VFC has been one of our top short ideas for the past several months. No matter how well-managed a company is, when 3-years of acquisition/FX-fueled growth ends in conjunction with a consumer downturn and lapping its best cash conversion cycle in history, then that spells trouble at a 20% valuation premium to the group.
Growth rolled over in every one of VFC’s businesses – which is a first. It also represents the biggest sequential slowdown we’ve seen in the outdoor division in years. With 12.5% growth in that division (which is responsible for almost all of VFC’s multiple premium), my sense is that after stripping out FX benefit, it was a mid-high single digit increase – with several points of that coming from company-owned retail stores (not what I want to see). As I noted in a note last month – this company needs a deal.
The biggest saving grace here is that the company upped its dividend by $0.04 annually, which will presumably push its yield from 3.9% to something north of 4% when the stock opens in negative territory. That’s fine. If it were any more I’d be even more concerned about this story. I don’t want to see a company with 28% debt to total cap and 20% of its debt due over the next 2.5 years up its dividend at the expense of the balance sheet.
I’m not interested in owning this stock until it has a 4-handle.