VF Corp (NYSE:VFC) reacted to weak conditions in Europe for Timberland, by investing in direct-to-consumer (DtC) initiatives such as e-commerce enabled websites. These actions led to positive DtC comparables in Europe, and high-single-digit growth in the Americas.
Furthermore, its other two key brands (Vans and The North Face) have great potential to grow via international expansion. Both brands tap into the growing trend for consumers to wear outdoor activity clothing as a fashion statement. Indeed, Vans generated 15% growth in the quarter, with international sales up 20%; incredibly, Europe rose 20%. As for the The North Face, it generated 5% growth overall. The North Face’s international sales were up 20% with European sales increasing an impressive 10%.
VF has a good mix of growth opportunities from regional expansion, growing its DtC business, and favorable lifestyle trends .It can selectively invest across its brands and regions in order to counteract any weakness elsewhere.
How VF compares across its industry
Here’s a brief look at how the company matches up versus its industry peers.
VFC EV / EBITDA TTM data by YCharts.
Frankly, VF doesn’t merit its discount to Nike Inc (NYSE:NKE), because of the advantages (as discussed above) that VF holds over its footwear-focused rival. On the other hand, its premium to Columbia Sportswear Company (NASDAQ:COLM) is well-deserved.
Columbia Sportswear Company (NASDAQ:COLM) is forecasting full-year sales to decline by up to 2.5%. Its brands do not have the kind of lifestyle appeal that VF has managed to generate with Vans or The North Face. Columbia Sportswear Company (NASDAQ:COLM)’s core clothing tends to be for activities like skiing and fishing. Arguably, these are not hobbies whose clothing has the kind of crossover appeal that VF’s brands generates. .
The bottom line
In conclusion, VF Corp (NYSE:VFC)’s diversity gives it good growth prospects for the next few years. Its valuation of over 18 times forward EPS estimates may look expensive, but the company has low-teens-growth forecasted for the next couple of years. In addition, it is expecting to generate around $1.4 billion in cash flow for 2013.
Arguably, the stock is fairly valued right now, but if it hits its low-teens EPS growth targets, then it’s reasonable to expect the stock to return at least low-teens returns for investors over the next few years.
The article This Retailer Deserves to Trade at a Premium originally appeared on Fool.com and is written by Lee Samaha.
Lee Samaha has no position in any stocks mentioned. The Motley Fool recommends Nike. The Motley Fool owns shares of Nike. Lee is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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