V.F. Corp. Outlines 5-Year Growth Plan
V.F. Corporation (VFC), one of the largest apparel retailers in the world, revealed its major initiatives and strategies to boost shareholder returns at an investor meeting held in New York City. The company announced its key financial targets for 2017 that are expected to drive strong cash flow, which should in turn support acquisitions, dividends and share repurchases.
As part of its key financial targets, V.F. Corp. expects to drive revenue to $17.3 billion by 2017, recording a 5-year compounded annual growth rate (CAGR) of 10%, including 8% organic growth and 2% growth from acquisitions. Earnings per share through 2017 are targeted to reach $18.00, reflecting a 5-year CAGR of 13%.
Additionally, the company elevated its forecasts for gross and operating margins on the back of exceptional growth witnessed at its Outdoor & Action Sports, direct-to-consumer and international businesses. The company now expects gross margin to jump 300 basis points to 49.5% in 2017 from 46.5% in 2012. Operating margin for 2017 is expected to grow to 16%, expanding 250 basis points from 13.5% in 2012.
This growth in the company’s margins is expected to result in annual cash flow from operations escalating to $2.4 billion by 2017, with a cumulative cash flow generation of $9.5 billion in between 2013 and 2017. Based on such strong cash flow projections, the company expects dividend payout rate of 40%, annual total shareholder return in excess of 15% and return on invested capital of 20% by 2017.
Moreover, V.F. Corp. outlined its growth targets for various segments and brands at the meet. The company also stated that it expects the Outdoor & Action Sports segment to be the key growth driver in the coming years.
At the Outdoor & Action Sports segment, the company projects revenue to reach $11.1 billion by 2017, contributing 64% to VF’s total revenue in 2017, surging from 54% contributed in 2012. The growth in segment revenue will represent a 14% 5-year CAGR, including 11% organic growth and 3% growth from acquisitions. Geographically, all key regions are expected to remain strong over the next 5 years with 12% growth in the Americas, 13% growth in EMEA and 24% growth in the Asia-Pacific.
The company also provided 5-year growth targets for the largest brands of the Outdoor & Action Sports segment, projecting 12% annual growth rate and revenue of $3.3 billion for The North Face brand; 15% annual growth rate and revenue of $2.9 billion for The Vans brand and 10% annual CAGR and revenue of $2.3 billion for The Timberland brand.
At Jeanswear & Imagewear, the company targets revenue of $3.3 billion by 2017, as it continues to strive for excellence through product innovation. This should bring in a 5-year CAGR of about 4% for the segment. Additionally, the company highlighted that this segment will gain mainly from the Asia-Pacific region in the next five years, with revenue expected to grow at a 12% annual rate. Focusing on the brands, the company expects its Lee and Wrangler brands to register annual growth rates of 5% and 3%, respectively, over the next 5 years. The segment’s other brands including Red Kap, Bulwark and Majestic are collectively expected to take the revenue figure to $1.3 billion by 2017, with a compounded annual growth rate of 4%.
Revenue at V.F. Corp’s Sportswear and Contemporary Brands segments are each expected to grow at an 8% 5-year CAGR, reaching $835 million and $645 million, respectively, by 2017. Revenue for the Sportswear segment is expected to rise mainly on the growth momentum at its Nautica and Kipling brands. The company anticipates the Nautica brand to drive revenue to $700 million by 2017, carrying a 7% CAGR. In the Contemporary Brands segment, 7 For All Mankind, is expected to drive revenues to $400 million by 2017, delivering an average annual growth rate of 8%.
Further, the company identified that its direct-to-consumer (:DTC) business will be a significant contributor to its growth over the next 5 years, accounting for about 25% of total revenue by 2017, up from 21% contributed in 2012. Revenue at the division is expected to reach $4.4 billion by 2017, primarily driven by new store openings with strong international expansion, accelerated e-Commerce growth and continuous comp store increases. This will represent a 14% CAGR for the division.
Moreover, the company is expected to add about 645 DTC stores in the next 5 years, bringing the total store count to 1,775. The company also projects a 25% annual revenue growth rate in e-Commerce over the next 5 years. Revenue growth CAGRs across the DTC regions is expected to remain robust with 12% growth in the Americas, 21% in EMEA and 15% in the Asia-Pacific.
On the International front, the company projects revenue of $7.4 billion by 2017, representing about 43% of total revenue along with a 5-year CAGR of 13%. Region-wise, the company projects CAGRs of 17% in the Asia-Pacific, 15% in the Americas (non-U.S.), and 11% in EMEA.
We believe the strategies and targets outlined in the meeting along with V.F. Corp’s diverse brand portfolio, its approach to brand management, a proven strategy, an excellent operating team and competitive advantages position it for significant growth in the long term. With these targets, the company should successfully deliver consistent value for both consumers and shareholders, presently and going forward.
V.F. Corp. currently has a Zacks Rank #3 (Hold). However, other stocks performing well in the apparel retail industry include Hanesbrands Inc. (HBI), Michael Kors Holdings Limited (KORS) and Joe’s Jeans Inc. (JOEZ). Hanesbrands carries a Zacks Rank #1 (Strong Buy), while Michael Kors and Joe’s Jeans have a Zacks Rank #2 (Buy).
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