The world's largest apparel company, VF Corp, on Thursday reported a slip in third quarter earnings as it was hurt by rival Levi Strauss & Co's new discount jeans line sold by Wal-Mart Stores Inc.

The North Carolina-based firm, whose brands include Lee, Wrangler, Vanity Fair, Nautica and The North Face, announced earnings from continuing operations of $125.3 million, or $1.14 per share, versus $128.6m, or $1.15, in the same period of last year.

Excluding foreign currency effects, sales were flat while the benefit to earnings in the quarter was four cents per share, it said in a press release.

Total sales for the latest quarter ended edged up three per cent to $1.435 billion from $1.4bn last year, while US sales of jeans fell six per cent due to the impact of Levi's new value-priced Signature line.

Sales in its outdoor coalition, which includes The North Face, JanSport and Eastpak brands, rose 15 per cent in the quarter, or 11 per cent adjusted for currency effects, driven by double-digit sales increases of The North Face brand globally and strong overseas growth.

International jeans sales were about flat with prior year levels, and were down nine per cent excluding currency effects, while global intimate apparel sales were down three per cent from 2002.

The acquisition of Nautica boosted sales by $72m and earnings by five cents.

Chairman and CEO, Mackey McDonald, said: "We were pleased to see a pickup in sales toward the end of the quarter, in line with generally stronger sales at retail, particularly in September.

"We also are pleased with the contribution made by Nautica in the quarter and are looking forward to building Nautica as the foundation for our new sportswear coalition."

He noted sales of its mass market jeans brands were better than anticipated, although it has seen a higher than expected impact from the number of store closings by a large customer.

"The company is very pleased with the strengthening of its mass jeans brands through the back to school period, and noted particular strength in its Wrangler Five Star Premium Denim and fashion programs," VF added.

"Gross and operating margins declined in the quarter, due to the impact of the actions related to capacity alignment and inventory management."

VF also lifted its full year earnings outlook to $3.50 to $3.55 per share, an increase of eight per cent to 10 per cent from the $3.24 per share from continuing operations reported in 2002.

Sales are expected to increase three per cent year-on-year with the acquisition of Nautica expected to add $240m in sales and boost earnings by eight to 10 cents.

Fourth quarter sales are seen up eight per cent with earnings seen in the range of 85 to 90 cents per share.