Neutral on V.F. Corporation - Analyst Blog
August 12 2011 - 4:00AM
Zacks
We maintain our long-term ‘Neutral
‘recommendation on V.F. Corporation
(VFC). V.F. Corp.'s diversified brand
portfolio positions the company well above its peers to generate
above average industry growth and sustain itself in the current
challenging environment. The company’s approach to brand management
allows each brand to develop further, through rigorous marketing
strategies, financial control, and operating leverage. Further,
given the strength of most of its brands and opportunities with
regard to distribution, the company is set for significant
long-term growth.
Moreover, V.F. Corp. operates 25
manufacturing facilities, where the company benefits from a
decades-long history of manufacturing and engineering expertise
including cost and service benefits. Apart from this, V.F.
Corp.benefited from an extremely diversified and balanced
base of over 1,500 contractors across 60 countries controlled from
one of the biggest sourcing offices in Hong Kong, which provide
tremendous scale and expertise. Given the strength of V.F. Corp.’s
global supply chain, the company can rapidly adjust its sourcing
strategies.
Moreover, V.F Corp.’s policy
to acquire businesses providing strategic opportunities and exiting
businesses having lower potential has helped the company to drive
growth and improve profitability. The acquisition of Rock and
Republic Enterprises Inc. in the first quarter of fiscal 2011 will
enable V.F. Corp. to compete in the premium-denim space dominated
by Los Angeles designers.
Additionally, the recent merger of
Timberland in the V.F. Corporation portfolio of brands of outdoor
and action sports business comprising Vans, Jansport, Eastpak and
other brands, will make 50% of the company's total revenue, which
is expected to rise to 60% by 2015. The deal will increase V.F.
Corporation’s profit by $0.25 a share and revenues by $700 million
in fiscal 2011. In fiscal 2012, the deal is expected to add $0.75
to the earnings and $1.6 billion to the revenue of the company.
On the flip side, V.F. Corp.’s
international business accounts for approximately 30.0% of sales,
with products distributed globally through local retailers,
wholesalers, and independent distributors. The international
business exposes the company to risks such as foreign laws and
regulations that could negatively affect operations, foreign
consumer preferences, disruptions or delays in shipments, and
currency fluctuations.
V.F. Corp. faces intense
competition from other well-established players in the apparel
industry, such as Gap Inc. (GPS) and Sears
Holdings Corporation (SHLD). To retain the existing market
share, the company may have to reduce its sales prices, which could
affect its margins.
The company’s customers remain
sensitive to macroeconomic factors including interest rate hikes,
increase in fuel and energy costs, credit availability,
unemployment levels, and high household debt levels, which may
negatively affect their discretionary spending, and in turn, the
company’s growth and profitability.
V.F. Corporation holds a Zacks#2
Rank, which translates into a short-term Buy recommendation.
GAP INC (GPS): Free Stock Analysis Report
SEARS HLDG CP (SHLD): Free Stock Analysis Report
V F CORP (VFC): Free Stock Analysis Report
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