Earnings Call: Q4 2013

Feb 14, 2014

Good day, everyone, and welcome to the VF Corporation 4th Quarter 2013 Earnings Conference Call. Today's conference is being recorded. And at this time, I would like to turn the call over to Lance Lega, Director of IR. You may begin. Thank you, operator. Hello, everyone, and thank you for joining us today to discuss VF's Q4 and full year 2013 results. Before we begin, I'd like remind participants that certain commentary included in today's remarks and the Q and A session may constitute forward looking statements under the definition of federal securities law. Forward looking statements include management's current expectations, estimates and other projections about our businesses, results of operations and the industries in which VF operates. Actual results may differ materially from those projected in these forward looking statements. Important factors that could cause actual results to differ materially from those projected in the forward looking statements are discussed in the documents filed with the SEC. Additionally, participants on today's call may discuss non GAAP financial measures. You'll find appropriate reconciliations for those in our press release, which was issued about an hour and a half ago and at our website at bfc.com. Joining us on today's call will be VF's Chairman and Chief Executive Officer, Eric Wiseman Bob Scheer, our Chief Financial Officer and our Group Presidents, Scott Baxter, Steve Rendell and Carl Heinz Wellsberger. Also participating will be Karen Murray, President of VF Sportswear and Susan Kellogg, President of VF Contemporary Brands. Following our prepared remarks, we'll take your questions and we'll ask that you limit your initial questions to 2. In the event you have additional questions that are not covered by others, please re queue and we'll do our best to come back to you. Thanks for your cooperation on this. I'll now turn the call over to VF Chairman and CEO, Eric Weizmann. Eric? Thanks, Lance. Good morning, everyone, and thanks for joining us today. As Lance mentioned, we have several members of the VF team with us today to review our Q4 and 2013 performance and to provide insight into 2014, so our call will likely extend beyond 1 hour to ensure we have ample time to take your questions. In setting the table for this morning's discussion, I'll focus on 3 topics. 1st, a summary of our performance in 2013 second, a review of our success in creating value for our shareholders and third, a look to the future including a focus on our 4 key growth platforms that are going to drive our near term performance and fuel our success in achieving the 5 year plan that we presented in June of last year. 2013 was a terrific year at VF. We ended the year on a strong note that really set us up well for a successful 2014. We achieved all time highs in revenues, gross margin, earnings and cash flow and we did this despite continuing economic challenges around the world in a highly competitive environment. We beat our guidance on both gross margin and EPS for the full year, while also exceeding our cash flow from operations target. And while we were a bit shy of our revenue target, we're thrilled with the momentum we reestablished in the Q4, especially for The North Face fans and Timberland brands. So taking a closer look, total VF revenues grew 5% reaching 11,400,000,000 dollars Our biggest revenue drivers included the Outdoor and Action Sports Coalition, which grew 9% with meaningful gains from Vans, The North Face and Timberland. Outdoor and Action Sports delivered 56% of Versus revenue in 2013. Our international business grew 8%, representing 38% of our total revenue and our direct to consumer business grew 13% and was 22% of Versus revenue. Solid growth in these higher margin businesses and continuing gross margin expansion rates in our coalitions lifted our gross margin to 48.1%, up 160 basis points from 2012. Our operating margin reached 14.4 percent, a 90 basis point improvement even with the incremental marketing spend we elected to make in the second half of the year. And our adjusted earnings per share increased 13% to 2 point $7.3 right in line with our 2017 plan target of 13% annual EPS growth. The Versus team's strong performance created great value for our shareholders in 2013. Our stock price increased 65% hitting all time highs and that's compared with an S and P index that rose 30% in its best performance since 1997. We're pleased with the strong response to our performance, our plans and the outlook for our company. In 2013, we announced a 21% increase in our quarterly dividend rate and that marked the 41st consecutive year of higher dividend payments to shareholders. Our track record of returning cash to shareholders is solid. Last year, we returned nearly $700,000,000 to shareholders in the form of cash and share buybacks. Now let's move on to our plan to fuel near and long term growth. Underlying our growth plan is a relentless focus on VF's 4 growth drivers. 1st, we will lead in innovation. That means developing a constant stream of new and better products, store environments and digital experiences that deliver what customers want. Our emphasis on creating game changing products at VF is stronger than I've ever known it to be and our innovation pipeline has never been fuller than it is right now. 2nd, we will connect with consumers. We're confident in our ability to do that, not just because we understand consumers, but because we're always listening to them. We ask and they tell us what they want, what inspires them and how to best communicate with them. 3rd, we will serve consumers directly wherever and however they want to engage our brands. We're working tirelessly to elevate their brand experiences, whether brick and mortar or click and order, where they're learning, improving and customizing their experience to create brand loyalists. And 4th, we will continue to expand geographically from the Americas to Europe to Asia in mature and emerging markets. We believe our brands are underdeveloped and have a robust ability to not only capture share, but more importantly to grow the market. Moving towards the year ahead. In 2014, we expect revenues to be up 7% to 8%, which is an acceleration that puts us roughly in line with our 2017 which is an acceleration that puts us roughly in line with our 2017 organic growth rate target. And consistent with 2013, we anticipate our outdoor and action sports coalition to be the largest driver of our top line growth. We expect gross margin to reach 49%, while our operating margin should reach 15%. We expect earnings per share to grow 11% to 13%, reaching $3 to $3.05 per share. Cash flow from operations should reach $1,650,000,000 and we're pleased to report that we expect to return more than $1,000,000,000 to shareholders in 2014 through share repurchases and dividends. So with 1 year of our 5 year plan in the books, I can report we are on track. I want you to take away from this call, how well positioned we are with powerful global brands and powerful business platforms that guide and support our long term growth strategy. With product innovation leading the way, we see continued momentum across our portfolio. Of note, our balance sheet is very healthy with resources available to make the right investments at the right time and support our growth and return consistent value to shareholders. And with that, I'll turn the call over to Bob. Thanks, Eric. In the Q4, we delivered very solid performance, especially in a global business environment to face well at least a few challenges. And it's exactly in this type of environment that the power of Versus diverse brands and platforms really shine. From industry leading product innovations to connecting consumers with fantastic brand stories and providing them with a premium shopping experience, we closed 2013 with strong momentum. This momentum, particularly in our outdoor and action sports coalition gives us increasing confidence that 2014 will be an even stronger year. 4th quarter revenue grew 8%. The increase was driven by strong performances from our outdoor and action sports and sportswear coalitions and our international and direct to consumer businesses, all which delivered double digit revenue growth. A faster pace of growth in these higher margin businesses joined with supply chain efficiencies resulted in improved gross margin performance across nearly all of our coalitions, delivering an 80 basis point increase in VF gross margin reaching 48.2% in the Q4. Operating income grew 13% in the 4th quarter and our operating margin reached 15.5%. Now that's an all time 4th quarter high for us. We saw a slight increase in the SG and A rate in the quarter, primarily due to nearly $30,000,000 in incremental marketing investments we discussed on our last call. We've done this before and it's worked. And we're really pleased with the energy, passion and storytelling we injected into the marketplace during the quarter. We're confident these efforts will help amplify consumer connection with our fastest growing brands in 2014, helping us drive towards our 2017 growth targets. Now as for the bottom line, well, we hit a 4th quarter high with earnings per share of $0.82 that was slightly ahead of our expectations. And now a few comments on Q4 results for our coalitions. Revenue for our Outdoor and Action Sports business was up 12% with double digit gains in both our wholesale and direct to consumer