Summary
- The slow-down in Vans' growth is concerning, especially in EMEA, and the company is too reliant on China.
- Direct to Consumer Sales, specifically digital sales, are growing at an unsustainable rate.
- The North Face, Timberland, and VFC's brands other than Vans are likely to grow in the mid-single-digits long term.
There is no substitute in the retail business for strong brands. Few industries are more competitive than retail clothing, and having strong brands that provide a company pricing power is critical.
Few companies have stronger brands than V.F. Corp. (VFC). VFC acquired Vans just less than 2 decades ago, and the company acquired Timberland about 10 years ago. VFC is a well-managed company that has done an excellent job of growing existing brands and making successful acquisitions and the company's core brand, The North Face, is another brand that management has successfully built out over the years.
Still, VFC has grown dramatically over the last 20 years and the company is now a nearly $33-billion corporation. VFC's market cap has more than tripled in the last 15 years, and the stock currently trades at a premium valuation of just over 23x next year's earnings estimates.
Data by YChartsI think VFC is over-valued at the current price because I don't think the company's current growth rate is sustainable and the company is relying too heavily on Vans for top-line growth.
