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NEW YORK — VF Corp. is still shopping for acquisitions.
The company’s plan to expand its revenues nearly 60 percent to $17.3 billion over the next five years might lead it to pursue an acquisition outside its comfort zone in outdoor and action sports and possibly in the high-margin accessories market.
Speaking with WWD following an investor meeting here Tuesday, Eric Wiseman, chairman, president and chief executive officer of the Greensboro, N.C.-based apparel titan, stressed that acquisitions in the future are “most likely to come out of outdoor and action sports,” VF’s largest business.
Yet he indicated that the door remained wide open to other possibilities. “Thirteen years ago, we had no outerwear, sportswear or contemporary businesses and no full-price retail,” he said. “We talk a lot about accessories and how a lot of our brands could benefit from the addition of that business and the expertise needed to operate in it. If you look out five years, might we add another coalition? Sure.”
VF’s plans to build the business from $10.9 billion last year to $17.3 billion in 2017, for a 10 percent compound annual growth rate, or CAGR, assume 8 percent organic growth and 2 percent growth from acquisitions. For purposes of Tuesday’s presentation, expansion from acquisitions was included in plans for the 14 percent CAGR assigned to the outdoor and action sportswear coalition. In five years, that business, VF’s biggest, is expected to be larger, at $11.1 billion, than VF was last year, at $10.9 billion.
But Wiseman and chief financial officer Bob Shearer emphasized that acquisitions could come from a number of apparel-related businesses and, unlike the majority of its purchases, very possibly from Europe.
“Outdoor is clearly the number-one priority and always at the front of our radar,” Shearer told WWD. “It’s a market that makes it easy to tell brand stories, to work with athletes who can help communicate those stories and, as you can see from brands like The North Face and Vans, really give us a chance to get involved with a lifestyle that lends itself to additional products.”
However, that’s balanced against VF’s desire to develop new platforms for its businesses, including possible expansion of its online initiatives. During the presentation to analysts, several speakers noted that VF’s acquisition of Timberland provided the parent with footwear expertise just as VF’s far-reaching supply chain opened up opportunities for Timberland to market apparel.
Shearer said that VF probably enters into discussions with 10 firms for every one brand it acquires. The due diligence of the financial results of prospective buys is matched by the attention paid to consumer research, he pointed out.
“We get so much data from consumers [on prospective brand acquisitions] that the companies we’re researching always ask to see it,” the cfo said. “If a brand is really damaged and the damage isn’t reversible, we’ll pass, but if the brand is strong and the product is just in a slump, you might have a brand worth buying.”
One example of the latter was The North Face, acquired for $25 million in 2000 after it slipped into a deep sales slump and cash crunch.
Today, North Face ranks as VF’s single largest brand, with 2012 sales of $1.9 billion expected to expand to $3.3 billion, a 12 percent CAGR, by 2017. Vans, a youth-focused footwear brand, was purchased in 2004 for about $396 million. Its sales of $1.5 billion in 2012 are expected to grow at a 15 percent CAGR to $2.9 billion by 2017, making it VF’s second largest brand.
Timberland — like North Face and Vans a part of the outdoor coalition — is seen hitting $2.3 billion in 2017, a 10 percent CAGR based on its 2012 sales of $1.5 billion.
Growth expectations are more modest in jeanswear, with Wrangler expected to post a 3 percent CAGR to reach $1.8 billion from $1.6 billion, and Lee up 5 percent to $1.4 billion from $1.1 billion. Jeanswear coalition sales overall are seen growing to $3.3 billion, a 4 percent CAGR, with imagewear up at the same rate to $1.3 billion.
The smaller sportswear and contemporary coalitions are both expected to expand at an 8 percent CAGR, to $835 million and $645 million, respectively.
In sportswear, Nautica is budgeted to increase to $700 million in sales by 2017, a 7 percent CAGR, while Seven For All Mankind, part of contemporary, is projected to reach $400 million, representing a CAGR of 8 percent.
Although VF officials were more specific than in the past in their discussion of the company’s brands’ sales, Tuesday’s discussions were hardly relegated to top-line concerns. Earnings are expected to reached $18 a diluted share in five years, a 13 percent CAGR compared to the adjusted EPS of $9.63 registered in 2012.
VF shares Tuesday closed at $188.73, up $1.73, or 0.9 percent, after hitting a 52-week high of $188.81 prior to the close.
Wiseman’s more than five-year tenure as VF’s ceo has been marked by development of higher-margin businesses, including retail, e-commerce and international. At Tuesday’s presentation, the company projected that operating and gross margin in five years would increase to 16 and 49.5 percent, respectively, up from their 2012 marks of 13.5 and 46.5 percent. Direct-to-consumer business is expected to hit 25 percent of revenues, or about $4.4 billion, in 2017, up from 21 percent, or about $2.3 billion last year, with e-commerce tripling to about $750 million from $250 million. According to Mike Gannaway, vice president of VF direct/consumer teams, VF’s fleet of owned and operated stores will grow to 1,775 by 2017, a 645-door increase over 2012.
Wiseman told the audience of security analysts at the meeting that the VF projections assumed no substantial change in economic conditions in the U.S. or Europe, with both remaining challenging but generally stable.
“American consumers are resilient, but they’re fragile right now,” he told WWD. “They brush off a lot, but if you miss a few cues in this environment, they push back.”