V.F. Corp. Still Neutral - Analyst Blog
March 13 2012 - 11:43AM
Zacks
We retain our long-term Neutral recommendation on one of the
world’s largest apparel companies, V.F.
Corporation (VFC).
Our recommendation is supported by the company’s robust
fourth-quarter earnings beat, its Timberland performance,
encouraging management guidance and the company’s policy of
streamlining assets through acquisitions and divestitures, offset
by concerns regarding stiff competition from private label brands
and currency fluctuations.
In the fourth quarter, V.F. Corp.’s adjusted earnings of $2.32
per share surpassed the Zacks Consensus Estimate of $2.30 and the
prior-year quarter earnings of $1.78 per share, driven by a strong
top-line growth and a contribution of 34 cents per share from the
Timberland acquisition. For full fiscal 2011, adjusted earnings
surged 27% to $8.20 per share, beating the Zacks Consensus Estimate
of $8.18.
V.F. Corp.'s fourth quarter revenue of $2,879.4 million exceeded
the Zacks Consensus Estimate of $2,821 million and surged 36.8%
from the year-ago revenue. Double-digit revenue growth at all V.F.
Corp.'s coalitions led to the overall climb in the quarter. The
company’s full fiscal 2011 revenue also exceeded the Zacks
Consensus Estimate of $9,337 million and climbed 22.8% year over
year to $9,365.5 million.
Buoyed by better-than-expected results, the company initiated
fiscal 2012 earnings guidance of approximately $9.30 per share with
about 15% to 17% growth expected in its top line. Further, the
company expects gross and operating margins to expand by 70 and 20
basis points, respectively. The company now anticipates gross
margin to reach 45.8% and operating margin to touch 11% in fiscal
2012.
Going forward, we believe that V.F. Corp.’s policy to acquire
businesses providing strategic opportunities and exiting businesses
having lower potential have helped the company to drive growth
while improving its profitability. As evident from the recent
quarter earnings, which were considerably boosted by the recently
acquired Timberland performance, we believe the company’s
acquisition policy will benefit its revenue and earnings in the
long run.
Further, the addition of Timberland in V.F. Corporation
portfolio of brands of outdoor and action sports business
comprising Vans, Jansport, Eastpak and other brands, is expected to
make for 50% of the company's total revenue in fiscal 2012, which
in turn, is anticipated to rise to 60% by 2015. Additionally, we
believe the recent acquisition of Rock and Republic brand will
allow V.F. Corp. to compete in the premium-denim space, which is
dominated by Los Angeles designers.
Moreover, we expect V.F. Corp. to continue delivering on its
potential, given the proven performance across its segments, its
focus to build brand image via incremental marketing spending and
its committed returns to shareholders by virtue of share buybacks
and dividend payouts.
However, offsetting these positives, V.F. Corp. is prone to
risks of foreign laws and regulations in its international
business, which may negatively affect operations, foreign consumer
preferences, and disruptions or delays in shipments. Further, the
company’s international business also exposes it to currency
translation risks.
V.F. Corp. also faces intense competition from other
well-established players in the apparel industry, such as
Polo Ralph Lauren Corp. (RL), Sears
Holdings Corp. (SHLD), The Gap Inc. (GPS)
and others. To retain the existing market share, the company may
have to reduce its sales prices, which could affect its
margins.
Given the pros and cons embedded in the stock, V.F. Corp.
retains a Zacks #3 Rank, which translates into a short-term Hold
rating and also coincides with our long-term recommendation on the
stock.
GAP INC (GPS): Free Stock Analysis Report
RALPH LAUREN CP (RL): Free Stock Analysis Report
SEARS HLDG CP (SHLD): Free Stock Analysis Report
V F CORP (VFC): Free Stock Analysis Report
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