VF Corp (VFC)

Lifestyle clothing conglomerate VF Corp (NYSE:VFC) fell short of the market’s revenue expectations in Q1 CY2025, with sales falling 4.6% year on year to $2.14 billion. Next quarter’s revenue guidance of $1.70 billion underwhelmed, coming in 4.1% below analysts’ estimates. Its GAAP loss of $0.39 per share was significantly below analysts’ consensus estimates.

Company Overview

Owner of The North Face, Vans, and Supreme, VF Corp (NYSE:VFC) is a clothing conglomerate specializing in branded lifestyle apparel, footwear, and accessories.

Thanks to social media and the internet, not only are styles changing more frequently today than in decades past but also consumers are shifting the way they buy their goods, favoring omnichannel and e-commerce experiences. Some apparel and accessories companies have made concerted efforts to adapt while those who are slower to move may fall behind.

VF Corp's primary competitors include Nike, Inc. (NYSE:NKE), Adidas (OTCMKTS:ADDYY), Columbia Sportswear (NASDAQ:COLM), Lululemon (NASDAQ:LULU), and Levi (NYSE:LEVI).

Examining a company’s long-term performance can provide clues about its quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. VF Corp’s demand was weak over the last five years as its sales fell at a 2% annual rate. This was below our standards and suggests it’s a low quality business.

We at StockStory place the most emphasis on long-term growth, but within consumer discretionary, a stretched historical view may miss a company riding a successful new product or trend. VF Corp’s recent performance shows its demand remained suppressed as its revenue has declined by 9.5% annually over the last two years.

VF Corp also reports sales performance excluding currency movements, which are outside the company’s control and not indicative of demand. Over the last two years, its constant currency sales averaged 7.1% year-on-year declines. Because this number is better than its normal revenue growth, we can see that foreign exchange rates have been a headwind for VF Corp.

This quarter, VF Corp missed Wall Street’s estimates and reported a rather uninspiring 4.6% year-on-year revenue decline, generating $2.14 billion of revenue. Company management is currently guiding for a 4% year-on-year decline in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 2.2% over the next 12 months. While this projection suggests its newer products and services will spur better top-line performance, it is still below the sector average.

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

VF Corp’s operating margin has been trending up over the last 12 months and averaged 1% over the last two years. The company’s higher efficiency is a breath of fresh air, but its suboptimal cost structure means it still sports inadequate profitability for a consumer discretionary business.

This quarter, VF Corp generated an operating profit margin of negative 3.4%, up 12.4 percentage points year on year. This increase was a welcome development, especially since its revenue fell, showing it was more efficient because it scaled down its expenses.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Sadly for VF Corp, its EPS declined by 16.3% annually over the last five years, more than its revenue. However, its operating margin actually expanded during this time, telling us that non-fundamental factors such as interest expenses and taxes affected its ultimate earnings.

In Q1, VF Corp reported EPS at negative $0.39, up from negative $1.08 in the same quarter last year. Despite growing year on year, this print missed analysts’ estimates. Over the next 12 months, Wall Street is optimistic. Analysts forecast VF Corp’s full-year EPS of negative $0.21 will flip to positive $0.94.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

VF Corp has shown mediocre cash profitability over the last two years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 8.4%, subpar for a consumer discretionary business.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

VF Corp historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 6.5%, somewhat low compared to the best consumer discretionary companies that consistently pump out 25%+.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, VF Corp’s ROIC has unfortunately decreased significantly. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.

Debt is a tool that can boost company returns but presents risks if used irresponsibly. As long-term investors, we aim to avoid companies taking excessive advantage of this instrument because it could lead to insolvency.

VF Corp’s $5.06 billion of debt exceeds the $429.4 million of cash on its balance sheet. Furthermore, its 6× net-debt-to-EBITDA ratio (based on its EBITDA of $815.8 million over the last 12 months) shows the company is overleveraged.

At this level of debt, incremental borrowing becomes increasingly expensive and credit agencies could downgrade the company’s rating if profitability falls. VF Corp could also be backed into a corner if the market turns unexpectedly – a situation we seek to avoid as investors in high-quality companies.

We hope VF Corp can improve its balance sheet and remain cautious until it increases its profitability or pays down its debt.

We struggled to find many positives in these results. Its EPS missed and its revenue guidance for next quarter fell short of Wall Street’s estimates. Overall, this was a softer quarter. The stock traded down 10.3% to $12.94 immediately after reporting.

Updated: May 21, 2025 at 10:45 PM EDT

Before making an investment decision, investors should account for VF Corp’s business fundamentals and valuation in addition to what happened in the latest quarter.

VF Corp falls short of our quality standards. To begin with, its revenue has declined over the last five years. And while its projected EPS for the next year implies the company’s fundamentals will improve, the downside is its constant currency sales performance has disappointed. On top of that, its declining EPS over the last five years makes it a less attractive asset to the public markets.

VF Corp’s P/E ratio based on the next 12 months is 11.8x. This valuation is reasonable, but the company’s shaky fundamentals present too much downside risk. There are better investments elsewhere.

Wall Street analysts have a consensus one-year price target of $18.97 on the company (compared to the current share price of $12.24).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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