A month has gone by since the last earnings report for V.F. (VFC). Shares have lost about 2% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is V.F. due for a breakout? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
V.F. Corp Q3 Earnings Surpass Estimates, Sales Miss
V.F. Corporation has posted third-quarter fiscal 2020 results, wherein the bottom line surpassed the Zacks Consensus Estimate, while sales lagged the same. Notably, sales missed estimates for the second straight quarter. Mixed holiday season sales in the United States might have hurt the top line.
V.F. Corp delivered adjusted earnings of $1.23 per share, improving 14% year over year and surpassing the Zacks Consensus Estimate of $1.21.
The company generated net revenues of $3,384.7 million, which increased about 5% year over year but lagged the Zacks Consensus Estimate of $3,425 million. Constant-dollar revenues improved 6%. Excluding the occupational Work business, the metric rose 6% (up 7% in constant currency). Revenue growth can be attributed to strength in the company’s largest brands, and international and direct-to-customer businesses.
International revenues rose 8% (up 9% in constant dollars). Further, revenues in China improved 30% (up 32% in constant dollars). Moreover, V.F. Corp’s direct-to-consumer revenues grew 7%. Digital revenues were up 16% (up 17% in constant dollars).
Adjusted gross margin expanded 100 basis points (bps) year over year to 55.7%. Furthermore, adjusted operating income increased 11% to $595 million. Adjusted operating margin grew 100 bps to 17.6%.
Revenues at the Active segment grew 8% to $1,239.5 million (up 9% on a constant-dollar basis). This includes revenue growth of 12% (up 13% in constant dollars) at the Vans brand.
The Outdoor segment reported revenues of $1,659.1 million, which improved 3% year over year (up 4% in constant dollars). This includes revenue growth of 8% at The North Face brand.
Revenues at the Work segment increased 2% year over year and at constant currency to $480.1 million.
Other revenues were $6.1 million compared with $0.7 million reported in the year-ago quarter.
V.F. Corp ended third-quarter fiscal 2020 with cash and cash equivalents of approximately $584 million, long-term debt of $2,110.5 million, and shareholders’ equity of $4,567.6 million. At the end of the fiscal third quarter, the company used cash provided by operating activities of $841.6 million.
During the reported quarter, the company paid out about $189 million of dividends. It bought back shares worth $500 million in the quarter and therefore had an outstanding balance of $3.3 billion under its existing share-repurchase authorization.
Further, management approved a quarterly dividend of 48 cents per share, which is payable Mar 20, 2020, to its shareholders of record as of Mar 10.
Following mixed third-quarter fiscal 2020 results, the company updated its fiscal 2020 view. It now expects revenues of $11.75 billion, which indicates growth of 5% from the year-ago reported figure (and 7% in constant dollars, excluding the impact of acquisitions and divestitures). This compares unfavorably with the earlier view of $11.8 billion, which suggested growth of 6% (and 8% in constant dollars, excluding the impact of acquisitions and divestitures).
On a segmental basis, the company projects revenue growth of 4% for Outdoor (5% in constant dollars). Previously, revenues for the Outdoor segment were expected to increase 5% (roughly 6% in constant dollars).
Revenues are estimated to increase 8% (12% in constant dollars) for the Active segment and rise 1% (2-3% in constant dollars) for the Work segment. Notably, revenues for the Active segment was previously anticipated to grow 8-9% (11-12% in constant dollars), whereas the same for the Work segment was expected to increase 2-3% (4-5% in constant dollars).
V.F. Corp now envisions International revenues growth of 6% (9% at constant currency). This suggests a rise from prior view of 4-5% growth (8-9% at constant currency) for the International segment. Revenues for the direct-to-consumer business are anticipated to increase 9-10% (10-11% at a constant-dollar basis). The company estimates digital revenue growth of 20%. Prior to this, revenues in the segment were estimated to rise 11-12% (12-13% at a constant-dollar basis) and digital revenues were anticipated to grow 25%.
Adjusted gross and operating margins are still anticipated to increase 80 bps and 90 bps, respectively, to 54.1% and 13.8% in fiscal 2020.
Management continues to envision adjusted earnings per share of $3.30, indicating 15% growth from the year-ago period (18% at constant currency). This is below the previous guidance of $3.32-$3.37 per share, indicating 16-18% growth from the year-ago period’s reported figure (19-21% at constant currency).
Further, V.F. Corp still expects adjusted cash flow from operations of $1.3 billion for fiscal 2020 compared with $1.3 billion mentioned earlier. The effective tax rate is expected to be 15.5% compared with 15-15.5% mentioned earlier. Moreover, capital expenditure is estimated to be $350 million for the fiscal year, down from $400 million mentioned earlier.
How Have Estimates Been Moving Since Then?
Estimates revision followed a downward path over the past two months. The consensus estimate has shifted -13.06% due to these changes.
Currently, V.F. has a nice Growth Score of B, a grade with the same score on the momentum front. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren’t focused on one strategy, this score is the one you should be interested in.
V.F. has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.