Good day, everyone. Welcome to the V.F. Corporation fourth 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 Allega, Director of IR. You may begin.
Thank you, operator. Hello, everyone, thank you for joining us today to discuss V.F.'s fourth quarter and full year 2013 results. Before we begin, I'd like to remind participants that certain commentary included in today's remarks and the Q&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 business, results of operations in the industries in which V.F. operates. Actual results may differ materially for 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. 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 vfc.com.
Joining us on today's call will be V.F.'s Chairman and Chief Executive Officer, Eric Wiseman; Bob Shearer, our Chief Financial Officer; and our Group Presidents, Scott Baxter, Steve Rendle, and Karl Heinz Salzburger. Also participating will be Karen Murray, President, V.F. Sportswear, and Susan Kellogg, President, V.F. Contemporary Brands. Following our prepared remarks, we'll take your questions. We'll ask that you limit your initial questions to two. 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 V.F. Chairman and CEO, Eric Wiseman. Eric?
Thanks, Lance. Good morning, everyone, thanks for joining us today. As Lance mentioned, we have several members of the V.F. team with us today to review our fourth quarter and 2013 performance and to provide insight into 2014. Our call will likely extend beyond one hour to ensure we have ample time to take your questions. In setting the table for this morning's discussion, I'll focus on three topics. First, a summary of our performance in 2013. Second, a review of our success in creating value for our shareholders. Third, a look to the future, including a focus on our four key growth platforms that are going to drive our near-term performance and fuel our success in achieving the five-year plan that we presented in June of last year. 2013 was a terrific year at V.F.
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. While we were a bit shy of our revenue target, we're thrilled with the momentum we reestablished in the fourth quarter, especially for The North Face, Vans, and Timberland brands. Taking a closer look. Total V.F. revenues grew 5%, reaching $11.4 billion. Our biggest revenue drivers included the Outdoor & Action Sports coalition, which grew 9% with meaningful gains from Vans, The North Face, and Timberland. Outdoor & Action Sports delivered 56% of V.F.'s 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 V.F.'s revenue. The 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%, a 90-basis point improvement, even with the incremental marketing spend we elected to make in the second half of the year. Our adjusted earnings per share increased 13% to $2.73, right in line with our 2017 plan target of 13% annual EPS growth. The V.F. 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&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 million to shareholders in the form of cash and share buybacks. Let's move on to our plan to fuel near- and long-term growth. Underlying our growth plan is a relentless focus on V.F.'s four growth drivers. First, 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 V.F.
is stronger than I've ever known it to be, and our innovation pipeline has never been fuller than it is right now. Second, 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. Third, 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. Fourth, 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%-8%, which is an acceleration that puts us roughly in line with our 2017 organic growth rate target. Consistent with 2013, we anticipate our Outdoor & 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 EPS to grow 11%-13%, reaching $3-$3.05 per share. Cash flow from operations should reach $1.65 billion, and we're pleased to report that we expect to return more than $1 billion to shareholders in 2014 through share repurchases and dividends. With one year of our five-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. With that, I'll turn the call over to Bob.
Thanks, Eric. In the fourth quarter, we delivered very solid performance, especially in a global business environment that faced, well, at least a few challenges. It's exactly in this type of environment that the power of VF's 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 & Action Sports coalition, gives us increasing confidence that 2014 will be an even stronger year. Fourth quarter revenue grew 8%. The increase was driven by strong performances from our Outdoor & 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 fourth quarter. Operating income grew 13% in the fourth quarter, and our operating margin reached 15.5%. Now, that's an all-time fourth-quarter high for us. We saw a slight increase in the SG&A rate in the quarter, primarily due to nearly $30 million 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 fourth-quarter high with earnings per share of $0.82. That was slightly ahead of our expectations. A few comments on fourth-quarter results for our coalitions. Revenue for our Outdoor & 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. 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 two previous winters 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. In case you didn't hear it yet, The North Face is now VF's first $2 billion 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 $1.7 billion and into the second spot among VF's 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 that 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 fourth-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 & 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 three powerful brands, The North Face, Vans, and Timberland, and the performance of the Outdoor & Action 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, in connecting with consumers, and in execution, all combining to return great value to VF and to our shareholders.
