After getting hit with a bunch of downgrades, the stock has been trending down since mid-August. On July 22, VFC reported fiscal second-quarter earnings of 36 cents, 2 cents ahead of the consensus estimate. Revenue rose just 0.8% to $2.45 billion.
Outdoor and action sportswear revenue was up 2%, Jeanswear revenue rose 3%, imagewear was 3% and direct-to-consumer was up 6%. Even international revenue jumped 5%.
Despite the decent performance, currency translation took away all the good news. Total sales declined 2.7% to $2.44 billion.
With total sales up 0.1% in the first quarter and down 2.7% in the second, investors have began to rethink their second-half thesis. Investors originally bought the stock on the premise the second half would improve as retailers begin to restock for the holidays.
But with the persistent weakness in the department store channel, there doesn't seem to be much appetite for more apparel. Investors thought the sale of VFC's Contemporary clothing brands 7 of All Mankind, Splendid and Ella Moss would help. VF's Contemporary brands posted sales declines for four years in a row.
On the second-quarter call, management guided down. They cited cautious retailers, softness in the sportswear business, and slowing growth at Timberland.
With that, a second-half rebound was out of the question.
Now, analysts are looking for 1% revenue growth in the third quarter. Total revenue is expected to be $3.6 billion. Earnings of $1.15, up 7%. Earnings growth would be mostly driven by expense control. For earnings to get to $1.15, operating margins have to rebound from 6% in the second quarter to over 13%.
For the year, analysts are looking for revenue of $12.4 billion and $13.3 billion next year. Historically, the stock trades between 15 and 17 times estimates, and the stock is pretty much there already. Estimate for 2016 are $3.20 this year and $3.57 next year. To get to next year's $3.57, you have to assume revenue grows over 7%, which right now looks like a tall order.
In my opinion, I would avoid shares of VF Corp. This stock doesn't fit very well.