Wall Street reacted favorably by bidding the stock to a new high on the news. There were few surprises in the presentation as VF had already set targets for TNF, Vans and Timberland but the overall picture nonetheless projected an air of confidence that these targets would be easily met, if not exceeded, given the momentum in the company.
On the top line, VF said it would get 8% of the 10% CAGR from organic growth and the remaining 2% from acquisitions, and it made it clear that the outdoor and action sports market would continue to be its focus for new brands. As it grows, it promised to increase gross margin to 49.5%, an increase of 300 b.p. from 2012 with 100 b.p. of that already in this year’s forecast. Major drivers of that are the faster growth of its higher margin businesses, with the Outdoor Action group having gross margins that are 4 points above the corporate average, the international business exceeding domestic by 7 points and full price DTC exceeding the average by 20 points. Operating margin is targeted at 16.0% against 13.5% this year, a number that would have been 14.5% excluding the Timberland acquisition.
The Outdoor/Action Sports group, which had sales of $5.9 billion in 2012 and represented 45% of the total, will grow at a 14% CAGR for the next five years to reach $11.1 billion, or 52% of the total. More modest targets were set for the Jeans division with sales rising at a 4% CAGR for the period from $2.8 billion to $3.3 billion. Imagewear, which includes Majestic and the sports licensed business, is also seen growing at a 4% CAGR from $1.1 billion to $1.3 billion. Sportswear, boosted by a new emphasis on higher performance products from Nautica, should achieve an 8% CAGR from $577 million to $835 million. Contemporary, mostly the 7 for all Mankind brand, is also expected to grow at an 8% CAGR from $446 million to $645 million.
Written by Nicolas Yang
