Europe's Rising Retail Star

Crista Huff
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Posted: Mar 22, 2012 12:01 AM

In reading corporate stock reviews, the tentative global economy is cited in virtually every Standard & Poor's Research (S&P) risk assessment.  The most stagnant of those economies belongs to Europe.  Yet there's an apparel brand that's stealing market share in Europe, and growing globally as well: The North Face.

The North Face is one of the many famous brands owned and marketed by V.F. Corp. (VFC, $148.71), the world's largest apparel manufacturer.  Other well-known company brands include Timberland, Wrangler, Lee and Nautica.  V.F. Corp. is a leading retailer of  outdoor lifestyle apparel and equipment, denim and sportswear.

Morgan Stanley Research says, "We believe The North Face continues to be the most important revenue growth driver of VF Corp and expect it to contribute ~30% of the growth over the next 5 years.  The North Face is also entering into new athletic apparel categories such as running and yoga, and introducing innovative products such as Flash Dry to continue its growth trajectory."  FlashDry technology is designed to assist athletes in staying dry and adapting to changing temperatures.

VFC is pursuing growth through international expansion, acquisition, and new products, such as the aforementioned running and yoga apparel, and Timberland's Earthkeepers footwear line.  Morgan Stanley Research estimates that international growth could double the size of the company.  VFC has almost 800 retail stores, and plans to expand to 1500 stores within a few years.

S&P gives VFC a Qualitative Risk Assessment of "Medium".  "Our risk assessment reflects our view of VFC's strong cash flow, offset by integration risk as VFC pursues growth via acquisitions."

The company posted record revenues of $9.5 billion in 2011 and net income of $888 million.  All business areas are projected to contribute to an approximate 15% rise in 2012 revenues.  Gross margins are expected to increase via The Timberland Co. acquisition cost synergies and increasing revenues in the higher-gross-margin Outdoor and Action Sports business.  The company derives two-thirds of its revenues from U.S. business.  VFC plans to increase annual revenues by $5 billion by 2015.

Wall Street projects VFC to increase its earnings per share (EPS) 15%, 15%, and 16% in fiscal years 2012 through 2014.

The 2012 PE is 15.9, and has ranged from 7 to 19 over the last ten years.

The 2011 Timberland Company acquisition costs raised VFC's long-term debt ratio to 29% from the 22% average over the last nine years.

S&P has a 4-Star Buy rating on the stock.  Morgan Stanley, S&P, and Citi Investment Research & Analysis all have 12-month target prices in the $160's.

VFC's stock price is at an all-time high.  The stock peaked in the mid $90's in 2007, fell to $38 with the 2008 Financial Meltdown, then started reaching new highs again by March 2011. VFC did not have a major price correction in the summer/fall of 2011 when most other stocks had serious pullbacks.  Instead, it kept climbing slowly, repeatedly establishing a trading range, then reaching higher again.

Most recently, the stock traded between $126 and $142 from Oct. '11 through Feb. '12, then broke through that trading range in February, rising toward the mid-$140's.

With very attractive projected earnings and revenue growth, low volatility and a 1.94% current dividend yield, VFC could appeal to growth & income investors and growth investors.  I would have no qualms about buying at the current price, and wouldn't reach any lower than buying at $145 in fear of missing out on the stock altogether.