International growth drivers
VF Corporation’s (VFC) international revenues accounted for 37.6% of sales, or $4.3 billion, in 2013. They have been a major driver for sales, growing at a CAGR (compounded annual growth rate) of 13% from 2008 to 2013, compared to 6% for US revenues.
Major markets for VFC include Europe, China, Japan, and India. The company is looking for further growth in these markets by expanding its presence. VFC expects to keep the momentum going forward, growing at a CAGR of 13% through 2017 for a contribution of ~43% to gross revenues.
VFC’s growth distribution is uneven across product coalitions and geographies. The Jeanswear coalition, which includes the Lee and Wrangler brands, is growing strongly in Asia, but the category faces challenges in the United States and Europe. Its premium jeanswear brand, 7 For All Mankind, is also facing declining sales trends.
The trend for athleisure wear as opposed to basic jeans has affected revenues in the jeanswear segment. On the other hand, companies such as Lululemon Athletica (LULU), The Gap (GPS), and L Brands (LB) are benefiting from this trend.
$36-billion opportunity knocks
VFC’s Outdoor & Action Sports and Sportswear coalitions are seeing strong growth in almost all international markets. Timberland is already VFC’s largest brand in Asia, while The North Face is the leading brand in China.
The trend for fitness and outdoor activity is a global phenomenon. VFC is looking at a market size of $36 billion, targeting consumers in eight countries for the Timberland brand alone. The company expects to see double-digit growth for Timberland across all geographies and channels over the next five years.
The company is facing a tough macro environment in its major markets such as China, Japan, and Western Europe. For example, ~60% of Timberland’s revenues in Asia come from China and Japan. The appreciating US dollar versus the euro and the Japanese yen will reduce revenues in dollar terms for the company, even if demand doesn’t slow. This will affect the company’s results in the coming quarters.
These factors will also affect results of other consumer discretionary (XLY) companies with significant operations overseas, including NIKE (NKE). Companies such as Under Armour (UA), however, which derives almost 90% of its revenues from the United States, will be more protected from these headwinds.