[Note: VFC’s fiscal year 2023 ended April 1, 2023]
VF Corp’s stock (NYSE: VFC), is an apparel and footwear manufacturer that owns brands such as Vans, Timberland, and The North Face. The company’s stock currently trades at $19 per share, around 78% below its level of $86 seen on May 4, 2021 (pre-inflation shock high), and has the potential for gains. However, the footwear and apparel maker’s large debt obligation presents a risk to this upside. The company reported a narrower profit for FQ2 2024 (ended Sept 30), with adjusted earnings per share coming in at 63 cents compared to 73 cents a year ago. In addition, its top line fell about 2% year-over-year (y-o-y) to $3.03 billion, primarily driven by a 21% y-o-y decline in Vans sales (its flagship sneakers brand). While the company mentioned that it would undertake a restructuring plan centered around driving a turnaround in the Vans brand, it still faces a long road ahead. The company also withdrew its full-year outlook, due to weak sales in the U.S. and a lack of progress in improving the performance of the Vans brand. To add to this, VFC also disclosed that it suffered a cybersecurity breach recently. It is anticipated that the attack will significantly impact the company’s operations in the weeks leading up to the critical holiday shopping season. Online ordering remains available, but the company said it has been unable to fulfill orders due to the breach.
VFC stock has suffered a sharp decline of 75% from levels of $80 in early January 2021 to around current levels now, vs. an increase of about 25% for the S&P 500 over this roughly 3-year period. Notably, VFC stock has underperformed the broader market in each of the last 3 years. Returns for the stock were -12% in 2021, -61% in 2022, and -33% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 – indicating that VFC underperformed the S&P in 2021, 2022, and 2023. In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Consumer Discretionary sector including AMZN, TSLA, and HD, and even for the megacap stars GOOG, MSFT, and AAPL. In contrast, the Trefis High Quality Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could VFC face a similar situation as it did in 2021, 2022, and 2023 and underperform the S&P over the next 12 months – or will it see a recovery?
Returning to the pre-inflation shock level means that VFC will have to gain about 357% from here. While it has the potential to recover to those levels, we estimate VFC’s Valuation to be around $20 per share, almost 5% higher than the current market price. Our detailed analysis of VFC’s upside post-inflation shock captures trends in the company’s stock during the turbulent market conditions seen over 2022 and compares these trends to the stock’s performance during the 2008 recession.
2022 Inflation Shock
Timeline of Inflation Shock So Far:
- 2020 – early 2021: Increase in money supply to cushion the impact of lockdowns led to high demand for goods; producers were unable to match up.
- Early 2021: Shipping snarls and worker shortages from the coronavirus pandemic continue to hurt the supply
- April 2021: Inflation rates cross 4% and increase rapidly
- Early 2022: Energy and food prices spike due to the Russian invasion of Ukraine. Fed begins its rate hike process
- June 2022: Inflation levels peak at 9% – the highest level in 40 years. S&P 500 index declines more than 20% from peak levels.
- July – September 2022: Fed hikes interest rates aggressively – resulting in an initial recovery in the S&P 500 followed by another sharp decline
- October 2022 – July 2023: Fed continues rate hike process; improving market sentiments help S&P500 recoup some of its losses
- Since August 2023: Fed keeps interest rates unchanged to quell fears of a recession, although another rate hike remains in the cards.
In contrast, here’s how VFC stock and the broader market performed during the 2007/2008 crisis.
Timeline of 2007-08 Crisis
- 10/1/2007: Approximate pre-crisis peak in S&P 500 index
- 9/1/2008 – 10/1/2008: Accelerated market decline corresponding to Lehman bankruptcy filing (9/15/08)
- 3/1/2009: Approximate bottoming out of S&P 500 index
- 12/31/2009: Initial recovery to levels before accelerated decline (around 9/1/2008)
VFC and S&P 500 Performance During 2007-08 Crisis
VFC stock declined from nearly $20 in October 2007 (pre-crisis peak) to around $12 in March 2009 (as the markets bottomed out), implying that VFC stock lost almost 38% of its pre-crisis value. It rose from the 2008 crisis to levels of around $13 in early 2010, rising roughly 3% between March 2009 and January 2010. The S&P 500 Index saw a decline of 51%, falling from levels of $1,540 in September 2007 to $757 in March 2009. It then rallied 48% between March 2009 and January 2010 to reach levels of $1,124.
VFC Fundamentals Over Recent Years
VFC revenues grew 12% from around $10.5 billion in FY 2020 to about $11.8 billion in FY 2022, due to the strong performance of the North Face brand. However, sales fell slightly to 11.6 billion in FY 2023 due to softer industry trends. Earnings per share grew from around $1.72 in FY 2020 to $3.55 in FY 2022 but fell to $0.31 in FY23. The reason for this decline was inflation curbing consumer spending and a tougher macro environment across the apparel sector.
Conclusion
With the Fed’s efforts to tame runaway inflation rates helping market sentiment, we believe VFC stock has the potential for strong gains once fears of a potential recession are allayed. That said, the pressure on the company’s balance sheet remains a significant risk factor to the realization of these gains.
It is helpful to see how its peers stack up. VFC Peers shows how VFC stock compares against peers on metrics that matter. You will find other useful comparisons for companies across industries at Peer Comparisons.
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