businesses. This growth was balanced between our U. S. And international markets. In terms of brands, The North Face, Vans and Timberland all delivered double digit growth, pretty impressive in a quarter marked by negative mall traffic trends and fairly aggressive promotions. And we're particularly pleased by the 12% revenue growth in The North Face during the quarter, which was broad based across geographies including 10% growth in the Americas and a high teen percentage rate increase in both Europe and Asia Pacific. The North Face's D2C business was a real standout performer in the quarter with more than 30% growth and healthy comps. Coming off of 2 previous winners in the U. S, which were challenging, it's been really nice to see our product innovations and marketing efforts connect so strongly with consumers. And in case you didn't hear it yet, The North Face is now Versus first $2,000,000,000 brand, what an achievement for the global TNF team. Vans also delivered great results with revenues up 14% in the quarter. This growth carried the brand to just over $1,700,000,000 and into the 2nd spot among Versus largest brands. By region, Vans was up at a low double digit rate in the Americas, up 20% in Europe and up at nearly the same rate in Asia. Remarkable results for the quarter and yet another phenomenal year for the Vans brand. In fact, this marks 17 consecutive quarters that the brand has achieved double digit revenue growth. Now turning to Timberland. We're really starting to see our efforts and plans come together for this brand. During the quarter, global revenues for Timberland were up 13%. In the Americas region, sales in our wholesale business outpaced D2C as the business grew at a high teen rate. A huge highlight was Europe, where I'm very happy to report the revenues were up at a low teen rate. Clearly, this is very good news and great evidence that all the work we concentrated on since the time of this brand's acquisition is paying off. In Asia Pacific, reported 4th quarter revenues were down modestly, but up at a high single digit rate on a constant dollar basis. Timberland has been and will continue to be a strong momentum story for us. We're looking forward to acceleration in Timberland's growth moving forward. The Outdoor and Action Sports Coalition delivered 11% operating income growth in the quarter. Operating margin was down 10 basis points to 18.7%, but was impacted by more than 100 basis points from the incremental marketing investments made in The North Face Vans and Timberland brands. Now just taking a step back, we're really pleased with the momentum of these 3 powerful brands The North Face Vans and Timberland and the performance of the Outdoor Sports Coalition as a whole. The investments we've made, especially in these largest brands are paying off. We can't underscore enough how proud we are of these global brand teams that continue to set the standard of excellence in product and connecting with consumers and in execution all combining to return great value to VF and to our shareholders. And getting a little ahead of myself, these same three brands will drive great momentum for us in 2014. Jean's Wear's top line was flat in the Q4. Sales in the Americas business saw flat results in the U. S. Offset by declines in Central and Latin America. In the U. S. Challenging conditions at mid tier department stores and in the mass channel are tempering our growth. Overall traffic declines and the tougher trend in women's basic denim are impacting the business. Yet despite these headwinds, the Coalition still delivered a 40 basis point improvement in profitability with operating margin reaching 18.3% with especially dramatic improvements in Europe. So all in all, while we saw slower than expected revenue growth in jeanswear, once again the business was a strong contributor to Versus overall profit picture. ImageWare posted revenue growth of 9% in the 4th quarter due in large part to the resumption of a previously delayed contract renewal and an accelerated focus on product innovation. Operating income was up 31% and reached 15.6%, reflecting gross margin improvement and SG and A leverage. Our sportswear business posted a 14% revenue gain driven by balanced growth in both the G2C and wholesale channels. Both Nautica and Kipling's U. S. Business showed strong growth despite a challenging department store environment. Nautica grew 11% with increases in both its wholesale and direct to consumer businesses. And Kipling's exceptional growth of 33% in the quarter in the U. S. Helped the brand achieve the highest global growth rate of any VF brand during the Q4 full year. In fact, Kipling is now VF's 7th largest brand behind Nautica, so hats off to that team with certainly a lot more to come. Sportswear's profitability improved 11% with an operating margin that was down slightly to 17.2% due to heightened investments in marketing to support future growth. Revenues in our contemporary brands business grew slightly in the 4th quarter, driven by strong international growth. Our D2C business in this coalition around the world continues to grow. However, contracting demand for premium denim in the U. S. Wholesale channel challenged our top line results. Operating margin was flat compared with last year's rate. And just a few comments about our full year results. We couldn't be more pleased with the 160 basis point expansion in our gross margin, which reflects the growing business mix towards our higher profit businesses, product cost reductions as well as the overall strength of our brands. Also of note is that while our SG and A ratio as a percentage of total revenue increased by 50 basis points, our marketing spend alone increased 60 basis points indicating leverage and cost controls in other areas of our business. I think this is a very important point that illustrates the continued discipline we around making the right investments to ensure the best returns to our shareholders. BS balance sheet remains extremely healthy. We repaid all outstanding commercial paper borrowings contributed $100,000,000 to our pension plan and raised our dividend by 21 percent. In 2013, we returned nearly $700,000,000 to shareholders through dividends and share repurchases. At year end, our inventory was up 3% below the rate of sales growth demonstrating our continued discipline around inventory controls. Overall, our strong earnings and working capital management fueled cash flow from operations in excess of $1,500,000,000 We ended the year with our debt to cap ratio at 19%, which is actually lower than 2010, the year before we acquired Timberland. And finally, our return on invested capital improved 140 basis points to reach nearly 18%, slightly ahead of our plan and another high for VF. And speaking of another strong year, let's talk about what you can expect from us in 2014. We expect revenues to increase 7% to 8%, driven by stronger growth in every coalition and region and across our wholesale and B2C businesses. This represents a meaningful acceleration from the growth rate we achieved in 2013 and is essentially in line with the 5 year organic CAGR we put forth in our 2017 plan. Once again, our Outdoor in Action Sports Coalition is expected to lead the way with low double digit revenue growth driven by continued strength in The North Face, Vans and Timberland brands. We expect Vans to grow at a mid teen rate followed by 12% growth at The North Face and 10% growth at Timberland, all of which are in line with compounded annual growth targets we set in our 2017 plan. In jeanswear, we're looking for low single digit revenue growth with continued momentum in our Western Specialty business in the U. S. And in our international businesses tempered by continued sluggishness ness in the U. S. Mass channel and challenges in the U. S. Mid tier department store channel. In ImageWare revenue should grow at a low single digit rate. We expect the momentum in our sportswear coalition to continue looking for high single digit revenue growth for the full year. And finally, we're expecting mid single digit growth in the Contemporary Brands Coalition. We continue to see international and direct to consumer as key growth drivers for VF in 2014. We're targeting 10% revenue growth in our international business this year. By region, we expect Asia to increase at a high teen rate or low teen in constant dollars with China looking to grow more than 20% or by a mid teen percent in constant dollars Europe at about 10% and our Americas, that's the non U. S. Piece at a high single digit rate. We expect our international business to represent 38% of total revenues in 2014. Now turning to D2C. You may have read in the earnings release that we've made a change in how we report revenue from our concession retail locations. Now by definition, concessions are retail locations outside the U. S. Where we're responsible for all aspects of operations without ownership of the retail space. Now to better represent the operations of these concession shops, we'll move all associated revenues and profit into our direct to consumer business from our wholesale business. Adjusting for this shift, which approximated $170,000,000 in 2013 $200,000,000 in 2014, direct to consumer revenues are expected to be up at a high teen percentage rate in 2014 and represent 26% of total revenues in 2014. In addition to the reclass of concession shop revenues into D2C, we've elected to change our accounting for the fees that we