VF Corporation (NYSE:VFC) has long been one of my favorite clothing plays in the stock market. The stock has been rewarding to shareholders, appreciating 73 percent in just two years. For those unfamiliar V.F Corporation designs, manufactures, or sources from independent contractors various apparel and footwear products primarily in the United States and Europe. I actually think it is a much better company to own that its rival ColumbiaSportswear (NASDAQ:COLM).
Much like Columbia, V.F. Corp offers outdoor apparel, footwear and equipment, sports and adventure footwear and apparel, handbags, luggage, backpacks, accessories, merino wool socks, women’s activewear, packs, and travel accessories. The company has some very well known brands that are likely in your home right now including The North Face, Vans, Timberland, Kipling, Napapijri, Jansport, Reef, Smartwool, Eastpak, lucy, and Eagle Creek brands. It also provides denim and casual bottoms, and tops under the Wrangler, Lee, Lee Casuals, Riders, Rustler, and Timber Creek by Wrangler brands, as well as fashion denim and sportswear under the Rock & Republic brand.
In addition, the company offers occupational, protective occupational, athletic, licensed athletic, and licensed apparel products under the Red Kap, Bulwark, Horace Small, Majestic, MLB, NFL, and Harley-Davidson brands. Further it makes fashion sportswear, denim bottoms, sleepwear, and underwear, as well as handbags, luggage, backpacks, and accessories under the Nautica and Kipling brands. The company has been performing well, but the stock is looking a little toppy. To better understand if the stock has room to run, and to justify my belief that it is a better buy than its top rival Columbia Sportswear, an analysis of the company’s recent earnings are warranted.
In its most recent quarter, V.F Corporation’s revenues rose 8 percent to $2.4 billion. The company’s gross margin however declined. Gross margin was 48.4 percent, down 10 basis points compared to last year’s quarter. That said, the company’s expectation for a 90 basis point improvement for the full year remains unchanged. One strong highlight is that expenses declined. Selling and administrative expenses as a percent of revenues was down 10 basis points to 39.3 percent. This led to operating income increasing 9 percent to $220 million, compared with $201 million in the same period of 2013. Operating margin was 9.2 percent compared with 9.1 percent in the second quarter of 2013. This all boiled down to the headline numbers of the earnings per share increasing 16 percent to $0.36 per share compared with $0.31 per share during the same period last year.
But let us dig a little deeper to see where the bright spots were and possible points of weakness. First, revenues for the Outdoor &Action Sportssegment increased 16 percent in the quarter to $1.3 billion with double-digit growth in the Americas, European and Asia Pacific regions.
One of the flag-ship brands, The North Face, rose 11 percent globally driven by 37 percent growth in direct-to-consumer sales and a low single-digit increase in the brands wholesale business. The North Face brands revenues were up at a mid-teen percentage rate in the Americas region, up by a high single-digit percentage rate in Europe and down at a mid single-digit rate in the Asia Pacific region.
What about the Vans brand? Well it was very impressive. Vans revenues were up 21 percent with strong, double-digit growth across all regions as well as in the brands wholesale and direct-to-consumer channels. Revenues in the Americas and European regions were up at a high-teen percentage rate in the quarter, and by more than 40 percent in the Asia Pacific region. Revenues for another flag-ship brand, Timberland, were up 19 percent in the quarter. In the Americas region, revenues were up nearly 25 percent including more than 35 percent growth in its
Now we turn to the lower areas of growth. Still most were positive nonetheless. Sportswear revenues were up 5 percent to $140 million. Nautica revenues grew 2 percent while the Kipling brands U.S. business was up at a high-teen percentage rate compared with the same period last year. Revenues for the Wranglerbrand were up 4 percent driven by a mid single-digit increase in the Americas region and a high single-digit percentage rate increase in European revenues. Second quarter revenues for the Leebrand were down 7 percent driven by a mid-teen percentage revenue decline in the Americas region.Imagewear revenues were up 3 percent in the quarter to $250 million. Overall, Jeanswear revenues were down 1 percent to $606 million.
As a whole, it was a good quarter. Margin compression was a bit surprising, but the company believes it will still expand margins for the year. In fact, the outlook for the full year remains unchanged with revenues projected to increase 8 percent, and gross margin and operating margin expected to reach 49 percent and 15 percent, respectively. Earnings per share in 2014 are expected to reach $3.06 per share. I think on any pullback, the stock is a buy as we begin to head toward the fall months and back to school sales get underway.
Disclosure: Christopher F. Davis holds no position in V. F. Corporationand has no intention of initiating a position in the next 72 hours. He has a buyrating on the stock and a $70 price target.