PR: Vans, Inc. Announces Strategic Restructuring
Edited by John Stouffer
(5-20-98)

(Press Release—May 20, 1998) Vans, Inc. (NYSE: VANS) today announced two strategic initiatives designed to increase long-term profitability and further the growth of the company's domestic and international business.

The company stated that it has established new sourcing arrangements for the manufacture of its classic vulcanized footwear and, as a result, will be closing its facility in Vista, California.

Vans also announced that it is terminating several of its European distributor agreements, entering into sales agency agreements for certain key territories and establishing a third-party distribution center in Holland.

As a result of these two initiatives, Vans will incur a total one-time, after-tax charge of approximately 11.5-million dollars, or $.82 per share, in the fourth quarter ending May 31, 1998. The company also stated that, largely due to the previously discussed uncertain retail environment for athletic footwear and the economic slowdown in Japan, net income before charges for the fourth quarter are expected to be at breakeven to slightly positive; however, first quarter backlog is at its highest level in the company's 32-year history, with domestic bookings up more than 40 percent

Gary H. Schoenfeld, president and chief executive officer stated: "Three years ago, we set in motion the strategy to change from a manufacturing to a marketing company. That strategy has proved to be successful and this is the last major step in closing the loop. While we realize this restructuring has a significant accounting charge to book value, it has a minor effect in terms of cash."

In regard to current business trends, Mr. Schoenfeld said, "Our brand continues to be strong and our retail stores continue to perform well on track for a record eighth straight quarter of double-digit comp store sales increases. We are also extremely pleased with the more than 40-percent increase in domestic bookings for the first quarter, which is our biggest quarter, and stands at an all-time high.

"For the current quarter, the inventory overhang and promotional pricing of athletic footwear is limiting our at-once business causing a decline in wholesale sales versus last year," continued Schoenfeld. "Yet, as we look toward back to school and fiscal 1999, we are confident in our future as evidenced by our backlog and believe that this current problem for the industry is getting close to being back in balance.

"It is difficult to close a factory that affects the jobs of 300 people, yet Vista has been a detractor from the company's overall gross-margin performance—especially with the precipitous drop of orders from Japan, which has forced our domestic production levels to decline by more than 50 percent over the past six months. Shifting to third-party sourcing will enable us to reduce our cost of goods, resulting in both improved gross margins and better pricing of our classic canvas and suede footwear. In addition, this action will allow us to even better manage our inventory and more closely match third-party production to customer orders."

The company's Vista, California manufacturing facility is scheduled to close on August 6, 1998, and production of vulcanized footwear will be moved to Mexico and Spain. Vans will incur a one-time, after-tax charge of approximately 7.1-million dollars, or $.51 per share, in the fourth quarter of fiscal 1998 associated with the write-down of property, plant and equipment, raw materials, finished goods, and other miscellaneous expenses related to the closing of the Vista facility. The company stated that the shift to third-party manufacturing is expected to result in a more than fifteen percent reduction in the cost of goods for its vulcanized footwear.

Vans also announced that it is reorganizing its European operations, which will provide the company with more direct control over distribution and marketing. Effective in June 1998, Vans is terminating its distribution agreements for Italy, France, Germany, and Austria, and contracting with sales agents for those territories. The company intends to convert its remaining European distribution agreements to similar relationships over the next twelve months. In connection with this initiative, Vans will also contract with a central distribution facility in Holland. The new European sales operations will be managed by Stephen Murray, the company's recently appointed international senior vice president, and Robert H. Camarena, vice president of operations. Vans will incur a one-time, after-tax charge of approximately 4.4-million dollars, or $.31 per share, associated with the termination of existing distributor agreements, as well as initial start-up costs for its centralized European distribution.

"We continue to see the European market as an important part of the company's long-term growth," said Schoenfeld. "With the addition of Steve Murray to our team and the scheduled opening of our first two outlet stores in England and Spain, we are now properly positioned to take a more active role in further building this part of our business. As the Euro launches next January, and with 350-million people in a geographical area more concentrated than the United States, it is clear to us that the winners are going to be those who concentrate on the overall potential of this region. Our plan is to centralize operations and logistics and increase our Pan-European marketing, while at the same time maintaining the continuity of localized sales and customer service."

Mr. Schoenfeld concluded: "We feel strongly that we are taking the right steps to maximize profits and enhance shareholder value going forward. Through efficient product sourcing now for all categories as well as economies of scale achieved through leaner operations and direct distribution in the international marketplace, we believe we can boost our future sales and profits and more fully capitalize on the growing worldwide potential for our brand and our company."

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