' also cited by GoldMagazine, as the brand with the most innovative media campaign. These areinitiatives continue to play a major role in the brands growth strategy withstores opened in European cities such as Amsterdam and Cologne and Germany, andalso in Asia with the opening of stores in Shanghai, Beijing and Guangzhou.

Wrangler, our other core brandhas also shown very good results with the 13% increase in European revenues in'07. Our new winter collection has received positive definition of [theactions] from our first presentations with the European sales force and keyaccounts. During '07, we also begin to work with 7 for All Mankind brand. Theduration of the brand onto our VF international platform is ongoing and theoutlook for '08 is positive.

Key markets in Europe [will be] France and Germany,then it looks at the UKas well as the Asia Pacific region. Asia Pacific region continues to be an areaof great opportunity for us in both our Outdoor and Jeans businesses. While,still modest in size our Jeans business was up nearly 50% in China and over 35% in India in '07.

But the highlights during theyear included the conversion of the North Face to our own business in China, establishment of a joint venture for Napapijriin Japanand double-digit growth for our Kipling brand in the region.

We also have established a verystrong leadership structure there to support the growth of our key brands in thecoming year.

Eric Wiseman

Thank you, Karl Heinz. Now,Angelo LaGrega will comment on the Jeanswear Americas business. Angelo?

Angelo LaGrega

Thank you, Eric. First I'd liketo thank all the VF's associates for the success in 2007. Very talent despite avery soft retail environment, our revenues grew slightly and we leveraged ourscales to deliver significant profit increases.

Our mass division delivered thestrongest revenue performance, and Wrangler and the Lee division continued gainshare with our key retailers. Our gross margins were up, our SG&A expenseswere down. We had outstanding performance of our inventories; all led to asignificant profit and cash flow increase for the coalition.

In 2007 ,we continue to seegrowth in our Wrangler brand, but we are not only innovated the quarter gainshare, but we also extending into new category in the consumers segments to (inaudible) [16:118]Wrangler tops and Wrangler outdoor, which has been very successful.

Additionally we are making biggerand smaller investments in the brand leveraging new campaigns with both Red Kapand (inaudible). AtLee, we face difficult additions in the mid-tier and department store thatimpacted our revenues particularly in the fourth quarter. But we feel very goodabout our efforts to strengthen the brand to superior marketing communications.

Additionally, our best of classproduct innovation is helping us to gain market share. We are gaining marketshare in our core businesses particularly in the female area and believe we canleverage success to extend to more fashion for consumers and new channels suchas department stores and direct to consumer. Domestically speaking, we believewe are well positioned for additional market share gains in 2008.

A couple ofwords on our fourth quarter performance, given that retail was very challengingthroughout the holiday season, as fears of recession boomed over America. Wethink we did okay in the quarter.

Revenues wereabout flattened the prior year, but we saw strong performance in our massdivision. Also SG&A growth and inventories were down leading to profits andcash flow increases.

Our currentinventories are in excellent shape. The first quarter will be particularlychallenging on both the top and bottom line, given retail conditions both inthe mass and mid-tier stores. Despite current market conditions, we believethat we will grow market share in our core businesses, extend to adjacent consumersegments and new challenges in 2008.

We innovatedin our core businesses with new programs such as (inaudible) [17:045] and and Lee's "slim tothicker. We are increasing our consumer direct selling efforts and leverage ourbrands to new challenges. Additionally, we will continue to support ourbusiness with increased investment in our flagship brand and enhanced marketingsciences. And recognizing to having the right people in the right position ispivotal to offset a success.

We are workingcount base to drive further growth. All in all, we believe we have a solidplatform for long-term growth. We are making appropriate investments in our powerfulbrand to support our growth initiatives.

Our strategiesare well grounded and deep consumer insight and therefore we will deliver aprofit and cash flow, our share holders expect.

Eric Wiseman

Thanks Angelo. Now let's hear from Denise Seegal, President of our Sportswear coalition.Denise?

Denise Seegal

Thank you,Eric. 2007 was a mix of positive and negative for its Sportswear coalition. On the positive side, our two smallerbusinesses Kipling and John Varvatos continued togrow rapidly.

Revenues ofour Kipling business in the USrose more than 35% in 2007, as we continue to grow our department and specialstore distribution. Our John Varvatos brand grew at asimilarly strong rate with growth in our wholesale, owned retail stores andlicensing businesses.

