Back to top

Image: Bigstock

Why Is V.F. Corp (VFC) Down 7.2% Since the Last Earnings Report?

Read MoreHide Full Article

A month has gone by since the last earnings report for V.F. Corporation (VFC - Free Report) . Shares have lost about 7.2% in that time frame, underperforming the market.

Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

V.F. Corp. Posts In-Line Q1 Earnings, Guides 2017

V.F. Corporation released first-quarter 2017 results, wherein the company’s quarterly adjusted earnings came in at $0.55 a share, in line with the Zacks Consensus Estimate and down 9.8% year over year. Including one-time items, earnings declined 18% to $0.50 per share. On a currency neutral basis, the adjusted earnings per share declined 3%.

Total revenue, including royalty income came in at $2,581.7 million, down 2% year over year. Net sales of $2,555.7 million were down 2% from the prior-year quarter. The Zacks Consensus Estimate was pegged at $2,749.3 million. Revenues in the quarter gained from strength in international and direct-to-customer platforms, and the Outdoor & Action Sports coalition. However, a challenging retail environment and currency headwinds led to the decline. On a currency neutral basis, revenues declined 1%.

The company’s reported gross margin improved 150 bps to 50.2%, as gains from better pricing, reduced product costs and mix shift toward high margin businesses were somewhat offset by foreign currency headwinds. Foreign currency hurt gross margin by 40 bps.

Reported operating income declined 7% to $291 million, while operating margin contracted 50 bps to 11.3%. Currency headwinds affected operating margin by 40 bps.

Segment Details

Revenues at Outdoor & Action Sports grew 2% to $1,678.8 million (up 4% on a currency neutral basis).

Jeanswear revenues of $647.4 million declined 9% year over year (down 8% on a currency neutral basis).

Imagewear revenues fell 5% on both reported and currency neutral basis, to $135 million.

Revenues at Sportswear slumped 17% on both reported and currency neutral basis to $98.3 million.

Financial Details

V.F. Corp. ended the first quarter with cash and equivalents of $604.4 million, long-term debt of $2,051.5 million and shareholders’ equity of $4,381.2 million. In the first quarter, the company used $210.2 million cash in operating activities.

During the quarter, the company bought back 8.2 million shares for nearly $438 million, at an average price of $53 per share under the share repurchase program authorized in 2013. Additionally, in Mar 2017, the company authorized a new share repurchase program to buyback up to $5 billion shares.

The company also declared a quarterly dividend of $0.42 per share, payable on Jun 19, 2017 to shareholders with record as on Jun 9.

Divestitures

On Apr 4, V.F. Corp. signed a deal to divest Licensed Sports Group (LSG) business to Fanatics Inc., which is a leading name for officially licensed sports merchandise. This divestment will include sale of the Majestic brand, which offers apparel and fanware through licensing deals with domestic and global professional sports leagues and teams.

Previously, in Aug 2016, the company completed the sale of its Contemporary Brands businesses, including the 7 For All Mankind, Splendid and Ella Moss brands. These segments are classified as discontinued operations in the company’s financial statements.

Outlook

For 2017, management anticipates revenues to grow at a low-single digit percentage rate. Foreign currency headwinds are likely to hurt revenues for 2017 by about two percentage points.

V.F. Corp. anticipates gross margin to increase 20 bps from 2016 levels at 49.6%, including negative currency impact of roughly 70 bps. Operating margin is expected at about 14%, including 60 bps impacts from currency headwinds.

Further, the company envisions earnings per share to decline at a low-single digit percentage rate compared with 2016 adjusted earnings per share of $2.98. On a currency neutral basis, earnings per share is likely to rise in the mid-single digit percentage range. The company expects cash flow from operations of approximately $1.45 billion for 2017.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed a downward trend in fresh estimates. There have been 16 revisions lower for the current quarter. While looking back an additional 30 days, we can see even more downward momentum. There have been 17 moves down in the last two months. In the past month, the consensus estimate has shifted lower by 12.6% due to these changes.

V.F. Corporation Price and Consensus

 

V.F. Corporation Price and Consensus | V.F. Corporation Quote

VGM Scores

At this time, V.F. Corp's stock has a subpar Growth Score of 'D', though it is lagging a bit on the momentum front with an 'F'. However, the stock was allocated a grade of 'C' on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of 'D'. If you aren't focused on one strategy, this score is the one you should be interested in.

The company's stock is suitable solely for value based on our styles scores.

Outlook

Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift.  Interestingly, the stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.


See More Zacks Research for These Tickers


Normally $25 each - click below to receive one report FREE:


V.F. Corporation (VFC) - free report >>

Published in