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VF Corporation’s Retail Footprint Is A Critical Growth Driver

Phalguni Soni

VF Corporation: Stylish 2014 Apparel Earnings (Part 5 of 10)

(Continued from Part 4)

Direct-to-consumer revenue

A key revenue driver for VF Corporation (VFC) during 2014 was the growth in its direct-to-consumer, or DTC, channel. DTC sales include sales made through VFC-owned retail stores and its e-commerce websites. DTC sales outpaced overall revenue growth, growing 19% year-over-year to $3.2 billion in 2014. The company also reported high single-digit comps, or same-store sales.

In 4Q14, DTC sales grew 22% over 4Q13. The company’s store count increased by 155 in 2014, and in 4Q14 alone, 75 new stores were opened. Incredibly, VFC reported double-digit growth for all brands and geographies in which it had a direct store presence.

The DTC channel is important for VFC. Margins are higher than they would be with sales through other retailers such as Macy’s (M) and Walmart (WMT), or through sporting goods stores such as Dicks Sporting Goods (DKS).

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The company reported a challenging environment for its department store channel in 2014, particularly for brands like Nautica and its Jeanswear segment. That makes DTC growth more critical.

Peer comparison

As a percentage of the total, DTC revenue increased from 24% in 2013 to 26% in 2014. That’s slightly on the low side compared to peer Under Armour (UA), whose DTC revenues constituted 30% of its total in 2014. Another competitor, Lululemon Athletica (LULU), derived most of its revenues from the DTC channel. LULU’s profitability metrics are consequently one of the best in the industry. NIKE (NKE), on the other hand, derived ~20.3% of revenue from the DTC channel in fiscal 2014.

NIKE (NKE), Under Armour (UA), and VF Corporation (VFC) made up ~2.9%, ~0.5%, and ~1.2%, respectively, of the Consumer Discretionary Select Sector SPDR Fund (XLY), as of February 25, 2015.

DTC outlook

VFC expects the DTC channel to ramp up in 2015, growing at a “mid-teen percentage rate currency neutral or up at a low double-digit reported rate,” according to Bob Shearer, chief financial officer of VFC. The company expects about 125 net new store openings and “high single-digit comps sales growth.” VFC’s also looking at an increase of 30% in e-commerce revenues, a critical sales channel for most consumer-oriented companies.

Continue to Part 6

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