A month has gone by since the last earnings report for V.F. Corporation (VFC - Free Report) . Shares have added about 3.4% in that time frame.
Will the recent positive trend continue leading up to its next earnings release, or is VFC due for a pullback? 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 Earnings Beat Estimates on Solid Revenues
V.F. Corporation reported better-than-expected earnings and revenues for the transition period, ended Mar 31, 2018. This marked the company’s third top- and bottom-line beat in the last four reports.
The company’s adjusted earnings per share of 67 cents improved 30% year over year and beat the Zacks Consensus Estimate of 65 cents. Earnings per share included a 3 cents contribution from the Williamson-Dickie acquisition.
V.F. Corp generated total revenues, including royalty income, of $3,045.4 million that increased about 22% year over year and surpassed the Zacks Consensus Estimate of $2,902 million. Net sales of $3,022.9 million also advanced 22% from the prior-year quarter, including contributions from the Williamson-Dickie acquisition. On a currency-neutral basis, revenues jumped 17%.
Excluding the Williamson-Dickie acquisition, revenues were up 12% while currency-neutral revenues grew 8%. The revenue growth is attributed to continued strength in the company’s international and direct-to-customer platforms, and Outdoor & Action Sports coalition.
Adjusted gross margin expanded 50 basis points (bps) to 50.8%, thanks to a favorable mix-shift toward high-margin businesses. Excluding the Williamson-Dickie acquisition, adjusted gross margin expanded 160 bps to 51.9%. Gross-margin growth was partly negated by Williamson-Dickie acquisition and foreign currency headwinds. Notably, foreign currency positively impacted gross margin by 20 bps.
Adjusted operating income rose 14% to $330 million while the adjusted operating margin contracted 80 bps to 10.8%. Excluding Williamson-Dickie, adjusted operating margin contracted 40 bps to 11.2%. Operating margin included 20 bps positive impacts from foreign currency.
Revenues of Outdoor & Action Sports grew 19% to $2,014.6 million (up 13% on a currency-neutral basis).
Jeanswear revenues of $639.5 million inched down 1% year over year (down 4% on a currency-neutral basis).
Imagewear revenues rose 175%, both on reported and currency-neutral basis, to roughly $371 million.
Other revenues declined 8% to $20.3 million on both reported and currency-neutral basis.
V.F. Corp ended the transition period with cash and cash equivalents of $680.8 million, long-term debt of $2,212.6 million and shareholders’ equity of $3,688.1 million. The company used $243.2 million cash in operating activities during the transition period, ended Mar 31.
Concurrently, the company declared a quarterly dividend of 46 cents per share, which is payable on Jun 18, to shareholders with record as of Jun 8.
On Apr 30, the company completed the sale of the Nautica brand business to Authentic Brands Group (“ABG”), LLC. Earlier, the company completed the sale of its Licensed Sports Group business, which consists of the Majestic brand, to Fanatics, Inc. on Apr 28, 2017. In conjunction with the LSG divestiture, V.F. Corp also exited the licensing business and completed the sale of assets of the JanSport brand collegiate business in fourth-quarter 2017.
In August 2016, the company completed the sale of its Contemporary Brands businesses, including 7 For All Mankind, Splendid and Ella Moss brands.
All these businesses are classified as discontinued operations in the company’s financial statement.
For fiscal 2019, V.F. Corp expects revenues of $13.45-$13.55 billion, an increase of 9-10%. This includes revenue growth anticipation of 8-9% for the Outdoor & Action Sports coalition, nearly flat revenues for Jeanswear and growth of more than 35% for Imagewear. Further, the company expects revenue growth of 13-15% for the International and 8-10% for the direct-to-consumer business.
Gross margin is anticipated to be about 51% while operating margin is expected to expand 50 bps to 13.2%. The company envisions adjusted earnings per share of $3.48-$3.53, representing growth of 11-13% year over year.
Further, the company expects cash flow from operating activities to be more than $1.6 billion in fiscal 2019 while capital expenditures are estimated to be $275 million.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. There have been three revisions lower for the current quarter.
V.F. Corporation Price and Consensus
At this time, VFC has a subpar Growth Score of D, however its Momentum is doing a lot better with an A. However, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. 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 momentum based on our styles scores.
Estimates have been broadly trending downward for the stock and the magnitude of these revisions indicates a downward shift. Notably, VFC has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.