V.F. (VFC) Up 10.5% Since Last Earnings Report: Can It Continue?

A month has gone by since the last earnings report for V.F. (VFC). Shares have added about 10.5% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is V.F. due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

V.F. Corp’s Q4 Earnings & Sales Miss Estimates

V.F. Corporationreported fourth-quarter fiscal 2020 results, wherein top and bottom line missed the Zacks Consensus Estimate. The results were primarily hurt by the reduction in demand on account of the coronavirus pandemic.

Compelled by the pandemic, the company has taken several actions to safeguard employees, customers and its trade partners, including temporary closure of offices and retail stores, instituting travel bans and restrictions, and implementing health and safety measures like social distancing and quarantine.

Additionally, to preserve financial liquidity, the company temporarily reduced the CEO's base salary by 50% and the VF executive leadership team's base salaries by 25%. Moreover, its board members opted to temporarily forgo the cash retainers. The company also issued $3 billion worth bonds to ensure near-term liquidity and temporarily suspended share repurchase plan. Further, it is on track with the divestiture of its Occupational Workwear business, which can be additional source of cash. As of May 15, the company had nearly $3 billion of cash in hand and $2.2 billion available under its revolving credit facility.

However, the company refrained from providing guidance for fiscal 2021 citing the uncertainty surrounding the duration of the pandemic and lifting of restrictions. Nevertheless, the company expects to witness significant impact of the same on first-quarter of fiscal 2021, with revenues declining slightly more than 50%. It also expects fiscal 2021 free cash flow to exceed $600 million.

Q4 Highlights

V.F. Corp reported adjusted earnings of 10 cents per share, reflecting 70% decline year over year. Moreover, the bottom line missed the Zacks Consensus Estimate of 11 cents. In constant-currency, earnings per share declined 69%.

Net revenues of $2,102.4 million declined about 11% year over year and lagged the Zacks Consensus Estimate of $2,297.5 million. Constant-dollar revenues fell 10%. The decline can primarily be attributed to lower demand due to the coronavirus outbreak and resulting government restrictions.

Adjusted gross margin contracted 100 basis points (bps) year over year to 53.9%. Furthermore, adjusted operating income declined 51% to $87 million. Adjusted operating margin decreased 350 bps to 4.1%.

Segmental Details

Revenues at the Active segment declined 9% to $1,034.2 million (down 8% in constant-currency basis). For fiscal 2020, Active segment revenue increased 4% (up 6% in constant-currency). This included a 10% growth (11% in constant dollars) in Vans brand.

The Outdoor segment reported revenues of $848.3 million, down 15% year over year (14% decline in constant-currency). For fiscal 2020, revenues for the Outdoor segment were flat (up 1% in constant-currency). This included 3% growth (5% in constant-currency) for the North Face brand.

Revenues at the Work segment fell 1% year over year to $211.6 million and were flat in constant currency. For fiscal 2020, revenues for the Work segment were flat (1% increase in constant-currency). This included 3% growth (4% in constant-currency) in Dickies brand.

Other revenues were $8.3 million compared with $0.1 million reported in the year-ago quarter.

Financial Details

V.F. Corp ended fiscal 2020 with cash and cash equivalents of approximately $1,369 million, long-term debt of $2,608.3 million, and shareholders’ equity of $3,357.3 million. In fiscal 2020, the company generated cash flow from continuing operations of $800.4 million, while adjusted cash flow was about $900 million.

In fiscal 2020, the company returned $1.7 billion to shareholders, including shares repurchases of $1 billion and dividend payouts of nearly $702 million. As of Mar 28, 2020, it had $2.8 billion remaining under its current share repurchase authorization.

On May 12, the company declared a quarterly dividend of 48 cents per share, payable Jun 22 to shareholders with record as on Jun 10. However, as part of its liquidity preservation actions amid the coronavirus outbreak, the company has temporarily suspended share repurchase program.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month. The consensus estimate has shifted 22.36% due to these changes.

VGM Scores

At this time, V.F. has an average Growth Score of C, however its Momentum Score is doing a lot better with an A. However, the stock was allocated a grade of F on the value side, putting it in the fifth quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise V.F. has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.

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