pay to operate our concession locations. Previously these fees which in 2014 will approximate $60,000,000 have been netted against revenue. Beginning in 2014, these fees will be reflected in SG and A. So this change will increase our revenues as well as our gross margin and SG and A ratios, but the change obviously has no impact on operating profit dollars and it's just slightly dilutive to our operating margin. Now to support our D2C growth, we intend to open slightly more stores this year as well as additional e commerce sites in international locations. With consistent store expansion combined with expected healthy comp growth and an anticipated 30% increase in our e commerce business, we're confident about our ability to drive our business on all fronts. Now turning to margins. In 2014, we expect to increase our gross margin rate by 90 basis points to reach 49%, once again up 90 basis points to 49%. Now you'll recall that our 2017 plan calls for gross margin to reach 49.5%. So in year 2 of our 5 year plan, we're anticipating that we'll be only 50 basis points shy of our goal. So what's driving that? Well, two things. First, the continued expansion of our overall business mix towards higher profit businesses such as Outdoor and Action Sports, international and B2C. We consistently see that mix drives 60 to 70 basis points per year in our gross margin percent. There's no reason that should stop. 2nd, the previously mentioned change in accounting for concession locations will favorably impact our gross margin percentage by about 30 basis points. We do expect to see some slightly higher product costs in 2014, but the impact on our gross margin should be neutral due to pricing and other supply chain efficiencies. So related to gross margin, we're firing on all cylinders and we expect that to continue. With respect to SG and A, we will remain opportunistic in targeting investments in our brands, products and marketing to drive future growth. Marketing spend as a percent of revenues will remain about flat from the elevated level of 2013 with obviously a much higher rate of spend against our fastest growing brands. And as previously mentioned, the change in accounting for concession locations will increase our SG and A ratio in 20 14 by nearly 50 basis points. All in, we expect significant expansion in our full year operating margin, which we expect to rise by 60 basis points to reach 15%. And finally, the bottom line, we expect our earnings per share in 2014 to reach $3 to $3.05 which represents 11% to 13% growth over 2013. A few other housekeeping items. We're assuming a 23.5% to 24% effective tax rate, a negligible impact from changes in foreign currency and capital expenditures of approximately $270,000,000 Now in terms of quarterly revenue comparisons in 2014, we expect the shape by quarter to closely follow the trajectory of 2013, although at a higher growth rate per quarter. So we're expecting revenues to grow at a mid single digit rate in the first half of twenty fourteen, driven by growth in outdoor and action sports, followed by a high single digit increase in the second half of the year. 1st quarter earnings will face a tougher comparison against last year's Q1, because of a $0.03 per share tax benefit in the 2013 quarter, primarily related to the impact of U. S. Tax law changes enacted in January of 2013. In the second half of twenty fourteen, revenue growth and profitability should be the most favorable comparison, reflecting the growing contribution of the Outdoor and Action Sports Coalition and expansion of our direct to consumer business. And finally a comment on our use of cash. There are 3 levers that we employ to provide the highest return to our shareholders: acquisitions, share repurchases and dividends. No change in our first priority, which remains acquisitions. Over the last 10 years, we've demonstrated our ability to drive shareholder value through acquisitions. Regarding share repurchases in 2014, we expect to spend approximately $700,000,000 against our share repurchase program. That represents nearly 3 times our average buyback spend over the past 5 years. That when combined with our annual dividend, which would be more than 20% higher in 2014 versus 2013, we expect to return more than $1,000,000,000 to shareholders this year. So in summary, 2013 was a year of terrific accomplishment. We achieved higher than anticipated gross margin and bottom line results and our cash flow exceeded our expectations, all while investing heavily in our brands to drive future growth. In June of last year, we shared our 5 year growth plan and put into play 4 growth strategies designed to deliver sustainable profitable growth. It's been amazing to see the incredibly innovative product that we're creating, consumers becoming even more passionate about our brands and the enormous opportunity to grow and transform our business on a global basis. So with year 1 of our plan under our belts, I'm happy to report that we are more than confident more confident than ever that we'll achieve our 2017 goals. And with that, I'll turn it over to our coalition leaders to give you more insight on what's in store for 2014. Let's kick it off with Steve Rendell. Thanks, Bob. Starting with The North Face, full year revenues were up 7%, which took the brand past the $2,000,000,000 mark for the first time, an amazing job by our global team, well done. 2013 was a tremendous year of focus and execution for The North Face and honestly the brand is the strongest we've ever seen it with measurable momentum going into this year. In fact, the Q4, The North Face was up 12% on a global basis. Looking at 2014, we expect The North Face's global revenues to be up 12 percent, representing a solid acceleration over last year and right in line with our expectations for our 2017 plan. In the Americas region, we expect revenues to be up at a similar rate with strength in both wholesale and our D2C businesses. Let's take a look at some highlights for the year ahead. In 2014, we'll use the great momentum from last year's incredible product launches and continue to drive newness, innovation and performance into our line. Three important highlights include ThermoBall, building off the success of our fall 2023 launch, the highly coveted Never One Place Always One jacket has radically raised the bar for the entire transitional outerwear category. As the first innovation in our science and warmth platform, sales at ThermoBall blew away our expectations in the Q4. In the fall of 2014, we'll expand the line significantly, including a much broader offering for women. Next up is Fuseform. Fuseform is a game changing new technology that makes it possible to weave 2 materials into a single fabric. Why is this important? We're able to dramatically reduce weight, simplify manufacturing and ultimately deliver a singular aesthetic that maximizes breathability and durability engineered to where the athletes need it most. And based on the initial response for the 2 new jackets Fuse UNO and Fuse Brigadine, which won Gear Junkie and Outside Magazine's Gear of the Show at Outdoor Retailer, we think we've got another amazing must have product in our hands. And last but not least, as we continue to focus on building our first half business, our new Mountain Athletes collection is the next evolution of technical training apparel and footwear designed to help athletes push their limits in their outdoor sports. We are really excited to see this line hit the market later this month. In 2014, you will see a measurable acceleration in how we go to market. We will own the emotional connection of exploration and inspire the next generation of explorers. And finally, through our retail stores, e commerce platforms and wholesale partner locations, 2014 will mark another year of rapid evolution in the way we communicate, educate and telegraph the brand. In the Q4, we rolled out enhancements to our website to make the site easier and quicker to shop. I'm happy to report that these enhancements increased conversion rates by 10%, contributing to our Americas e commerce growth being up 35% for the year. We also made some enhancements to our omnichannel offering, enabling stores with new mobile selling tools, which provided better access to online inventory and content. Now here's Karl Heinz Sulzberger to talk about The North Face's international business. Thanks, Steve, and good morning, everyone. Internationally, The North Face enjoyed an 11% increase in revenues in 2013 with Asia our strongest market generating revenue growth of over 20%. And in Europe, we grew at the mid single digit rate, which outpaced our competition quite nicely. In 2014, we're looking forward to similar growth rates across our international business. The North Face International business, are focused on 4 objectives for the 3 year: 1st, improving retail profitability 2nd, strengthening our local product offering 3rd, enhancing our relationships with wholesale accounts, especially in Europe and 4th, continued rapid growth in China. In Europe, our direct to consumer business will continue to play a major role in driving growth. We plan to open a significant number of partner doors in such key markets as the U. K, Germany, France, Italy and Russia. China remains a unique and significant growth opportunity for The North Face as well and we expect another year of strong growth with revenues expected to be up at high teen percentage rate. With significant incremental