V.F. Corporation (NYSE:VFC) Falls On Strong Results, Buy Some Now

When V.F. Corporation Speaks … 

The V.F. Corporation (NYSE:VFC) isn’t some oracle of market knowledge but its business is representative of several trends I’ve seen within the market. The first is that retail is rebounding far stronger than the analysts had expected. The second is that digital eCommerce, in particular for well-recognized brands, is working. The third is that China may in fact be leading the global rebound and should not be ignored. The takeaway for investors is that V.F. Corporation’s 2.5% yield is an attractive buy with rising tailwinds. 

V.F. Corporation Beats And Raises Guidance

When it comes to sales, V.F. Corporation was hit just like all the other mall-dependent retailers but not as bad as the market feared. Revenue fell -17.9% from the previous year but beat consensus by 330 basis points. In terms of eCommerce, sales in the eCommerce channels jumped 44% YOY in the quarter to underpin results and I have to say, I spent some money on Vans.com this summer. In fact, as a lifetime Vans-wearer, I may never buy my shoes anywhere else again. Regarding China, V.F. Corporation’s results were also underpinned in China, one of its key centers of growth (along with Vans).

“Our year to date results have surpassed our internal expectations across all brands, driven by Digital and China, two of our key growth pillars,” said Steve Rendle, VF’s Chairman, President and CEO. “We are beginning to see signs of stabilization and strength across all aspects of our business, supporting our decision to raise the dividend and provide a financial outlook for the balance of the year. Although uncertainties remain, investments in our digital transformation are resulting in near-term momentum and improved capabilities to emerge in an even stronger position.”

Moving down to the bottom line results are just as encouraging. The EPS came in at $0.62 GAAP and $0.67 adjusted or better than consensus by $0.15 or $0.19. Earnings were boosted by an increase in revenue that was further enhanced by declining inventory. Inventory fell -10% over the last year putting the company in a great position for the holiday shopping season.

V.F. Corporation Guidance Is Well Above The Consensus

The Fiscal 2Q/calendar 3Q results were good enough for management to feel comfortable issuing guidance for the year and it is strong. The company sees revenue coming in above $9 billion “at least” versus the consensus of $8.85 billion and EPS above $1.20 versus the $1.13 consensus. Based on the September retail sales figures, the strength of the rebound, and the upcoming holiday shopping season I think these estimates are on the conservative side. The company has already earned 48% of the guidance with the strongest quarter of the year still ahead of it.

V.F. Corporation Raises The Dividend For The 48th Year

V.F. Corporation is putting its money where its mouth is by raising the dividend. The guidance, however good, is still far short of the dividend payment which makes it look a little sketchy. The mitigating factors include the balance sheet, cash position, and outlook for earnings that ensure the payment is safe this year and bring the payout ratio to manageable levels next. So, with today’s 2.1% increase in distribution, the yield is just over 2.5% and there is a very high expectation it will be increased again, and again.

On a technical basis, the news was good but not good enough for some. The stock tried to move up at the open but bearish activity pushed it lower within the first half-hour of trading. The good news is that, so far, support at the $75 level appears to be holding. If the market can regroup at this level the odds are good we’ll see higher prices in the near future. If not, shares of V.F. Corporation could fall back to $70 or lower.