However, the Nautica brand facedchallenges particularly in the second half of the year, as the retailenvironment and department stores began increasingly challenging with a 4%decline in revenues for the year. These factors resulted in 2007 revenues forus, Sportswear coalition being flat with those in 2006.

Full year 2007 operating incomeand margins decreased from prior year levels again, due to a particularlydifficult second half for our Nautica brand. The profit reduction was driven bythe Nautica volume declined in a very promotional environment particularly in thefourth quarter. While not impacting the comparison, operating margins alsoreflect the continued investments we are making in our women's Sportswearbusiness.

In terms of the fourth quarter,revenue was up in all of our brands and up 6% overall as a department storecalendar shift, which we told you about in the first quarter swung back in ourfavor. As Bob already noted the decline in operating profit relates to higherlevels of promotional activity particularly in our owned Nautica outlet stores.

Turning back to 2008, we willcontinue to focus on initiative to elevate the Nautica brand includingactivating the new elevate brand positioning across multiple product categories,including Hero product, and this effort will be led by our creative directorsthat we brought on last year.

We also changed leadership in keyposition to support this effort. We are also watching e-commerce in February'08 and investing incrementally in men's Sportswear marketing. In Nautica wehave significant new products introductions in both our men's Sportswear andJeans business.

In men's Sportswear we werecontinue to maximize our successful knit products the deck shirt and solid andstripes for spring and father's day followed by the launch for fall '08 of anew twirl anchor pant, true Kachy and the new core woven program to grow sharein these important categories.

In men's jeans, we areoverhauling our top three lines with the core Nautica brand essence. We didn’tuse spring '08 with more crisp, clean colorful and bold shorts and tops,including the keel shirt and knit shirt for a younger consumer. We will alsolaunch the deck shirt in women's sportswear, as we focus on more casual productofferings.

In the outlet business, we arecreating more innovative fashion-right products across all categories and weare reducing cold weather product in the second half in favor of more productsincluding short sleeve t-shirt, wovens, knit tops, pants, denim and lightweightouterwear.

John Varvatos will enjoy anotheryear of significant growth driven by the continued expansion of the JohnVarvatos strong US based collections to over 180 doors in the US and Europe. Weplan to open four new stores in 2008; bringing the total to nine including San Francisco and a second New York City store in the location of aformer CBGB club in the first half. Licensing will continue to build includingthe launch of our women's fragrance.

With the Kipling brand, weplanned to continue to aggressively grow our department and special storebusiness. In 2008, Kipling will be distributed in over 300 department storedoors in the US.We will continue to invest in the brand to increase brand awareness and buildon the brand momentum created this year with "Fergie for Kipling" promotion.

2008 will be a transition yearfor the Nautica brand, as the new brand positioning begins to take hold. We areconfident that this will be another year of strong growth for the Kipling andJohn Varvatos brands.

Eric Wiseman

Back to me. Next up, Ed Doran,President of our Imagewear Coalition Head.

Ed Doran

Thank you, Eric. In 2007, theImagewear Coalition recorded a fifth consecutive year of top and bottom linegrowth primarily driven by the Majestic Athletic acquisition as well as organicgrowth in our licensed sports business. In 2007, Imagewear delivered a 19%revenue increase to $988 million as well as a 6% increase in operating income.

The Imagewear Coalition iscomposed of two unique business models. In our Image business we do not sell totraditional retailers. Rather we sell our Workwear uniform products throughdistributors, industrial laundries, resellers and specialty houses or directlarge corporation, where we develop and manage their uniform programs. Some ofour main customers include Federal Express, AT&T, CSA, ContinentalAirlines, American Airlines, US Customs & Border Patrol, the FireDepartment of New York and many others.

The other business is ourActivewear business, where we develop and manage some powerful lifestyle brandswith exclusivity in our channels of distribution for the national footballleague, major league baseball, Harley Davidson, NASCAR, NHL, NKA, the NBA, ESPNas well as our newest company, Majestic Athletic.

We acquired Majestic Athletic inMarch of 2007 and they are the exclusive on field provider of all major leaguebaseball uniforms and other apparel items. Relative to the fourth quarter,Imagewear achieved a 21% revenue increase. On an organic basis revenues were up3% with growth in both our Image and Activewear business.