Getting a little ahead of myself, these same three brands will drive great momentum for us in 2014. Jeanswear's top line was flat in the fourth quarter. 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 a 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. All in all, while we saw slower-than-expected revenue growth in Jeanswear, once again, the business was a strong contributor to VF's overall profit picture.
Imagewear posted revenue growth of 9% in the fourth 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&A leverage. Our Sportswear business posted a 14% revenue gain, driven by balanced growth in both the D2C 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. 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 fourth quarter and full year. In fact, Kipling is now VF's seventh-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 fourth 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. 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&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 have around making the right investments to ensure the best returns to our shareholders. VF's balance sheet remains extremely healthy. We repaid all outstanding commercial paper borrowings, contributed $100 million to our pension plan, and raised our dividend by 21%. In 2013, we returned nearly $700 million 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 $1.5 billion.
We ended the year with our debt-to-cap ratio at 19%, which is actually lower than 2010, the year before we acquired Timberland. Finally, our return on invested capital improved 140 basis points to reach nearly 18%, slightly ahead of our plan and another high for VF. Speaking of another strong year, let's talk about what you can expect from us in 2014. We expect revenues to increase 7%-8%, driven by stronger growth in every coalition and region and across our wholesale and D2C businesses. This represents a meaningful acceleration from the growth rate we achieved in 2013 and is essentially in line with the five-year organic CAGR we put forth in our 2017 plan. Once again, our Outdoor & 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 the 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 in the U.S. mass channel and challenges in the U.S. mid-tier department store channel. In Imagewear, 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. 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 a 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. 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. 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.
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 million in 2013 and $200 million 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 direct-to-consumer, 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 million, have been netted against revenue. Beginning in 2014, these fees will be reflected in SG&A. This change will increase our revenues as well as our gross margin and SG&A ratios.
The change obviously has no impact on operating profit dollars and is just slightly dilutive to our operating margin. To support our direct-to-consumer 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. 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%. You'll recall that our 2017 plan calls for gross margin to reach 49.5%. In year two of our five-year plan, we're anticipating that we'll be only 50 basis points shy of our goal. What's driving that? Well, two things.
First, the continued expansion of our overall business mix towards higher profit businesses such as Outdoor & Action Sports, international, and direct-to-consumer. We consistently see that mix drive 60-70 basis points per year in our gross margin %. There's no reason that should stop. Second, 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. Related to gross margin, we're firing on all cylinders, and we expect that to continue. With respect to SG&A, we will remain opportunistic in targeting investments in our brands, products, and marketing to drive future growth.
Marketing spend as a % 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. As previously mentioned, the change in accounting for concession locations will increase our SG&A ratio in 2014 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%. Finally, bottom line. We expect our earnings per share in 2014 to reach $3-$3.05, which represents 11%-13% growth over 2013. A few other housekeeping items. We're assuming a 23.5%-24% effective tax rate, a negligible impact from changes in foreign currency, and capital expenditures of approximately $270 million.
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. We're expecting revenues to grow at a mid-single-digit rate in the first half of 2014, driven by growth in Outdoor & Action Sports, followed by a high single-digit increase in the second half of the year. First quarter earnings will face a tougher comparison against last year's first quarter 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 2014, revenue growth and profitability should be the most favorable comparison, reflecting the growing contribution of the Outdoor & Action Sports coalition and expansion of our direct-to-consumer business. Finally, a comment on our use of cash.
There are three 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 million against our share repurchase program. That represents nearly three times our average buyback spend over the past five years. That, when combined with our annual dividend, which will be more than 20% higher in 2014 versus 2013, we expect to return more than $1 billion to shareholders this year. 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 five-year growth plan and put into play four 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. With year one 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. 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 Rendle.
Thanks, Bob. Starting with The North Face. Full-year revenues were up 7%, which took the brand past the $2 billion 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. Honestly, the brand is the strongest we've ever seen it, with measurable momentum going into this year. In fact, the fourth quarter, 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%, 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 of the success of our Fall 2013 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 of ThermoBall blew away our expectations in the fourth quarter. 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 two 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.
Based on the initial response for the two new jackets, Fuse Uno and Fuse Brigandine, which won GearJunkie and Outside Magazine's Gear of the Show at Outdoor Retailer, we think we've got another amazing must-have product in our hands. Last but not least, as we continue to focus on building our first half business, our new Mountain Athletics 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.
