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VFC: Wholesale versus Direct-to-Customer Channel

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Feb. 15 2017, Updated 7:36 a.m. ET

Wholesale versus Direct-to-Customer Channel

VF Corporation’s (VFC) Direct-to-Customer (or DTC) channel accounts for more than 25% of the company’s total sales. The company operated 1,475 stores at the end of September 2016.

Growth through this channel has outpaced that of the Wholesale channel, which has seen tempered growth due to retail bankruptcies, wear-now calendar shifts, and high inventory levels.

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What’s behind VFC’s robust DTC growth?

VF Corporation’s (VFC) DTC channel grew 7% during the first nine months of 2016 and 6% in fiscal 3Q16. Growth came from all regions and through all brands in the retail format.

VFC’s E-Commerce segment was particularly strong and reported 18% growth. This segment’s growth was driven by low double-digit expansion in the Outdoor & Action Sports category, which was offset by a low-teen decline in Sportswear business.

Comparing performances of apparel peers

Ralph Lauren (RL), which also reported its results in early February, saw a 26% YoY fall in wholesale revenues, driven by the strategic reduction in its North America shipments.

Sportswear retailer Under Armour’s (UAA) wholesale sales increased 5% in the last quarter, compared to a 23% increase in DTC sales, primarily due to the bankruptcies of its retail partners.

What’s coming next?

VFC’s Direct-to-Customer channel is likely to grow more slowly than the company had expected earlier. Sales from this channel are projected to increase at a high single-digit rate compared to the low double-digit growth the company guided earlier.

Investors who want broad-based exposure to VF Corp. can consider the First Trust Rising Dividend Achievers ETF (RDVY), which invests ~1.9% of its portfolio in the company.

In the next section, we’ll learn about the company’s guidance for the remainder of 2017.

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