Dividend King – VF Corporation

VF Corporation (NYSE: VFC) is a multi-billion-dollar apparel and footwear company headquartered in Greensboro, North Carolina. Founded by John Barbey in 1899, VF has grown from its humble beginnings to become one of the world’s leading producers of outdoor apparel, sportswear and footwear, with over ten brands and more than 170,000 employees across the globe.

The company produces some of the most recognizable brand names in the industry, including Supreme, The North Face and Timberland. With a focus on design innovation, sustainability, and operational excellence, VF Corp has remained competitive in an ever-evolving market. By leveraging digital capabilities across all facets of their business, they have become one of the first companies to adopt new technologies that enable them to remain at the forefront of fashion trends while providing customers with quality products at affordable prices. In 2022, VF Corp reported revenues of about 12 billion dollars, ranking it amongst the top three publicly traded apparel companies worldwide.

Business Model

VF Corp operates through three main business segments: Outdoor, Active, and Work.

VF Corp’s “Active” segment, which includes brands such as Kipling, Vans, and Supreme, is the company’s most important segment, accounting for roughly 46% of total sales. The active segment provides consumers with a wide range of premium lifestyle products tailored to their needs. The brand portfolio includes a diverse range of lifestyle-driven products that appeal to today’s fashionable consumers, including streetwear and athleisure apparel. Recently, the active segment has been their most profitable and has become one of the company’s largest income sources, with an operating margin of 18.2%. This success is due to their focus on delivering innovative products that meet consumer needs in the active lifestyle market.

Their “Outdoor” segment, which includes brands such as The North Face, Timberland, Smartwool and, Icebreaker, Altra, is responsible for 45% of VF Corp’s total sales. Consumers are increasingly looking to invest in high-quality products designed to last and perform well in different conditions, something VF Corp delivers through its portfolio of iconic outdoor brands such as The North Face and Timberland.

VF Corp’s “Work” segment, which includes brands such as Dickies and Timberland Pro, has contributed approximately 10% of the company’s total sales. The work segment offers performance-based products designed with durability and comfort in mind. It also provides simple solutions for professionals across various industries, such as construction, hospitality, retail and transportation. The brand has seen steady growth due to increased demand for its safety-focused products across multiple markets.

VF Corp generates revenue through two main distribution channels: wholesale and direct-to-consumer. According to their most recent financial report, 54 percent of VF Corp’s total revenue comes from their wholesale channel, which includes sales through third-party websites such as Amazon, and 46 percent comes from their direct-to-consumer channel. Besides that, royalties contribute less than 1% of its total revenues.

Notable Events

During its 2019 fiscal year, VF Corp announced plans for a significant corporate spinoff to strengthen its competitive position and move forward with its growth agenda. It decided to separate its jeans segment into an independent business entity. This new company is named “Kontoor Brands” and will focus on selling jeanswear, including brands such as Wrangler and Lee. The spin-off was part of an effort to streamline operations for both companies, allowing them to focus on different segments to serve their customers better, separating the two businesses allowed them both more flexibility and improved capital efficiency as well as access to different resources that were previously not available. In addition to this spinoff, VF Corp also changed its fiscal year from December to March to better align itself with the changing retail landscape. These changes have allowed VF Corp to focus on specific product lines and better align financial reporting with its peer groups’ calendars

Growth Prospects

The company’s long-term strategic plan focuses on accelerating its presence in international markets and increasing direct-to-consumer (DTC) sales. As part of this plan, VF Corp plans to open more stores internationally while continuing to invest in online capabilities to serve customers better. As the fashion industry’s future looks promising, VF Corp stands to benefit and capitalize on its growth prospects. The company is focused on expanding its brand portfolio to include a wide range of products and services. 

To ensure long-term growth, VF Corp also plans to continue investing in digital technologies such as artificial intelligence and machine learning which will help them better understand consumer preferences for their products and services.

Overall, VF Corp’s future growth prospects look bright with its extensive product portfolio and a strong focus on technology investment for improved customer experience.

Dividend Profile

At present, VF Corp is paying out an annual dividend of $2 per share and a current of yield 6.02%. With this dividend payment, VF Corp has increased its dividend for 49 consecutive years. This makes it one of the few companies to have achieved such a remarkable feat in terms of consecutive dividend payments.

In year 2020 and 2021, VF Corporation has seen its payout ratio exceed 100% due to poor earnings. Despite this, the company still managed to pay out a dividend in both years. The reduced earnings were largely due to the ongoing pandemic which led to a significant decrease in sales for VF Corp and other companies across multiple industries. Regardless, VF Corp still plans on keeping their dividend intact for now and hopes that continue economic recovery will lead to better results.

Business Risks

Macro risk: VF Corp’s revenues and profits heavily depend on consumer spending for apparel and footwear products. This level of spending is susceptible to global economic conditions, making it challenging to predict VF Corp’s performance over time.

For instance, during times of economic turmoil or recessionary pressure, such as the Financial Crisis of 2008-09 or the COVID-19 pandemic that began in 2020, consumer discretionary spending on apparel and footwear tends to decrease significantly. As such, this can harm VF Corp’s top-line revenues and bottom-line profits.

Change in consumer preference:  The apparel and footwear industries are incredibly competitive, with many companies offering a range of products for consumers. To remain competitive, VF Corp must constantly monitor market change and stay ahead of the curve in terms of what consumers want. This requires them to invest heavily in understanding consumer tastes and developing innovative products that appeal to those tastes. Staying ahead of the competition also requires them to take calculated risks when developing new products or entering new markets.

Closing Thoughts

VF Corp (NYSE: VFC) is an outstanding dividend stock for investors looking to diversify their portfolio into the consumer discretionary sector. It has consistently increased its dividend for the past 49 years and currently yields 6.02%. This dividend has also increased by more than 10% annually over the last ten years, showing excellent growth potential.

In addition to its attractive dividends, VF Corp can offer investors stability due to its being a global leader in lifestyle apparel and footwear brands such as The North Face, Vans, and Timberland. Its well-diversified business model exposes it to different markets and products, which has been beneficial during economic uncertainty.

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