Operating income increased 5% inthe period. As Bob mentioned previously, margins were down reflecting theMajestic acquisition, but we continue to see opportunities to improve ourmargin in this business. 2008 will prove to be another growth year for theImagewear Coalition. We expect middle single digit growth despite the currentbusiness climate and a continued soft outlook for manufacturing jobs.

Imagewear is expected to againdeliver a record profitability. And we expect increases in all of our majorbusinesses. And in order to accomplish this, we had several ongoing keyinitiatives in 2008. First, we are going to continue to build on our missionstatement of customer firm, which has been the foundation of our success forthe past five years. Position of consumer part is to truly understand the enduse consumer of the industry or corporation or leading and then providing themwith the right brand, the right products, the right services and the righttechnology that meets their changing lifestyle.

Second, we are going to driveeven more lead exclusivity in our licensed sports business. The addition of theMajestic brand brings a powerful new weapon to the Imagewear Coalition, andopens up additional opportunities and new channels and new markets.

We are also encouraged by thegrowth we've experienced in the NFL and Harley-Davidson business. And we lookforward to developing and rolling out newer brands such as Majestic as well asour ESPN apparel business. At the same time, we will continue to look for moreopportunities as said in our licensed sports model.

Third, we are going to continueto win with the winning retailers. As you know, VF is known for its retailclothes-based management capabilities. In 2007, we expanded the scope of ourretail sports based management program at our major customers. This expansionwill continue well into 2008 and we expect continued outstanding results.

And finally, we are launching ournew business platform capabilities that leverage growth market such ashospitality, where we sell to the hotels and motels as well as addingsignificant value to our existing uniform occupational markets, where weparticipate, and as always, we will continue to search for strategicallyopportunistic acquisitions that compliment our full growth.

The Imagewear coalition is veryproud. Now we have developed two business platforms. That focus on productinnovation, exclusivity, outstanding service to our customers and mostimportantly we have great people to execute division of customers first.

Eric Wiseman

Great Ed. Thanks. Let's wrap upwith the few words from Mike Egeck, who heads up our new Contemporary BrandsCoalition. Mike?

Mike Egeck

Thanks, Eric. As you saw intoday's release our new Contemporary Brands coalition has gotten off to a goodstart. Despite the challenging retail environment 7 for All Mankind and Lucyfinished the solid year with a very strong fourth quarter.

As you know, VF is only ownedthese brands since last August, when compared with last year's fourth quarterthe combined revenues of the two brands grew 43% with even stronger growth inoperating income, both top and bottom line growth were well ahead of ourinternal acquisition plan.

Similarly, on a full year basisbrand revenues were up 35%, driven by a 50% increased in Lucy brand inclusiveover 12% comps store increased and a 32% increase in sales for 7 for All Mankind.The growth in both brands was a result of a strict focus on executing our majorgrowth initiatives.

Those initiatives are growth inthe core 7 for All Mankind denim business, as we continue to gain market sharein a consolidating statement. Extending 7 for All Mankind product in theSportswear in bags and accessories, additional retails stores in e-commercegrowth for both brands. In 2007, we opened 19 Lucy stores in the first to 7 forAll Mankind stores. We plan to open a total 25 new stores for 2008.

International growth for 7 forAll Mankind, sales outside the USgrew 42% in 2007 and now account for about 30% of total 7 for All Mankind brandsales.

And finally,increased productivity and product margins for the Lucystores. In 2007, we have made significant progress on each initiative, and thatprogress has reflected in our results. We will continue to focus on this listof initiatives in 2008, which we believe will yield additional strong gains.

I'd like toconclude by saying that the early read on 2008 for both brands is encouraging.The new 7 stores are performing above plan. The Lucy storesare showing improved gross margins and 7 For All Mankind spring season order bookis up an excess of 20%. We are off and running as a part of that.

Eric Wiseman

Thanks Mike.That concludes our formal remarks. As you heard, we have certainly seen some ofthe challenges out there, but we do think that the diversity of the brandwithin VF, the strength of our International business and the growthopportunities there, the broad scope of our product offerings and the manychannels of distribution that we saw, will really help us continue to meet ourplans in 2008.

We will now behappy to take any of your questions.

Question-and-Answer Session

Operator

(OperatorInstructions) We will take our first question from Jeff Edelman with UBS.

Jeff Edelman - UBS

Thank you.Good afternoon and nice job to all of you. Eric, you really did lead manyareas, first question you covered a lot in your opening remarks. But thinkingabout the outlook just I have one question maybe for Bob. How much should wethink of the news for this area, the new store additions contributing in termsof incremental sales?

