Did You Miss This Apparel Maker's Big Dividend Boost?
Oct 24th 2012 2:10PM
Updated Oct 24th 2012 2:14PM
What's to blame, high investor expectations or a sluggish and disinterested market? Whatever the reason(s), shares of clothing purveyor VF Corp (NYS: VFC) were essentially flat after the company reported excellent quarterly results. What's more, it decided to go the generous route by sharing some of its winnings with investors, boosting its dividend by over 20%. But somehow, the shares didn't go anywhere, so that means higher yield and a level price. And a buy opportunity that's approaching a thrift store bargain.
Kicking up higher sales
VF Corporation had a blast of a 3Q. Revenues grew 14% year over year to $3.1 billion, while net saw a healthy climb of 22% to $393 million. Granted, the company benefited from the acquisition of popular shoe maker Timberland, but not by much; that takeover was completed only in mid-September of last year.
Operationally speaking, the company is humming along nicely. What helps enormously is its portfolio of brands, which is wide and strong. Chances are pretty good that you're even wearing one of the company's products as you read this; VF Corp owns Lee and Wrangler jeans, Nautica sportswear, high-end outdoor apparel specialist The North Face, and Vans, a sneaker brand long beloved by at least one Motley Fool contributing writer we could name.
For the most part, these are robust product lines with long track records on the U.S. market. Proven goods like that tend to sell well abroad, too. Those foreign sales have really helped put the "whoosh!" in results. VF Corp's international revenues leaped 28% in 3Q.
Literally. That's because most of the increase was because of shoes. Timberland has been a good seller in Europe for a while and it continued to perform well after VF Corp got its mitts on it. Meanwhile, sales of Vans shot up nearly 50% in constant dollar terms during the quarter.
International is a crucial area for the company these days, as around 40% of its sales were realized there during the quarter, up from the 38% of 3Q 2011.That's a better global spread than many of its domestic competitors enjoy.
Higher price tags = lower sales
Not all product lines are created equal, and in a portfolio as sprawling and occasionally eclectic as VF Corp's, there are bound to be some under-performing lines. The company seems pretty effective in selling to the mid- and slightly high-end markets, but the more finicky fashionistas seem to be tougher customers. The company's contemporary brands unit, home to its fancy duds, saw its revenues decline by 17% from last year's 3Q.
Much of this was due to the sell-off of John Varvatos earlier this year; since the rock and roll-flavored mark's results are not counted this quarter (they were in 3Q 2011), the year-over-year comparison plunges into the negative teens in percentage terms. But even without this handicap, the business looks sluggish -- taking Varvatos out of the 3Q 2011 results still leaves a 1% annual slide in revenues for contemporary brands.
High-end fashion is a hard game to win. The more successful contestants seem to be the purveyors that focus on it more exclusively, such as Ralph Lauren (NYS: RL) . What helps is being able to maintain a good reputation among the clothing cognoscenti while building out a wide network, a la Michael Kors (NYS: KORS) .
Finding money in those pockets
What Ralph and Michael don't have in comparison to VF Corp, however, is a nicely sized dividend. This has been made possible by the fine momentum the company is now demonstrating, which has allowed it to raise its EPS guidance (by $0.10 to $9.60 per share for full-year 2012, making for a forward P/E of just over 16 at the current share price). The prior revenue forecast of $10.9 billion remains intact, which isn't a bad thing -- excluding Timberland, that represents year-over-year growth of around 8% in constant dollar terms.
VF Corp also hoisted up its dividend payout; shareholders exploring their pockets will discover an extra $0.15 nestled there, bringing the total to $0.87 per share for the quarter. That's a pretty gain of 21% over that of 2Q. Spread out over a year, that comes to $3.48.
Meaning an annual dividend yield of 2.2%, which puts the company well in line with its more recognized but less well diversified rivals. Abercrombie & Fitch (NYS: ANF) , popular with the young mall crowd and apparently with their stock-investing parents, has a similar yield. American Eagle Outfitters (NYS: AEO) is another mall staple and another not-stingy dividend payer, shelling out at the rate of 2% even.
But those two don't have the one big advantage VF Corp enjoys -- a fat, deep portfolio that's improving with the addition of well selected acquisitions (Timberland) and the quick jettisoning of less successful contributors (John Varvatos). Since the company announced its fine quarter to an indifferent, hard-to-please market, no one's yet rewarded it with a higher stock price. So this could be a good chance for investors to get some nice threads at a discount.
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The article Did You Miss This Apparel Maker's Big Dividend Boost? originally appeared on Fool.com.Eric Volkman has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend American Eagle Outfitters. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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