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VFC Posts a 2% Jump in Fiscal 2016 EPS despite Forex Headwinds

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Earnings per share in line with consensus estimates

VF Corporation (VFC) reported its fiscal 4Q16[1. quarter ended January 31, 2017] and fiscal 2016 results on February 17, 2017. The company reported a 2.1% increase in its fiscal 4Q16 earnings per share (or EPS). VFC’s EPS stood at $0.97, which was in line with Wall Street estimates.

For fiscal 2016, VFC’s adjusted earnings per share rose 2% to $3.11. On a constant currency basis, the increase was ~7%.

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Gross margin improves on better pricing and lower costs

VF Corporation (VFC) reported an improvement of 40 basis points in its 2016 gross margin, which stood at 48.6% during the year. This improvement was driven by better pricing, lower costs, and a shift in the product mix toward higher-margin products. However, exchange rate adjustments had a negative impact on VFC’s gross margin of 80 basis points.

In fiscal 4Q16, VFC’s gross margin was 160 basis points higher, reaching 49.8%, which included a negative impact of 90 basis points related to foreign currency changes.

Operating margin slips on higher SG&A rate and forex headwinds

VF Corporation’s fiscal 4Q16 adjusted operating margin slipped 90 basis points to 15.3% due to the negative impact of foreign exchange (or forex) rates of 60 basis points, as well as a jump in the SG&A rate of 250 basis points.

For fiscal 2016, VFC’s adjusted operating margin fell 90 basis points to 14%. This decrease was driven by a headwind from forex rates of 50 basis points and a jump in its SG&A[2. selling, general, and administrative expenses] rate of 130 basis points.

Comparing performance to peers

VF Corporation (VFC) has above-average margins. The company’s trailing 12-month (or TTM) GAAP[3. generally accepted accounting principles] operating margin of 12.1% is better than PVH Corp (PVH), Ralph Lauren (RL), and Gap, Inc. (GPS), which reported respective margins of 10%, 3.3%, and 8%. However, Hanesbrands (HBI) has a better TTM operating margin of 12.7%.

Investors who want broad-based exposure to VFC can consider the Guggenheim S&P 500 Equal Weight Consumer Discretionary ETF (RCD), which invests 1.1% of its portfolio in VFC.

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