The competition in the outdoor apparel and footwear market is as tough as ever, but that hasn't scared VF's (NYSE:VFC) The North Face off of the slopes. In apparel, this marquee name goes head-to-head with Columbia Sportswear's (NASDAQ:COLM) Marmot and many other names, whereas its footwear line has to use innovation and agility to avoid being stepped on by Wolverine World Wide's (NYSE:WWW) Merrell brand.

To give it increased exposure in outdoor wear, VF recently acquired Reef brand, which is a nice complement to its totally radical Vans line. These two adrenaline junkies have to contend with the popular Quiksilver (NYSE:ZQK) name.

At every turn, from jeans to intimate apparel to outdoor wear, VF faces stiff challengers. But its third-quarter report is evidence that even among these rivals, its outdoor line continues to drive the company.

Total revenues increased a mere 0.6% compared with same period a year ago. Net sales from the outdoor lines were up 14%, with The North Face contributing a 23% increase. It's a good thing VF appreciates the great outdoors, because its jeans and intimate-apparel divisions were duds, with 4% and 9% declines, respectively.

Despite unimpressive revenue growth, VF made substantial strides in improving profitability. Its cost of goods sold as a percentage of revenues declined to 58.5% from 59.8% a year ago. This contributed to it increasing its operating margins from 14% to 16.2%.

Better margins are the primary reason VF's net income grew 17%, to a diluted EPS of $1.59. Through three quarters, VF has earned $3.55 per share, which puts it on track to reach its full-year target of $4.65.

One area of concern is that the company's inventory levels are 11% higher than they were a year ago. With VF estimating full-year sales to rise only 5% to 6% and fourth-quarter revenues to increase a paltry 2% because of difficult retail conditions, it appears that clearance sales may be on the horizon. Slashing prices is a good way to reduce inventory, but it also means that profit margins could come under significant pressure in the near future. Investors will want to monitor this situation carefully.

At the current price, VF trades at only around 11 times full-year earnings. On the surface, this sounds reasonable, but given its mediocre growth of late as well as its inventory situation, the Foolish decision is to be cautious.

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Fool contributor Jeremy MacNealy does not own shares of any companies mentioned.