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 fourth quarter, 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 America's e-commerce growth being up 35% for the year. We also made some enhancements to our omni-channel offering, enabling stores with new mobile selling tools, which provided better access to online inventory and content. Now here's Karl-Heinz Salzburger to talk about The North Face's international business.
Thanks, Steve. 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%. In Europe, we grew at a 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, we are focused on four objectives for this year. First, improving retail profitability. Second, strengthening our local product offering. Third, enhancing our relationships with wholesale accounts, especially in Europe. Fourth, 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. We expect another year of strong growth, with revenues expected to be up a 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 one of our five-year plan. We are on track with our financial targets. Next up is Vans.
Global revenues for Vans in 2013 were up 17%, as the brand passed the $1.7 billion mark to become VF's second-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 five-year plan. In the Americas, where the brand passed the $1 billion 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 two years to continue in 2014.
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 that 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 10 brand in almost all of our men's apparel and accessory categories. This is a great inflection point for us and 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. Because of this, we create brand loyalists, not just product fans. 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, KH?
The Vans international business had another amazing year of growth, with revenues up 23%, driven by a mid-20% increase in Europe and a high teen increase in Asia. In 2014, off 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, have plans to open about 10 more in the country in 2014.
E-commerce also has been a great success story for Vans in Europe. 2013 marked our first full year of business in the region, and the brand is doing really well, ending the year as VF's second-largest e-commerce business in Europe. The expansion continues. In October, we launched our ninth 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, São 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 fourth quarter. The Americas business grew nearly 20% in the fourth quarter, driving full-year revenues up 10%. Speaking of 10%, in 2014, on a global basis, that's exactly what we expect Timberland's revenues to increase by. This increase places it right in line with the brand's five-year CAGR expectation from our 2017 plan. That's all three brands, Timberland, Vans, and The North Face, expecting to be in line with their 2017 plans. 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. Without a doubt, Timberland footwear has great energy that we expect to accelerate even more greatly this year. From core styles, including boots and hiking, to Earthkeepers, boat shoes, and pro, our own D2C and wholesale channels saw balanced growth. This growth also included meaningful increases in ASPs, a significant improvement in overall brand health, and improving profitability. 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 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. One key highlight is the outerwear, which uses HyVent technology developed by The North Face to offer a higher level of waterproof protection. 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 KH.
Timberland's international business, which represents about 60% of the brand global revenues, grew 2% in 2013. 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 first nine months of 2013, Timberland's revenues were up at a low teen rate in the fourth quarter, 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. One 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. In 2014, we'll be focused on presenting a consistent brand online and investing in strategies that drive the 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 fourth quarter, 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. 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. Have confidence that we are still the best positioned in our industry. Now, Karl-Heinz.
In our international Wrangler business, we saw better results in Europe, including low single-digit revenue growth and strong margin improvement in the fourth 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 ASPs 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. 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 seven new product innovations that launched in the fall, we were able to fulfill that objective. 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. Karl-Heinz.
2013, Lee's international business was down at the low single-digit rate, held down primarily by sluggish sales in China, where the wholesale channel worked through a denim inventory challenge. As anticipated, growth for Lee in China returned in the fourth quarter, we are expecting about 10% growth in 2014. In Europe, sales were up at the low single-digit rate in 2013, we expect similar results in 2014. Most importantly, the brand saw stronger margin improvement in both areas. Now back to Scott for a brief overview of VF's Imagewear business.
Our Imagewear coalition was down 1% 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 first new fire-resistant chemistry in 50 years. We're confident this is a game changer. We're also seeing success with Red Kap's automotive workwear and recently announced Red Kap 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 three main initiatives.
Our 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. 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. 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%, 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 youthful sensibility to our product offerings, including slimmer fits, and we will continue to introduce new products that offer the performance features our consumers want. In addition, we will grow our women's business, a focus for us in 2014 and beyond. A second priority for Nautica is building an elevated consumer 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-priced retail stores in the U.S. These strategies will call for exclusive product in our direct channels and the need for a good, better, best product strategy. Turning to Kipling. As a reminder, I oversee the U.S. business, which is about one-third of global sales, and Karl-Heinz has responsibility for the rest of the world. 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 U.S. 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 occasions. While we're staying true to our brand heritage, we are focused on strengthening the style component of our product with a 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 Sportswear Coalition had a great year and made a lot of progress, and we have good momentum going into 2014. 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 John 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 this challenging market due to a nimble supply chain and product innovation. On the product innovation front, we are expanding our two cornerstone brand franchises, Slim Illusion for women and Luxe Performance for men, on a global basis.
