VF CORP.'S NORTH FACE UNIT NOW A GROWTH BUSINESS

CHARLOTTE -(Dow Jones)- VF Corp. (NYSE: VFC - news) (VFC) should see accelerating earnings from its North Face unit now that outdoor apparel division has fixed some of its problems and is growing, North Face's president said.

North Face remains on track to increase its revenue at a double-digit rate annually for the next several years, compared with the VF-wide goal of 6% annual sales growth, North Face President Mike Egeck said in an interview Monday.

Egeck thinks North Face's earnings can increase at a faster rate than sale. Orders for fall, which begin shipping in May, are up 15% to 20% over last year despite relatively weak outerwear demand industrywide. "We're very encouraged by what's going on," Egeck said. VF doesn't break out sales or earnings for North Face, which is part of VF's outdoor apparel and equipment group. The group, which also includes backpack makers JanSport and Eastpak, generated 2001 sales of $492.3 million and $61.1 million in operating profit, or 9% of VF's consolidated net sales and operating profit.

VF, Greensboro , N.C. , is the largest maker of apparel in the country and the nation's top jeans maker. It makes Lee, Rustler, Wrangler and other brands of jeans. Overall, VF had $5.52 billion in sales last year.

On Monday, VF Chief Financial Officer Bob Shearer told participants at a Lehman Brothers Inc. retail conference the company sees "significant upside" for the North Face brand.

"Our goal for The North Face and our outdoor business in total is substantial growth," Shearer said. "We like the outdoors category very much. We think we have a terrific base with The North Face business, in terms of not only a very, very strong brand but a lot of expertise with product."

FROM THE EDGE OF BANKRUPTCY

Egeck said North Face is "solidly profitable" two years after VF acquired the company when it was on the verge of bankruptcy. VF paid $125 million, including debt. In the 12 months before VF bought North Face, the business lost $98 million on sales of $238 million, said Egeck, who joined the company in August 2000from Columbia Sportswear Co . (COLM).

About 50% of shipments were incomplete and late, and the inventory and distribution problems were alienating retailers, Egeck said.

"The beautiful thing about the VF acquisition (is) its strength in operations technology and supply chain management lined up beautifully with the problems The North Face was facing," Egeck said.

He declined to quantify sales, but said orders now ship completely and on time 95% of the time, and inventory is half the level it was when VF acquired the company.

FOCUS ON NEW PRODUCTS:

Fixing the operational problems freed up resources to refocus on creating new products, Egeck said. Sixty percent of the company's product line is new since the acquisition. One new product is the company's MET5 jacket, a lightweight jacket that has battery-powered heat panels in the chest. Egeck said North Face is still trying to catch up with demand for the jacket and is introducing a vest version for this fall that has heat panels in the front and back.

"It showed us people will pay for innovation despite the weather and the economy," he said.

A combination of restored confidence in the North Face brand and new products are helping sales, he said. "Our customer is not likely to change their lifestyle in an economic slowdown," he said. "They still go hiking, backpacking, skiing."

He suspects North Face is gaining sales from Americans who are taking the family camping rather than taking a week-long cruise or a vacation that requires flying.

VF executives have said they would consider acquisitions to bolster sales at the outdoor apparel and equipment group, but Egeck expects North Face will generate growth internally.

The core business has a lot of room to grow, he said. Sales of women's goods, now 40% of sales, are growing faster than men's goods and should be half of sales by year end, he said. "That's being fed very much by our product assortment," Egeck said. Seventy percent of the product lineup used to be focused on men, but it's now approaching an even split. He expects sales will follow that pattern.

North Face's footwear business, started in 1999, also has growth potential, Egeck said.

Retail Is 15% To 20% Sales

In February, North Face opened its first retail store in seven years, a 7,500 square foot prototype in Beverly Hills, Calif, selling the gamut of company products rather than mostly apparel as North Face's other seven stores do. Egeck said North Face might open another one or two stores this year, but has no specific plans beyond that until it evaluates full-year results from the prototype. "We do plan to make money" at retail, he said, explaining that North Face's stores are more than just a way to promote the brand.

Retail is about 15% to 20% of total company sales, and Egeck sees that figure to stay roughly flat as total sales rise.

Meanwhile, the company continues to focus on managing expenses in order to achieve the corporate-wide goal of 14% operating margins, Egeck said. North Face, JanSport and Eastpak are studying consolidating as many back-office operations as possible, in much the same way VF's intimates group has done, he said.

-By Mary Ellen Lloyd, Dow Jones Newswires

(This story was originally published by Dow Jones Newswires)