V



|V.F. Corporation | (VFC-NYSE) |$76.27 |

Note: More details to come; changes are highlighted. Except where highlighted, no other sections of this report have been updated.

Reason for Report: FLASH UPDATE: 1Q18 Earnings Release

Prev. Ed.: Sep 15, 2017; 2Q17 Earnings Update

Flash Update [Earnings update in progress; to follow]

On May 4, 2018, V.F. Corporation reported better-than-expected earnings and revenues for the transition period, ended Mar 31, 2018. This marked the company’s third top- and bottom-line beat in the last four reports.

The company’s adjusted earnings per share of 67 cents improved 30% year over year and beat the Zacks Consensus Estimate of 65 cents. Earnings per share included a 3 cents contribution from the Williamson-Dickie acquisition.

V.F. Corp generated total revenues, including royalty income, of $3,045.4 million that increased about 22% year over year and surpassed the Zacks Consensus Estimate of $2,902 million. Net sales of $3,022.9 million also advanced 22% from the prior-year quarter, including contributions from the Williamson-Dickie acquisition. On a currency-neutral basis, revenues jumped 17%.

Excluding the Williamson-Dickie acquisition, revenues were up 12% while currency-neutral revenues grew 8%. The revenue growth is attributed to continued strength in the company’s international and direct-to-customer platforms, and Outdoor & Action Sports coalition.

Adjusted gross margin expanded 50 basis points (bps) to 50.8%, thanks to a favorable mix-shift toward high-margin businesses. Excluding the Williamson-Dickie acquisition, adjusted gross margin expanded 160 bps to 51.9%. Gross-margin growth was partly negated by Williamson-Dickie acquisition and foreign currency headwinds. Notably, foreign currency hurt gross margin by 20 bps.

Adjusted operating income rose 14% to $330 million while the adjusted operating margin contracted 80 bps to 10.8%. Excluding Williamson-Dickie, adjusted operating margin contracted 40 bps to 11.2%. Operating margin included 20 bps positive impacts from foreign currency.

Segment Details

Revenues of Outdoor & Action Sports grew 19% to $2,014.6 million (up 13% on a currency-neutral basis).

Jeanswear revenues of $639.5 million inched down 1% year over year (down 4% on a currency-neutral basis).

Imagewear revenues rose 175%, both on reported and currency-neutral basis, to roughly $371 million.

Other revenues declined 8% to $20.3 million on both reported and currency-neutral basis.

Financial Details

V.F. Corp ended the transition period with cash and cash equivalents of $680.8 million, long-term debt of $2,212.6 million and shareholders’ equity of $3,688.1 million. The company used $243.2 million cash in operating activities during the transition period, ended Mar 31.

Concurrently, the company declared a quarterly dividend of 46 cents per share, which is payable on Jun 18, to shareholders with record as of Jun 8.

Divestitures

On Apr 30, the company completed the sale of the Nautica brand business to Authentic Brands Group (“ABG”), LLC. Earlier, the company completed the sale of its Licensed Sports Group business, which consists of the Majestic brand, to Fanatics, Inc. on Apr 28, 2017. In conjunction with the LSG divestiture, V.F. Corp also exited the licensing business and completed the sale of assets of the JanSport brand collegiate business in fourth-quarter 2017.

In August 2016, the company completed the sale of its Contemporary Brands businesses, including 7 For All Mankind, Splendid and Ella Moss brands.

All these businesses are classified as discontinued operations in the company’s financial statement.

Outlook

For fiscal 2019, V.F. Corp expects revenues of $13.45-$13.55 billion, an increase of 9-10%. This includes revenue growth anticipation of 8-9% for the Outdoor & Action Sports coalition, nearly flat revenues for Jeanswear and growth of more than 35% for Imagewear. Further, the company expects revenue growth of 13-15% for the International and 8-10% for the direct-to-consumer business.

Gross margin is anticipated to be about 51% while operating margin is expected to expand 50 bps to 13.2%. The company envisions adjusted earnings per share of $3.48-$3.53, representing growth of 11-13% year over year.

Further, the company expects cash flow from operating activities to be more than $1.6 billion in fiscal 2019 while capital expenditures are estimated to be $275 million.

MORE DETAILS WILL COME IN THE IMMIMENT EDITIONS OF ZACKS RD REPORTS ON VFC.

Portfolio Manager Executive Summary [Note: only highlighted material has been changed]

V.F. Corporation (VFC) operates a diverse portfolio that includes the following coalitions: Jeanswear, Outdoor and Action Sports, Imagewear and Sportswear. V.F. Corp. is a global leader in branded lifestyle apparel with more than 30 brands, including Wrangler, The North Face, Lee, Vans, Nautica, Eagle Creek, Eastpak, Jansport, Kipling, Lucy, Majestic, Napapijri, Red Kap, Reef and Riders. However, the company recently sold its Contemporary Brands business, including Splendid, 7 For All Mankind and Ella Moss brands, to Israel’s Delta Galil Industries Ltd.

