Don’t rule out VF Corp. when it comes to mergers and acquisitions.
The company’s chief financial officer, Scott Roe, said at the company’s investor day presentation: “M&A remains the highest and best use of capital and remains our highest priority.” He added that VF is committed to executing its 2021 strategic plan against its M&A agenda.
As expected from a financial presentation, Roe spoke about margin and profitability and noted that the firm’s fastest-growth businesses are also among the most profitable.
He also told investors that when higher-margin businesses are growing faster, the margins also expand. Vans, The North Face and Timberland are among the brands that are expected to drive 90 percent of the company’s growth, along with jeanswear and its new workwear group.
Roe also said, “We are active portfolio managers,” adding that the company will move faster from a portfolio standpoint on some business decisions. He said some brands are doing well, and could be the next billion-dollar brands — those are the ones the company is nurturing and making some key investments to accelerate that growth. And key management changes will be made where needed, he said. Roe said the quicker decisions would have investors “see an increase in our metabolic rate.” He said that if certain businesses no longer fit VF’s criteria for total shareholder return, then the company will move quicker to check alternative options.
The current operating model for 2021 calls for a 51.5 percent gross margin, 16 percent operating margin and more than 20 percent in the return of invested capital.
The business plan for a 10 to 12 percent EPS growth rate presumes 77 percent of earnings from the international front and 23 percent domestic. Currently international represents 72 percent of earnings and domestic at 23 percent.
Roe also said the company focused its 2021 strategy on organic growth, in part because of the difficulty in timing an acquisition and in determining its size ahead of time. He did emphasize that the company is planning an $8 billion return to shareholders through two components, $4 billion via dividends and $4 billion through share repurchases. Roe also said the company likely won’t meet that projection due to acquisitions, explaining that investors should think of acquisitions as “if we do our job and apply our filters, [an acquisition] would be additive to our target here.”
The cfo also said of the acquisitions front: “We see a path to at least a 15 percent return on capital within a three-year period.”
And while there are frequent questions that center on how big and what size, Roe said those are not the right questions.
While the brand remains important — Is it authentic? Is it iconic? — Roe said the key is whether “we see a TSR profile that is complementary to our overall TSR aspiration [and] do we see the brand as one that could reach a billion dollars?”
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