Bob Shearer

Jeff, are youtalking about for the year '07?

Jeff Edelman - UBS

No, for '08. If we're looking at4%, 5% organic growth: how much of that the figure would be generated from thestores that you have opened in '07 until you “anniversary them” as well as theones you expect to open in '08?

Bob Shearer

Yeah, Jeff, I don't have thatnumbers specifically. What I can tell you is that overall we expect retail togrow in the range of 20% to 25% for 2008. As we said their piece of that ofcourse are comp sales. A piece of that is coming from the Lucy acquisition forexample bringing there is newly acquired sales, which were all retail and thenthe remainder is back opening new stores.

Jeff Edelman - UBS

Okay. And then just a quick onefor Angelo: did you say the weakness in the non-mess merchant business in thefourth quarter was tied to one customer? Or: is it just the overall softness inat retail?

Angelo LaGrega

Yes, Jeff I said it was based onthe overall softness in the channel.

Jeff Edelman - UBS

Okay, great. Thank you.

Eric Wiseman

Thank you, Jeff.

Operator

We will take our next questionfrom Bob Drbul with Lehman Brothers.

Bob Drbul - Lehman Brothers

Hi, good afternoon.

Eric Wiseman

Hey, Bob.

Bob Drbul - Lehman Brothers

I guess the question that I haveon the inventory, I think you have talked about half of it was from the newlyacquired acquisitions. But I guess as you look at the inventory increase inyour first quarter revenue expectations: are there any concerns that you haveon the inventory side, whether geographically or by coalition? I think you wentthrough some of pieces throughout the remarks, but: can you maybe just commenta little bit more on the inventory side?

Eric Wiseman

Yeah, Bob -- the end we have justto clarify at the end of '07, actually more than half of the increase wasrelated to the newly acquired companies. Temporary brands days are high rightnow that's an opportunity for us as we go forward and actually the increase inthe organic businesses was more like 3% to 4%. So, what we are saying is that,we think that our inventories are in very good shape in the levels of excessand that kind of thing are quite low.

And frankly, we made a concertedeffort to get those inventories into that position by the end of 2007. Andagain as we said it related to the newly acquired companies that's an opportunityfor us as we look forward. But having said that the quality of thoseinventories, we are not concerned about that.

Bob Drbul - Lehman Brothers

Okay, okay. And then on The NorthFace business, I guess when you look at the continued strength of the business:can you maybe just talk to the distribution increases of that brand? Maybe atyear end '07 versus where it was in '06? And: the expectation for a full year'08 numbers in terms of door count?

Dave Gatto

Yeah, Bob this is Dave Gatto. Letme address that one. The North Face growth really is coming out of the samedistribution footprint. I mean obviously we are growing doors based on thosekey retailers that we do business with their growth like Dicks or REI or (inaudible). But we arenot significantly changing our distribution strategy or adding doors beyondthat footprint we are in with some few exceptions like footwear specialtystores that are picking up some of our footwear and endurance product. So, weare really growing within the same distribution footprint through more productsyear around and executing four season multi-activity based product line in ourown retail stores.

Bob Drbul - Lehman Brothers

Okay, okay, great. And then justa question on the sportswear side, I guess for Denise. On the Nautica businesswhen you look at, I guess: can you give us the comp of Nautica's retail on theoutlet side in the fourth quarter? And: when you look at 2008 from a departmentstore on the wholesale side, is there any expectation of giving up some of thesquare footage that you have? Or: do you expect that to be pretty steady?

Denise Seegal

Actually I mean: Nautica outletperformance, as you know the [store count] was down across the board and wewere too highly penetrated in cold weather. So, we made the adjustment goingforward for next year to have more, we are now. We also ended our inventoryclean at the end of the year because the outlet channel was much moreaggressive earlier and deeper prices so we're clean right now and we look atour strategy of course for the next year. We are not going to expand as far asdoors. But we think, we'll get higher productivity based on the mix.

Regarding the department storechannel right now we are really focused on elevating the product and refiningour mix. We are investing more in marketing and presentation on the store leveland we think we'll get higher productivity per door.

Bob Drbul - Lehman Brothers

Great, thank you very much.

Eric Wiseman

Thanks Bob.

Operator

And we will take our nextquestion from Brian McGough with Morgan Stanley.