In addition, the early reaction to men's Triple Blue products, which guarantees no fading up to 40 washes, has been very positive. These innovations, along with others, have had great success, and we believe they will continue to grow throughout 2014. We recognize that our consumer is digitally oriented, 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 at a mid-single-digit rate in 2014. Now, I'll hand it back to Eric.
Thanks, Susan. That concludes our prepared remarks. I'll make a comment that last June, we shared with you our plans for V.F. to become a $17 billion 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%, 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. I'll remind you, in the fourth quarter, we came in right at 8% organic growth. We're confident. We hope you are, and we'd love to have your questions.
Ladies and gentlemen, if you'd like to ask a question, you may do so by pressing *1 on your telephone keypad. If you're using a speakerphone, please make sure the mute function is turned off to allow your signal to reach our equipment. Again, you can press *1 to ask a question. We will hear first from Bob Drbul of Nomura Securities.
Yeah. Good morning.
Hey, Bob.
I have two questions. The first one is, on the 2014 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? Then the second piece of it is the $700 million in buybacks that you have planned. That's a definite step up, and I guess if you could just talk about that plan versus a 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. 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 to spring. Our orders are booked in those businesses. There's some reorder business in those brands, but it's mostly a pre-booked 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. 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.
Really, actually a spectacular holiday season in 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 billion and a half mark in 2013, and we expect to reach $1.65 billion in 2014. In 2013, we put $100 million into our pension. We paid down $400 million in debt and still grew our cash pretty nicely. In 2014, our pension is nearly fully funded, and we don't have any other debt pay down. We take the opportunity to invest the 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% payout that we've committed to investors. 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&A program. A lot of flexibility in our balance sheet, and again, it really does start with that strong cash generation. It's not a change in strategy, shouldn't be viewed that way. Our M&A activity is as strong as ever.
Great. Thank you very much.
I'll just give a reminder that is star 1 for questions at this time. We will hear next from Matthew Boss of J.P. Morgan.
Hey, good morning. Timberland 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?
Yeah, I'll start on that. Matt, we've made a lot of progress in terms of our operating margin. We are still investing behind the brand, and turning a nice EPS return with the effective tax rate that's applied to Timberland. Our margin is around the 11% area. It's improved from about eight from the time that we acquired it. 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, we'll spend at a higher level in 2014 as well, also behind some of the new platforms and programs such as the apparel side. Yeah, 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 five-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 & Action Sports businesses. 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. 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. 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 The North Face transcends that outdoor space, it takes on a whole lot of new competitors. 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. Most importantly, how we're really tuning up our demand creation capabilities through just the strong ad campaign that, if you saw it this last fall, 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.
We will hear next from Michael Binetti of UBS.
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?
Yeah. As I said, I believe it was in my comments that clearly the Outdoor & Action Sports will be the primary driver of the first half. Despite the fact that our Outdoor & Action Sports, and particularly The North Face and Timberland brands, are considerably stronger in the second half of the year. D2C plays a role in this as well. As we think about the first half versus second half, Outdoor & 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. Once again, that's when our direct consumer really kicks in as well. Actually, we're planning some earlier store openings that should really benefit the second half a little more strongly than maybe we've seen in the past.
Vans will be one of our fastest-growing brands this year. Obviously Vans is not a winter weather brand primarily, it does much better as the climate heats up here some.
Okay. 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 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, I think the most important thing for us, it's really twofold. Is that our shares are expanding, which is really critical for us. From a product standpoint, we actually have some really innovative product in the stores right now, and our pipeline is really strong. 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.
Michael, a lot of that business is a replenishment business for us. 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. One last question on the SG&A. You mentioned about 30 basis points of deleverage, 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 a significant year-over-year headwind. Can you help me think about what's driving a 30 basis point increase? Thank you.
For the full year 2014?
Yeah.
Yeah. It's primarily related to that change in accounting on the concession shops. That's really what's driving the difference. What we were saying was that previously those fees that we pay on concession shops were netted against revenues, and now they'll be included in the SG&A. When we look at the increase actually in the SG&A area, it's really all attributable to that.
Okay. Thanks a lot, guys.
You bet. Thanks, Michael.
