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Analyst Blog

We retain our long-term Neutral recommendation on lifestyle apparel company V. F. Corporation (VFC - Analyst Report).

We remain impressed by the company’s consecutive positive earnings surprise trend, strong organic revenue growth, raised management guidance as well as upside in stock price. However, stiff competition from private label brands and currency fluctuation still remain causes of concern keeping us on the sidelines.

VF Corp. delivered impressive first-quarter results on April 27, 2012. Earnings per share came in at $1.94, striding ahead of the Zacks Consensus Estimate of $1.88, and an increase of 7% over the comparable quarter last year. Revenue rose 31% to $2.556 billion, beating the Zacks Consensus Estimate of $2.448 billion. This was aided in part by the Timerberland acquisition, and organic growth of 12%.

Encouraged by solid first-quarter results, management raised its earnings guidance for the remainder of the year. The company now expects to earn about $9.45 per share on revenue growth of 15%, up from the previous guidance of $9.30.

As one of the world’s largest apparel companies with over 30 brands, V. F. Corp is well positioned above its peers to generate above average industry growth and sustain itself in the current challenging environment. The company maintains a diversified brand portfolio having a total market cap of $17.1 billion. The company’s top six brands are The North Face, Wrangler, Timberland, Vans, Lee and Nautica.

Apart from continued solid earnings performance, the company also maintains a strong dividend payout, thus enhancing shareholder returns. The company pays a dividend that yields a solid 1.9%. In the first quarter of 2012, the board of directors of V.F. Corp. declared a quarterly cash dividend of 72 cents per share, which will be paid on June 18, 2012 to shareholders of record as of June 8, 2012.

Additionally, V.F Corp.’s policy to acquire businesses providing strategic opportunities and exiting businesses having lower potential has helped the company to drive growth while improving profitability. We believe the acquisition of Rock and Republic Enterprises Inc. in fiscal 2011 will enable V.F. Corp. to compete in the premium-denim space dominated by Los Angeles designers.

However, Skepticism still remain as the company derives about 34% of its sales from international business, which exposes it to risks of foreign laws and regulations that could negatively affect operations, foreign consumer preferences, disruptions or delays in shipments, and currency fluctuations.

Further, intense competition from well-established players in the apparel industry, such as Polo Ralph Lauren Corp. (RL - Analyst Report), Sears Holdings Corp. , The Gap Inc. (GPS - Analyst Report), and the like, keep the company on the run to maintain its existing market share. In a drive to do so, the company may have to reduce its sales prices, which could affect its margins.

Keeping pace with our long-term recommendation, V.F. Corp. currently retains a Zacks #3 Rank, which translates into a short-term Hold rating.

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