V.F. Corporation: Worth The Clothes On Your Back - And More

| About: V.F. Corporation (VFC)

V.F. Corporation (NYSE:VFC) is the name behind the names. The world's #1 jeans maker's bevy of brands includes Lee, Riders, Rustler, and Wrangler jeans. Others holdings include JanSport (#1) and Eastpak (backpacks); Lee Sport (knitwear); The North Face and Eagle Creek (outdoor gear/apparel); Red Kap and Bulwark (industrial work clothes); Nautica and John Varvatos (men's and women's apparel); and Vans (hip footwear). Most of the company's sales come from jeans. VF makes NASCAR, MLB, NFL, and NBA apparel under license. It bought surfwear Reef Holdings in 2005.

Most likely you've got something V.F. Corp. made hanging or folded in your closet, maybe in the laundry hamper. This large apparel maker will sell almost $7 billion worth of threads by the end of the year. Next year analysts think the number will be $7.7 billion.

Along with strong sales, VFC has been reporting good earnings per share, starting in 2004 with $4.21, then $4.54, followed by $4.73. This year should finish at $5.30, going to $6.05 next year. Over the next 5 years, sales should grow, on average, 7.5% a year, while earnings per share are forecast to increase by 12% a year, on average.

VFC's Outdoor Coalition is growing rapidly. First quarter sales were up 40% to $539 million while earnings were ahead by 66% to $84 million. Other divisions are moving ahead as well: The North Face saw a 28% increase in sales, Vans and Napapijri vaulted 60%. The Vans label is mostly on sneakers, very popular with skateboarders. The company believes this brand can make the leap onto apparel.

V.F. has been getting out of the intimate apparel business, selling its Vanity Fair, Lily of France, Vasarette, Bestform and Curvation to Fruit of the Loom. This group had relatively low margins and served a rather mature consumer, quite different from the Vans customer as well as other brands V.F. is focusing on. The sale proceeds are expected to be used for buying back shares and more companies.

It's already bought two apparel makers this year: Eagle Creek which makes travel gear and Majestic Athletic, leading supplier of authentic sports licensed apparel and branded team uniforms for Major League Baseball. While these 2 combined will add about $180 million in revenues, look for their operating margins to grow from 8% to 14% as V.F. adds its operational efficiencies to both.

Other numbers to consider: Current assets are more than double current liabilities. Debt is only 16% of capital. Return on equity is 18%. Net Profit Margin is 8.4% with expectations of it reaching 10.4% in 5 years. The dividend is $2.20 this year, up from $1.94 last year. It takes about 40% of earnings to pay it. Trusts established by founder John Barbey control about 20% of shares. Two large institutions own about 13% of the stock.

V.F. Corp. has not gone undiscovered. Investors really, really like it. While the average annual P/E ratio has been in a range of 9 to 15 in the last 10 years, it's now trading at close to 19. But when you've established a growth in earnings as consistent as V.F. has and shown that management can manage capital well, investors will pay more for that stock. The price has gone from $33 in 2003 to its current all time high of $89. Has all the goodness already been baked in?

The Good: Earnings and cash, decent dividend.
The Bad: High P/E.
The Beautiful: Earnings growth.

VFC 1-yr chart


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