We'll hear next from a question with Kate McShane of Citi.
Hey, 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? Is there any pricing being taken as a result?
Yeah, 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 this is the reason because we initially thought, and we talked about seeing a few percentage points of cost increases for the year. 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. That's essentially being offset by a little bit of pricing.
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. 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?
Yeah, 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. Historically, we will buy
To that order book, that order book is about 90%-95% of our total revenue. 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.
We'll take our next question from Laurent Vasilescu of Macquarie.
Good morning. Thank you for taking my question. I believe you're six months in since you announced the establishment of the three global innovation centers. Maybe you could provide a quick update on these innovation centers for 2014. 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 million plus in annual revenues? Or are you open or expecting to potentially acquire two to three smaller names?
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 first quarter relative to who will be leading that facility for us. The location, which we've already announced, will be in Greensboro, North Carolina, for the global center. 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.
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. As Scott said, we've got some very positive announcements coming down the road. I will tell you, I talked about FuseForm in my comments. 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 exciting long runway to build on. It's just an example of what we're capable of today. 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.
I'll deal with the acquisition question and how we think about acquisition targets. We think about it a lot, and yes, we have a list. We think about brands that are complementary to our brand portfolio that help us reach customers, consumers we're not engaged with at this 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. To the size aspect, given our current size, fewer bigger deals would be better for us to do. It may not always play out that way, but that's what we'd prefer to do. 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.
Our next question comes from Lindsay Drucker Mann of Goldman Sachs.
Thanks. Good morning, everyone.
Good day.
The North Face, I was just hoping you could clarify in the Americas some of the dynamics in the fourth quarter. We know we had a very cold winter and lapping a couple of warm winters. 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. Can you talk about, on top of that, you would see follow-through of strong demand and orders for 2014. Number one, is that actually what played out in the quarter? As you talk about your 2014 order book and your expectations, that is also reflective of an acceleration based on the strong winter.
Number two, I know you do not give detail on The North Face margin performance, 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 will click away your question. We saw a very good, solid Q4 to the numbers that we spoke about. Certainly, weather helped, I will be honest with you, as you look across the U.S., we would characterize this as a normal winter, though all up and down the I-95 corridor, you guys might argue with me. I live out West, and it is not exactly been a stellar winter. This was a normalized winter for us. We came into that working with our accounts with that in mind. We booked about 90%-95% of what we expected the total demand to be. As we saw Q4 accelerate, we were able to really drive against that reorder model that we have and end of the year very clean.
What we saw 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. That is 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 2014 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. That is represented in the guidance that we have given you for the brand at 12% for 2014.
Lindsay, 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%. 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, where, as we described our business model, we have limited capacity to chase some of the outerwear pieces. What that says is that a lot of our wholesale partners, the retailers that buy from us, had similarly strong sell-through on their stores. 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 [loose], initiated this year, and we'll develop out next year. We're feeling good about next year.
Great. 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?
Yeah. The CapEx is relatively level with 2013, right around the $270 million mark. The biggest component, just as it has been, will be new store openings. That'll be a little higher than it was in 2013. 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, particularly in the Outdoor & Action Sports area. It will also be a fairly sizable component of that spend as well. 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, we increased our spend by about $100 million 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%, and that'll mean that we'll spend about $60 million more in marketing in 2014 than 2013. As to where it'll be spent, it'll absolutely be spent on those larger brands that have the strongest momentum. In areas around the world that also have the strongest momentum. We've done that very consistently, as I said in my comments, that's really worked well for us.
Okay, thanks.
You're welcome.
Our next question comes from Jim Duffy with Stifel.
Thanks. Good morning.
Hey, Jim.
Hey, Jim.
My question on the Jeanswear operating margin. Scott's commentary about operating profit contribution remaining consistent as a % of revenue seems to imply low double-digit operating income growth on low single-digit revenue growth. How do you solve to that?
I'm not sure I understand the question, Jim. How do you solve for-
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 % of revenue seem to imply it's going to grow at a low double-digit rate. What's the margin outlook for that Jeanswear coalition that gives you that type of leverage?
Yeah. The margins should improve some in Jeanswear. 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 from where we were, but the earnings growth is even stronger than the revenue growth in Europe. 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 with a lot of inventory, particularly throughout 2013. Those margins are quite strong as well. Some of what you're seeing is the international side of the Jeanswear business kicking in and really helping the overall margin and profit comparisons.