marketing investments made in the second half of last year, we are taking full advantage of leading the outdoor category conversation in this dynamic market. Overall, we are very encouraged by where The North Face stands as we wrap up year 1 of our 5 year plan and we are on track with our financial targets. Next up is Vans. Global revenues per Vans in 2013 were up 17% as the brand passed the $1,700,000,000 mark to become VF's 2nd largest brand. In 2014, we expect Vans to deliver another year of outstanding growth with revenues expected to increase at a mid teen rate in line with our 5 year plan. In the Americas where the brand passed the $1,000,000,000 mark in 2013, we're expecting revenues to increase at a mid teen rate in 2014. The Vans product engine is stronger than ever. The breadth of our footwear line from OTW and 66 to our classics, Cali and Pro Skate collections allows us to inspire consumers in multiple channels around the world. We expect the fantastic momentum we've built over the past 2 years to continue in 2014. And although in early stages, the response we've gotten from the launch of our cold and wet weather specific footwear we released last fall gives us great confidence in our ability to expand our seasonality as we grow in the East, Northeast and Midwest of the U. S. And across all of Canada. We've also continued to transform the Vans apparel business and can confidently say the Vans is no longer just a footwear brand that makes apparel. We've now built a leadership position in key apparel product categories, particularly in the men's business. According to data from more than 160 U. S. Board shops, Vans is a top ten brand in almost all of our men's apparel and accessory categories. This is a great inflection point for us in a position that we have worked very hard to attain. As we move to 2014, strengthened by a compelling women's spring collection and adding summer as its own distinct season to our line, we are bullish on our opportunity to further solidify Vans' position as an authentic apparel player. At the intersection of action sports, music, art and street culture is where Vans connects with the consumers. And because of this, we create brand loyalists, not just product Vans. In 2014, we'll continue to make these special connections via events like the Warped Tour, which will be celebrating its 20th year, along with the Triple Crown of Surfing, the Vans Pool Party, House of Vans and of course our newest addition, the Vans U. S. Open of Surfing. If it's the weekend, a Vans brand event is likely happening somewhere around the world. As we work to serve consumers directly, we're going to relaunch vans.com this spring. The new website will meld both content and commerce creating a virtual homepage for Vans consumers. Going forward, e commerce should continue to outpace bricks and mortar in terms of percentage growth. Okay, Advanced International Business had another amazing year of growth with revenues up 23%, driven by a mid-twenty percent increase in Europe and a high teen increase in Asia. In 2014, of a much larger base, we expect total revenue growth to be at a similar overall grade. In Europe, we plan to open our first house of vans in London. Building off of our success in the U. K, we have seen great early success in Germany, France and Italy and are now beginning to roll out activation models in Turkey and Russia, which have huge after all youth culture opportunities. In fact, Vans opened its first store in Russia in an iconic mall under the Red Square. Since that store opened to great success, we have opened more doors in Moscow and St. Petersburg and plans to open about 10 more in the country in 2014. E commerce also has been a great success story for brands in Europe. 2013 marked our 1st full year of business in region and the brand is doing really well, ending the year as we have 2nd largest e commerce business in Europe. And the expansion continues. In October, we launched our 9th country presence in Europe with the opening of our Italian site. In Asia, we expect to see continued strong results in China. In Korea, which we launched in 2013 will be an area of significant growth for us moving forward. From Barcelona to Beijing, Sao Paulo to Sydney, Orange County to New York, there's really great momentum behind the Vans brand as we head into 2014. We have never been more excited about our growth potential. Steve? For Timberland, full year global revenues were up 5%, which was in line with our expectations, but there's much more beneath that mid single digit number. It's a story of reset, a story of acceleration and a story of momentum, specifically in the Q4. The Americas business grew nearly 20% in the 4th quarter, driving full year revenues up 10%. And speaking of 10%, in 2014, on a global basis, exactly what we expect Timberland's revenues to increase by. This increase places it right in line with the brand's 5 year CAGR expectation from our 2017 plan. So that's all three brands Timberland, Vans and The North Face expecting to be in line with their 2017 plans. But back to Timberland. We've got fantastic momentum going into the year and we're very excited about the disciplined success the brand continues to earn. In the fall, we relaunched this iconic brand with our best then, better now global marketing campaign. The campaign strongly defines the brand's modern, rugged refined aesthetic, while positioning Timberland as an outdoor lifestyle marquee for footwear, apparel and accessories. None of this is possible of course without amazing product. And without a doubt Timberland footwear has great energy, energy that we expect to accelerate even more greatly this year year. From core styles including boots and hiking to earth keepers, boat shoes and pro, our own B2C and wholesale channels saw balanced growth. This growth also included meaningful increases in ASPs, a significant improvement in overall brand health brand health and improving profitability. And whether it's SensorFlex, anti fatigue, waterproofing or our new L7 traction technology, there's no shortage of innovation to expand across our products in 2014. In fact, innovation is so important, we're well underway with VF's Center of Excellence for Innovation in Footwear at Timberland's global headquarters in New Hampshire, a strategy that will provide benefit for all of VF's footwear D. F. Footwear brands. On the apparel side, we're very pleased with the results from the relaunch of the brand in North American market last fall and have seen solid sell through in both our own stores as well as our wholesale partners. And One key highlight is the outerwear, which uses high vent technology developed by The North Face to offer a higher level of waterproof protection. So we're right on track with our expectations to accelerate this brand's apparel business in 2014. As with all of our brands, it's all about storytelling. We'll be everywhere the consumer is in store and online with digital marketing, relevant content and a brand message that drives sales. Now over to Kaj. Timberland's international business, which represents about 60% of the brand global revenues grew 2% in 2013. And while this was in line with our expectations, the full year number is definitely not the whole story. In Europe, where the business was negative for the 1st 9 months of 2013, timberland's revenues were up at a low teen rate in the Q4, right on track with where we wanted to be and certainly confirmation that all the work we have done is paying off. This is truly encouraging news and really the last piece of the equation that we needed to set up properly for us to start delivering on our long term goals. In our Asia Pacific region where the brand's largest market is Japan, 2013 revenues were up at the low single digit rate or up at low double digit rate on a constant dollar basis. 2014, we expect the brand's international business to accelerate to a high single digit growth rate, including similar growth in Europe and a low teen revenue increase in Asia. 1 of our key strategic focuses for our international business in 2014 is centered around enhancing the quality of our brand presentation in both our DTC and wholesale partner doors. In our DTC business, we spent 2013 refining our global e commerce strategy and in 2014 we'll be focused on presenting a consistent brand online and investing in strategies that drive to consumers to the website. We'll also expand our e commerce offering to new markets including Germany, France and Italy. We are very excited about all of the great things going on at Timberland and believe that 2014 will be the best year yet for the brand. Now I turn it over to Scott to take a look at jeanswear. Thanks, Karl Heinz and good morning everyone. In 2013, global revenue for VF's jeanswear coalition was up 1%. This reflects a low single digit increase in the Americas region and a low single digit decline in our international business. In the Q4, the Americas business saw flat results in the U. S, offset by declines in Central and Latin America. In the U. S, challenging conditions at the mid tier department stores, which have continued to intensify and slight contraction in the mass channel are tempering our growth. Additionally, consumer trends in women's basic denim have impacted the business. Yet, despite these headwinds, our Western Specialty business put up its 14th quarter of consecutive growth, contributing favorable margin mix and the Coalition still delivered a 