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Shares of VF Corporation (VFC) retreated after the apparel maker reported fourth-quarter results. VF has been one of my top clothing picks for some time, so let’s see what was behind the pullback and whether this was a kneejerk reaction or truly a sign of tougher times to come.
With over $11 billion in annual sales, VF is the world’s largest apparel company, and it’s easy to see why. The company is responsible for at least 30 major brands, including Lee, Wrangler, the North Face, Timberland and Vans. The company’s largest and fastest-growing business is its Outdoor & Action Sports segment, which accounts for half of global revenues.
In addition, the company also runs Sportswear, Contemporary Brands, Jeanswear and Imagewear businesses. This company employs 58,000 worldwide and its products are sold in more than 150 countries.
VF reported a profit of $367.7 million, or 82 cents per share, on $3.29 billion in sales. Compared with Q4 2012, this represents 10% earnings growth and 8.5% sales growth. Analysts had forecast earnings of 84 cents per share on $3.34 billion in sales, so VF posted missed these consensus estimates by 2%.
What’s Next for VFC?
Looking ahead to FY 2014, management expects earnings in a range of $3.00 to $3.05 per share and 7% to 8% annual sales growth. This came below the Street view, which calls for $3.09 EPS on 9% annual sales growth.
While VFC didn’t meet expectations, I’m maintaining my buy recommendation for now. One reason is that VFC remains committed to its shareholders. The company has pledged to return $1 billion to its shareholders in 2014, $700 million of which will go towards stock buybacks. VFC also declared a quarterly dividend of 26.25 cents per share. Shareholders of record on March 10 will be paid on March 20.
Before you buy any stock, you should always run it through my free Portfolio Grader ratings system. VFC stock has improved significantly over the several months—in April 2013, VFC was a C-rated hold. Since then, the company has firmed up several of its financial metrics; its operating margin and earnings growth as well as cash flow and return on equity all receive top marks.
However, the company could stand to improve its earnings surprises track record as well as earnings momentum. What really makes VFC stock a strong buy is its top-notch level of buying pressure.
Bottom Line: As of this posting VFC is an A-rated strong buy. The stock should bounce back because the company still has solid sales and earnings. And with the abnormally cold winter, the company’s outerwear business should continue to do well.
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