One of the companies taking a hit from the outbreak of the coronavirus is global apparel and footwear company VF Corporation (VFC). The owner of household names such as Vans, Timberland, and The North Face has operations in China and is down by 17% since the outbreak was announced at the turn of the year. It joins a host of multinationals reeling from the impact the outbreak has had on global operations.
In fiscal 2019, the Chinese market represented 6% of VFC’s total revenue of $13.8 billion, while the wider Asia Pacific region accounted for 12%. VF presently operates just under 300 owned stores in the region. About 60 percent of the company and related partner stores in China have been temporarily closed due to coronavirus mitigation efforts. The ones currently open have experienced traffic declines by roughly 70%. As other companies with stores in the area have noted, though, VF doesn’t expect a notable reduction of SG&A outlays in the region. Once the virus has been brought under control, it appears most companies affected, VF included, believe demand should ramp up quickly again.
Only 16% of VF’s goods are sourced from China, including 7% designated for the US market (by next year VF intends to lower the figure to 4%). The company estimates that with current inventory it can operate without disruption until May. Should the Chinese businesses not pick up by then, it will have to accelerate diversification efforts. The company has stressed, though, that disruption to its supply chain remains its most significant concern right now.
Analysts Weigh In
So, what to do with the Stock? Credit Suisse’s Michael Binetti believes the Coronavirus could be a $159 million hit to VFC revenue. The 5-star analyst, though, remains confident in VF’s long-term prospects. Binetti said, “Based on our industry conversations and our historical analysis of past health scares, we don’t expect the market to capitalize one-time hits— even material ones—like Corona (and this week, most stocks guiding to Corona impacts have responded positively). We recommend investors look past any short-term stock pullback.”
Binetti reiterated an Outperform rating on VFC shares, along side a $109 price target, which conveys his confidence in VFC’s ability to surge by 30% over the next 12 months. (To watch Binetti’s track record, click here)
Adding to the positive outlook is Telsey Advisory’s Dana Telsey: “While we believe this is an important situation to monitor as it pertains to all apparel companies we cover, the near-term impact to VF at this point appears limited… VF noted that the coronavirus situation in China was not contemplated in its financial guidance provided on January 23 and plans to provide an update on its impact on its F4Q20 conference call in May. Given the lack of visibility at this time on VF's financials, we are maintaining our EPS estimates of $3.30 and $3.77 for F2020 and F2021, respectively.”
Telsey keeps her Outperform rating as is, along with her price target of $100. (To watch Telsey’s track record, click here)
What is the Street’s outlook, then? VFC’s Moderate Buy consensus rating breaks down into 7 Buys and 4 Holds. The average price of $98.82 could see investors pocket a 19% gain, should the target be met over the next 12 months. (See VFC's stock analysis on TipRanks)