17% increase in operating income. In 2014, we expect the coalition to grow at a low single digit rate and provide a similar contribution to VF's profits. Given the environment, which we anticipate to remain challenging, we have great confidence in our ability to outperform the category going forward. There are meaningful reasons to believe. The evolution of our innovation pipeline, which after years of progress is firmly established in generating meaningful product to consumers, our category and geographic expansion strategies have taken root with a robust opportunity to continue long term market share gains and the unique competitive advantage we have with our outstanding manufacturing and supply chain to remain agile along with the environment. Now, let's run through a few brand highlights, starting with Wrangler. Wrangler's revenues were up about 3% in 2013 and are expected to be up about the same rate in 2014. We continue to focus on improving our innovation disciplines with the goal of providing consumers with products that creatively marry style and function. For our men's products, it's all about denim performance. Along these lines, in 2014, we will launch our Advanced Comfort collection more broadly outside of the Western channel. In terms of how we're connecting with our consumers, high impact in store presentations and retailer education will continue to be key drivers of our success. We're also expanding our distribution network, giving consumers more opportunities to discover the brand. We are taking share in the mass channel, digging in deeper in Western Specialty and see excellent opportunities to drive increased floor space productivity. So I have confidence that we are still the best positioned in our industry. Now, Carl Hynes. In our international Wrangler business, we saw better results in Europe, including low single digit revenue growth and strong margin improvements in the 4th quarter. In Asia, India was a highlight for 2013 with a low double digit increase in revenues. In 2014, we expect this positive trend to continue. Over the last 18 months, we have restructured many areas of our operations to drive efficiencies and greater profits. And as a result, we've seen higher SAPs based on higher full price sales, lower distressed inventory and more focus on winning with key accounts in the countries where we're doing business in. Now back to Scott with Lee. In 2013, Lee's global revenues were flat, including a slight increase in the Americas business offset by a low single digit decline in the international business. In 2014, we expect revenues to be up at a low single digit rate with positive growth results in all regions of the world. In 2013, we focused heavily on creating additional growth opportunities, particularly in the mid tier channel with 7 new product innovations that launched in the fall, we were able to fulfill that objective. In In particular, we're proud of the results that we've seen in our comfort fit for women and modern series for men. Additionally, our platinum label collection generated fantastic consumer interest and was directly responsible for adding nearly 400 locations with our key department store partners. Carl Ic? 2013, Lee's international business was down at the low single digit rate, helped down primarily by sluggish sales in China where the wholesale channel works through a denim inventory challenge. As anticipated, growth for lean China returned in the Q4 and we are expecting about 10% growth in 2014. In Europe, sales were up at the low single digit rate in 2013 and we expect similar results in 2014. Most importantly, the brand saw stronger margin improvement in both areas. And now back to Scott for a brief overview of VF's ImageWare business. Our ImageWare Coalition was down 1 percent in 2013. In 2014, we're expecting to see low single digit growth driven by a mid single digit increase in the image side of the business and slight growth from our licensed sports group. In image, we were very excited to announce our Bulwark iQ series, which is a breakthrough innovation that features the 1st new fire resistant chemistry in 50 years. We're confident this is a game changer. We're also seeing success with Redcap's automotive workwear and recently announced Redcap shop pants, the first pant and shorts specifically built for automotive mechanics. Wrangler Workwear is also gaining momentum, a great brand extension that's using superior product technology and brand strength to establish a premium tier of workwear. Our licensed sports group will look to drive growth through 3 main initiatives. Innovative new Majestic Player series aimed at serious baseball players, expanding Majestic branding into NFL apparel and the launch of our new e commerce site, which will give us a new and direct vehicle to help fans connect with their favorite teams. And one last thing, we're all very proud of is the expansion of LSG into a new international partnership with the Japan Series Champion Baseball Club, the Rakuten Golden Eagles, Majestic will be both the on field uniform for the club as well as the leader in Eagles fan wear. And now, Karen Murray will take you through the sportswear coalition. Karen? Thanks Scott. The sportswear coalition had a strong 2013 with global revenues up 8 percent, including 5% growth from Nautica and 29% growth from Kipling's U. S. Business. In 2014, we expect revenues for the Coalition to increase at a very similar rate to that of 2013. Let's take a look at where this growth will come from starting with Nautica. The first area of focus is further expanding our consumer base. We have begun to add a more useful sensibility to our product offerings including Slimmer Slimmer connection that amplifies our unique positioning. Currently, we're in the process of completing global consumer segmentation work. This will give us great insight into the behaviors, attitudes and needs of our target consumers. Our third priority for 2014 is growing our direct to consumer businesses. We will continue to grow nautica.com and focus on developing robust e commerce and mobile platforms. We will also leverage our successful full price international model and begin to lay the groundwork for full price retail stores in the United States. These strategies will call for exclusive product in our direct channels and the need for a good, better, best product strategy. Now turning to Kipling. As a reminder, I oversee the U. S. Business, which is about 1 third of global sales and Carl Hines has responsibility for the rest of the world. So I speak on behalf of both of us when I say that Kipling had a stellar year in 2013. The global business was up 20%, including mid teen growth in Europe, 20% growth in Asia and nearly 30% growth in the United States. Moreover, we're planning for another very strong year for the brand in 2014 with similar growth to 2013. Kipling will be innovating and expanding their offering beyond crinkled nylon and addressing product usage occasion. While we're staying true to our brand heritage, we are focused on strengthening the style component of our products with the primary emphasis on handbags. Globally, our growth will be driven by the continued successful expansion of our direct to consumer strategy. Our retail stores are growing, they're profitable and are now being supported by an accelerating e commerce business. In summary, the SportsWare Coalition had a great year and made a lot of progress and we have good momentum going into 2014. Now my colleague Susan Kellogg will take you through contemporary brands. Thanks, Karen. In 2013, excluding the John Varvatos brand, which was sold in April of 2012, revenues for the contemporary brands coalition were down 2%, including low single digit decline in the Americas business and mid single digit increase in our international business. Excluding Don Varvatos, our global DTC business was up more than 10% offset by high single digit decline in sales to the wholesale channel. Starting with 7 for All Mankind, for the full year sales were down 2% amid a contracting market. A bit of good news is that we are taking market share in the challenging markets due to a nimble supply chain and product innovation. On the product innovation front, we are expanding our 2 cornerstone brand franchises, Swim Illusion for women and Luxe Performance for men on a global basis. In addition, their early reaction to men's Triple Blue product, which guarantees no fading up to 40 washes has been very positive. These innovations along with others have had great success had great success and we believe they will continue to grow throughout 2014. We recognize that our consumer is digitally oriented, so we're focused on making sure that they can connect with the brand anytime, anywhere. 