At its 2022 Investor Day in Denver, CO, VF Corp. will introduce its fiscal year 2027 (FY27) long-term strategic growth plan that calls for sales to climb mid- to high-single-digit percent in constant dollars on average over the next five years with faster earnings growth.
VF also downwardly revised its FY23 outlook due partly to lower-than-expected current quarter results.
FY27 Financial Targets Include:
- Revenue five-year Compounded Annual Growth Rate (CAGR) up mid- to high-single-digit percent in constant dollars.
- Operating margin of approximately 15 percent by FY27, reflecting both gross margin expansion and SG&A leverage.
- Earnings Per Share (EPS) to grow at a five-year CAGR of high single to low double-digit percent.
- Cash available to return to shareholders through dividends and share repurchases of approximately $7 billion (cumulative between fiscal year 2023 (FY23) and FY27) with organic Total Shareholder Return (TSR) between a low double-digit percent and low-teens percent CAGR.
- FY23 outlook revised. Revenue is expected to be up about 5 percent to 6 percent, and adjusted EPS is expected to be in the range of $2.60 to $2.70.
“Our new five-year growth plan demonstrates how we will leverage VF’s proven strengths and distinct model to deliver superior returns to shareholders over the long term,” said VF Chairman, President and CEO, Steve Rendle. “The global economic environment has dramatically changed since we held our last Investor Day in late 2019. Despite significant disruptions during the past three years, VF has successfully navigated the challenges to become a more agile and focused enterprise that is advancing a clear vision to be the world’s most dynamic portfolio of iconic, deeply loved, active-lifestyle brands.
“While economic uncertainties persist, we are actively addressing challenges within our business, and we remain confident in our ability to generate consistent, sustainable growth across our brand portfolio over the long term. We will continue to deepen our engagement with consumers, expand into new categories and markets, leverage our powerful business platforms, and lean on the seasoned leaders and talented teams who are driving our strategies. VF and our brands remain well-positioned to continue our journey of broad-based growth and success.”
Long-Term Strategic Growth Plan
At the meeting, VF Corp.’s executive leadership team members will present a detailed overview of the company’s strategies, which outline its “commitment to driving consistent, sustainable and profitable growth,” including:
- VF will innovate within its existing brand portfolio while expanding into adjacencies that complement its brands and tap into consumer growth spaces.
- VF will gain market share by building and managing brands at different stages of growth across its portfolio and through M&A and business development to benefit individual brands and the company.
- VF will use its strategic platforms, which provide large-scale capabilities to enable its brands to connect with consumers directly and operate more efficiently, including consumer data and analytics, DTC supply chain, digitally enabled consumer experience, and international platforms.
- VF will continue to manage its business and agility by allocating capital and employees to drive its highest-priority strategic and growth initiatives.
FY27 Financial Targets
- Revenue through FY27 is expected to grow at a five-year CAGR of mid- to high single-digit percent in constant dollars with all brands, regions and channels contributing to growth over that time.
- The North Face brand revenue five-year CAGR is expected to be up high-single to low double-digit percent in constant dollars.
- Vans brand revenue five-year CAGR is expected to be up mid-single-digit percent in constant dollars.
- Timberland brand revenue five-year CAGR is expected to be up mid-single-digit percent in constant dollars.
- Dickies brand revenue five-year CAGR is expected to be up high single-digit percent in constant dollars.
- Supreme brand revenue five-year CAGR is expected to up high-single to low double-digit percent in constant dollars.
- Outdoor emerging brands, Altra, Smartwool and Icebreaker, revenue five-year CAGR expected to up mid-to-high teens percent in constant dollars.
- Operating margin is expected to reach approximately 15 percent by FY27, representing a low double-digit 5-year operating profit CAGR in constant dollars, driven by gross margin expansion and SG&A leverage.
- The tax rate is expected to be 17 percent to 18 percent in FY27, increasing gradually from approximately 16 percent in FY23.
- EPS is expected to grow at a five-year CAGR of high-single to low double-digit percent in constant dollars versus FY22 adjusted EPS of $3.18.
- Free cash flow generation is projected to be approximately $5.5 billion, cumulative from FY23 to FY27, with a total of approximately $7 billion in cash expected to be available to return to shareholders through dividends and share repurchases.
- Organic TSR through FY27 is anticipated to grow at a five-year CAGR of between low double-digit and low teens percent.
Q2 FY23 and FY23 Financial Outlook
Q2 FY23 revenue for the period ending September 39 is expected to be up low-single-digit percent (in constant dollars) and adjusted EPS is expected to be in the range of $0.70 to $0.75.
VF revised its FY23 outlook due to lower-than-expected Q2 FY23 results, coupled with ongoing uncertainty in the current environment, weaker than anticipated back-to-school performance at Vans, and increasing inventories leading to a more promotional environment in North America in the fall. Its revised outlook includes the following:
- Total VF revenue is expected to be up about +5 percent to 6 percent in constant dollars versus the previous outlook of at least +7 percent.
- Vans brand revenue is expected to be down mid-single-digit percent in constant dollars versus the previous outlook of up mid-single-digit percent.
- The North Face brand revenue is expected to deliver at least low double-digit percent growth in constant dollars versus the previous outlook of up low double-digit percent.
- Adjusted gross margin is expected to be down approximately 50 basis points versus the previous outlook of up slightly.
- Adjusted operating margin is expected to be approximately 12 percent versus the previous outlook of approximately 13.2 percent.
- Adjusted EPS is expected to be in the range of $2.60 to $2.70, versus $3.18 in the prior year and compared to the previous outlook of $3.05 to $3.15.
- Adjusted cash flow from operations of approximately $1.0 billion versus its previous outlook of approximately $1.2 billion is anticipated.
- Capital expenditures are expected to be approximately $240 million versus the previous outlook of approximately $250 million.
VF’s FY23 outlook assumes no additional significant COVID-19-related lockdowns in any key commercial or production regions, and no significant worsening in global inflation rates and consumer sentiment.
The company said it is testing the Supreme Trademark and Goodwill values during the second quarter due to a triggering event as result of higher interest rates and foreign currency fluctuations, which are expected to negatively affect the estimated fair values. As a result, and driven by these non-operating factors, VF Corp. expects to record a non-cash charge during Fiscal Q2 in the range of $300 million to $450 million.
Photo courtesy VF Corp./TNF