VF Corporation: Apparel Brands Company Growing Around the World

| About: V.F. Corporation (VFC)

VF Corporation (NYSE:VFC), founded in 1899, has grown into the largest apparel company in the world and became a Dividend Aristocrat. The business is organized into 5 divisions:

(1) Outdoor & Action
(2) Jeanswear
(3) VF Imagewear
(4) Sportswear
(5) Contemporary

A few of the brand names include: Lee, Wrangler & Rustler jeans; The North Face; Nautica; Ella Moss; Bulwark and Red Cap.

The global recession hurt VFC last year. Sales dropped 6% to $7.2 billion and EPS was $5.16 (excluding a non cash charge of $1.03). However using another measure, excluding unusual items, earnings would have risen 2%. Overall, results in 2009 were respectable in a difficult period and VFC continued its long streak of annual dividend increases.

In Q2 2010, revenues rose 7% to $1.6 billion and EPS increased 47% to $1.00 (a record for Q2), gross margins reached a record level of 47.1% and VFC raised full year guidance. Yearly sales should increase 4-5% to roughly $7½ billion and EPS guidance was increased from $5.90 to $6.10 (a record). Cash flow is strong, expected to approximate $850 million allowing VFC to purchase 4 million shares costing $318 million in the first 6 months of this year.

This is the 38th consecutive year of increased dividends, but increases have generally been only 1 or 2 pennies per quarter with a goal to pay out 40% of earnings in dividends. In 2006, when the payout ratio declined below 25%, VFC almost doubled the quarterly dividend from 29¢ to 55¢ ($2.20 annual rate) followed by modest annual increases as before.

The outlook for VFC is excellent. Growth is expected to come from Outdoor & Action Sports (which has become the largest division), Contemporary Brands and overseas (especially in Asia). In addition VFC plans to open another 40+ stores in the rest of the year, bringing the total to over 800 stores. The company has outstanding brands and has been expanding its business by acquiring additional brands which meet its growth criteria, selling directly to consumers with company owned stores and via e-commerce.

Analysts expect EPS of $6.67 next year. Longer term growth will come from overseas (especially in China and Europe) which represents 30% of sales, direct sales to consumers by expanding new stores and a growing e-commerce business. The stock had a fairly steady rise from low single digits 30 years ago to the 50s by 1998 before falling to the low 20s early in this decade. From there it rose to the 90s in 2007, then fell below 40 when the markets sank. In the current recovery, the stock rebounded to $75.44 (where it was in 2006 and not far from its record price). The 3.2% yield from the $2.40 dividend is attractive and growing EPS will keep VFC a Dividend Aristocrat for many years. As a bonus, VFC produces an old fashioned annual with basic financial information, descriptions of the businesses and using pictures to show company products.

Disclosure: Long VFC