Optimism Not Enough For V.F. Corporation Investors

V.F. Corporation Falls After Mixed Quarter

V.F. Corporation (NYSE:VFC) is suffering from a malaise that is plaguing the market at large; high expectations for 4th quarter earnings were not fulfilled. The company reported what can be best described as a mixed report and one that left investors wondering exactly when the rebound would really get underway. The company remains optimistic about the future and the idea of a rebound is real. Vaccine distribution is improving every day as are the number of options for fighting COVID-19 which can only lead to a massive, global economic recovery. The problem is that it’s taking too long for this company to return to growth.

"Our portfolio remains on track to return to growth in the fiscal fourth quarter and we are confident in VF’s plans to accelerate growth into fiscal 2022 and to continue advancing our business model transformation. We remain optimistic about the year ahead and look forward to improvements in our geopolitical, macroeconomic and pandemic-related situations,” said V.F. Corporation CEO Steve Rendle.

V.F. Corporation Takes A Hit On FX

V.F. Corporation reported a very mixed quarter but one that was actually better than what the number show. While most segments showed YOY declines there are some bright spots including a less-than-expected decline in margin. Starting at the top line, the company’s $2.97 billion in net consolidated revenue is down by 6.0% from last year and missed the consensus mark by 30 basis points. That’s a slim margin of error but one that stands out in a world where the average S&P 500 company is expected to beat its consensus targets by a wide margin.

On a segment basis, Active Wear and Outdoor brands saw net declines of 9.0% and 5.0% respectively. Within that, leading brands Vans and North Face were down 6.0% and flat on a YOY basis. The Work segment was the only area of real strength with a gain of 8.0% led by Dickies.

Looking at things from a regional basis, the Americas, both North America and South America were the weakest with net declines of -11% and -17% from last year. The EU saw a gain of 1.0% while Greater China increased by 18%. The most troubling detail, however, is the DTC channels which include eCommerce. They are down -2.0%. The mitigating but not offsetting factor is that poorly timed FX conversion results in a negative, mid-single-digit impact to most operating metrics.

Moving down to the earnings portion of the report things get a little better. The gross margin contracted as expected but by a less than expected 150 basis points to come in at 55.7% of revenue. That compares to the 55.3% expected by the analysts and 50.8% in the prior quarter. As for guidance, the company guided both the full year F2021 revenue and earnings in a range with the consensus estimate near the top which the market also considers weak. The good news is that FCF continues to rise as the company makes internal improvements and that is good for the dividend.

The Technical Outlook: VFC Falls, More Losses To Come

Shares of VFC fell more than 7.0% in the wake of the FQ3 report and confirm resistance at the pre-COVID levels near $85. The move is both bearish and confirmed by the indicators which point to at least a test of support in the range of $75 to $78. If that level fails to hold the next target for support is near the $67 to $72 range. Until then, investors can count on the 2.5% (and growing) yield.