This 115 Year-Old Global Apparel Giant Shows No Signs of Slowing
Ryan is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
A global apparel giant, leading in the outdoor, action-sports, and jeans-wear industries, VF Corp (NYSE: VFC), like so many other stocks in this extreme bull market, has just hit a fresh new 52-week and all-time high.
The global-apparel giant is a trailblazer in the outdoor, action-sports, and jeans-wear industries. Based on market capitalization, the company is valued at approximately $17.5 billion, and as of the fourth quarter of 2012, VF possessed a profit margin of 11%.
On April 24, the company will release its first quarter 2013 financial results. With the stock rising about 13.7% year-to-date, investors are betting big on the growth that is being fueled by an improving US economic picture and returns yielded from a recent Timberland acquisition.
At current levels, is VF a perfect fit for investors, or should they be cautious of this stock, which has risen more than 350% over the past decade?
Consistent revenue growth: In 2003, VF reported revenue of $5.2 billion; in 2011, the company reported revenue of approximately $9.5 billion, representing year-over-year annual growth of approximately 7.8%, a solid trend that is expected to be sustained into the future. Projections place 2017 revenue at about $15.3 billion as a result of strong performance across all business segments and many small acquisitions.
Dividend: Currently, the company pays out a quarterly dividend of $0.87 per share, which puts the dividend as yielding 2.2% annually, a major strength for long-term investors.
Institutional vote of confidence: 88% of shares outstanding are held by institutional investors, representing nearly $16 billion in investment capital and displaying the confidence some of the world's largest investors have in the company and its future.
Margin expansion: Over the past decade, VF’s profit margin has expanded from the 7.5% to the current 11% level, an extremely advantageous trend for the company.
Relatively low volatility: At the moment, the company possesses a beta of 0.93, representing a company trading with slightly less volatility than the overall market.
Reasonable valuation: Presently, VF carries a price-to-earnings ratio of 16.3, a price to book ratio of 3.4, and a price-to-sales ratio of 1.6; all of which indicate a company trading with a fairly reasonable valuation.
Steady asset growth: Company assets have grown from $4.2 billion in 2003 to $9.3 billion in 2011, which represents a major financial strength.
Strong-brand portfolio: The company’s brand portfolio includes Vans, Timberland, Nautica, The North Face, Lee/Wrangler, 7 For All Mankind, lucy, Kipling, and Napapijil
Strong cash-flow position: In 2011, the company generated $1 billion in cash flow, which is a sign of financial strength.
Net Debt: VF’s $597.5 million in cash and cash equivalents is outweighed by its $1.4 billion debt load, resulting in a net debt of $0.8 billion, accounting for 4.7% of overall market capitalization, a minor financial weakness of the company.
Timberland: In September 2011, VF acquired Timberland for $2.3 billion, the largest acquisition in the company’s history. VF has targeted a 10% annual revenue-growth rate, representing one of the fastest growing segments of the business.
Dividend growth: Since implementing its dividend program in 1941, VF has consistently raised its dividend payouts and is widely expected to sustain this trend into the future.
Further acquisitions: The company has a long track record of successful acquisitions, deals that have boosted growth rates, with the major acquisitions of Timberland and Smartwool adding to the company’s strong portfolio of outdoor brands; future acquisitions could fuel further growth and increase the company’s asset base.
India: From 2010 to 2011, VF experienced year-over-year annual growth of 45% in India, fueled primarily by the broad success of the Wrangler brand; further growth in this region is highly anticipated and should present incredible opportunity for the company to fuel overall sales growth.
Asia: From 2010 to 2011, the company experienced 35% organic growth in its Asian segment, and with further growth anticipated in this region VF is presented the incredible opportunity to further establish its brand in this emerging market
Rising material prices: Any price increases in the materials VF utilizes to manufacture its products could result in margin contraction
Major publicly traded competitors of VF include Phillips-Van Heusen, Columbia Sportswear, True Religion Apparel (NASDAQ: TRLG), and Limited Brands (NYSE: LTD). All of these companies operate in the specialty retail industry and compete directly with VF.
Phillips-Van Heusen is valued at $8.4 billion, pays out a dividend yielding 0.13%, and carries a price-to-earnings ratio of about 20.5. Its portfolio of brands includes Van Heusen, Bass, Calvin Klein, and Izod brands, as well as licensed names such as DKNY, Geoffrey Beene, Kenneth Cole, and private labels.
The company possesses a long history of solid revenue growth, and just recently acquired Warnaco Group, adding to its diverse and strong brand portfolio.
Columbia is valued at $1.9 billion, pays out a dividend yielding about 1.6%, and carries a price-to-earnings ratio of approximately 19.3. The company mainly targets the outdoor apparel and footwear market, and possesses a global presence.
Revenue has increased steady from approximately $1.4 billion in 2007 to about $1.7 billion in 2012. The premiums paid for its brands allows the company to maintain a relatively stable profit margin hovering around the 8% area.
True Religion is valued at $676.5 million, pays out a dividend yielding 3%, and carries a price-to-earnings ratio of 14.5. True Religion is growing faster compared to the other companies highlighted, with revenue increasing from $173 million in 2007 to $467 million in 2012. As greater competition has penetrated into this segment of the apparel industry, True Religion's profit margin has decreased from nearly 20% in 2007 to 9.8% currently.
Limited Brands is valued at $12.5 billion, pays out a dividend yielding about 2.8%, and carries a price-to-earnings ratio of approximately 18.7. This company's two main brands are Victoria's Secret and Bath & Body Works.
Revenue in 2012 hit an all-time high, recovering from the 2008 recession, which hit the company particularly hard because of the luxury nature of its products. With a profit margin of approximately 10.7%, Limited's business model appears healthy and should flourish in economic prosperity.
The Foolish bottom line
Financially, VF is extremely solid. The company possesses stable revenue growth, a growing dividend, and a strong brand portfolio. The company's only major weakness is its minor debt load.
Looking ahead, VF will draw fast-paced growth from its Asian and Indian segments and more moderate growth from acquisitions in US markets. All in all, VF is an incredibly solid investment and earns four out of five stars, and at any considerable pullback is a screaming buy.
Ryan Guenette 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!