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Tracking VF Corp.’s Upside In Organic Vs. Inorganic Growth

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Jan. 28 2015, Published 8:54 a.m. ET

Analyzing VF Corporation’s revenues and earnings

VF Corporation (VFC) has had a strong growth tradition. Despite some of its brands being around for more than a century, the company has been able to grow revenues, earnings, and dividends. The five-year CAGR (compounded annual growth rate) in revenues and EBITDA (earnings before interest, taxes, depreciation, and amortization) works out to 8.4% and 11.3%, respectively.

In 2009, VFC’s growth rates took a dip due to the Great Recession. However, VFC still increased its dividend per share, a sign of management’s confidence in the company’s long-term prospects. Read more about dividend aristocrat VFC in Part 18 of this series.

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Peer group comparisons

VFC’s growth rates are comparable to growth rates experienced by Inditex (ITX.MC) and Hennes & Mauritz (HM-B.ST) (HNNMY), the world’s number-one and number-two apparel companies, respectively. Spain’s Inditex, which owns the Zara brand, among others, grew revenues at a CAGR of 10%. Sweden’s Hennes & Mauritz, better known as H&M, ITX.MC, and HM-B.ST, grew revenues at a CAGR of 7.7%. In comparison, American peers Ralph Lauren (RL), PVH Corp. (PVH), and NIKE (NKE) grew revenues at a CAGR of 8.2%, 26.9%, and 7.7%, respectively.

VFC, NKE, PVH, and RL are part of the Consumer Discretionary Select Sector SPDR ETF (XLY). They form 1.14%, 3.07%, 0.43%, and 0.47% of XLY’s holdings, respectively.

Acquisitions

The growth comparisons diverge when one takes acquisitions into account. PVH and VFC have grown organically as well as inorganically. The former implies expansion in existing businesses, while the latter includes growth through acquisition of new businesses. PVH has been aggressively acquiring brands over the past decade, including Calvin Klein in 2003, Tommy Hilfiger for $2.3 billion in 2010, and most recently, The Warnaco Group for $2.9 billion in 2013.

Inditex and H&M meanwhile have grown organically over the past five years, largely through aggressive overseas expansion aided by the wild popularity of their respective brands. NIKE has divested its Cole Haan and Umbro brands. Its last major purchase was Converse, way back in 2003.

VFC seeks targets

VFC is actively looking for new acquisitions to drive growth. It’s looking at $1.3 billion in incremental revenues from acquisitions by 2017. That’s just in its Outdoor & Action Sports coalition.

VFC acquired The Timberland Company for $2 billion in 2011. It’s arguably one of VFC’s most vital purchases in recent years, so much so that VFC organized a separate Investor Day for Timberland in September 2014. The next article discusses this vital growth driver.

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