7 For All Mankind will become a true omni channel retailer. We've optimized our website for mobile and are expanding targeted marketing campaigns by partnering with bloggers, celebrities and key influencers. Additionally, we expect our direct to consumer channel to be up more than 20% in 2014 through our own stores, our partner stores and our e com business. We see the biggest growth opportunity to be in the international space. Overall, we're looking forward to a year of great innovation and increased consumer connection across all our contemporary brands and expect the coalition to be up on a mid single digit rate in 20 14. Now, I'll hand it back to Eric. Thanks, Susan. That concludes our prepared remarks. I'll make a comment that in the last June, we shared with you our plans for Versus to become a $17,000,000,000 company earning 16% operating margin by 2017. I can tell you that today, we're as confident as ever of our ability to achieve those targets. Actually, we're slightly ahead of plan on some of the key measured targets that we gave you. We're right on plan with the targeted EPS growth that we gave you at 13%. And we're slightly behind on one of the targets, the revenue target. We missed that in 2013. We expect to gather more momentum in 2014 against that target. And I'll remind you in the Q4, we came in right at 8% organic growth. So we're confident. We hope you are and we'd love to have your questions. And we will hear first from Bob Drbul of Nomura Securities. Good morning. Hey, Bob. I have two questions. The first one is on the 14 assumptions that you've laid out for us today, can you talk a little bit about the visibility that you have on, I guess, in the Outdoor Coalition, The North Face and maybe Timberland around reorders or early orders for the full year numbers? And then the second piece of it is in the $700,000,000 in buybacks that you have planned, that's a definite step up. And I guess if you could just talk about that plan versus further dividend increase or the acquisition landscape with the use of the cash? Sure, Bob. I'll take the first question and Bob will handle the second one. So here we are in the middle of February. And we obviously in brands like The North Face and Timberland the ones you talked about, we have pretty good visibility this spring. Our orders are booked in those businesses. There's some reorder businesses, some reorder business in those brands, but mostly a prebook business and we've got really good visibility to it. We are gaining visibility to fall right now. We're writing fall orders and we're out doing that right now. And all of that supports the growth rates that we've given you for those brands in our comments this morning. We obviously haven't booked holiday yet, but we just finished having a fantastic holiday season in those brands. And really actually a spectacular holiday season at both Timberland and The North Face. And we intend to use that reality to help influence our holiday business next year. Bob? Sure. On your second question, Bob, the answer starts with our strong cash generation, which as you know was above the $1,500,000,000 mark in 2013 and we expect to reach $1,650,000,000 in 2014. And in 2013, we put $100,000,000 into our pension. We paid down 400 $1,000,000 in debt and still grew our cash pretty nicely. In 2014, our pension is nearly funded, nearly fully funded. And we don't have any other debt pay down. So we take the opportunity to invest higher amount in the buyback, take the opportunity to return cash to our shareholders. Our dividend will increase strongly as well. We'll continue to work towards that 40% pay out that we've committed to investors. So the bottom line is the reality is that we can do both. We can afford to return more cash through our buyback program as well as our dividend program and still absolutely address our M and A program. A lot of flexibility in our balance sheet. And again, it really does start with that strong cash generation. So it's not a change in strategy. It shouldn't be viewed that way. Our M and A activity is as strong as ever. Great. Thank you very much. And we will hear next from Matthew Boss of JPMorgan. Hey, good morning. So, Kimberly clearly seems to be inflecting from a top line perspective. I was hoping you could lay out the potential margin opportunity over time, particularly you have the infrastructure now built. Where is EBIT margin today? And where do you think we could go longer term here? Yes. I'll start on that. And that we've made a lot of progress in terms of our operating margin. But we're still we are still investing behind the brand and turning a nice especially a nice EPS return with the effective tax rate that's applied to Timberland. So our margin is around the 11% area. It's improved from about 8% from the time that we acquired it. And as I said, that still includes a fair amount of investments that we're making behind the brand. We talked about the higher marketing spend at the end of 2013 and we'll spend at a higher level in 2014 as well and also behind some of the new platforms and programs such as the apparel side. So, yes, we're really, really pleased with the progress that we've made on that front. Early on, we committed to moving our operating margin to that 15% level over a 5 year period and still very committed to that. There's just no reason that the operating margin for Timberland shouldn't be at frankly the levels that we see overall for outdoor and action sports businesses. But still investing today. We think they're the right investments to make and absolutely no change in terms of the operating margin that we see as the opportunity there. That's great. And then on The North Face side, have you seen any changes competitively worth noting? A lot of people can continue to talk about this either domestic or abroad. And can you also talk about this mountain sports opportunity and how that will play out over the next couple of years? Sure. This is Steve. The competitive set in the outdoor industry remains the same. As North Face transcends that outdoor space, it takes on a whole lot of new competitors. And I think that's where you see us really focusing on our product creation, the new innovations we're bringing to elevate the brand and really exceed our customers' expectations. And most importantly, how we're really tuning up our demand creation capabilities through just a strong ad campaign that if you saw this last fall, it was really the best the brand has ever done with the emotional elements that we saw with our TV campaign supported by the singular big story focus, not only in media, but in store. The brand is really well positioned and by far the leader in its space. Great. Best of luck. Thanks, Matt. And we will hear next from Michael Binetti of UBS. Good morning, guys. Hey, Michael. Hey, Michael. I wanted to ask you just about the guidance for the year, the revenue outlook and the directional guidance you gave us first half, back half. Can you tell us how the guidance for mid single digits in the first half looks by coalition, please? Yes. It's as I said, I believe it was in my comments that clearly the outdoor and action sports will be the primary driver of the first half. Despite the fact that our outdoor and action sports particularly The North Face and Timberland brands are considerably stronger in the second half of the year. And also D2C plays a role in this as well. So as we think about the first half versus second half, outdoor and action sports will be a primary driver. We expect some of the other businesses to be somewhat stronger in the second half of the year. And once again, that's when our direct to consumer really kicks in as well. So actually we're planning some earlier store openings that should really benefit the climate heats up here some. Okay. And then could you talk a little bit about your comment that on slower than expected orders for the jeans business at mid tier and does the first half guidance imply that that channel continues to moderate orders at all? Sure. How are you, Michael? This is Scott. Just to comment around the channels had some challenges. We did mention that. But I think the most important thing for us, it's really twofold, is that our shares are expanding, which is really critical for us. And from a product standpoint, we actually have some really innovative product in the stores right now and our pipeline is really strong. So we have much more in the second half from our plan standpoint than we do in the first half, but we feel real confident about it going forward. And Michael, a lot of that business is a replenishment business for us. And our assumption in our plans is that there's not going to be a recovery in the channel. We thought that was a prudent assumption to make. Okay. And one question on the SG and A. You mentioned about 30 basis points of deleverage. But I'm just trying to reconcile that with the comment that you made a pretty nice contribution to pension last year. That should be a tailwind. Marketing doesn't seem like significant year over year headwind. Can you help me think about what's driving a 30 basis point increase? Thank you. And for the full year 2014? Yes. Yes. It's primarily related to that change in accounting on the concession shops. That's really what's driving the difference. So what we were saying was that previously those fees that we pay on the concession shops were netted against revenues and now they'll be included in the SG and A. So when we look at the increase actually in the SG and A area, it's really all attributable to that. Okay. Thanks a lot guys. You bet. Thanks, Michael. And we'll hear next from a question with Kate McShane of Citi. Hi, Kate. Thanks. Hi, good morning. My first question is on some of the cost pressures that you highlighted in your comments today. Could you tell us where you're seeing the biggest point of pressure? Is it in labor? Or is it in cotton? And is there any pricing being taken as a result? Yes. Actually Kate from a cost standpoint just to clarify that for as we look at 2014, one of the comments I made that as we initially talked about 2014 and I know we're always reluctant to say a lot about 2014, I