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Proprietary Data Insights Financial Pros Apparel Brand Searches in the Last Month
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Teen Apparel Brands |
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History Is on This Apparel Brand’s Side |
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Retail stocks tend to fare well when Christmas is just around the corner. And based on the latest data from Trackstar, our proprietary sentiment indicator, one apparel company in particular has been making a splash: VF Corp. (VFC). The company’s search volume from financial pros has spiked from an average of 30-40 searches per week to 450 in a single day! This is likely because of VFC’s current value. Some of that comes from VFC director Clarence Otis’ recent $254,873 insider buy. The company trades at:
Moreover, it has a nearly 50-year history of raising dividends and has weathered many economic downturns in its 123 years in business. While the economic outlook for 2023 is bleak, is that already priced into VFC? VF Corp.’s Business VF Corp. designs, produces, and markets clothing, footwear, and accessories for men, women, teens, and children. It owns a portfolio of brands including Vans, The North Face, Timberland, Dickies, Altra, Eastpak, Jansport, Kipling, Smartwool, Supreme, and Napapijri. The company’s four largest brands are Vans, The North Face, Timberland, and Dickies. But out of those four, only The North Face grew revenues in the first half of fiscal year 2023 at 15%. Meanwhile, Vans declined 10% (down 6% constant currency), Timberland was flat (up 7% constant currency), and Dickies was down 17% (down 14% constant currency). The company is growing in its outdoor-related brands, such as The North Face, Eastpak, and Timberland. Source: VF Corp. VFC sells clothing across the globe. Revenues in Europe, the Middle East and Africa rose 16% constant currency. But in Asia, revenues dropped 6% constant currency in the first half of fiscal year 2023. Source: VF Corp. VFC has faced several challenges, including weakening consumer sentiment, growing European economic headwinds, elevated inventories, and greater inflationary pressures. Financials Source: Stock Analysis While the firm’s revenues are similar to last year’s, the company’s operating expenses have increased substantially, from $4.6 billion in the first half of 2021 to $5.3 billion in the first half of 2022. Consequently, net income dropped from $788 million in the first half of 2021 to -$174 million in the first half of 2022. On the bright side, its current long-term debt has fallen from $1 billion in the first six months of 2021 to $501 million in the first half of 2022. VFC doesn’t have any near-term liquidity issues. The company’s current ratio is 1.06x. Its annual operating cash flow is $121.4 million, and it pays an annual dividend of $2.04 per share. Valuation Source: Seeking Alpha VFC trades at a P/E GAAP ratio of 25.8x, relatively cheaper than peers Gap (GPS) at 96.9x, Abercrombie & Fitch (ANF) at 40.8x, and American Eagle Outfitters (AEO) at 25.9x. But it’s significantly higher than G-III Apparel Group (GIII) – which owns brands including DKNY, Andrew Marc, and Karl Lagerfeld Paris – at 3.7x. VFC trades at a price-to-sales of 0.9x, notably higher than competitors GPS at 0.3x, GIII at .2x, ANF at 0.3x, and AEO at 0.5x. Profitability Source: Seeking Alpha VFC’s gross margin declined 230 basis points in Q2 FY 2023 to 51.4%. Its operating margin also sank 2.9%. The company is working to address near-term challenges at Vans, the ongoing COVID-related disruption in China, and the broader macroeconomic and geopolitical headwinds. It still operates at an impressive EBITDA margin of 14.5%, significantly better than peers GPS at 3.3%, GIII at 8.9%, ANF at 6%, and AEO at 9.2%. Its return on equity of 12.6% is outstanding compared to GPS at 2%, GIII at 11.3%, ANF at 4.7%, and AEO at 8.4%. Growth Source: Seeking Alpha While most companies in the space have struggled, VFC has managed to grow revenues 7.7%, notably more than GPS at -4%, ANF at -0.3%, and AEO at 4.3%, but not as strong as GIII at 22.6%. Its YoY EBITDA growth of 5.9% is significantly higher than GPS’ -64.6%, GIII’s -7.7%, ANF’s -53.8%, and AEO’s -40.7%.
Our Opinion 6/10 Shares of VFC have had a brutal 2022. They’re down -61.4% for the year. But you’ll find its current valuation compelling if you’re a long-term investor. The company’s diversified collection of brands makes it more appealing than other apparel companies offering less variety. We’d buy at these levels and accumulate more shares on further dips. |
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