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Can Growth Efforts Aid V.F. Corp (VFC) Amid Tough Environment?
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V.F. Corporation (VFC - Free Report) has been witnessing a tough operating environment, a dismal wholesale performance and higher promotions. This led to a sluggish year-over-year top and bottom-line performance in first-quarter fiscal 2024. Consequently, VFC has lost 1.7% in the past three months compared with the industry’s decline of 2.4%.
The adjusted loss per share was 15 cents against adjusted earnings of 9 cents per share in the year-earlier quarter. The metric came wider than the Zacks Consensus Estimate of a loss of 13 cents per share. Revenues of $2,086.3 million fell 8% year over year and remained flat on a two-year basis. At constant-currency (cc), revenues also dipped 8% year over year.
The top line was hurt by a dismal wholesale performance, and sluggishness in the Americas and EMEA regions, which was partially offset by growth in the APAC region. Channel-wise, wholesale and direct-to-consumer revenues were down 12% and 3% year over year on a reported basis, respectively.
Image Source: Zacks Investment Research
In the said quarter, the adjusted gross margin contracted 130 basis points (bps) to 52.8% due to elevated promotional activity and higher product costs. The metric reflected 200 bps of adverse rate impact (including promotions) and 10 bps of adverse foreign currency exchange rates, partly offset by 80 bps of mix benefits.
The adjusted operating loss was $7.9 million against an adjusted operating income of $77.5 million reported in the year-earlier quarter. The adjusted operating margin of 0.4% was down 380 bps due to a 130-bps impact of adverse gross margin and 250 bps of deleverage.
However, VFC is focused on lowering working capital and optimizing inventories. It has been accelerating its cost-saving efforts, which are likely to generate $225 million annually after the completion of its previously announced actions in fiscal 2024.
Also, the North Face and China businesses have been experiencing momentum. The company is also seeing an improved performance in the supply chain, allowing it to capitalize on revenue opportunities.
It continues to see growing momentum in the APAC region, with revenue growth of 13% on a reported basis (up 18% at cc). In the aforementioned region, revenues across all channels grew in the double digits, driven by brick-and-mortar traffic growth. Greater China witnessed an acceleration of 31% and benefited from the comparison to the prior-year lockdown impacts.
The North Face continues to be the key growth driver in this region, with revenue growth of more than 50% in Greater China on the back of outdoor market tailwinds and recovering domestic travel. Evidently, North Face emerged as the number one international outdoor brand in China.
V.F. Corp is benefitting from the acquisition of the privately-owned streetwear brand — Supreme. Its strong follower base in the younger generation bodes well for the company.
Wrapping Up
Although the ongoing macroeconomic headwinds are concerning, management expects better second-half revenue performance than the first half on an improving wholesale performance, moderating declines at Vans and easing year-over-year comparisons. These factors are likely to aid this Zacks Rank #3 (Hold) stock.
Its forward price-to-earnings ratio of 9.90 has underperformed the industry’s ratio of 12.44, which raises optimism about the stock. Topping it, a VGM Score of B and a long-term earnings growth rate of 6.5% reflect its inherent strength.
The Zacks Consensus Estimate for RCL’s 2023 sales and EPS indicates increases of 47.9% and 158.3%, respectively, from the year-ago period’s reported levels.
lululemon athletica is a yoga-inspired athletic apparel company. LULU carries a Zacks Rank of 2 (Buy) at present.
The Zacks Consensus Estimate for lululemon athletica’s current financial-year sales and EPS suggests growth of 16.7% and 18%, respectively, from the year-ago reported figures. LULU has a trailing four-quarter earnings surprise of 9.9%, on average.
G-III Apparel is a leading designer and distributor of women's and men's apparel in the United States, which currently carries a Zacks Rank of 2.
The Zacks Consensus Estimate for G-III Apparel’s current financial-year sales suggests growth of 1.9%. Its earnings per share are expected to rise 0.4% from the year-ago reported figure. GIII has a trailing four-quarter earnings surprise of 47.4%, on average.
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Can Growth Efforts Aid V.F. Corp (VFC) Amid Tough Environment?
