Analysts Expect Soft Q2 From VF Corp, Focus On Growth In The Second Half

While VF Corp. continues to be a top pick among many market watchers, they say they will keep their Q2 expectations tempered as they shift their focus to long-term growth.

Canaccord Genuity Inc. analyst Camilo Lyon reiterated a buy rating on the company’s stock Wednesday but predicted that the firm’s Q2 results, due before market open on Friday, would be muted.

The analyst forecasts earning per share of 34 cents, in line with consensus, and flat sales growth year over year. Consensus estimates call for slight sales improvement of 0.60 percent, to $2.53 billion. (EPS, at 34 cents, would represent a year-over-year decline of 15 percent.)

Despite our expectations for a relatively muted Q2 (similar to Q1), we continue to view opportunities for meaningful rebound in [second-half] EPS growth,” Lyon wrote. “While retailers continue to approach 2H16 cautiously, VFC’s limited exposure to the department store channel (9 percent mid-tier exposure) coupled with robust innovation/product launches in key brands, an active portfolio management strategy, easier comparisons, should help reaccelerate EPS growth.”

Similarly, Citi Research analyst Kate McShane said her short-term outlook for the firm remains “bumpy,” but she expects acceleration in the second half.

We expect full-year guidance to be maintained, and we’re forecasting Q2 EPS of 32 cents, on lower gross margins, partly offset by higher sales,” McShane wrote Wednesday. “ We expect Q2 revenues to increase 1.7 percent year-over-year to $2.56 billion.”

By coalition, McShane forecasts currency-neutral sales in both outdoor and action sports as well as jeanswear to improve 4 percent year over year; imagewear to improve 1.5 percent, sportswear to dip low-double-digits; and contemporary to decrease mid-teens.

For footwear, Lyon said he believes the tough Vans Disney launch comparison from last year, coupled with excess channel inventory in Europe for Converse, weighed on Vans’ Q2 growth, “resulting in what will likely be a [mid-single-digit] decline this [quarter].”

That said, we do expect Vans to return to growth in the second half as compares ease sequentially,” Lyon wrote. “We are modeling [low-single-digit] growth in Timberland to be driven by elevated style/innovation and distribution expansion.”

Cowen and Co. analyst John Kernan raised his price target for VF’s stock, to $62, from $56 on Wednesday, “based on VFC’s cash flow metrics, which could support rapid dividend growth over the next five years without meaningful capital structure change.”

While market watchers have vocalized their angst as they await VF Corp.’s next big buy, they overwhelmingly approved the firm’s latest moves to right size its portfolio ahead of another acquisition.

In late June, VF announced the sale of  its contemporary brands — 7 for All Mankind, Splendid and Ella Moss — to Israel-based manufacturer and marketer Delta Galil Industries Ltd.

In March, VF Corp. suggested it was placing a “for sale” sign on its $550 million Licensed Sports Group (LSG) business, when it announced that it was exploring “strategic alternatives” for the division, part of its imagewear coalition.

That supposed sale — also applauded by market watchers — has yet to happen, but it is expected sometime this year.

Kernan expects the firm to reiterate its full-year guidance and predicts Q2 EPS of 34 cents.

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