Brian McGough - Morgan Stanley

I just have a quick question forBob on the cash flow. Bob, I just want to make sure, I heard you right. On thecash from ops for '08 are you saying that you can do 700 million or better?

Bob Shearer

That's right.

Brian McGough - Morgan Stanley

Okay. And I mean: that's a hugeimprovement in '08. I'm sorry in '07 what you did versus '06. I think how I'mdoing the math the cash cycle has come down by about 25 days over the past threeyears. But of course, we've Wall Street I mean we always want to know: how muchbetter you can get? I'm wondering: are there higher working capital costsassociated with doing more growth internationally?

And then also, just as you buildout more of your own retail store, as I'm wondering: as you take your higherinventories associated with building your own store when you net that againstthe fact that there are no receivables associated with that business: is it anet positive or negative event to your cash cycle?

Bob Shearer

Brian, I want to make sure Ianswer all the questions. First of all related to the international side thereare some implications and as we grow international and you saw the impactparticularly last year in '06 when we had a very, very strong fourth quarter.And again our international business remained strong, but we had kind of aonetime pick up and it does impact AR. AR days is the one area thatstands out. They are quite a bit longer then they are here in the USnearly three times.

So, that does have an impact oncash flow. So, at the end of last year the AR was up quite a bit higher thatcash was realized in 2007, so that was part of the story just in addition to avery, very strong focus on working capital. So, there are some swings like thatwhich do impact the numbers. Now, the second part was on the internationals,you also asked about retail I believe

Brian McGough - Morgan Stanley

Yes that's correct.

Bob Shearer

Yeah. The days in our retailinventories really aren’t so different from our overall days. So, to this pointin time we've not seen a big impact relative to cash generation related to theretail expansion.

Brian McGough - Morgan Stanley

Now, when you plan over the nexttwo, three years Bob, I mean: is it fair to assume that there is still room toimprove your cash cycle if whether it is? Or: it is not to the same magnitudeas you did over the past couple of years?

Bob Shearer

Yeah that's a great point maybenot of the same magnitude but an area that and I just spoke to you a littleearlier an area that we continue to put a lot of emphasis on is keeping ourinventories clean. In fact, we made progress there this year, as we makeacquisitions, that is normally an opportunity for us as well. So, I'd say that’sthe area that continues to give us the most opportunity it is just working theinventory days down.

Brian McGough - Morgan Stanley

All right, great. Thanks a lotguys.

Eric Wiseman

Thanks.

Operator

We’ll take our next questionsfrom Virginia Genereux with Merrill Lynch.

Virginia Genereux - Merrill Lynch

Hello, hello.

Eric Wiseman

Hey, Virginia.

Virginia Genereux - Merrill Lynch

Hey, Eric. Maybe for you and Bob,just a couple on the -- how about on the top line growth Bob the first quarterof you, I mean: as I look at sort of what that implies for organic growth overthe course of the year. I had revenues a little higher for the first quarter.So, is there a seasonality? In part because of the way I have acquisitionscoming in. Is there a seasonality dynamic? Maybe Bob, as you guys opened moreowned retail, or: are you looking for sort of a faster growth rate in the backhalf? Any comment on kind of the quarterly of organic?

Eric Wiseman

Well, actually Virginia the seasonality of our business doescontinue to change. For example, within the temporary brands coalitions thosebusinesses or weighted about 40% first half and 60% second half. And obviouslyour retail businesses overall -- just like most retailers, our retailsbusinesses more weighted for the second half as well. And that's also truewithin our fastest growing business, which has been our Outdoor, our Outdoorbusinesses. So, our seasonality has that signification in overall pipelinegrowth.

Virginia Genereux - Merrill Lynch

Okay. That's helpful. And then,sort of going down the income statement, you said, the tax rate would pick upmaybe a little less than 200, you are looking for sort of a 34% tax rate. Sothat implies then operating margins have some nice expansion maybe approaching 30basis points. And: can you just review Bob sort of what you said about yourmargin expectations for the year by coalition maybe?

Bob Shearer

Well, just probably I guess wewon't do it by coalition, but I will do it for the, you're talking about the fullyear '08?

Virginia Genereux - Merrill Lynch

I'm talkingfull year '08 because you guys sort of, margins was flat in '07. I know you hadsome acquisitions of lower margin stuff, trying to think: where the marginopportunity will be in '08?

