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Can V.F. Corp (VFC) Retain Positive Earnings Trend in Q4?

Zacks Equity Research

V.F. Corporation VFC is slated to release fourth-quarter fiscal 2019 results on May 22, before the opening bell.

This designer, manufacturer, and marketer of branded apparel and related products outpaced earnings estimates in the trailing four quarters, the average positive surprise being 16.3%.

The Zacks Consensus Estimate for earnings for the company in the quarter to be reported is pegged at 58 cents per share, which suggest a decline of 13.4% from the year-ago quarter. However, estimates for the fiscal fourth quarter moved up in the last 30 days. Moreover, the consensus mark for revenues stands at $3.2 billion, reflecting a year-over-year increase of 5.2%.

V.F. Corporation Price and EPS Surprise

V.F. Corporation Price and EPS Surprise

V.F. Corporation price-eps-surprise | V.F. Corporation Quote

Factors at Play

V.F. Corp has been putting up a robust earnings show, backed by solid trends at its core brands (Vans and The North Face). Further, strong growth at international and direct-to-consumer businesses as well as Active and Outdoor segments is boosting results. The persistence of these trends is likely to aid top and bottom-line growth in the fourth quarter of fiscal 2019.

V.F. Corp’s Vans brand continues to display strength, with solid revenue growth across all regions, channels and product categories. Notably, the brand has been on a very long growth trajectory, growing in the mid-teens range, since it was acquired in 2004. The brand remains focused on icon management and overall concept, with strength in footwear and apparel. Further, management continues to expect to sustain double-digit revenue growth for the brand in the quarters ahead. This should help the company to accomplish a $5-billion revenue target for the brand by 2023, reflecting a five-year CAGR of 10-12%. With such growth lined up, the Vans brand is likely to contribute significantly to top-line growth in fourth-quarter fiscal 2019.

Moreover, the company’s upcoming quarterly results are poised to gain from the 2021 growth strategy, which focuses on business transformation and solid shareholder returns. Moreover, its focus on selling directly to consumers and investment in digital platforms along with robust international expansion plans should support sales growth in the to-be-reported quarter.

Driven by the robust quarterly performance and increased visibility through the rest of fiscal 2019, management raised its earnings and sales view for the fiscal year. V.F. Corp now expects revenues of nearly $13.8 billion, reflecting an increase of 12% from the year-ago quarter. Further, it envisions adjusted earnings per share of $3.73, suggesting 19% growth from the year-ago quarter.

Despite these positives, we remain wary of the company’s jeans category, which remains soft. For fiscal 2019, it projects revenues to dip 3% at the Jeans division. However, its decision to spin off the jeans business, which is likely to be effective this month, should cushion future results.

Further, the company’s wholesale business has been hurting its top line for a while. Moving to a more digital-driven business, V.F. Corp is slowly eliminating sales to middlemen — including department stores and off-price retailers — which are exposed to risks of bankruptcy and store closures. This has been hurting revenue contribution from the wholesale business. This trend is likely to weigh on results in the fiscal fourth quarter as well.

Additionally, V.F. Corp’s results continue to bear a meaningful impact of negative currency translations. The company’s international revenue guidance for fiscal 2019 includes the impact of negative currency translations. It anticipates international business to report revenue growth of about 10-11%, down from 12-13% mentioned earlier.

A Look at the Zacks Model

Our proven model clearly shows that V.F. Corp is likely to beat earnings estimates in the quarter to be reported. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

The company currently has a Zacks Rank #2 and an Earnings ESP of +0.77%, which indicates that a positive surprise is likely in the to-be-reported quarter.

Other Stocks Poised to Beat Earnings Estimates

Here are some other companies that you may want to consider, as our model shows that these too have the right combination of elements to deliver an earnings beat in their respective quarterly results:

lululemon athletica inc. LULU has an Earnings ESP of +0.51% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Deckers Outdoor Corporation DECK has an Earnings ESP of +53.19% and a Zacks Rank #3.

NIKE, Inc. NKE has an Earnings ESP of +2.13% and a Zacks Rank #3.

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