VF Corp (VFC): Prospects and Challenges

The J.C. Penney Company, Inc. (NYSE:JCP) question is an uncertain one. The store has been hit hard by consumer spending changes and a misguided strategy of promising lower prices in general instead of the kind of discounting and promotional activity that the rest of the sector has been using. Whether the restructuring will work is open to question and it’s something to consider for VF Corp (NYSE:VFC) shareholders.

Q1 Performance

We can see how well VF Corp (NYSE:VFC) is run by looking at the profit margin movements in the quarter.

Margins were the real story this quarter because overall revenue growth was only up a paltry 2.2% and significantly below the 6% target for the full year. EPS was ahead of expectations and full year guidance was raised to $10.75 from $10.70 previously.

The standout performers in the quarter were the North Face and Vans which increased revenues 6% and 25% respectively. Moreover they achieved growth in the DtC channels of 25% and 20% respectively. As for the troubled region of Europe, The North Face recorded ‘modest’ growth while Vans rose an incredible 30%.

As discussed earlier the problematic brands in 2013 are likely to be Timberland and Jeanswear. Timberland revenues were up only 2% and flat in the Americas. Fortunately mid-teens increases in Asia managed to offset mid-single digit declines in Europe.

Where Next For V.F. Corp?

As I write the stock trades on 16.3x forward earnings. It is certainly not the cheapest stock out there and it has some headwinds to meet in 2013. With that said some of its brands are recording very strong growth and the DtC expansion is very impressive.

The problem with buying the stock up here is that I get the sense that all the positives are priced into it already and as good as the management are, the target of 6% growth for 2013 when only 2.2% was achieved for Q1, raises more questions than answers. Cautious investors will want to monitor events here and wait for a more favorable risk/return proposition.

The article Is This Retailer a Good Value? originally appeared on Fool.com and is written by Lee Samaha.

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