Bob Shearer

Right, so forthe full year '08 what we are looking for Virginiais relative to the gross margins.Here we think we could see a 150 basis points of improvement there, gettingvery close to the 45% level, which is nice progress relative to our overall fiveyear goal.

And thenormal, the factors that we have been seeing, mix is a significant impact onthat, the acquisitions, newest acquisition help, particularly in contemporarybrand areas. And yes we do expect to see improvement within our outdoor businessesas we continue to leverage scale there, a little bit less improvement inJeanswear, but higher than we saw this past year.

As we'veindicated we got Sportswear margins were remain relatively stable and Imagewearsome improvements well, but not quite as strong as the Jeans and Outdoor pieces.

Virginia Genereux - Merrill Lynch

Okay. That'sreally helpful.

Eric Wiseman

Also in thatwhen we talk about mix and other factors, the retail, the retail business as wetalked about in the past, the retail business and the gross margins in retailobviously continue to drive up the gross margin areas as well.

And so what weexpect is from a SG&A standpoint then, about a 100 basis points of anincrease there, again impacted significantly from the mix standpoint highermargin, high gross margin businesses also there a little higher SG&A. Sothat we do expect to get very, very close to the 14% operating margin levelafter 2008.

Virginia Genereux - Merrill Lynch

That's great. And then justlastly, LIBOR coming down -- 150 bits or whatever here, pretty quickly: doesthat give you an advantage in anyway on the debt side? Bob, I mean: or if yougoing to take up your….. the discount rate on the pension obligations. Is thatsort of a wash? I mean: is there anyway you guys can play that or swaps orsomething?

Bob Shearer

Yeah. It is a bit of a watchright now, I mean obviously from a debt standpoint, we're pretty well lockedin, but we are not. I mean we like to rates that we have with a rate minusrating, we think we are in a better position then most I'd say to takeadvantage of opportunities that may come our way and get that place. So,actually I'd say that's actually the biggest gains that we have.

Virginia Genereux - Merrill Lynch

That's great. You all keep it up.

Eric Wiseman

Thanks, Virginia.

Bob Shearer

Thanks, Virginia.

Operator

We will take our next questionfrom Eric Tracy with BB&T Capital Markets.

Eric Tracy - BB&T Capital Markets

Good afternoon. Just real quickif can follow-up on sort the cadence of the quarterly flow in '08 from a topline perspective and particularly from the contemporary brands. Is it say toassume so -- I think you said Bob 60% in the back half, 40% first half?

Bob Shearer

Right.

Eric Tracy - BB&T Capital Markets

Does that then imply that eitherthe Jeanswear or Sportswear coalitions actually down year-over-year on anannual basis?

Bob Shearer

No.

Eric Tracy - BB&T Capital Markets

To get to that 9% on an aggregatebasis, am I okay. I'm just trying to take into the math you've got 415contributions from the contemporary brands, correct?

Bob Shearer

Right, right.

Eric Tracy - BB&T Capital Markets

Okay. Mid-teens for an Outdoormid single-digits for Imagewear?

Bob Shearer

Eric, remember that we ownedcontemporary brands I don't know, exceeded that in the math, but we ownedcontemporary brands for about four months.

Eric Tracy - BB&T Capital Markets

Yeah, now it just sort of growthoff in the back half and then making some assumption for the first half. Okay,I will follow-up with you afterwards offline.

Eric Wiseman

Sure, we can do that.

Eric Tracy - BB&T Capital Markets

Okay, thanks guys.

Eric Wiseman

Yeah.

Operator

Your next question comes fromTodd Slater with Lazard Capital Markets.

Todd Slater - Lazard Capital Markets

Thank you very much andcongratulations on a very consistent and terrific numbers.

Eric Wiseman

Thanks, Todd.

Todd Slater - Lazard Capital Markets

I just want to clarify on theguidance that the, is the 10% EPS growth rate in '08 based on the $5.41 in '07?

Bob Shearer

Yes, yes it is.

Todd Slater - Lazard Capital Markets

That means you are comfortablewith $5.95?

Bob Shearer

That’s right.

Eric Wiseman

That's right.

Todd Slater - Lazard Capital Markets

Okay. And do you expect that theguidance includes any -- is there any expectation there of another tax benefitin the fourth quarter of '08? Or: we kind of done with that stuff?

Bob Shearer

I think the question was, as Ihad a little bit trouble hearing that: do we expect the tax benefit in thefourth quarter of '08?

