Where Will VF Corporation Stock Be in 3 Years?

VF Corporation's (VFC 0.31%) stock closed at an all-time high of $89.32 on Jan. 2, 2020. At the time, investors were impressed by the apparel and footwear maker's stable growth rates. But today, VF's stock trades at about $23.

The stock plunged as growth was disrupted by the pandemic and inflationary headwinds, and rising interest rates compressed its valuations. However, that decline also reduced VF Corp's forward multiple to 10 and boosted its forward dividend yield to 5.2%. It will also become a Dividend King this year if it raises its annual payout for the 50th straight time.

Let's see where VF's stock might be headed over the next three years to evaluate if it's a worthwhile long-term investment. 

Image source: Getty Images.

A bellwether of the apparel and footwear markets

VF owns a wide range of apparel, footwear, backpack, luggage, and accessory brands, but its four largest are Vans (35% of revenue in fiscal 2022, which ended in March 2022), The North Face (28%), Timberland (15%), and Dickies (7%). Here's how those four top brands fared over the past four years.

Data source: VF Corporation. YOY = year over year. Reported basis.

The pandemic throttled VF's growth throughout fiscal 2021, but it bounced back quickly in fiscal 2022 as those headwinds waned. But like many of its industry peers, VF's post-pandemic recovery was cut short by inflation and other macro headwinds.

That slowdown was exacerbated by the intermittent COVID-19 lockdowns in China, while currency headwinds reduced its reported revenue growth by a staggering 6 percentage points in the first nine months of fiscal 2023.

VF expects its total revenue to rise 3% on a constant currency basis for the full year, with a high-single-digit decline at Vans being offset by "at least" 14% growth at The North Face. Analysts expect its reported revenue to decline 2%.

For fiscal 2024, VF expects its revenue to rise by "at least" a low-single-digit percentage in constant currency terms. Analysts expect its reported revenue to rise 3% as the macro and currency headwinds subside.

Inventories are rising and margins are declining

VF's growth seems stable, but it now faces the dreaded double whammy of rising inventories and shrinking gross margins:

Data source: VF Corporation.

Like many other apparel and footwear makers, VF increased its inventories as the pandemic passed in anticipation of a sustained recovery. But in an unexpected twist, the macro headwinds over the past year forced its largest wholesale retailer in North America to stop accepting new merchandise. The persistent supply chain issues also prevented its wholesale and direct-to-consumer channels from fulfilling their orders in a timely manner.

VF Corp needs to rely more heavily on margin-crushing markdowns to flush out those excess inventories. That's why it expects its adjusted gross margin to decline about 200 basis points to 52.8% in fiscal 2023 before expanding again in fiscal 2024. Analysts expect its adjusted EPS to drop 35% this year before rising 6% in fiscal 2024.

Where will VF Corp's stock be in three years?

During its investor day presentation last September, VF predicted that from fiscal 2022 to fiscal 2027, it would grow its revenue at a mid- to high-single-digit compound annual growth rate (CAGR) on a constant currency basis as its EPS grows at a high-single to low-double-digit CAGR. It also plans to return approximately $7 billion to investors through dividends and buybacks between fiscal 2023 and fiscal 2027.

That long-term outlook suggests VF can continue to grow at a slow and steady pace, but it probably won't attract more bulls until it stabilizes Vans' sales, significantly reduces its inventories, and expands its gross margins again. However, its low valuation and high yield should limit its downside potential until that turnaround finally happens.

VF is also much cheaper than most of its industry peers. Nike, which faces many of the same near-term headwinds, trades at 31 times forward earnings. Deckers has a forward multiple of 21. Therefore, I believe VF's stock will gradually recover over the next three years as it resolves its near-term challenges and the macro environment improves. I'm not sure if it can outperform the market, but it should remain a safe income play for conservative investors.