On Thursday, Citi adjusted its stance on VF Corp (NYSE:VFC) shares by reducing the price target to $11 from the previous $13, while maintaining a Neutral rating.
The revision follows VF Corp's latest quarterly earnings report, which revealed revenues that fell short of market expectations and a gross margin significantly below the consensus, resulting in a loss of $0.32 per share compared to the anticipated $0.02 per share.
VF Corp, known for its popular brands such as Vans and The North Face, reported a disappointing quarter, with Vans struggling to improve as management works to reset the brand's inventory levels. The North Face brand also faced challenges, with sales declining by 5% on a constant currency basis.
Despite these setbacks, there was a silver lining as the company's free cash flow (FCF) for fiscal 2024 amounted to $800 million, surpassing their own targets due to lower inventory levels at the end of the period.
However, the outlook for fiscal 2025 is less optimistic, with an expected decrease in free cash flow to $600 million. This anticipated drop is attributed to the fact that the significant inventory reduction that boosted FCF in fiscal 2024 is not projected to recur.
Management has provided limited information regarding potential brand or asset sales, although it is inferred that there are considerations to sell brands other than Packs to address upcoming debt maturities.
The lack of clear insights into when VF Corp might achieve a business turnaround has led Citi to significantly lower its earnings forecasts for the company.
Despite the reduced expectations, the firm acknowledges that the potential announcement of a brand sale in the upcoming quarters could balance the risk/reward profile for VF Corp's stock.
InvestingPro Insights
As VF Corp (NYSE:VFC) navigates through a challenging period, InvestingPro provides real-time data and expert analysis that could be crucial for investors monitoring the company's performance. With a market capitalization of $4.79 billion and a recent price close at $12.46, VF Corp is trading near its 52-week low, reflecting the market's reaction to its latest financial results and outlook.
InvestingPro Tips highlight several key factors that investors may want to consider. Despite the recent downturn, VF Corp has maintained dividend payments for 54 consecutive years, offering a dividend yield of 2.92%. This could signal a commitment to shareholder returns even in tough times. Additionally, analysts predict that the company will return to profitability this year, with an anticipated net income growth and sales growth in the current year. This suggests that the market's current sentiment might not fully reflect the company's potential for recovery.
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InvestingPro Data underscores the importance of these insights, showing a price/book ratio of 2.27 and a strong gross profit margin of 52.27% in the last twelve months as of Q3 2024. These metrics, combined with the professional analysis provided by InvestingPro, could offer valuable context as investors assess VF Corp's future in a highly competitive apparel industry.
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