Todd Slater - Lazard Capital Markets

Yeah.

Bob Shearer

No, not at this point. I mean:the tax credits we've -- we obviously understand over the last couple of yearswe've had them, it's a situation in a foreign entity and settled with thepassage of time. So, not at this point of time, we can't really plan those oranticipate those.

Todd Slater - Lazard Capital Markets

Okay. So, that's just sharegrowth in core business and no onetime tax issues?

Bob Shearer

There are no onetime credits orbenefits assumed in numbers that we filled in.

Todd Slater - Lazard Capital Markets

Great! And: what does theguidance assume in terms of currency if anything?

Bob Shearer

Relative to the Euro, which is byfar the biggest factor us. We assume a rate for the full year of about 1.40.So, obviously we understand that right now it's higher than that and if theywould hold where it is today that would create some-upside for us.

Todd Slater - Lazard Capital Markets

Okay, that's good. And then justlastly on the international business side, I believe that you had project --you thought that business could grow, expand margins 300 basis points or soover the next five years, is it expected that will come on, that expansion willoccur is more front-end loaded or backend loaded within that timeframe?

Bob Shearer

We should see some opportunities,some benefit. I talked, I spoke earlier about on a coalition basis and where weexpected to see the margin expansion and one of the areas that we've beenseeing the operating margin expansion would be on our outdoor businesses forexample as we continue to grow at a fast pace and leverage scale within thesebusinesses.

Karl Heinz Salzburger

I think the national Jeanswearbusiness as well that's having…..

Bob Shearer

Absolutely!

Karl Heinz Salzburger

Having operating margin expansionand the new markets that we are in Todd, we will start to become moreprofitable over the five year period. I'd expect more of that in terms of bothdollars and rate would be in the year's three to five in the plan.

Todd Slater - Lazard Capital Markets

So if that saying that thebiggest rate of growth is going to occur in year three, four, five rather thanthe next couple of years.

Bob Shearer

No, I wouldn't say that. I mean:I'd say that we expect to see improvement on a fairly continuous basis.

Todd Slater - Lazard Capital Markets

Okay, got it. Thank you verymuch.

Bob Shearer

Thanks, Todd

Karl Heinz Salzburger

Thank you

Operator

We will go next to Jim Duffy withThomas Weisel Partners.

Jim Duffy - Thomas Weisel Partners

Thank you. Hello everyone.

Eric Wiseman

Hi, Jim.

Mackey McDonald

Hi, Jim.

Jim Duffy - Thomas Weisel Partners

Question for you on thesportswear business: A tough year for Nautica and it looks as though in '08 youare looking forward to be another year of investment. In the past, you havedivested businesses they aren't performing up to your expectations. What's theprocess that you go through to evaluate that decision and how do you kind ofbalance on paper potential versus historical results?

Bob Shearer

Sure. We go through a regular andrigorous process of looking at every one of the VF's businesses to look attheir relevance to our future strategies and their contribution to our economicoutlook, and you are right. The Nautica business right now is not earning whatwe had expected it to earn. But it is certainly relevant to our strategy beingin the sportswear businesses is an important place for us to be. And we've had thisbusiness earning mid teens operating margins in the past have chosen to makesome investments in the business right now. We do have seen the operatingmargin of the business, but now that we are confident we can get it back there.

Jim Duffy - Thomas Weisel Partners

Okay. And so some of the margincompression that we've seen is because of investments in growth and I supposethe notion is: that you expect those to payoff and to be margin expansion infuture years?

Bob Shearer

That’s correct

Jim Duffy - Thomas Weisel Partners

Thank you.

Eric Wiseman

It is one good example of thatJim.

Operator

(Operator Instructions) We'll gonext to Robert Ohmes with Banc of America Securities

Robert Ohmes - Banc of AmericaSecurities

Thanks. Two quick follow-ups: canyou guys give a little more detail on the $0.09 of special spending initiativesin the quarter? What type of savings going forward? How that would spreadbetween Jeanswear and other businesses?

And then the second question isjust a little more I think, I might have missed the sort of Jeanswear outlookfor the first quarter it's a little tricky in the US given the environment. But Ithink you guys are looking for Jeanswear overall for the year to be strong. Canyou just walk us through again, sort of: how we should see that playing out in08? Thanks.

