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V.F. (VFC) Up 5.4% Since Last Earnings Report: Can It Continue?

A month has gone by since the last earnings report for V.F. (VFC). Shares have added about 5.4% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is V.F. due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

V.F. Corp Q4 Earnings & Sales Top, View Soft

V.F. Corporationhas posted strong fourth-quarter fiscal 2019 results, wherein the top and bottom lines surpassed estimates and improved year over year. 

The company’s adjusted earnings per share of 60 cents improved 10% year over year, surpassing the Zacks Consensus Estimate of 58 cents. Earnings included contribution of 1 cent per share from acquisitions, net of divestitures and 4 cents per share of incremental investment. On a constant-dollar basis, adjusted earnings rose 4%.

V.F. Corp generated net revenues of $3,213 million, which increased about 6% year over year and surpassed the Zacks Consensus Estimate of $3,204 million. Constant-dollar revenues improved 9%. Excluding Kontoor Brands, revenues improved 8% and 12% at constant currency. Revenue growth can be attributed to continued strength in the company’s largest brands, and international and direct-to-customer businesses along with robust Active, Outdoor and Work segments.

Adjusted gross margin expanded 30 basis points (bps) year over year to 51.1%. This included a 70-bps negative impact of Kontoor Brands.

Adjusted operating income dipped 5% to $313 million. Excluding Kontoor Brands, adjusted operating income improved 3%. Adjusted operating margin contracted 110 bps to 9.7%, including a 70-bps impact of Kontoor Brands. Notably, adjusted operating income included a $7-million contribution from acquisitions, net of divestitures.

Segmental Details

Revenues at the Active segment grew 7% to $1,142.3 million (up 10% on a constant-dollar basis). The Outdoor segment reported revenues of $1,001.3 million, which improved 13% year over year (up 17% in constant dollars).

Revenues at the Work segment rose 2% (up 4% at constant currency) to roughly $453 million. The Jeans segment reported revenues of $597.3 million, reflecting a decrease of 4% year over year (down 1% on a constant-dollar basis).

Other revenues declined 6% to $19.1 million on both reported and constant-dollar basis.

Financial Details

V.F. Corp ended fiscal 2019 with cash and cash equivalents of $543 million, long-term debt of $2,115.9 million, and shareholders’ equity of $4,298.5 million. In fiscal 2019, it generated cash from operating activities of $1,664.2 million. Adjusted cash flow from operations reached nearly $1.8 billion.

During the fiscal year, the company returned more than $900 million to shareholders via dividends and share repurchases. Further, management announced a quarterly dividend of 51 cents per share, which is payable on Jun 20, 2019, to its shareholders of record as of Jun 10.

Outlook

V.F. Corp issued an optimistic view for fiscal 2020. It expects revenues to be about $11.7-$11.8 billion, which represents 5-6% growth from the results, excluding Kontoor Brands. In constant dollars, revenues are estimated to increase 7-8% in fiscal 2020, which also excludes the impact of acquisitions net of divestitures.

On a segmental basis, the company expects revenue growth of 4-5% for Outdoor (5-6% in constant dollars), 6-7% for Active (9-10% in constant dollars) and 3-5% for Work (4-6% in constant dollars) segments. V.F. Corp expects International revenues to grow 4-6% (7-9% at constant currency). Revenues for the direct-to-consumer business are expected to increase 9-11% (10-12% at a constant-dollar basis). The company estimates digital revenue growth of nearly 25%.

Adjusted gross and operating margins are anticipated to increase nearly 60 bps each to 54% and 13.7%, respectively. Management now envisions adjusted earnings per share of $3.30-$3.35, indicating growth of 15-17% from the year-ago period (17-19% at constant currency).

Further, V.F. Corp expects cash flow from operations to be at least $1.3 billion in fiscal 2020. The effective tax rate is expected to be 15-15.5%. Moreover, capital expenditure is estimated to be slightly lower than $400 million for the fiscal year.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -46.15% due to these changes.

VGM Scores

At this time, V.F. has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. It's no surprise V.F. has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.


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