V.F. Corporation: Does The Apparel Emperor Have Clothes?

May.23.14 | About: V.F. Corporation (VFC)


VFC is growing Chinese revenue at 25%.

Future growth will come from international sales.

VFC expects organic revenue growth of 7% to 8% going forward.

Shareholders of VFC can expect a CAGR of 10% to 12%.

The company appears to be fairly valued based on its peers.

Click to enlarge

V.F. Corporation (NYSE:VFC) manufacturers, sources, and sells branded outdoor and action sports clothes, jeans, work clothes, and contemporary brands. VFC is an international company that sells throughout the world. VFC started as Reading Glove & Mitten Manufacturing in 1899. The company has paid increasing dividends for 41 consecutive years. The company owns several leading clothing brands.

Click to enlarge
Source: 2013 Annual Report, page 7

This article covers the current events of VFC, its current and future growth prospects, valuation, and shareholder return. Finally, the article compares VFC to other businesses with 25+ years of consecutive dividend increases using the 5 Buy Rules from the 8 Rules of Dividend Investing to determine if VFC is a solid long-term holding for dividend investors.

Current Events

VFC operates in 5 major divisions:

  • Outdoor & Action Sports - 56% of revenue, 17% operating margin
  • Jeanswear - 25% of revenue, 19% operating margin
  • Imagewear - 9% of revenue, 14% operating margin
  • Sportswear - 5% of revenue, 14% operating margin
  • Contemporary Brands - 4% of revenue, 9% operating margin

The majority of the company's revenue and profits come from the outdoor & action sports and jeanswear categories.

VFC increased revenue 6.5% year-over-year for the most recent quarter. The company posted strong revenue growth of 14% in its outdoor & action sports division. The biggest bright spot in the outdoor & action sports division was Van's. The Van's brand realized an amazing 40% year-over-year revenue growth rate in the Asia Pacific region.

Imagewear and sportswear revenues are up modestly at 4% and 3% respectively. VFC saw declining revenues in both its jeanswear and contemporary brands divisions. Jeanswear revenue is down 4%, while contemporary brands revenue is down 5%. US jeanswear sales are the cause of decreased jeanswear revenue. International jeanswear sales are up.

V.F. Corporation's growth is being fueled by international expansion. Constant currency international revenue is up 10% for the most recent quarter. Constant-currency growth for the first quarter breaks down as follows:

  • Europe: 8%
  • Asia Pacific: 17%
  • Americas (non-US): 8%

Currently, over 40% of VFC's sales are international. The company's future growth will continue to come from overseas as the company better penetrates these markets. Chinese growth in particular has been promising, with 25% constant currency growth in the most recent period.

Shareholder Return

Shareholders of VFC can expect a return of 9% to 12%. Return will come from dividends (1.7%), share repurchases (1% to 2%), and organic revenue growth (7% to 8%). This return does not factor in any changes in valuation.


VFC appears to be fairly valued based on its current and future P/E ratios as compared to its peers.




Forward P/E


V.F. Corporation




Ralph Lauren Corporation




PVH Corp.




Under Armour, Inc.




Hanesbrands Inc.




Gildan Activewear Inc.




Lululemon Athletica Inc.




Kate Spade & Company




Carter's, Inc.




Columbia Sportswear Company



Click to enlarge

Source: Finviz

Rule 1: Consecutive Years of Dividend Increases

VFC has increased its dividend for 42 consecutive years. The company's long history of dividend increases shows the company has a sustainable competitive advantage in a slow changing industry. VFC Corporation is very likely to continue its dividend increase into the future.

Why it matters: The Dividend Aristocrats (stocks with 25-plus years of rising dividends) have outperformed the S&P 500 over the last 10 years by 2.88 percentage points per year.
Source: S&P 500 Dividend Aristocrats Factsheet, February 28 2014, page 2

Rule 2: Dividend Yield

VFC has a dividend yield of about 1.7%. The company does not compare well to other businesses with 25+ years of consecutive dividend increases in this metric. VFC ranks at 79 out of 105.

Why it Matters: Stocks with higher dividend yields have historically outperformed stocks with lower dividend yields. The highest-yielding quintile of stocks outperformed the lowest-yielding quintile by 1.76 percentage points per year from 1928 to 2013.
Source: Dividends: A Review of Historical Returns

Rule 3: Payout Ratio

VFC's payout ratio of 33.80% ranks it at 37 out of 105 businesses with 25+ years of consecutive dividend increases. The company's low payout ratio gives it ample room to increase dividends faster than overall company growth in the future.

Why it Matters: High-yield, low-payout ratio stocks outperformed high-yield, high-payout ratio stocks by 8.2 percentage points per year from 1990 to 2006.
Source: High Yield, Low Payout by Barefoot, Patel, & Yao, page 3

Rule 4: Long-Term Growth Rate

VFC has grown revenue per share by about 8.5% over the last decade. This strong growth compares favorably to other businesses with over 25 years of increasing dividends. The company ranks 11 out of 105 based on this metric.

Why it Matters: Growing dividend stocks have outperformed stocks with unchanging dividends by 2.4 percentage points per year from 1972 to 2013.
Source: Rising Dividends Fund, Oppenheimer, page 4

Rule 5: Long-Term Volatility

The company's long-term standard deviation of 28.81% is average. The company ranks at 53 out of 105 based on this metric.

Why it Matters: The S&P Low Volatility index outperformed the S&P 500 by 2 percentage points per year for the 20-year period ending September 30th, 2011.
Source: Low & Slow Could Win the Race, page 3


VFC is a leading clothing retailer. The company operates in an industry with little technical change, but continuous style changes. Overall, the company ranks in the top third of businesses with 25+ years of consecutive dividend increases. The company will rank higher as its dividend yield increases (if/when PE ratio falls). VFC has very favorable growth prospects ahead and is a solid long-term holding for dividend investors.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.