VF Just Proved Its Growth Strategy Is Working

The latest results from global apparel company VF Corporation  (NYSE: VFC  ) indicate that the company is well on its way to achieving management's previously stated aggressive growth goals. The company's core brands remain incredibly strong, and management is expanding them in multiple ways. Accordingly, alongside competitors like Nike (NYSE: NKE  ) , VF is a worthwhile consideration for long-term growth.

Source: VF Corporation. 

Solid earnings
For the first quarter, VF reported solid year-over-year growth. The company's revenue increased 6.5% to $2.8 billion, and earnings per share increased 12% to $0.67. Additionally, the company's gross margin improved 130 basis points to 49.4%, and operating income grew 13% to $403 million, up from 2013's $358 million. 

VF's results managed to beat consensus estimates on both the top and bottom lines. According to Yahoo! Finance, analysts on average expected VF to earn $0.63 per share on revenue of approximately $2.8 billion. Impressively, VF beat analysts' high EPS estimate of $0.66 and matched the high revenue estimate of $2.8 billion. 

Growth drivers
While the company benefited from the incredibly strong brands in its signature outdoor and action sports product category, its growth in the quarter was also surprisingly well rounded.

As a whole, the outdoor and action sports category grew first-quarter revenue 14% to $1.6 billion; performance was led by 14% sales growth in The North Face brand and 12% sales growth in the Timberland brand. The standout in the segment was Vans, which grew revenue 20% in the quarter and was VF's top performer overall.

The growth in outdoor and action sports was broad-based by region, with double-digit increases in the U.S. and international markets as well as in the direct-to-consumer and wholesale segments. Although the company's jeanswear segment was down 4% in the quarter, Imagewear grew 4% and sportswear grew 3%. Finally, and as expected, the contemporary brands segment experienced a 5% decline in sales for the quarter. 

VF Chairman, President, and CEO Eric Wiseman explained:

VF's first-quarter results reflect the continued strength of our brands and our global business platforms. Led by outstanding performance from the Outdoor & Action Sports coalition, which had balanced growth across all channels and geographies, we delivered strong growth in revenue and profitability. Looking towards the balance of 2014 -- we are confident in our business plan and look forward to delivering another record year for our shareholders.

Finally, management raised guidance for full fiscal year 2014. The company is now expected to hit the higher end of its 7%-8% revenue range for 2014, primarily due to increased strength in the outdoor and action sports category, which is now expected to increase sales by 12%-13% this year.

Future potential
VF's strong results, most notably the raised guidance, indicate that the company is on track to achieve the rather lofty growth goals management laid out for shareholders in mid-2013. The company expects to achieve $17 billion in revenue and $18 in earnings per share by 2017, which means VF is targeting five-year revenue and EPS compounded annual growth rates of 10% and 13%, respectively.

The company is expanding its most powerful brands in the international markets first, which will then allow it to more effectively introduce its less popular brands to foreign consumers. VF's approach of maintaining a large and diverse brand lineup differs greatly from Nike's current strategy, which is to eliminate excess brands and focus on the core Nike brand. However, both approaches appear to be working well.

According to Yahoo! Finance, on average analysts expect VF to grow revenue 7.5% and EPS 12.1% in 2014. These results are similar but slightly lower than Nike's current estimates, which call for revenue growth of 8.7% and EPS growth of 13.8% in the fiscal year ending May 2015.

However, a secret weapon for VF has long been its fantastic dividend performance. The company has increased its distribution every year for the last decade at an annual dividend growth rate of 15.3%. More impressive is that the company's one-year dividend growth rate is a more robust 20.8%.

Once again, however, Nike manages to more than keep up with VF. Nike has also increased its dividend annually in the last 10 years, but it has done so at a more robust annual dividend growth rate of 19.1%. The company's one-year dividend growth performance of 16% is slightly lower than VF's.

VF's current yield of 1.8% is better than Nike's yield of 1.3%. Also, VF is significantly cheaper than Nike despite expected comparable growth going forward. The company's forward P/E of 17.3 is much cheaper than Nike's 21.7.

Source: VF Corporation.

Bottom line
VF's strong top- and bottom-line growth performance indicates that the company is well on its way to achieving $17 billion in revenue and $18 in EPS by 2017. This is great news for long-term investors, who stand to continue being paid substantial and rising dividends along the way. Accordingly, VF remains a viable large-cap growth alternative to Nike in the apparel space.

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