Look To VF Corp For Dividend And Profit Stability

By Ryan C. Fuhrmann | February 15, 2010 AAA

Branded lifestyle apparel firm VF Corp (NYSE: VFC), best known for its Wrangler, North Face and 7 For All Mankind trade names in addition to several other brands, reported fourth quarter results February 11 that handily beat analyst projections. Despite unappealing sales prospects, steady profits and dividends should appeal to more conservative investors.

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Fourth Quarter Highlights
Sales eked out a 0.2% gain to $1.9 billion on 8% growth in the outdoor and action sports segment (38.2% of total sales) on strong global trends for North Face and Vans footwear, which saw 7% and 14% growth, respectively. The contemporary brands unit (7.5%) saw an 18% sales boost from 7 For All Mankind, lucy women's activewear and a couple of acquisitions, which helped contribute to the top line. The other three primary business units, including jeanswear (33.7%), imagewear (11.6%) and sportswear (7.4%), reported sales declines, with the latter segment posting a severe 18% decline, primarily on a shift in Nautica shipments to wholesale clients such as Macy's (NYSE: M), JC Penney (NYSE: JCP) and Wal-Mart (NYSE: WMT).
Reported net income plummeted 42.8% to 60 cents per diluted share, but this value was severely reduced due to the goodwill impairment charges related to Nautica, Reef and lucy as a challenging consumer spending climate reduced the carrying value of these brands on VF Corp's balance sheet. Management notes that they have "not achieved the forecasted growth and cash flows originally projected at the dates of acquisition".

Full-Year Recap And Outlook
Full-year sales fell 5.8% to $7.14 billion as positive growth continued in the outdoor and contemporary units, but it wasn't enough to offset an 8.7% decline in the largest jeanswear segment on top-line challenges in Europe. Negative currency fluctuations accounted for 2 percent of the decline as international sales remained a significant component of revenues. Full-year reported earnings came in at $461.3 million, or $4.13 per diluted share. Excluding the impairment charge, which reduced reported earnings by $1.03 per share, earnings fell 4.8%.

Management projects sales growth for the coming year between 2% and 3%, and earnings growth of 9% to 11% to between $5.60 and $5.70, which excludes the effects of the impairment charge. It expects operating cash flow near $800 million.

Bottom Line
Speaking of cash flow, full-year operating cash flow improved and capital expenditure increased, sending year-end cash and equivalents up to $732 million compared to last year's $382 million despite increased investing activities. Overall, VF Corp has a very reasonable valuation, sports a 3.3% dividend yield that is easily covered by cash flow generation and should continue to post somewhat moderate sales growth across its diverse portfolio of apparel brands. Rivals Ralph Lauren (NYSE: RL) and Phillips-Van Heusen Corp. (NYSE: PVH) are projected to experience sales and profit declines for the coming year and have miniscule dividend yields. (To learn more about dividends, check out Dividend Facts You May Not Know and Build A Dividend Portfolio That Grows With You.)

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