Eric Wiseman

Robert, Bob will answer thequestion in terms of the spending. So, out of the $30 million what we said was$8 million of that was related to our international jeans business and there whatwe're addressing are mostly front end areas in terms of sales and marketingalso some distribution. And we'll see partly the benefit of that and expectinga strong year relative to international Jeanswear business in 2008. Thisrelative to the remainder as we said it really is spread out in a number ofdifferent areas there is a $1 million in sportswear $2 million in the corporateexpenses and $1 million in outdoor.

Robert Ohmes - Banc of AmericaSecurities

So, I'm sorry just forinternational are you closing things down or you hiring people and buildinginfrastructure to buy the business over there and so you have an extra charges,you can just kind of tell us: what it is you are doing?

Eric Wiseman

As we given the sensitivitiesrather not comment on too specifically on that, but I can just tell you that ithas to do with what driving the top line.

Robert Ohmes - Banc of AmericaSecurities

Got you. And then the follow-upquestion was just on Jeanswear tough in the first quarter, but one of the leadingI guess coalitions for you for the year. If you guys could just walk me throughthat again that would be great.

Angelo LaGrega

This is Angelo. On the domesticside of Jeanswear business, as you will know December and January are relativetough. We are seeing that continuing, anticipating through the quarter, but wefeel very strong about our results and hitting our modest growth 2008.

Robert Ohmes - Banc of AmericaSecurities

So, there is a re-accelerationcoming in the second and third and fourth quarter?

Angelo LaGrega

Well, actually see somethingwhere on a first quarter on the domestic side, there is definitely been alittle bit of shift in seasonal business, where people reporting in '07 toomuch seasonal early and shifting at Q2. So, we see a little bit of thatshifting over and then we are excited about as we go through the year and Ithink core one bottom businesses where we have seen good market share gains, wesee that continuing to ran in '08.

Robert Ohmes - Banc of AmericaSecurities

Okay, great. Thank you very much.

Eric Wiseman

Thanks, Robert.

Operator

We'll take our next question formNeil Harper with [Jeff Reporting Company].

Neil Harper - Jeff Reporting Company

Hey, guys great quarter.

Eric Wiseman

Thank you.

Neil Harper - Jeff Reporting Company

I got a question overall aboutthe operating cash flows: can you get into any more granularity in terms of bycoalition? Or: it was there anything unique that made it go up so much thisyear? And: whether or anything else we should try to at least have in mindgoing forward?

Eric Wiseman

Neil, we put not to comment on bycoalition basis, but if you look at the overall profitability which is strongin most our coalitions really all are generating cash in a very positive way.Relative to 2007, your (inaudible) is so much higher; it was an area of a lotof focus for us frankly in terms of working capital.

Now as we talked about earlierthis is always a little bit of swing and timing and if you look at the '06 cashgeneration number it was unusually low. And as we said earlier part of that wasdue to the higher AR balance and a lot of that was due to the very, very stronginternational sales that occurred right at the end of the year. In addition tothat, our payables at the end again of '06 were a little bit lower than normaland that just has to do with the timing of the inventory received.

So, there was a bit of swing thathelped us, but more than anything else, the swing and timing but more thananything else it was a very, very strong earnings, a real emphasis in terms offocused on working capital on just a very strong year overall. And again, veryimportantly looking at that $700 million number next year says that it was ayear that obviously stood out, but we expect another very strong year in 2008.

Neil Harper - Jeff Reporting Company

Okay. So, is almost like somewhatof a sign wave is the way you described it. So, we should try to draw some kindof a straight line going through that year-over-year, ups and downs?

Bob Shearer

Absolutely I'd say that the '06number was however unusually low. And again, relative, I'd say that the '08number at the 700 is a more normalized number.

Neil Harper - Jeff Reporting Company

That's great.

Bob Shearer

That's how I look at it.

Neil Harper - Jeff Reporting Company

Okay, thank you.

Bob Shearer

You're welcome.

Operator

And there are no furtherquestions at this time. I'd like to turn the call over to Mr. Wiseman for anyclosing comments.

Eric Wiseman

Sure. I just want to thank all ofyou for joining our team today as they shared their plans for 2008. As I said,earlier in my comments it is a clearly a challenging year. We think we've theright people and the right brands and the right model to do well in thisenvironment and we look forward to giving you an update at our first quarterconference call in a couple of months. Thank you so much.

Operator

This does conclude today'sconference call. We appreciate your participation. You may disconnect at thistime.

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