As the largest jeans-maker in the world, you'd think VF Corp. (NYSE:VFC) would have the most to lose from the rumored upcoming/ongoing "jeans glut" that we hear about from time to time. Fortunately for shareholders -- and unfortunately for all those Street-watchers who like to make clever predictions -- the whole jeans thing seems to be treating some clothing manufacturers and retailers just fine.
Today, VF Corp. announced that its first-quarter earnings would come in about 12%-14% better than last year's buck per share, at least before the $0.10-per-share expense for stock options. That appears to put the company ahead of analysts' $1.03-per-share expectations. This decent showing will accompany a smaller 5% increase in sales, according to the company's press release.
For those not familiar, VF has a pile of well-known brand names, including Lee, Wrangler, Vans, Reef, Jansport, Eastpak, Nautica, and The North Face. It also has the license to market products for brands like Harley-Davidson (NYSE:HDI), and it runs a few hundred retail stores as well.
That puts VF smack into a whole lot of competitive markets, and, as I mentioned, at the dangerous edge (in some observers' opinions) of an about-to-end jeans trend. But according to management, jeans were the hero this quarter, providing "stronger than anticipated" results.
That's not to say the cruel jeans market can't cut off a few companies at the knees. Comparing this announcement with, say, the word from privately held Levi Strauss, shows that the good news doesn't necessarily spread sectorwide. The story there, as of last month, was continued pressure on the high end from $200 premium jeans, and while I once considered those an unsustainable fad, I'm not so sure they're going to disappear any time soon. With VF thriving on the low end, and the premiums moving on the high end, what's a Fool to do?
My strategy in this space, as always, is to brush aside the wider attempts to predict the entire sector's direction, and find the undervalued outperformers. Anyone buying jeans-heavy retailers like American Eagle Outfitters (NASDAQ:AEOS) or Buckle (NYSE:BKE) over the past few months -- when the mall-strolling Cassandras were winning the day -- would now have some tasty returns to show for it.
Is VF a budding trouser bargain? I wouldn't go that far. VF has cobbled together a nice portfolio of cash-generating businesses, but the valuation looks fair to me -- by which I mean "not cheap enough to buy "-- especially considering its normal-sounding growth potential in the high single digits.
I tend to look for more focused brands on the skids, such as Pacific Sunwear (NASDAQ:PSUN). With fewer moving parts to watch, I think investors have better odds of taking advantage of undue temporary pessimism, as well as gauging whether or not a bump like VF's recent quarter is a one-time bonanza.
Pacific Sunwear is a Motley Fool Stock Advisor recommendation. Find out why with a free 30-day guest pass.
Fool contributor Seth Jayson likes to play the retail game, but he's always looking for a sale price. He owns shares of American Eagle Outfitters, but has no financial interest in any other firm mentioned here. View his Fool profile here.
