In this Sept. 5 commentary, I pondered VF's
VF's director of corporate communications, Paul Mason, emailed me the company's perspective on some of my questions and concerns that I believe VF shareholders -- or people who are considering the stock -- would be interested in hearing. Of course corporate communications executives are among the most bullish of folks, but it certainly doesn't hurt to provide their perspective so investors can form their own opinions.
First off, one of my concerns was the possibility that VF might widen distribution of the Seven for All Mankind brand and thereby tarnish it by moving down market. Mason responded that the company plans to maintain premium positioning of the brand, and that VF believes there are plenty of growth opportunities left in its current wholesale channel, as well as in expanding its retail stores. He also indicated that, historically, the company doesn't take premium or specialty brands and move them downward in distribution. He offered up North Face as an example, illustrating that VF recognizes how important it is that brands stay true to their core customer bases.
As for my scrutiny of VF's increasing debt, Mason pointed out that at the end of the second quarter VF's debt-to-capital ratio was just 20%, and by the end of the year it should be only 25%. VF is certainly correct in the stance that a 25% debt-to-capital ratio isn't generally considered too onerous for companies with good cash-generating abilities. While some of us might prefer debt-free companies, VF can easily handle the debt load it has taken on, as it could pay its interest 13 times with its operating income.
However, I am of the camp that likes debt-free companies, although two of the companies I do own, Starbucks
Last but not least, I interpreted VF's price-to-earnings ratio (P/E) as sounding a wee bit high, since it currently slightly outpaces future growth expectations; its PEG ratio also sounds a little hefty, at 1.56. However, Mason argued that VF's P/E is low compared to its peers, despite the fact that it does exhibit double-digit growth and has a 48% dividend payout ratio. I can't deny that I find VF to be a more interesting stock idea than another similar company, Liz Claiborne
I ended last week's commentary feeling iffy on VF, but I'm definitely interested in keeping an eye on the stock. In fact, I put it in my Motley Fool CAPS watch list as an "outperform." My uncertainty might be a good example of how there's art as well as science to investing. The art here is whether some of VF's newly acquired brands are going to pay off big over the long haul and possibly make today's multiples look cheap in retrospect. While it's comforting to know VF will keep high-end brand integrity intact, investors will still have to wait and see how sales and profits transpire. And if such moves pay off big, people like me -- with an uncertain attitude -- might look back and regret missing an opportunity.