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This Apparel Retailer Is a Solid Long-Term Pick

June 25, 2014 | About:
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kcpl

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VF Corp (VFC) has an impressive history of raising dividends for the last 25 years. The company had another successful year as it displayed tremendous improvements across its business segments in 2013, much like its peers. Let’s take a look at the VF Corp's business and see how it might perform in the future.

A closer look

VF Corp is known for its branded lifestyle footwear and apparel. It holds approximately 30 or so brands, including The North Face, Wrangler, Timberland, and Lee among others. VF Corp enjoys diversity of brands across the world, and this has helped the company in delivering a consistent performance.

VF Corp’s revenue for the recent quarter rose 5% to $3.3 billion year-over-year. It beat the market estimates on revenue on the back of a strong show across both the wholesale and the direct-to-consumer, or DTC, business. Also, the individual performance of the brands complimented its growth to a great extent, as 14 out of the 15 top brands posted robust growth on a global basis. This led the company to post earnings of $3.89 per share, and beat the consensus estimate.

Growth strategies driving its business

VF Corp has evolved its business around the strategic growth plan that the company has been practicing for quite some time now. Its growth plan is based on four strategic actions, such as leading through innovation, connecting with consumers, serving those consumers directly, and expanding geographically. These strategic initiatives have helped the company enhance its overall performance and increase its margins.

For example, in the recent quarter, the international business was 40% of total revenue and the DTC business contributed 19% of revenue, all trending up and tracking well against its five-year goals. Going forward, this will be a good long-term growth driver.

As far as VF Corp’s innovation is concerned, Thermoball is a great example. It already has a very strong sell-through in the DTC channel and the company is rolling out an exclusive in-store concept at 300 Dick's Sporting Goods locations, featuring Thermoball as a part of an overall brand shop in their seasonal outerwear pad. Other examples of innovative products include the two new Pro Skater shoes. The innovative product pipeline will remain a good growth driver going forward.

VF Corp is also aiming to connect with its target consumers through a Never Stop Exploring campaign, mediums like TV, print, digital, and in-store. This emotional brand campaign is aimed at personalizing the meaning of outdoor exploration and the company is confident that this will intensify its connection with a wide range of North Face consumers, and help in sustaining the growth momentum of its Outdoor & Action Sports segment. The Outdoor & Action Sports division represented 60% of third-quarter revenue.

Competition

PVH’s Warnaco Group acquisition was one of the main growth drivers in its recent quarter, providing competition to VF Corp. As a result of this acquisition, the high-margin Calvin Klein North America retail business registered more than two-fold growth to $799.7 million from $319.6 million in the comparable quarter a year-ago.

PVH’s strategy for growth is also focused on boosting sales of high-margin items across the globe. In line with this, it has inked deals with Axis Golf for marketing and distributing IZOD brand products across Australia, New Zealand, Fiji, and other South Pacific islands.

Ralph Lauren is a laggard among the three. However, it has also done well during the economic recovery, growing revenue every year since 2011. Its better-than-expected results were fueled by improved performance across its wholesale and retail business. As a result of improved sales, earnings came in at $2.23 per share, better than what analysts had expected. However, as a result of margin contraction, this was 2.6% lower than the earnings in the year-ago quarter.

Conclusion

VF Corp looks solid. Moreover, Ralph Lauren’s weak performance makes VF Corp the best stock in the group. Above all, its innovative pipeline and marketing moves should ensure long-term growth, making it a good buy.


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