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 the time going forward.
Okay, thanks. In 2013, in the third quarter was a 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. Yeah, that's not a permanent shift.
Got you. Thank you, everyone.
Thank you.
Thanks, Jim.
Thanks, Jim.
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? 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.
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. First, and that's why they report it, 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. The change of performance, it was negative for three quarters and positive in the fourth.
Put us in a good situation for 2014. From a region or countries point of view, there isn't a lot of change compared to the past. Central Europe is doing pretty well. Scandinavia and the U.K. and Southern Europe being a little bit weaker.
Then, Erinn, 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. 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. 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.
We'll hear next a question from Robert Ohmes of Bank of America Merrill Lynch.
Good morning. How are you guys?
Hey, Robbie. How are you?
Good.
Good, thanks. Hey, listen, I think you guys mentioned in your comments that you could see China growing maybe even more than 20% in 2014, and that'd 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 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 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 a relatively low number of accounts in terms of penetration. We operate mainly with five brands at the moment. I guess, the game changer 2013 versus 2014 is the performance of Lee. Lee is a large brand for us in China. Was down in the beginning of 2013, the first quarters, and it's finally up now in the last quarter, and we expect it to grow in 2014. I would say that's the primary change for 2014. The rest is no big differences. China is a great opportunity for us, and our brands are doing really well there.
Great. Thank you.
We will hear next from Barbara Wyckoff of CLSA.
Hi, everybody. You've seen any action in acid wash 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. How do you think color will perform this coming spring? Thanks.
Barbara, 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, lighter washes are still one of the number 1 washes selling. 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, it hits the little bit older customer who just needs more coverage. Whenever a trend like that is so commercial, it means money.
What about color?
I think color, 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. In the other Jeanswear businesses, is there any indication that there might be some action in lighter washes, higher rises in women's?
Yeah. 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. We do have some lighter washes coming out in our women's assortment that we have in our mid-tier channel with Lee.
Great. Thank you.
Our last question will come from Mitch Kummetz of Robert W. Baird & Co.
Thank you. Couple of questions, I think, for Bob. One on this change in accounting on the concessions. I just want to clarify. You guys give your sales guidance of 7%-8% for 2014. Is that based off of the $11.42 billion that you roughly reported in 2013? Or is that off of some adjusted number to take into account the change in accounting treatment there?
No, Mitch, that's off of as reported in 2013.
Okay. The 7% to 8%, I think, roughly translates into $800 million-$900 million plus of new revenue. What does the concession accounting treatment change represent of that?
Yeah. It's only about $60 million.
Okay.
Again, remember, it's only the fees.
Got it.
The revenues themselves is just as we report to you the direct-to-consumer numbers versus wholesale. That's the $200 million that I mentioned. The change is really just isolated on the fees, which is only $60 million.
Got it. It's not a big part of the growth here.
No, it's not a big part of the growth. That's right.
Okay. 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 four? I know for Q3 and four of this past year, obviously a lot more growth in the fourth quarter. I think some of that was obviously the direct DTC. Some of that too was that retailers wanted deliveries later, and your backlog for fall maybe wasn't quite as strong because it was a reflection of the fall holiday season the year before. I would assume that maybe you wouldn't see as drastic a growth difference in the back half by quarter this year. Is that not really the case, or?
No, that's exactly the case. Yeah, we would expect the growth in the third and fourth quarters to be a little more even than what we saw in 2013.
Okay. Anything we should be thinking about from a margin standpoint in terms of the quarterly cadence this year, either gross margin or, again, you've already mentioned the concessions impact on SG&A, but maybe from a gross margin standpoint, is the 90 basis points pretty consistent across the quarters, or is it any stronger or weaker in any particular quarter?
Yeah. It's actually pretty consistent through the first three quarters, and then as you would expect in the fourth quarter, especially with our higher margin businesses and also direct-to-consumer really kicking in. That's when you'll see the greatest expansion.
Got it.
Fairly consistent right around that 90 or even maybe just a little less in the first three quarters and then above the 90 basis point improvement in the fourth quarter.
All right. Very good. Thanks, and good luck.
You bet, Mitch. Thanks.
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. We do want to answer your questions, so please do reach out to us. Thanks so much for your time. Bye.
Again, that does conclude this call. We would like to thank everyone.