guess that this is the reason because we initially thought and we talked about seeing a few percentage points of cost increases for the year. And as all that's sorted out, actually right now we're seeing less than a half of a point of cost increases for the year. And that's essentially being offset by a little bit of pricing. So again, it's really pretty small. So that our cost net of pricing is really pretty neutral and the gross margin expansion is being driven by exactly what we've been seeing, the mix impact, the mix benefit, as well as a little bit of help from that accounting from concessions. Okay. That's very helpful. Thank you. And then my other question is just about The North Face business going forward. As you get the incremental orders for winter 2014, how do you think about the build out of your inventory? Or are you going to be taking a more measured approach to inventory despite the very successful winter given the volatility over the last couple of years with the weather? Yes, Kate, I'll take this one. I think we've been very clear over the years of how The North Face has modeled its go to market strategy. It's very much a pre booked business model. And we historically, we will buy to that order book. And that order book is about 90% to 95% of our total revenue. So we model a very small at once reorder capacity. That's been our model for 14 years and it continues to be the proven success model that we'll use this year. Okay. Thank you. And we'll take our next question from Laurent Vasilescu of Macquarie. Good morning. Thank you for taking my question. I believe you're 6 months in since you announced the establishment of the 3 global innovation centers. Maybe you could provide a quick update on these innovation centers for 2014? And in terms of my second question, in terms of potential acquisitions to achieve 2% top line acquisition growth, are you looking for potentially one name that generates $500,000,000 plus in annual revenues? Or are you open or expecting to potentially acquire 2 to 3 smaller names? So, Laurent, good morning. This is Scott. I'll start with the Denim Innovation Center from a global standpoint. We have made terrific progress. Actually, we're very happy with where we are. And we think we're going to have some announcements here at the end of the Q1 relative to who will be leading that facility for us and the location, which we've already announced will be in Greensboro, North Carolina for the global center. And everything that we've done so far, we're on track and progress is being made and we're really happy with where we are. And in the case of our technical apparel and footwear centers, these are teams that have been in place. Our commitment is to increase our resource and creative capacity in both of these centers. And as Scott said, we've got some very positive announcements coming down the road. But I will tell you, I talked about Fuseform in my comments. And that is a product that came out of our technical apparel center in Alameda. And it's a product that we've got a very, very exciting long runway to build on. And it's just an example of what we're capable of today. And as we increase resources both in our apparel and footwear teams, we really look to accelerate breakthrough ideas that will continue to separate our brands from our competition. And I'll deal with the acquisition question. And how we think about acquisition targets and we think about have point or to build us out in spaces that we're close to being in, but we don't have enough share of that space. We're agnostic as to geography. We would buy a business anywhere in the world if it was complementary to our brand portfolio. And to the size aspect given our current size, bigger deals fewer bigger deals would be better for us to do. It may not always play out that way, but that's what we prefer to do. And our balance sheet is so healthy right now given our strong cash flow the last few years. We're in the position to do a big deal if we can find the right one to do. Thank you very much. Thank you. And our next question comes from Lindsay Dreckerman of Goldman Sachs. Thanks. Good morning, everyone. Good morning. On The North Face, I was just hoping you could clarify in the Americas some of the dynamics in the Q4. We know we had a very cold winter and lapping a couple of warm winters and we had heard from you guys that you had only ordered to fulfill so much demand, so there would be limited amount of revenue upside even if demand came in stronger. So can you talk about number 1 and on top of that that you would see follow through of strong demand in orders for 2014. So number 1, is that actually what played out in the quarter? And as you talk about your 2014 order book and your expectations, that's also reflective of an acceleration based on the strong winter? And then number 2, I know you don't give detail on North Face margin performance, but did we see net of the marketing investment step up some strong improvement in merchandise margins based on more full price selling? Thanks. Sure. Lindsay, I'll click away here at your question. So we saw a very good solid Q4 to the numbers that we spoke about. And certainly weather helped. But I'll be honest with you as you look across the United States, we would characterize this as a normal winter. Though all up and down the I-ninety five corridor you guys might argue with me. I live out west and it's not exactly been a stellar winter. So this was a normalized winter for us. We came into that working with our accounts with that in mind. We booked about 90% to 95% of what we expected the total demand to be. And as we saw Q4 accelerate, we were able to really drive against that reorder model that we have and ended the year very clean. What we saw at our with our retail partners, especially those that were able to monitor sell through was very strong sell through at much better margins than last year. And that's a very good model for us, especially when our brand is outperforming our competition that puts us in a very good place as we come into 20 14 working on our pre books today. History would tell you that our dealers will then book much more significantly with our brand against our initiatives based on last year's success. And that's represented in the guidance that we've given you for the brand at 12% for 2014. And Lindsay, the one the data points I'll add weren't from Bob's script. He commented that we were up 12% in the quarter and that our direct to consumer business was up more than 30%. So that tells you that we had the right winter and the right products and the consumers bought them through our direct to consumer channels. It also tells you that we didn't have that kind of a rate in our wholesale business, whereas we described our business model, we have limited capacity to chase some of the outerwear pieces. So what that says is that our a lot of our wholesale partners, the retailers that buy from us, had similarly strong sell through in their stores. And as we sit with them to write next fall, we have even more compelling stories around some of the new product launches that we've had we initiated this year and we'll develop out next year. So we're feeling good about next year. Great. And then just to follow-up on the CapEx guidance and then your outlook for marketing investment. Can you just go through what the big buckets of CapEx spending are for next year? And whether you're looking for significant incremental marketing investment in what areas for 2014? Yes. So the CapEx is relatively level with 2013 right around the $270,000,000 mark. The biggest component just as it has been will be new store openings. That will be a little higher than it was in 2013. So that represents a big share of always of our CapEx spend and it will in 2014 even a little bit more so frankly. Distribution centers will still carry over because of the growth that we're seeing in particularly in the outdoor and action sports area. We'll also be a fairly sizable component of that spend as well. So it really is all about to support our growth. Relative to the marketing spend, our ratio of our marketing spend in 2013 was 5.9% of revenues and we increased our spend by about $100,000,000 in 2013 over 2012. In 2014, we'll keep that percent, that ratio at about the same level as in 2013. In other words, the elevated level at the 5.9 percent. And that'll mean that we'll spend about $60,000,000 more in marketing in 2014 than 2013. And as to where it'll be spent, it'll absolutely be spent on those larger brands that have the strongest momentum. That's and in areas of the around the world that also have the strongest momentum. That's we've done that very, very consistently. And as I said in my comments, that's really worked well for us. Okay. Thanks. You're welcome. And our next question comes from Jim Duffy with Stifel. Thanks. Good morning. Hey, Jim. My question on the Jean's Wear operating margin, Scott's commentary about operating profit contribution remaining consistent as a percent of revenue seems to imply low double digit operating income growth on low single digit revenue growth. How do you solve to that? How do you solve? I'm not sure I understand the question, Jim. How do you solve for So, low single digit revenue growth in Jeanswear Coalition and Scott's comments about the operating profit contribution for the Jeanswear Coalition remaining consistent as a percent of revenue seem to imply it's going to grow at a low double digit