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VF Corporation’s Expected Profitability and Earnings in 2015

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Cost and profitability drivers of VF Corporation’s 3Q15 earnings

VF Corporation (VFC) is expected to declare earnings for the third quarter of 2015 on October 23, 2015. Company guidance has indicated earnings per share (or EPS) growth of 15% year-over-year to $3.22 in 2015 overall.

At the 2Q15 earnings release, earnings guidance was revised upward from the earlier EPS expectation of $3.20 projected at the end of 1Q15.

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Margin contraction

Despite its upwardly revised earnings guidance, VF Corporation expects to see forex (foreign exchange) headwinds adversely impact operating margins by 0.70% in 3Q15, according to Scott Roe, VF Corporation’s chief financial officer.

VF Corporation typically earns a larger portion of its sales from outside the United States in the quarter, mostly from Western Europe. Sales from the Eurozone countries have been adversely impacted in recent quarters, as the higher US dollar has reduced reported figures. That said, the third quarter is also the company’s most profitable.

Peer comparisons

VF Corporation has earned an operating margin of 11.5% in the trailing-12-month period, compared to the following margins:

  • 14% for Nike (NKE)
  • 19.7% for Lululemon Athletica (LULU)
  • 10.3% for Under Armour (UA)

Stock price performance

VF Corporation’s stock price is down 2.2% year-to-date. This compares to:

  • A rise of 37.7% for Nike (NKE)
  • A rise of 28.3% for Adidas (ADDYY)
  • A rise of 47.2% for Under Armour (UA)
  • A fall of 5.1% for Lululemon Athletica (LULU)
  • A fall of 1.3% in the S&P 500 ETF (SPY) (IVV) (VOO)
  • A rise of 8.7% in the S&P 500 Consumer Discretionary Sector ETF (XLY) (FXD) (VCR)

VF Corporation’s underperformance is partly due to its lowered expectations for revenue and profitability growth in 2015. Its faster-growing portfolio of outdoor and action sports brands hasn’t quite been able to negate the impact of adverse foreign currency movements.

Also, growth expectations have been more muted for its remaining brand stable. Some of VF Corporation’s brands are iconic and have been around for decades.

For more sector updates and analysis, please visit Market Realist’s Consumer Discretionary and Retail page.

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