North Face, Timberland And Vans Will Drive Operational Transformation

Key Takeaways

• Significant transformation program focusing on operational efficiency and leadership restructuring aims to enhance profitability and achieve higher operating margins.
  
• Focus on brand-specific initiatives and strategic reinvestment to boost revenue growth and strengthen market position for North Face, Timberland, and Vans.
  
• Reliance on short-term factors and execution risks at Vans could threaten revenue stability, with cost pressures and market unpredictability impacting profitability.

Catalysts

Engages in the design, procurement, marketing, and distribution of branded lifestyle apparel, footwear, and accessories for men, women, and children in the Americas, Europe, and the Asia-Pacific.

• V.F. Corporation is in the midst of a significant transformation program with a focus on improving operational efficiencies and achieving double-digit operating margins, which is expected to enhance future profitability. This includes resetting the leadership team and implementing best-of-breed processes across nine work streams. This should positively impact net margins and operating income.
  
• The company is on track to achieve its target of $300 million in gross cost savings by the end of fiscal '25, with potential upside of an additional $500 million to $600 million in operating income expansion through further cost reductions and process improvements. These savings are anticipated to improve net margins and operating income.
  
• V.F. is focusing on balance sheet strengthening by reducing net debt, which has decreased by nearly $2 billion over the past year, aiming for a leverage target of 2.5x. This financial flexibility will allow for reinvestment in growth initiatives and enhance earnings stability.
  
• The company is driving brand-specific initiatives, particularly with North Face, Timberland, and the turnaround of Vans, where they see significant growth potential. The focus on brand elevation and new product introductions is expected to drive top-line revenue growth.
  
• V.F. plans to reinvest some savings into key areas like product creation and brand building, aiming to boost revenue growth. These initiatives should help increase revenues and improve brand competitiveness and market share in the long term.

V.F Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming V.F's revenue will decrease by 0.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from -1.4% today to 7.5% in 3 years time.
• Analysts expect earnings to reach $764.3 million (and earnings per share of $1.94) by about April 2028, up from $-142.9 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 15.0x on those 2028 earnings, up from -29.7x today. This future PE is lower than the current PE for the US Luxury industry at 15.1x.
• Analysts expect the number of shares outstanding to grow by 0.18% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 11.11%, as per the Simply Wall St company report.

V.F Future Earnings Per Share Growth

Risks

• The company's current financial success partly hinges on short-term factors like reorders and order pull-forwards, which may not be sustainable, potentially impacting future revenue stability and growth.
  
• The ongoing turnaround at Vans, with a focus on restructuring and brand elevation, carries execution risk, particularly in APAC where performance has struggled, which could delay revenue improvements and profit stabilization.
  
• While cost-saving measures are underway, increased marketing investments and SG&A expenses could pressure net margins if not counterbalanced by sufficient growth in operating income.
  
• Given the reliance on factors such as favorable weather patterns that benefited previous performance, unpredictable external events pose risks to consistency in gross margins and overall profitability.
  
• Vans' significant presence in the value channel (about one-third) requires careful management; any mishandling or consumer shifts away from value could impede revenue recovery if non-value channels do not grow sufficiently to compensate.

Valuation

• The analysts have a consensus price target of $21.418 for V.F based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $40.0, and the most bearish reporting a price target of just $9.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $10.3 billion, earnings will come to $764.3 million, and it would be trading on a PE ratio of 15.0x, assuming you use a discount rate of 11.1%.
  
• Given the current share price of $10.91, the analyst price target of $21.42 is 49.1% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.