It is my first earnings season with VF Corp, as I bought shares in mid-January 2017. Recalling, my key investment rationales were:

  • high drawdown, 30% from the top
  • 3% dividend yield + strong buybacks, acceptable return
  • safe dividend payout of around 50%
  • negative sentiment, there is only upside
  • valuation is not so high versus other companies, around 10-11 times EBITDA
  • look on attractive EPS dynamics (due to share buybacks)

I bought shares at around $51.30 so today (as share price is soaring after results) I am in profit area. Let’s look closer on financial results:

2016:

  • 2016 revenue from continuing operations in line with 2015 at $12 billion (up 1 percent currency neutral)
  • 2016 international revenue increased 4 percent (up 6 percent currency neutral);
  • 2016 EPS from continuing operations down 9 percent to $2.78, adjusted EPS up 2 percent to $3.11 (up 7 percent currency neutral);
  • 2016 cash flow from operations reached almost $1.5 billion and the company returned more than $1.6 billion to shareholders through dividends and share repurchases;

2016 was rather a difficult year in my opinion. EPS from continuing operations was down and mainly this is why share price dropped a lot (and I bought). This is history, it doesn’t matter.

What is important in my opinion is that many clothes brands were in troubles in 2016. Look at Michael Kors, Under Armour. These brands were hit far more than VF Corp. This is why I think that diversified portfolio of brands of VF Corp makes this company a long term winner.

Let’s have a look on 2017 expectations:

  • 2017 revenue expected to increase at a low single-digit percentage rate including a 2 percentage point negative impact from changes in foreign currency;
  • 2017 gross margin expected to be 48.6 percent, which includes a 70 basis point negative impact from changes in foreign currency;
  • 2017 EPS expected to be down at a low single-digit percentage rate compared to 2016 adjusted EPS of $3.11 (up at a mid-single-digit percentage rate on a currency neutral basis);
  • Expect to return more than $1.6 billion to shareholders in 2017 through share repurchases and dividends.

Well, 2017 doesn’t look like an easy year as well, but looking at market reaction +4% expectations were must lower. Truth to tell, in pre-market I saw -3%, so it is a little bit strange.

What I think about these expectations? Well, I bought shares not long ago, so I am not changing my opinion too much. Read more here.

I see that company expects returning $1.6b to shareholders through buybacks and dividends and I see it is around 8% return yield. That’s in my opinion a very good performance.

 

Summing up, I can just copy my last findings. It’s not a fault of management that share price is performing bad. Valuation was simply too high. Business is growing [on revenues, there is I hope only temporary problem with EPS] and currently after a decline valuation is getting attractive.

 

Disclaimer VFC – long