If you want a lesson in how to run a great products-based business, look no further than VF Corp
I liked the fact that even though marketing, administrative, and general expenses as a percentage of sales rose 2.1 percentage points, the cost of goods sold fell 2.4 percentage points. For a company that sells products, like Motley FoolHidden Gems recommendation Deckers Outdoor
VF has a nice stable of brands such as Wrangler and Lee jeans, Nautica sportswear, The North Face outerwear, and Vassarette intimate apparel, which prompted a "stop looking at that website" look from my wife. None of them is fancy, and they certainly wouldn't be regarded as high-end. But VF had sales of over $6 billion because its brands reach such a wide audience.
The company has also been adding new brands to try to continue to grow revenue at a rate of 6% to 8%. Looking at the cash flows, which I was very happy to see attached to the press release, VF has spent $1 billion over the last two years to pick up names like Nautica, Vans, Kipling, and Napapirji. OK, I admit that I've never heard of the last two, but Nautica and Vans are good, solid brands. It also completed its acquisition of Holoubek, a licensee of Harley-Davidson
Speaking of money well-spent, does VF represent a good buy for your investment dollars? I calculate its enterprise value (market cap plus long-term debt minus cash) to be about $7 billion. VF generated $537 million in free cash flow (net income plus depreciation and amortization minus capital expenditures). That gives it an EV/FCF ratio of 13, which is well below the market average of around 22. In addition, the current dividend yield is about 2%. With an earnings yield (earnings per share/price per share) of 7% and a dividend yield of 2%, I would say investors are still being compensated well for the risks.
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