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VF Corp: A Solid Long-Term Investment

July 19, 2014 | About:
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kcpl

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VF Corp (VFC) had a solid performance in 2013, and along with that, it has raised its dividend for the last 25 years. The company is a global leader in branded lifestyle, footwear and apparel. It owns more than 30 brands. They include The North Face, Vans, Wrangler, etc. and the popularity of these brands have enabled the company to be consistent in its performance.

Solid performance

VF reported a strong performance for the quarter, which was even better than the consensus estimate. Its revenue for the quarter increased 5% to $3.3 billion as compared to last year. It was mainly on account of a strong performance in all global regions and across both wholesale and direct-to-consumer, or DTC, businesses. Its brands also performed fabulously with 14 out of the top 15 brands growing on a global basis.

The management has worked out a five year growth plan, which focuses on four powerful strategic actions namely leading through innovation, connecting with consumers, serving those consumers directly and expanding geographically. These plans were worked out last June and since then, the company has been executing well. These strategies helped its international business to contribute 40% of total revenue, while its DTC business contributed 19% of revenue.

Innovation is important

In addition, the company also focused on innovation, which yielded good results and one such example is Thermoball, which reported strong sales in DTC channel. The company is launching an exclusive in store concept, featuring Thermoball as a part of an overall brand shop in their seasonal outerwear pad. These innovations will lead the company in its future growth.

VF’s marketing strategy will help the company to connect to its target consumers, which uses all modes of communication such as TV, print, digital, and in-store. This is mainly an emotional brand campaigning that will intensify its connection with a wide range of consumers and ultimately boost its growth further.

The company had acquired Timberland brand two years back to create a $10 billion apparel & footwear giant. And today it is celebrating the brand’s 40th anniversary as a way to connect to its consumers. The management is confident of its future prospects to help the company strengthen its numbers. It also cleared an outstanding debt of $400 million related to this acquisition.

Competition

VF has been doing well till now but it has to face stiff competition from its peers such as PVH corp. PVH had acquired Warnaco Group, which bolstered its numbers during the quarter. Consequently the high-margin Calvin Klein North America retail business registered more than twofold growth to $799.7 million from a year ago period of $319.6 million.

Along with this PVH is also focused to boost its sales on high margin items globally. In this direction the company has partnered with Axis Golf for marketing and distributing IZOD brand products across Australia, New Zealand, Fiji, and other South Pacific islands. PVH has also entered into a joint venture with Gazal to expand Calvin Klein brand Australia, New Zealand, and the South Pacific nations and islands. And thus the PVH is surging ahead with its strategic plans, which will be a key growth driver in the future.

But unlike the other two companies discussed above, Ralph Lauren has been a laggard. However it performed well during the economic recovery. Also its second quarter results were above the consensus estimate, which was mainly driven by improved performance across its wholesale and retail business. Going forward the management expects its position to improve.

Conclusion

We have considered three companies of which VF seems to perform well in the long run. While PVH is quite expensive at a P/E ratio of 38.74, Ralph Lauren has been going through tough times with its weak performance. On the other hand with an impressive P/E of 21.6 VF is surging ahead with solid momentum. Moreover it has various innovative products under its sleeve, which will drive the company’s growth forward. Hence considering these factors VF seems to be a better investment option.


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