How VF Is Winning the Apparel War

It has been a good year over at VF  (NYSE: VFC  ) . The owner of The North Face, Vans, and Timberland brands has pushed its stock up well past the S&P 500 benchmark since the beginning of 2013. The announcement of more dividends, more stock, and more income in the third quarter isn't going to hurt the business, but it is going to make investors smile.

Source: VFC.com.

VF's quarterly release today highlighted a split that has developed in 2013 between classic apparel retailers and those that sell higher-end athletic gear. This year has been solid gold for Nike (NYSE: NKE  ) and Under Armour (NYSE: UA  ) as well. The only brand left out in the cold is lululemon athletica (NASDAQ: LULU  ) , which has suffered from a host of setbacks.

Exercise in America grows
The winners are tapping into American's obsession with working out, or at least looking the part. For all the time and money we spend on getting in shape, we're not really making a dent in our collective waistlines. Consider that in 1980 no state in the U.S. had an obesity rate over 15%. In 2013, 41 states have rates over 25%.

But we continue to fight the good fight. VF's outdoor and action sports product category has long been the company's largest division, but it continues to be the fastest grower as well. Last quarter, revenue in the category grew by more than 6%, up to $1.97 billion. That's a figure that still pales in comparison to Nike's, which brought in almost as much in just American footwear sales last quarter, but VF is growing.

The company is still on track to hit its 2017 goal of $17 billion in annual revenue. On a more manageable level, that will break down to $18 per share in income. This year, VF is on track to hit $10.85 per share, with revenue of $11.5 billion.

The value of looking the part
Much of the company's success has come not through the top level of athletes, but through the folks who like to look athletic while they go about their normal days. Vans, the company's major skate-casual shoe lin, grew global revenue by 16% last quarter. Under Armour and Nike have both seen jumps from their casual wear, too.

Under Armour's biggest percentage growth in apparel during the second quarter came from its youth division. That growth wasn't driven by active gear, but by logo hoodies and T-shirts. Casual sportswear is helping round out the revenues of these large businesses, giving them a much broader audience than straight athletic sales alone would allow.

The North Face brand has been at the forefront of that movement for some time now, with its branded clothing resonating well with young professionals who engage in basic physical activities like running and hiking. It's the same sort of market that Lululemon has been tapping since its inception. VF has had a better year than Lululemon, though, as the yogawear retailer has struggled with supply issues and changes in leadership.

In fact, Lululemon's stock is down 5% year to date and is only up 5% over the last 12 months. That's a huge hit for the formerly high-flying stock, but even higher expectations -- the company's price to earnings ratio is still well above the sector average -- have magnified each bump in the road. VF doesn't suffer from the same issues or expectations.

What's in store for VF
With the success of its last quarter, VF has decided to increase its dividend by 21% up to $1.05 per quarter. The company is also going to undertake a 4-for-1 stock split later this year. The deadline for investors to get in on the changes is Dec. 10, with the payout and split taking effect on the 20th -- and yes, the dividend comes before the split.

Overall, VF continues to look like a solid play. Its brand portfolio is well respected, and it's on the right track to growth. While Under Armour and Nike provide a more direct tap into the vein of American athletics, VF's broad appeal and lower P/E ratio can provide investors with a good entry into the market.

Banking on dividends
With the dividend increase at VF and savings rates stuck in first gear, many investors are thinking about how to make dividend income work for them. If you're looking for some long-term investing ideas that include excellent payouts, you're invited to check out The Motley Fool's special report, "The 3 Dow Stocks Dividend Investors Need." In it, our analysts layout the dividend scene and give you some tips on top notch companies. The report is free for readers, so click here to get your copy today.


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Related Tickers

10/17/2014 4:04 PM
VFC $63.76 Down -0.22 -0.34%
VF Corp CAPS Rating: *****
LULU $38.84 Down -1.16 -2.90%
Lululemon Athletic… CAPS Rating: ***
NKE $87.18 Up +0.14 +0.16%
Nike CAPS Rating: *****
UA $65.13 Up +0.50 +0.77%
Under Armour CAPS Rating: ****

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