Of the 19 firms covering the stock, seven assigned positive ratings, 11 provided neutral ratings and one firm rendered a negative rating to the stock.

Neutral or equivalent ratings (57.9%; 11/19 firms): The firms with a neutral outlook believe that V.F. Corp. is well positioned, both financially and competitively, to better withstand the difficult economic conditions than most of its peers. These firms also believe that the company is well-positioned to capture market share from weaker competitors. They think that V.F. Corp. has a solid track record of active portfolio management, which includes continuous evaluation of acquisition and divestiture opportunities to create a strategic balance in order to drive growth and profits.

However, some firms are cautious as they believe that the company’s performance may be adversely impacted by the ongoing foreign currency headwinds and other geopolitical risks associated with operating internationally. Also, these firms are skeptical about its ability to cope up with the ever-changing fashion trends. While these firms are encouraged by the fact that the company is undertaking several supply chain initiatives to sustain its strong momentum. These include implementing a mix shift to high-margin businesses.

Moreover, the neutral firms remain confident of the company’s long-term growth prospects and its strategic initiatives. However, these firms remain cautious against the near-term pressures and challenges faced by the company. Some firms believe that changing tastes and preferences have caused sluggish growth at some of V.F. Corp.’s brands, owing to slow product innovation. Nonetheless, the company’s recent plans and re-focus on innovations make firms hopeful of enhanced top-line in future.

Positive or equivalent ratings (36.8%; 7/19 firms): The bullish firms expect the company’s performance to improve, given its strong brand portfolio, solid execution and ongoing accretion from Timberland. Further, the company’s recently outlined 2021 strategy provides visibility into the future.

Some bullish firms expect growth at V.F. Corp. to be fuelled by expansion of e-commerce operations; global expansion and buyouts. The firms believe that V.F. Corp’s experienced management team, strong balance sheet and diversified portfolio place the company in a comfortable position to generate above-industry average growth and achieve market share gains even in the current environment. They believe the company focuses on three key areas to drive growth – expansion of its current locations, global expansion and acquisitions. The firms think that a shift of product mix to higher margin operations is likely to boost profitability, going forward.

These firms are also impressed by the company’s product innovation strategy. They are confident about V.F. Corp.’s initiatives like enhancement of the direct-to-consumer business and marketing investments in key brands. Moreover, the company aims to enhance shareholder value, which is evident from its constant share buybacks and dividend payments. In fact, some bullish firms are confident about the company’s future growth backed by its diversified brands with high profit margins and solid scope for improvement internationally.

Going forward, the firms believe that V.F. Corp can be well positioned in both apparel and international markets, alongside leveraging its cost structure and improving productivity of its Timberland brand.

Sep 15, 2017

Overview [Note: only highlighted material has been changed]

V.F. Corporation (VFC) is one of the world’s largest apparel companies, and through its subsidiaries, engages in the designing, manufacturing and marketing of branded apparel and related products in the United States and internationally. It reports under the Jeanswear, Outdoor and Action sports, Imagewear and Sportswear segments, and its products consist of denim and casual tops, bottoms, backpacks, sleeping bags, luggage, outdoor gear, skateboard-inspired footwear and apparel, surf-inspired footwear and apparel, women’s lingerie, occupational apparel, licensed sports apparel, athletic apparel, and fashion sportswear. The company was founded in 1899 and is headquartered in Greensboro, NC. For more information about the company, please visit its website at . V.F. Corp’s fiscal year ends on Mar 31.

V.F. Corp. has divested the Contemporary Brands businesses to Delta Galil Industries, which included the 7 For All Mankind, Splendid and Ella Moss brands.

Brokerage firms identified the following issues as critical for evaluating the investment merits of V.F. Corp.:

|Key Positive Arguments |Key Negative Arguments |

|Consumer Focused: V.F. Corp. has a dominant market share position in |Macroeconomic Challenges: The apparel retail industry is a consumer-driven |

|denim, which can be leveraged into new categories. The company has a |one, and hence very sensitive to economic health. Apparel retail spending is |

|consumer-centric re-branding strategy. |heavily dependent on the personal disposable income of consumers. The current|

| |macroeconomic challenges such as high household debt and unemployment levels |

|Growth Through Product Diversification: Analysts are enthusiastic about |may restrain consumer spending on apparel and accessories. |

|the potential for new and acquired brands to expand V.F. Corp into | |

|different product segments. |Integration Risks: V.F. Corp’s growth is largely dependent on acquisitions |

| |and suffers from all the associated integration risks. |

|International Opportunity: The company is expanding in international | |

|markets, especially in Asia. |Competition: V.F. Corp operates in a highly competitive space, with each of |

| |its divisions facing a formidable group of competitors. |

| | |

| |Currency Risk: Currency volatility poses a significant risk, as changes in |

| |exchange rates could have a major impact on V.F. Corp’s earnings due to the |

| |significant amount of sales generated overseas. |

Sep 15, 2017

Long-Term Growth [Note: only highlighted material has been changed]

V.F. Corp. operates an impressive and diverse portfolio of branded lifestyle apparel. The firms believe that the company’s dynamic and expanding portfolio, and high profit margins, coupled with global expansion, are likely to boost the top and bottom lines in the long run.

