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Which Businesses Were VF Corporations’s Key Revenue Drivers?

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VFC has a strong international presence

VF Corporation (VFC) is one of the largest apparel companies in the United States, with trailing-12-month sales of $12.3 billion. The company derives ~65% of its revenues from North America, while the remaining comes from international markets.

Peers Nike (NKE), PVH (PVH), and Ralph Lauren (RL) also have a strong global presence. They derive ~55%, ~45%, and ~35%, respectively, of their revenue from outside North America.

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International sales key to VFC’s top line

In the second quarter of 2016, VFC’s total sales rose 1% to $2.4 billion on a currency-neutral basis. Its performance was particularly impressive in international markets, which saw a 5% increase on a reported basis and a 7% increase on a constant-currency basis. This growth was driven by strength in Europe, which grew 3%, and the Asia-Pacific region, which grew 6%. However, the global nature of its business makes VFC vulnerable to foreign currency risks, like many of its peers. Nike, PVH, and Ralph Lauren have also faced currency headwinds in recent quarters.

Robust demand for VFC’s brands

Sales through the DTC (direct-to-customer) channel, which accounts for ~27% of VFC’s total sales, grew 6% in the second quarter, outpacing the wholesale channel. The growth in DTC sales was driven by the robust performance of the Outdoor & Action Sports business in particular. Read more about the performance of VFC’s segments in the next part. 

International DTC sales were particularly impressive and grew at a percentage rate in the mid-teens. Globally, nine of the company’s ten largest brands recorded revenue increases during the quarter. The online business displayed strong momentum in all categories. Global online sales grew ~30% YoY (year-over-year).

The wholesale business continued to remain under pressure due to tighter inventory management by the company’s wholesale partners. The business remained almost flat during the second quarter. VFC does not foresee the wholesale channel gaining strength in the near term. Investors who want exposure to VFC could consider the iShares Morningstar Large-Cap Growth ETF (JKE), which invests 0.35% of its portfolio in VFC.

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