VF Corp. is aiming to add $5 billion in revenue to its topline and $5 in earnings per share over the next five years. The Greensboro, N.C.-based company will focus its efforts on the outdoor and actions sports categories, expanding its direct-to-consumer channels and increasing sales in international markets. If successful, VF’s sales will reach $12.7 billion by 2015 and EPS will hit $11.50.
The company expects to generate $6 billion in cash over the next five years and will direct that arsenal toward acquisitions, particularly in the outdoor and action sports arena, as well as dividends and potential stock buybacks.
“Our company is rapidly becoming more lifestyle brand-driven, more international, more direct-to-consumer and more innovative,” said Eric Wiseman, chairman and chief executive officer, at an investor conference to outline VF’s five-year plan in New York. “We have a strategic plan in place to drive revenues at a 10 percent annual rate and earnings at a 12 percent annual rate, with operating margins rising to 15 percent over the next five years.”
Analyst John Kernan of Cowen and Company called VF’s game plan aggressive but not unachievable. “They’ve set some very ambitious targets. Historically, they have not grown at a 10 percent [compound annual growth rate]. The last year they grew sales in excess of 10 percent was in 2007,” he noted. “I’m not saying they can’t. But it’s ambitious.”
Kernan said much of VF’s plan hinges on the continued growth of The North Face and Vans. “The North Face is their highest-margin brand and their biggest growth vehicle. Activity-based brands like The North Face and Vans have been gaining share of the consumer wallet and floor space at retail,” he said.
However, the category is becoming more competitive, with players such as Lululemon and Under Armour gaining ground. There’s also some risk that The North Face could dilute its authentic brand appeal by growing so large, added Kernan.
VF’s targets call for $3 billion in growth from the company’s outdoor and action sports segment. Revenue in this coalition has grown on average by 17 percent over the past five years and by 2015 should account for more than half of VF’s total revenues. The North Face is predicted to add $1.5 billion in incremental sales in the five-year period, becoming a $3 billion brand by itself.
Vans will add $900 million, Kipling and Napapijri combined will add $300 million and the remaining brands (JanSport, Eastpak, Lucy, Eagle Creek and Reef) will add $300 million.
The jeanswear business, which includes Wrangler and Lee, is expected to add $1 billion in growth. The sportswear, imagewear and contemporary brands coalitions, which include Seven For All Mankind, John Varvatos and Ella Moss, will also add another $1 billion in revenue.
International markets are slated to grow 15 percent annually over the next five years to $4.6 billion from $2.3 billion last year, with Asia the fastest expanding market. By 2015, 40 percent of total revenue should come from international markets, up from 30 percent last year.
China and India will account for 90 percent of the Asia-Pacific region’s growth. VF believes China is likely to become the world’s largest market for apparel and footwear, eventually overtaking Europe.
VF plans to open more than 700 stores across all its brands over the next five years, with 400 of them in the U.S., 225 in Europe and 80 in Asia. The expansion will bring its total global store count to 1,500 and add 15 percent annual growth in direct-to-consumer revenue. By 2015, direct-to-consumer will account for 22 percent of total VF revenue, up from 18 percent last year.
The only VF brand to currently operate more than 100 stores is Vans, which has 275 units, half of which are on the West Coast. “We have a lot of runway to open new stores without any risk of saturation,” said Mike Gannaway, vice-president of VF Direct and Customer Teams.
E-commerce revenue across all brands is expected to triple, reaching nearly $400 million in total sales. VF Corp. was a late starter to the e-commerce channel, doing just $17 million in sales online in 2007. “We passed $100 million in 2010, but we are underdeveloped in the U.S. in every benchmark,” said Gannaway. “We have a huge opportunity.”
VF has put a determined and comprehensive focus on innovation company-wide to help drive growth, in areas like culture, processes, platforms and talent, said Stephen Dull, vice-president of strategy and innovation. The company is the only apparel company that is a member of the MIT Media Lab and VF has partnered with universities to get students to create designs that harness the latest consumer trends.
A group of company executives recently took a field trip to central L.A. to learn about graffiti culture. “We want to be more international and so we need to learn about new cultures. That trip generated 2,000 ideas in the space of that day we didn’t have that morning,” said Dull.
VF has also done things like tap neuroscientists to help redesign the ticketing for Lee product, taking into account how the human eye processes information. “That resulted in the highest test scores we’ve ever seen on ticketing,” noted Dull.
To support and drive its growth goals, VF plans to boost marketing spending from 5.5 percent of total revenue last year to just under 7 percent by 2015.
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