In the world of retail, there may not be a more diverse collection of designer brands than that of VF (VFC +4.12%). The company, which is more than a century old, has expanded rapidly through a unique combination of organic growth and acquisition.
Having already acquired popular brand names like The North Face and Timberland, VF management is now aggressively expanding the company's global footprint via a four-tiered approach. With shares near all-time highs, VF still remains a better growth investment than comparable peers PVH (PVH 0.46%) and Ralph Lauren (RL 0.53%).
Source: Company Website
Growth goals
Last June, VF management laid out an aggressive five-year growth initiative for shareholders. The company announced a plan to reach $17 billion in revenue and $18 in earnings per share by 2017, which would represent five-year revenue and EPS compounded annual growth rates of 10% and 13%, respectively.
In keeping with VF's history of blending organic and inorganic growth, management explained that of the revenue CAGR, 8% will be driven by organic growth and 2% from anticipated acquisitions.
In addition to the sales and earnings growth, management anticipates higher gross and operating margins by 2017, up 300 basis points and 250 basis points, respectively, from 2012 levels.
Growth approach
To achieve these stated goals, VF management outlined a four-pronged approach. Chairman and Chief Executive Officer Eric Wiseman explained in the initial release: "By leading in innovation, connecting with consumers, expanding geographically[,] and growing our direct-to-consumer business, we look forward to delivering the next chapter in a long and very successful growth story."
According to the company's most recent earnings release, VF is on track to deliver on its lofty five-year growth initiative. The company just wrapped up a successful 2013, having grown total revenue 5% and adjusted earnings per share 13%. Gross and operating margins grew to 48.1% and 14.4%, respectively.
For 2014, management expects continued momentum. Total revenue is expected to grow by 7% and earnings per share 11%-13%. Gross and operating margins should climb to 49% and 15%, respectively.
CEO Wiseman explained, "[W]ith one year of our five-year plan on the books, I can report we are on track. I want you to take away from this call how well positioned we are with powerful global brands and powerful business platforms that guide and support our long-term growth strategy."
Brands lead the way
Of course, growth like this is only possible because of VF's incredible lineup of brands. The company's most popular brands include The North Face and Timberland as well as Nautica, Wrangler, and Majestic among many others.
This robust lineup gives VF an edge compared to competitors PVH and Ralph Lauren. Ralph Lauren is a much more tightly focused company in that its stable of brands consists primarily of in-house spinoffs to the signature Ralph Lauren name, like Ralph Lauren Purple Label and Black Label. PVH, however, is very similar to VF.
Like VF, PVH is a company that grows organically and through acquisition. PVH's brand lineup, which includes popular names like Calvin Klein, Tommy Hilfiger, and IZOD, is strong but not as diverse as VF's.
The real beauty of VF's lineup is that it is very diverse. Although heavily weighted toward the outdoor and action-sports segment, VF also has a robust jeanswear category as well as solid showings in contemporary and sportswear categories.
However, all three companies are expected to grow rather well over the next year. The following is a breakdown of all three companies' projected growth in the year ahead:
| Company | Revenue Growth | EPS Growth |
|---|---|---|
| PVH | 4.6% | 12.1% |
| Ralph Lauren | 8.4% | 9.5% |
| VF | 7.6% | 12.1% |
*PVH's fiscal year ends in January; fiscal year 2015 represented
*Ralph Lauren's fiscal year ends March; fiscal 2015 represented
Although it's close, VF's growth is the best. The company is expected to lag only slightly behind Ralph Lauren in terms of revenue growth and tie PVH for the lead in terms of EPS growth.
Additionally, VF's dividend of $1.05, equal to a yield of 1.7%, is also unmatched. PVH pays a dividend of $0.15, equal to a yield of 0.1%; Ralph Lauren pays a dividend of $1.80, equal to a yield of 1.1%.
VF also has one of the best dividend-growth track records. The company has raised its dividend in each of the last 41 years and averaged an annual dividend growth rate of 15.3% over the last decade! This means that investors can continue to count on VF to raise dividends at substantial rates in the future.
Bottom line
VF is one of the easiest growth stories to understand in all of retail. The company simply acquires great brands and makes them stronger. Management has proven itself incredibly adept over the years in this regard.
With a viable five-year growth strategy that is already well under way and a fantastic dividend history, VF remains one of the best, low-risk growth investments in all of retail.