rate. What's the margin outlook for that Geneswear Coalition that gives you that type of leverage? Yeah. The margins should improve some in jeanswear. And now Scott of course was talking more about the U. S. Business. The reality is what we're seeing Jim is continued expansion particularly in our European Jeans business. The revenue growth hasn't been quite as strong. It's improving. It's improving from where we were, but the earnings growth is even stronger than the revenue growth in Europe. And also on the Asian front, while we did a pretty good job actually of maintaining the profitability on our Asian Jeans business, some of the challenges we had there was the glove inventory, particularly throughout 2013, those margins are quite strong as well. So some of what you're seeing is the international side of the jeanswear jeanswear business kicking in and really helping the overall margin and profit comparison. And also you've got to remember too our Western business is very healthy and continues to be very healthy and we're planning on that for time going forward. Okay. Thanks. And then in 2013 in the Q3 was retail calendar shift that pushed some revenue from 3Q into 4Q. Is there any kind of reversal of that we should expect this year? Or is that a permanent calendar shift? No. Actually, it will have some of the reverse effect in 2014. Yes, that's not a permanent shift. Got you. Thank you, everyone. Thank you. Thanks, Jim. And we'll hear next from Erinn Murphy of Piper Jaffray. Great. Thank you. Good morning. I just wanted to follow-up on the jeanswear business. Do you think there is something else broader from a fashion cycle perspective or a fabrication preference that's just continuing to pressure that category on the women's side globally? And then the second question is on Europe. It picked up very nicely in the quarter. Can you just share a little bit more perspective on what you're seeing within the major regions? Thanks. So maybe I start with the second question, Erinn, on Europe. We had a great quarter in Europe in Q4, which was up nicely. There are several elements. 1st and that's why they reported the economy is doing a little bit better step by step, which is certainly helping us. The second one was the performance of Timberland. Timberland is a big brand for us and is actually our largest brand in Europe. And the change of performance, it was negative for 3 quarters and positive in the 4th, put us in a good situation for 2014. From a regional or country's point of view, there isn't a lot of change compared to the past. Central Europe is doing pretty well in Scandinavia and the U. K. And Southern Europe. Southern Europe being a little bit weaker. And then Aaron from a women's perspective, it's less than a third of our total business right now in the jeanswear group, but we're really happy with how we've mitigated this basic denim trend that's going on. And I think the most important thing for us is, we do have a really nice assortment that also plays into that category and will continue to play in that in the future too. But looking forward, we're pretty confident as far as how we feel about the assortment, the products that we have and our innovation within that category. And we'll hear next a question from Robbie Ohmes of Bank of America Merrill Lynch. Good morning. How are you guys? Hey Robbie, how are you? Good. Thanks. Hey listen you I think you guys mentioned in your comments that you could see China growing maybe even more than 20% in 2014 and that would be a nice acceleration from the 14% you put up in 2013. There are other brands in China that aren't growing as well as they used to be. Can you kind of talk about what you're doing different or what is driving that accelerating growth? And maybe give us a little more detail on what the overall tone of business is over there? I know there was excess inventory from that other brands were complaining about particularly in sportswear. Thanks. Let me try to answer here, Robbie. China is still a great opportunity for us. We have relatively low number of accounts in terms of penetration. So we operate mainly with 5 brands at the moment. I guess the game changer 2013 versus 2014 is the performance of Li. Li was Li is a large brand for us in China was down in the beginning because of beginning of 2013 the 1st quarters and it's finally up now in the last quarter and we expect it to grow in 2014. So I would say that's the change the primary change for 2014. The rest is no big differences. China is a great opportunity for us and our banks are doing really well there. Great. Thank you. And we will hear next from Barbara Wyckoff of CLSA Financial Services. Hi, everybody. Do you see any action in acid washed denim or lighter colored jeans, higher rises or flares or any other kinds of change in silhouette in any of the women's denim businesses? And how do you think color will perform this color coming spring? Thanks. All right, Susan, I think I'll take that. Certainly in the premium denim market, it is all about the lighter washes, which I find very interesting given the snowstorm I got snowed in yesterday and lighter washes are still one of the number one washes selling. So you hit on also the biggest trend for spring, which will be the higher rise, which I think is great because it hits both markets. It hits the millennials because it's cool and new and it hits the little bit older customer who just needs more coverage. So whenever a trend like that is so commercial, it needs money. And what about color? I think color is I think it's always going to be there when the sun is shining, but I think that it pretty much has peaked. Okay. Thanks. And in the other jeanswear businesses, is there any indication that there might be some action in lighter washes, higher rises in women's? Yes. We also trend that way. So we're definitely seeing the higher rise situation going on. We've seen that for sure. From a color standpoint, I would also say that that trended about a year ago and we're not seeing that nearly as much. And we do have some lighter washes coming out in our women's Thank you. Thank you. Couple of questions I think for Bob. One on this change in accounting on the concessions. I just want to clarify, can you guys give your sales guidance of 7% to 8% for 2014? Is that based off of the $11,420,000,000 that you roughly reported in 2013? Or is that off of some adjusted number to take into account the change in accounting treatment there? Yes. No, Mitch. That's also as reported in 2013. Okay. So the 7% to 8%, I think roughly kind of translates into $800,000,000 to $900,000,000 plus of new revenue. What is the concession accounting treatment change represent of that? Yes. It's only about $60,000,000 Okay. Again, remember, it's only the fees. The revenues themselves is just as we report to you, the direct consumer numbers versus wholesale. That's the $200,000,000 that I mentioned. But the change is really just isolated on the fees, which is only $60,000,000 Got it. So it's not a big part of the growth here. No, it's not a big part of the growth. That's right. Okay. And then Bob, you mentioned that your kind of quarterly growth trajectory should be similar in 2014 as 2013. Would that also be the case when you're looking at Q3 and Q4? I mean, I know for Q3 and Q4 of this past year, obviously, a lot more growth in the Q4. But I think some of that I mean, some of that was obviously the direct DTC, but some of that too was that retailers wanted orders or deliveries later and your backlog for fall maybe wasn't quite strong because it was a reflection of the fall holiday season the year before. I would assume that maybe you wouldn't see a drastic growth difference in the back half by quarter this year. Is that not really the case or? No, that's exactly the case. Yes, we would expect the growth in the 3rd and 4th quarters to be a little more even than what we saw in 2013. Okay. And then anything we should be thinking about from a margin standpoint in terms of the quarterly cadence this year either gross margin or I mean, again, you already mentioned the concessions impact on SG and A, but maybe from a gross margin standpoint, is it 90 basis points pretty consistent across the quarters? Or is it any stronger or weaker in any particular quarter? Yes. It's actually pretty consistent through the 1st three quarters. And then as you would expect in the Q4, especially with our higher margin businesses and also direct to consumer really kicking in, that's when you'll see the greatest expansion. But fairly consistent right around that 90% or even maybe expansion. But fairly consistent right around that 90 or even maybe just a little less in the 1st 3 quarters and then above the 90 basis point improvement in the 4th quarter. All right. Very good. Thanks and good luck. You bet, Mitch. Thanks. And at this time, I'll turn the call back over to the speakers for any additional or closing remarks. Thanks, everyone, for your time and attention this morning. We're over an hour and 20 minutes into the call. So we're going to call it a day and get on with what we have to do here, which is executing our 2014 plan. If we didn't get to your questions and I know it was a complicated call, please call Lance. He'd love to have questions from you guys all day long. And we do want to answer your questions. So please do reach out to us. Thanks so much for your time. Bye. And again, that does conclude this call. We would like to thank everyone