Growth stocks rarely have a soft landing when the narrative behind the company’s earnings falls apart. Most investors don’t choose companies increasing earnings at a double-digit rate for value, and when the underlying story behind the company’s growth falls apart, the stock often plunges.
V.F. Corporation (NYSE:VFC) has been one of the better-run retail companies for some time, and the company boasts a number of very strong brands. The core brands V.F. Corporation sells are North Face, Vans, and Timberland. The company also sells brands such as Altra, Supreme, Dickies, and Eagle Creek. Vans is the V.F. Corporation’s most important brand. VFC gets nearly 42% of its revenues from Vans, 30% from the North Face Brand, 19% from Timberland, and 9% from Dickies. North Face sales were around $600 million a quarter before the pandemic. Well, sales of Smartwool, Icebreaker, and Altra combine for nearly $550 million in quarterly sales. The company’s top four brands are Vans, the North Face, Timberland, and Dickies.
VFC’s stock went on a huge run over the 15 years before 2017.
Still, the stock went nowhere for nearly 5 years between 2017 and 2022.
The company’s share price has crashed over the last year.
I’ve previously written 3 articles on the VF Corporation over the last 4 years, and I’ve strongly recommended selling the stock each time I rated the company. I wrote negatively on the stock starting in June of 2019, and I again recommended against buy in the company in April of 2022.
Today, I think the V.F. Corporation is a buy. The company’s core problem has been the struggling Vans brand was hit hard during the pandemic. This label was hit hard by the pandemic, and the brand also didn’t recover strong from Covid even as the shutdowns were eased. VF Corporation now has a clear plan to help revamp Vans, and this brand should also benefit significantly from China and much of Asia opening up this year. The North Face brand also continues to grow at a stable high single-digit rate, and management should be able to build on the Supreme acquisition that the company closed on in 2020.
Even though V.F. Corporation has a bold goal of low double-digit growth for the company’s North Face Brand over the next decade, this company’s future will primarily be determined by whether or not they can revamp the critical Vans Brand that has been struggling since the Pandemic started in 2019. Vans produced nearly as much revenue as North Face, Timberland, and Dickies combined, before the pandemic. The North Face and Timberland brands have also only been the company’s only brands growing in the mid to high single-digit range for several years, and the Vans brand was the only major one that has consistently grown at double digits over the last several years. Much of Van’s recent revenue growth came from China and the Asia Pacific Region. Vans’ growth rate in every other region besides Asia was in significant decline before the pandemic hit.
Vans has not performed well since 2019, and the disappointing growth of this brand is the primary reason why V.F. Corporation’s earnings have been disappointing over the last several years. VF Corporation also recently reported that the company saw a 9% drop in constant currency revenues from the Vans brand in the third quarter alone. Vans has struggled since the Pandemic hit in 2019, and the revenue growth numbers from this key brand haven’t recovered as well as management and most analysts expected.
Still, V.F. Corporation has had one of the best management teams in the retail sector for years, and the company has a bold new plan to rebuild the Vans brand. VF’s leaders also still have an impressive overall track record despite some recently struggles. Management originally acquired the North Face for $20 million in equity and $150 million in debt in 2000, the company expects this brand to do over $2.5 billion in sales today. The V.F. Corporation also acquired Vans for $396 million, this brand did $3.47 billion in sales in 2022.
V.F. Corporation now has a good plan for Vans, and the reopening of China should also benefit this brand and the company significantly. Management is bringing in the original president of the brand, Kevin Bailey, to revamp sales, in addition to reassigning the successful leaders who helped reaccelerate the growth of the North Face Brand, Marissa Pardini and Sarah Kleinman. The company plans to focus more on the basics that made the brand so successful over the previous 2 decades, with one example being a discussion of emphasizing mor vintage shoes and better design as well. Much of the growth that Vans was seeing pre-pandemic was in China, and this brand got hit hard by Covid and the very strict post pandemic lockdowns imposed by the Chinese government, when the company was forced to temporarily close nearly 60 stores.
China is also already opening up and easing travel restrictions, and the CCP is expected to continue to open up the country’s economy this year. The V.F. Corporation was getting nearly 12% of the company’s revenues from the Asia-Pacific Region before the pandemic, and nearly 6% of those revenues were from China. Those numbers are also misleading, because much of the top line growth Vans was seeing post-pandemic was in China, and this brand has been the only label the V.F. Corporation had that was consistently growing at a double-digit rate before late 2019.
This is why the V.F. Corporation looks undervalued. The company now has an $8 billion dollar market cap, which is the lowest valuation the V.F. Corporation has seen in over a decade. This stock also trades at .72x forward sales and 10.97x forward EBITDA. V.F. Corporation’s 5 year average valuation has been 2.41x forward sales and 19.65x forward EBITDA. The company’s current $8.31 billion dollar market cap is also just nearly 3x North Face sales alone.
When the narrative behind a growth stock such as V.F. Corporation falls apart, there is almost always a hard landing, and the company’s share price has sold-off nearly 75% over the last 3 and a half years. Still, the V.F. Corporation still has strong brands, and management has also proven they know how to operate in the highly competitive apparel industry. While VFC stock has been one of the worst performing stocks in the market over the last 4 years, V.F. Corporation management appears to now have a solid plan to revamp the Vans Brand, and the company should have a much more favorable operating environment in 2023.
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