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Currency Headwinds to Affect VF Corporation’s 2017 Bottom Line

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Earnings to fall in 1Q17

VF Corporation’s (VFC) EPS (earnings per share) is expected to fall 9.8% YoY (year-over-year) to $0.55 in 1Q17. Despite missing consensus revenue expectations in three of the four quarters last year, the company reported a bottom line that was either in-line or better-than-expected during the year.

For fiscal 2016, EPS was $3.11, which was 2.0% higher than the previous year. Its gross margin improved 40 basis points to 48.6%, driven by better pricing, lower costs, and a shift in the product mix toward higher margin products. However, exchange rate adjustments had an 80-basis-point negative impact on its gross margin.

VFC’s gross margin is better than its competitors Hanesbrands (HBI) and Gap (GPS), which have trailing 12-month gross margins of 37.8% and 36.4%, respectively. PVH (PVH) and Ralph Lauren (RL) have better profitability with TTM (trailing 12-month) gross margins of 53.3% and 55.4%, respectively.

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What will drive earnings in 2017?

VFC’s management expects a low single-digit fall in the company’s fiscal 2017 EPS, primarily due to ongoing currency headwinds. Excluding the negative impact of currency, EPS is likely to rise at a mid-single-digit percentage rate.

On a currency-neutral basis, its gross margin is likely to improve slightly, driven by a better product mix. However, a 70-basis-point negative impact from currency is likely to keep its gross margin flat at fiscal 2016 levels.

If you want exposure to VFC, you could consider the VanEck Vectors Morningstar Wide Moat ETF (MOAT), which invests 2.6% of its portfolio in VFC.

In the next part of this series, we’ll take a look at the performance of VFC stock and its dividend payments.

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