VF Corporation: More Than Just a Dividend Aristocrat
Josh is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Today we will take a look at VF Corporation (NYSE: VFC) through a SWOT analysis and determine its major Strengths, Weaknesses, Opportunities, and Threats. By taking an inside look at the apparel company, I hope to display VF's long-term investing potential.
Dividend Aristocrat- While VF truly is more than your average Dividend Aristocrat, it is worth noting their 40 year run of increasing dividends returned to shareholders. In the last decade alone, VF has grown its dividend 185%, from $1.01 to $2.88, which is a CAGR of 11%. Currently, their dividend sits at 2%.
Direct-to-Consumer Growth- VF Grew their Direct-to-Consumer revenues 28%, which raised its portion of VF's overall revenues to 18%. This growth lead to a 120 basis point jump in their Gross Margin, as it rose to 46.7%.
History- While history should rarely be used as reasoning to make an investment decision, it is hard to deny VF's success. Since its founding in 1899, VF has expanded across product lines, geographical markets, and overall target markets, all while becoming a Dividend Aristocrat. With returns to shareholders of 14.5% annually since 1968, VF has proven throughout its history that it is a great long-term investment.
Growth- Delivering a CAGR of 8% on revenues over the last decade and 13% over the last 3 years, VF has shown that it isn't your regular, boring, 100 year old company. Furthermore, with EPS spiking 10% yearly for the last 10 years and 28% over the last 3, it is clear to see that VF still has a lot of growth to deliver to shareholders.
Exposure to Struggling Markets- With 22% of its revenues coming from Europe, VF will continue to face challenging economic conditions for years to come. Similarly, with 8% and 7% of revenues coming from Asia and South America, VF also faces a slowdown in their major growth markets.
Inventory Ownership- In many of their retailer relationships, VF accepts ownership of the inventory in the store. This has lead to inventory buildup, particularly in China where growth slowed down drastically, leaving many items overstocked.
Large Customers- VF's 10 largest customers make up roughly 23% of its overall revenues. The largest of the group, Wal-Mart, accounts for 9% of that total alone. If anything were to happen to their relationship, a near 10% hit on revenues would crush VF's short term outlook.
Intangibles- VF has $2.9 billion of intangibles on its balance sheet, or 29% of its overall assets. While VF has many brands and an incredible reputation that help build up these intangibles, it is a large portion of assets that needs be monitored.
Asia Pacific Growth- During a recent Investor Day in September, VF announced that it plans on seeing $1.1 billion in revenue growth over the next five years from its Asia Pacific business. With TTM revenues of $10.8 billion company wide, this growth throughout Asia represents a 10% increase in company revenues by itself.
Continued International Growth- As VF explained in their Investor Day transcript, they are currently composed of 63% domestic and 37% international revenues. With a short term goal of 40%, they appear to be knocking on the door of not only their goal, but becoming a truly international company.
Steadiness in Europe- Despite all of Europe's struggles, it is still the world's largest clothing market and VF is expected to see 10%-13% growth in revenues. With a long-term investing mind intact, it is fair to say Europe will see better days and VF will be able to build upon Europe's 22% share of its company revenues.
Product Line Expansion- VF is famous for its slow movements into new territory. OK, not really famous so much, but they usually take their time wading into each market. With only 5 brands rolled out in China, 3 in India, and a couple in Brazil, VF loves to take their time and make a thorough assessment of the market before acting. However, upon taking action, there could be huge potential growth runways remaining.
New Acquisitions- With their purchase of The Timberland Company for $2.3 billion, VF showed yet again that it has no fear of growing through acquisitions. With the acquisition, VF immediately added $0.45 to their 2011 EPS and over $700 million in revenue annually, not to mention a bump up in gross margin for 2012. Well-timed acquisitions like this in the future could lead to fast growth for years to come.
True Religion- True Relgion (NASDAQ: TRLG) offers a more specialized take on jeans and looks to provide a direct alternative to VF's Wrangler and Lee style jeans. True Religion's debt-free state gives them a leg up on VF financially, but VF has the power of size on its side, as it competes with up and coming jean companies such as True Religion.
Polo Ralph Lauren- Ralph Lauren (NYSE: RL) also offers alternatives to many of VF's jean brands, both on the low and high ends. Much like VF, Ralph Lauren also depends up department stores to move its product, and the two companies actually have a mutual customer in Macy's. Being so closely related, it is pivotal for VF to maintain an edge with Ralph Lauren, among many other competitors.
Non-Jean Competitors- Whether it is Colombia, Phillips-Van Heusen, or even Under Armour, VF will need to effectively leverage its scale as it goes on to compete in its various niches. While it may be smart to slowly enter new markets, it will be necessary for investors to make sure that they aren't overtaken by a competitor in any of their new geographical growth areas.
A Foolish Conclusion
With this SWOT analysis in hand and a 10% decrease in stock price off of its 52 week high, VF Corporation is an amazing growth story trading at a fair price. Having such a strong history and a tremendous growth story still ahead of it, I believe VF's Forward P/E of 12.6 offers a great spot to buy in.
Remember, not only are you buying a Dividend Aristocrat, but you are buying a rapidly growing apparel business who sees only 8% and 7% of their revenues coming from its Asian and South American operations, respectively. VF is a truly remarkable growth story and will continue to be for another 100 years. I give it a 5+ year outperform call on CAPS and see it as a top pick for my next investment.
joryko has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!