V.F. Corporation (VFC - Free Report) has been witnessing a tough operating environment, a dismal wholesale performance and higher promotions. This led to a sluggish year-over-year top and bottom-line performance in first-quarter fiscal 2024. Consequently, VFC has lost 1.7% in the past three months compared with the industry’s decline of 2.4%.
The adjusted loss per share was 15 cents against adjusted earnings of 9 cents per share in the year-earlier quarter. The metric came wider than the Zacks Consensus Estimate of a loss of 13 cents per share. Revenues of $2,086.3 million fell 8% year over year and remained flat on a two-year basis. At constant-currency (cc), revenues also dipped 8% year over year.
The top line was hurt by a dismal wholesale performance, and sluggishness in the Americas and EMEA regions, which was partially offset by growth in the APAC region. Channel-wise, wholesale and direct-to-consumer revenues were down 12% and 3% year over year on a reported basis, respectively.
Image Source: Zacks Investment Research
In the said quarter, the adjusted gross margin contracted 130 basis points (bps) to 52.8% due to elevated promotional activity and higher product costs. The metric reflected 200 bps of adverse rate impact (including promotions) and 10 bps of adverse foreign currency exchange rates, partly offset by 80 bps of mix benefits.
The adjusted operating loss was $7.9 million against an adjusted operating income of $77.5 million reported in the year-earlier quarter. The adjusted operating margin of 0.4% was down 380 bps due to a 130-bps impact of adverse gross margin and 250 bps of deleverage.
However, VFC is focused on lowering working capital and optimizing inventories. It has been accelerating its cost-saving efforts, which are likely to generate $225 million annually after the completion of its previously announced actions in fiscal 2024.
Also, the North Face and China businesses have been experiencing momentum. The company is also seeing an improved performance in the supply chain, allowing it to capitalize on revenue opportunities.
It continues to see growing momentum in the APAC region, with revenue growth of 13% on a reported basis (up 18% at cc). In the aforementioned region, revenues across all channels grew in the double digits, driven by brick-and-mortar traffic growth. Greater China witnessed an acceleration of 31% and benefited from the comparison to the prior-year lockdown impacts.
The North Face continues to be the key growth driver in this region, with revenue growth of more than 50% in Greater China on the back of outdoor market tailwinds and recovering domestic travel. Evidently, North Face emerged as the number one international outdoor brand in China.
V.F. Corp is benefitting from the acquisition of the privately-owned streetwear brand — Supreme. Its strong follower base in the younger generation bodes well for the company.
Wrapping Up
Although the ongoing macroeconomic headwinds are concerning, management expects better second-half revenue performance than the first half on an improving wholesale performance, moderating declines at Vans and easing year-over-year comparisons. These factors are likely to aid this Zacks Rank #3 (Hold) stock.
Its forward price-to-earnings ratio of 9.90 has underperformed the industry’s ratio of 12.44, which raises optimism about the stock. Topping it, a VGM Score of B and a long-term earnings growth rate of 6.5% reflect its inherent strength.
Stocks to Consider
Some better-ranked companies are Royal Caribbean (RCL - Free Report) , lululemon athletica (LULU - Free Report) and G-III Apparel (GIII - Free Report) .
Royal Caribbean sports a Zacks Rank #1 (Strong Buy) at present. RCL has a trailing four-quarter earnings surprise of 26.4%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for RCL’s 2023 sales and EPS indicates increases of 47.9% and 158.3%, respectively, from the year-ago period’s reported levels.
lululemon athletica is a yoga-inspired athletic apparel company. LULU carries a Zacks Rank of 2 (Buy) at present.
The Zacks Consensus Estimate for lululemon athletica’s current financial-year sales and EPS suggests growth of 16.7% and 18%, respectively, from the year-ago reported figures. LULU has a trailing four-quarter earnings surprise of 9.9%, on average.
G-III Apparel is a leading designer and distributor of women's and men's apparel in the United States, which currently carries a Zacks Rank of 2.
The Zacks Consensus Estimate for G-III Apparel’s current financial-year sales suggests growth of 1.9%. Its earnings per share are expected to rise 0.4% from the year-ago reported figure. GIII has a trailing four-quarter earnings surprise of 47.4%, on average.