VF Corp. Earnings: Is a Big Acquisition Coming?


Source: The North Face.

On Friday, VF Corp. (NYSE: VFC  ) will release its quarterly report, and shareholders have seen the apparel stock fare far better than some of its industry compatriots. Traditionally, much of VF's growth has come from major acquisitions, and various rumors involving potential targets such as lululemon athletica (NASDAQ: LULU  ) could help the company gain more prominence on the athletic-apparel side of the business and stand up to competitor Nike (NYSE: NKE  ) .

VF isn't a household name, but many of its brands are, including The North Face, Timberland, and Wrangler. The company has done a great job of leveraging its many brands to make the most of profitable opportunities, but VF sees more potential for growth ahead, especially in the red-hot sporting and athletic-apparel segment. Will VF use its acquisition prowess to boost its presence in the industry further? Let's take an early look at what's been happening with VF over the past quarter and what we're likely to see in its report.

Stats on VF Corp.

Analyst EPS Estimate

$0.35

Change From Year-Ago EPS

9.4%

Revenue Estimate

$2.36 billion

Change From Year-Ago Revenue

6.3%

Earnings Beats in Past 4 Quarters

4

Source: Yahoo! Finance.

How fast can VF earnings climb?
Investors have been cautiously optimistic about VF earnings in recent months, raising full-year estimates by 1%. The stock has also held up well, climbing 8% since mid-April.

VF's first-quarter earnings results showed the considerable success that the apparel giant has had in driving growth. Sales climbed 6.5% from year-ago levels, leading to a 12% jump in earnings per share. Margin expansion helped underpin VF's improving fundamentals, with gross margins rising by 1.3 percentage points and results faring much better than investors had expected from the company. Cold winter weather hurt many retailers, but for The North Face and Timberland brands, the weather was an impetus for double-digit sales increases as shoppers sought out heavy-duty winter clothes.


Source: VF Corp.

Increasingly, VF has seen the value of its athletic and outdoor segment as having extraordinary potential for future growth. Last quarter, VF Chief Executive Officer Eric Wiseman highlighted "outstanding performance from the Outdoor & Action Sports coalition" as supporting the company's overall results, showing solid gains across all of VF's geographical regions and multiple distribution channels. Those results are consistent with the trends at Nike and other sports-apparel companies, as interest in the sector increases.

VF's past record of acquisitions has led some investors to conclude that the company might seek to buy out ailing yoga-apparel retailer Lululemon. Given the success that VF has had elsewhere in the segment, adding yoga products could give VF a great niche from which to stage a larger-scale challenge to Nike's athletic-apparel stronghold. Yet skeptics note that Lululemon's appeal has traditionally been tied to its own individual approach to retail, and it's unclear whether VF could step in while still allowing Lululemon enough autonomy to retain its traditional customer base. Moreover, with Lululemon still struggling, VF might not want to take on the challenge of fixing a corporate culture that's currently under pressure.

The big question is whether VF wants to stick to the outdoor segment or move more broadly into sports-apparel products. Multiple candidates for buyouts could help VF move in one direction or another, and VF first has to decide on a strategic vision before moving forward to explore potential deals in greater detail.

In the VF earnings report, watch for signs of which direction the company wants to go in its expansion plans. The decision VF makes could have huge implications for whether Nike and other competitors should look out for greater competition in their core areas.

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