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V.F. Corp (VFC) Stock Dips Despite Promising 2021 Strategy

Zacks Equity Research

The owner of North Face and Timberland brands, V.F. Corp. VFC has been grappling with difficult global economic environment and currency headwinds for over a year now. As an effort to revive performance, V.F. Corp. outlined a five-year strategic growth plan focused on boosting shareholder returns, at an investor meet held in Boston, MA. Apart from defining growth targets through 2021, the company announced plans to alter its fiscal year-end and authorized a new $5 billion share repurchase program.

However, the company’s growth plan didn’t seem to impress investors much as the stock dipped nearly 4% following the announcement. While the long-term plan looks good, the bleak 2017 guidance provided alongside the 2016 earnings release and soft performance of Jeanswear segment as well as the North Face and Timberland brands remain concerns.

Nonetheless, shares of this Zacks Rank #4 (Sell) company increased 1.5% year to date, outperforming the Zacks categorized Textile–Apparel industry’s decrease of 3.2%.

With the retail environment being really challenging of late, the company’s 2021 growth strategy primarily focuses on rapidly responding to the changing marketplace while targeting fantastic shareholder returns. The strategy targets generating cumulative operating cash flows in excess of $9 billion in the five-year period between 2017 and 2021. Of this, the company plans to return about $8 billion to shareholders in the form of dividends and share repurchases.

Further, V.F. Corp. anticipates delivering top quartile total shareholder return (TSR) performance with annual TSR in the range of 13–15%. In sync with the aforementioned targets and its commitment to boosting shareholder value, the company also authorized a new $5 billion share buyback program.

Other financial targets anticipated to be fulfilled under the plan include revenue growth of 4–6% through 2021, on a five-year compounded annual growth rate (CAGR) basis. This growth is expected to be aided by strong performance of the Vans, the North Face and Timberland brands, as well as gains in the international and direct-to-Consumer businesses. In 2021, gross and operating margin are likely to reach 51.5% and 16%, respectively, with earnings per share growth of about 10–12% at a five-year CAGR.

Under the five-year plan, the company’s four-point strategy will mainly focus on redesigning portfolio and empowering its key brands; adopting a consumer and retail-centric model; enriching direct-to-consumer and digital businesses; and, directing investment to Asia, particularly China. Further, these plans will be aided by increased investments in design and innovation; demand creation and brand experience; insights and analytics; retail excellence; demand and supply chain agility; and talent.

Concurrently, V.F. Corp. announced plan to alert its fiscal year end to Mar 31 of each year, from the current practice of closing books on the Saturday closest to Dec 31 every year. The company believes this will provide better visibility into revenue growth and enable enhanced expense management.

Key Picks

Better-ranked stocks in the retail sector include The Children’s Place Inc. PLCE, Kate Spade & Company KATE, both sporting a Zacks Rank #1 (Strong Buy) and Foot Locker Inc. FL, carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Children’s Place, with a long-term earnings growth rate of 8%, has jumped nearly 20.6% year to date.

Kate Spade, with a long-term earnings growth rate of 28.3%, has surged 24.3% year to date.

Foot Locker has grown nearly 6.3% year to date. The stock has a long-term EPS growth rate of 9.7%.

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