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VF Corp (VFC), Columbia Sportswear Company (COLM): Finding Disappointment in the Great Outdoors

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VF Corp (NYSE:VFC), owner of The North Face, Wrangler, and Timberland brands, among others, has a plan. By 2017, the company wants to be pulling down $17 billion in annual revenue, while earning $18 per share. That’s a 50% increase in revenue, and a 67% jump in earnings per share from where the company expects to end 2013. As a potential investor, I’m now all ears to learn how VF Corp (NYSE:VFC) is going to make this dream a reality.

In short, outdoor and action sports are going to need to gear it up. The plan is to have this business segment turning in 14% annual compound growth for the next five years, with 11 percentage points attributable to organic growth, while the final three come from acquisitions. While the other areas of the business are going to need to hold up their respective ends, it’s really all down to action.

VF Corp

A mountain to climb

VF Corp (NYSE:VFC) went all out on its release to investors, going so far as to set up a website dedicate to the idea of $17 billion by 2017. The action-outdoor portfolio holds some of VF Corp (NYSE:VFC)’s most well-known brands. In addition to The North Face and Timberland, the lineup includes Vans, Reef, and Jansport. That set needs to be producing $11.1 billion in revenue in 2017 for VF Corp (NYSE:VFC) to hit its lofty goal — last year it managed just under $6 billion. If it does manage that growth, the action-outdoor business will be generating more revenue than the entire company currently pulls in.

To get to that goal, VF Corp (NYSE:VFC) is relying heavily on its Asian operations, which it forecasts will grow at an annual compound rate of 24% over the next five years. The North Face is the main driver of that growth, with its high-margin, high-end outdoor product line. VF is looking for 26% annual growth in Asia from the brand, and the increase in sales is going to help pull up the company’s margins, as well.

Last quarter, the action-outdoor business managed a 16% pre-tax profit margin, second only to the jeans business. As a result, VF had a 48% gross margin and a 14% operating margin. The 2017 goal is for annual gross margin to reach 49.5%, while operating margin should come in at 16%.

Can VF scale the peak?
The bar is high, and VF is now committed to hitting its impressive goal. Competitors are certainly not going to back down, and VF is going to be under pressure for the next five years. On its main front, expect VF to see a siege from rival brand Columbia Sportswear Company (NASDAQ:COLM) and sporting champion Under Armour Inc (NYSE:UA).

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