Further, the company has resorted to several strategic programs, which will augment its performance and position it for growth in each of its market segments.

The firms remain impressed with V.F. Corp.’s active portfolio management, wherein the company constantly assesses acquisition and divestiture opportunities to create a strategic balance that drives growth and profits. Further, V.F. Corp.’s continued focus on expanding business operations inorganically will be accretive to its top and bottom lines.

V.F. Corp.’s vision is to grow by building lifestyle brands that draw the attention of consumers around the world. In order to do this, the company has a few core growth strategies: 1) build more global, growing, lifestyle brands, 2) expand market share by adding more customers, 3) expand the direct-to-consumer business and 4) find out new growth drivers.

The firms continue to believe that the principal growth drivers over the next several years include continued growth in Outdoor & Action Sports brands, North Face and Vans; enhanced Jeanswear products, growth in international operations, particularly in the Asia Pacific, which is one of the fastest growing regions and global expansion of direct-to-consumer in key lifestyle brands.

V.F. Corp. has outlined a five-year strategic growth plan focused on boosting shareholder returns. Apart from defining growth targets through 2021, the company announced plans to alter its fiscal year-end and authorized a new $5 billion share repurchase program.

With the retail environment being really challenging of late, the company’s 2021 growth strategy primarily focuses on rapidly responding to the changing marketplace while targeting fantastic shareholder returns. The strategy targets generating cumulative operating cash flows in excess of $9 billion in the five-year period between 2017 and 2021. Of this, the company plans to return about $8 billion to shareholders in the form of dividends and share repurchases.

Under the five-year plan, the company’s four-point strategy will mainly focus on redesigning portfolio and empowering its key brands; adopting a consumer and retail-centric model; enriching direct-to-consumer and digital businesses; and, directing investment to Asia, particularly China. Further, these plans will be aided by increased investments in design and innovation; demand creation and brand experience; insights and analytics; retail excellence; demand and supply chain agility; and talent.

Recently, management has agreed to acquire Williamson-Dickie Mfg. Co., which is a privately-owned work-wear company as part of its portfolio enhancement strategy under the plan. Also, V.F. Corp. raised its 2021 revenues and earnings per share targets to include the impact of the Williamson-Dickie acquisition that is expected to contribute more than $1 billion to revenues and in excess of 25 cents per share to earnings through 2021.

The company now anticipates five-year compounded annual revenue growth rate (CAGR) of 5-7% to more than $15 billion, through 2021. This compares with the previous forecast of 4-6% at a five-year CAGR. It now estimates earnings per share growth in the range of 11-13% at a five-year CAGR, to more than $5 per share. The company had previously expected earnings per share growth of 10-12% at a five-year CAGR.

Sep 15, 2017

Target Price/Valuation [Note: only highlighted material has been changed]

|Rating Distribution |

|Positive |36.8%( |

|Neutral |57.9% |

|Negative |5.3%( |

|Avg. Target Price |$62.00( |

|Highest Target Price |$73.00( |

|Lowest Target Price |$50.00( |

|No. of the analysts with target price/ Total |18/19 |

Risks related to the achievement of the target price are the weakening U.S. retail environment (pressuring U.S. Jeanswear and a weaker-than-expected Sportswear profit rebound), costs associated with the accelerated U.S. store rollout that could pressurize margins, a shift in fashion from outdoor lifestyle clothing that could impact the strength of the Outdoor coalition, inflating sourcing costs and slowdown of the international markets.

Recent Events [Note: only highlighted material has been changed]

On Aug 14, 2017, V.F. Corporation has inked a deal to acquire Williamson-Dickie Mfg. Co. for a cash outlay of $820 million. Per the transaction that is expected to conclude early in the fourth quarter of 2017, Williamson’s brands like Dickies, Workrite, Kodiak, Terra, and Walls will form part of the buyer’s offerings. Simultaneously, management updated its 2021 financial targets and also raised 2017 outlook. (Further details in the relevant section of this report).

On July 24, 2017, V.F. Corporation reported second-quarter 2017 adjusted earnings of 29 cents a share, beating the Zacks Consensus Estimate by a penny. However, the bottom line plunged 11% year over year (y/y). Total revenue, including royalty income of $2,359.6 million, increased about 2% y/y and also surpassed the Zacks Consensus Estimate of $2,289.6 million.

Revenue [Note: only highlighted material has been changed]

Provided below is a summary of total revenue as compiled by Zacks Digest:

|Revenue ($ M) |2Q16A |

|Copy Editor |Rajani Lohia |

|Content Ed. |Rajani Lohia |

|Lead Analyst |Rajani Lohia |

|QCA |Sumit Singh |

|No. of brokers reported/Total | |

|brokers | |

|Reason for Update |Flash |

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May 4, 2018

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