We retain our long-term Neutral recommendation on lifestyle
V. F. Corporation
We remain impressed by the company's consecutive positive
earnings surprise trend, strong organic revenue growth, raised
management guidance as well as upside in stock price. However,
stiff competition from private label brands and currency
fluctuation still remain causes of concern keeping us on the
VF Corp. delivered impressive first-quarter results on April 27,
2012. Earnings per share came in at $1.94, striding ahead of the
Zacks Consensus Estimate of $1.88, and an increase of 7% over the
comparable quarter last year. Revenue rose 31% to $2.556 billion,
beating the Zacks Consensus Estimate of $2.448 billion. This was
aided in part by the Timerberland acquisition, and organic growth
Encouraged by solid first-quarter results, management raised its
earnings guidance for the remainder of the year. The company now
expects to earn about $9.45 per share on revenue growth of 15%, up
from the previous guidance of $9.30.
As one of the world's largest apparel companies with over 30
brands, V. F. Corp is well positioned above its peers to generate
above average industry growth and sustain itself in the current
challenging environment. The company maintains a diversified brand
portfolio having a total market cap of $17.1 billion. The company's
top six brands are The North Face, Wrangler, Timberland, Vans, Lee
Apart from continued solid earnings performance, the company
also maintains a strong dividend payout, thus enhancing shareholder
returns. The company pays a dividend that yields a solid 1.9%. In
the first quarter of 2012, the board of directors of V.F. Corp.
declared a quarterly cash dividend of 72 cents per share, which
will be paid on June 18, 2012 to shareholders of record as of June
Additionally, V.F Corp.'s policy to acquire businesses providing
strategic opportunities and exiting businesses having lower
potential has helped the company to drive growth while improving
profitability. We believe the acquisition of Rock and Republic
Enterprises Inc. in fiscal 2011 will enable V.F. Corp. to compete
in the premium-denim space dominated by Los Angeles designers.
However, Skepticism still remain as the company derives about
34% of its sales from international business, which exposes it to
risks of foreign laws and regulations that could negatively affect
operations, foreign consumer preferences, disruptions or delays in
shipments, and currency fluctuations.
Further, intense competition from well-established players in
the apparel industry, such as
Polo Ralph Lauren Corp.
Sears Holdings Corp.
The Gap Inc.
), and the like, keep the company on the run to maintain its
existing market share. In a drive to do so, the company may have to
reduce its sales prices, which could affect its margins.
Keeping pace with our long-term recommendation, V.F. Corp.
currently retains a Zacks #3 Rank, which translates into a
short-term Hold rating.
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