V.F. Corporation VFC focuses on strengthening foothold in the Asia-Pacific region, particularly China, by undertaking certain business strategies. This move is in sync with its global business strategy, which was announced in 2017. The company is appointing a new president who will look into operations in Mainland China, Hong Kong SAR and Taiwan. Notably, Greater China, which accounts for almost 65% of the company’s total business in the Asia Pacific, is likely to grow roughly 80% by fiscal 2024.
The company’s Asia Pacific business is gaining from improved store traffic as all retail stores reopened after a brief period of store closures due to the coronavirus pandemic. Also, digital revenues at the APAC region rose 19% on the back of more than 20% growth in China, led by brand strength, particularly in Vans and Dickies.
Apart from investing in the APAC region, the company’s 2024 growth strategy primarily focuses on creating a dynamic and optimum portfolio and uplifting direct channels by prioritizing digital. The strategy targets generating revenue growth of 7-8% at a five-year CAGR through 2024, driven by its largest brands — The Vans, The North Face, Timberland and Dickies. Also, strong contributions from the International and Direct-to-Consumer business platforms are expected to contribute to growth. Moreover, it expects earnings per share growth of 12-14% at a five-year CAGR, from fiscal 2019 levels. In fiscal 2024, the company anticipates gross margin to exceed 55.5%, with an operating margin of more than 15%.
V.F. Corp is on track with recruiting leadership for its Emerging Brands platform. In this context, Kevin Bailey will retain his position as the lead of the Asia Pacific region. In addition, he will join as the lead of the Emerging Brands platform in the Americas. This platform boasts a strong product portfolio comprising Altra, Eagle Creek, JanSport and Smartwool brands as well as the Kipling and Icebreaker brands.
However, V.F. Corp has been witnessing declining sales for quite some time now. Notably, fourth-quarter fiscal 2020 revenues declined 11% and 10% year over year on a reported and constant-dollar basis, respectively, due to lower demand stemming from the coronavirus outbreak. Moreover, sales remained soft in most of its segments.
The company refrained from providing any guidance for fiscal 2021, citing continued uncertainties surrounding the duration of the pandemic. Management also expects to witness a significant impact of the same on first-quarter fiscal 2021 performance, with revenues likely to decline slightly more than 50%. Although the stock has gained 11.6% in the past three months, it underperformed the industry’s growth of 29.2%.
All said, we hope that expansion plans in the Asia Pacific region and the 2024 growth strategy are likely to provide some cushion to this Zacks Rank #5 (Strong Sell) company and help it revive soon.
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