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VF Corporation – 2011

Forest David

A. Case Abstract

VF Corp. is a comprehensive strategic management case that includes the company’s year-end 2010 financial statements, organizational chart, competitor information and more. The case time setting is the year 2011. Sufficient internal and external data are provided to enable students to evaluate current strategies and recommend a three-year strategic plan for the company. Headquartered in Greensboro, North Carolina, VF Corp’s common stock is publicly traded under the ticker symbol VFC.

VF Corp. is a global leader in branded apparel with more than 30 brands. The company’s top six brands are The North Face, Wrangler, Timberland, Vans, Lee, and Nautica. As the #1 jeans maker worldwide, VF has leading denim brands, such as Lee, Riders, Rustler, Wrangler, 7 For All Mankind, and Rock and Republic. Other VF brands include JanSport and Eastpak (backpacks), The North Face and Eagle Creek (outdoor gear), Red Kap and Bulwark (work clothes), Nautica (sportswear), Lucy Activewear (athletic apparel), John Varvatos (menswear), and Vans (footwear). VF's Majestic label features licensed MLB, NFL, and NBA apparel. VF operates excellent e-commerce sites for its brands and owns more than 750 stores worldwide. VF brands are sold in department and specialty stores, mass merchants, and discounters.

B. Vision Statement (actual)

We will grow by building leading lifestyle brands that excite consumers around the world.

C. Mission Statement (actual)

Ours is a perpetually driven culture, focused on constant innovation (4). Using deep research and insights, we combine the art and science of apparel to create products that excite consumers and brands that inspire loyalty (5,7).

We responsibly manage the industry's most efficient and complex supply chain, which spans multiple geographies (3), product categories and distribution channels.

Our goal is to continuously exceed the expectations of our consumers, customers (1), shareholders and business partners (6). We help our retail partners win with consistently solid execution and outstanding service. And we continually find ways to improve our performance and generate bottom line results.

Our people are the source of our success (9). VF associates share a deep commitment to diversity - in people and ideas. We conduct business with the highest levels of honesty and integrity (8) and we foster a positive working environment based on creativity, collaboration, and congeniality.These are the things that make us great. These are the things that make us VF.

1. Customers2. Products or services3. Markets4. Technology

Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall.

5. Concern for survival, growth, and profitability6. Philosophy7. Self-concept8. Concern for public image9. Concern for employees

D. External Audit

Opportunities

1. Eastern Europe is a fast growing market with Ukraine leading the way.2. Baby boomers are the largest per capita consumers of apparel.3. 71 million teens in the US are maturing into young adults.4. Consumers 20-34 account for 24% of the appeal spending in the US.5. Consumers make choices at the last second and styles must be adaptable.6. Social media enables retailers to listen to customers in real time.7. US consumers spent $192 billion in 2010 on apparel.8. Southeast Asia has many skilled workers trained in apparel.9. There continues to be reduced trade regulations and elimination of tariffs.

Threats

1. Gap, Timberland, Nike, Adidas, and Reebok are all strong competitors.2. Product life cycles are short and fashion trends can change quickly.3. Timely delivery and low cost transportation and oil from supply chain being over seas.4. US is still suffering from high unemployment around 9% and low home prices.5. Cotton prices are up over 100% from 2009.6. Many consumers are obsessed with promotional pricing.7. Volatile nature of world currency rates.

Competitive Profile Matrix

Weight Rating Score Rating Score Rating Score0.09 3 0.27 2 0.18 4 0.360.11 3 0.33 2 0.22 4 0.440.07 4 0.28 3 0.21 2 0.140.10 4 0.40 3 0.30 1 0.100.08 3 0.24 2 0.16 4 0.320.06 3 0.18 2 0.12 4 0.240.10 1 0.10 3 0.30 4 0.400.09 3 0.27 2 0.18 4 0.360.10 4 0.40 2 0.20 3 0.300.08 4 0.32 2 0.16 3 0.240.04 3 0.12 2 0.08 4 0.160.08 3 0.24 4 0.32 2 0.161.00 3.15 2.43 3.22

Customer LoyaltyMarket ShareProduct QualityTop Management

Critical Success Factors

VF Corp. GAP Nike

International MarketsFinancial Profit

AdvertisingMarket PenetrationProduct VarietyStore LocationsR&D

TotalsPrice Competitiveness


EFE Matrix

Opportunities Weight Rating Weighted Score1. Eastern Europe is a fast growing market with Ukraine leading the

way.0.10 4 0.40

2. Baby boomers are the largest per capita consumers of apparel. 0.04 2 0.083. 71 million teens in the US are maturing into young adults. 0.07 3 0.214. Consumers 20-34 account for 24% of the appeal spending in the

US.0.07 4 0.28

5. Consumers make choices at the last second and styles must be adaptable.

0.06 3 0.18

6. Social media enables retailers to listen to customers in real time. 0.04 2 0.087. US consumers spent $192 billion in 2010 on apparel. 0.07 3 0.218. Southeast Asia has many skilled workers trained in apparel. 0.06 2 0.129. There continues to be reduced trade regulations and elimination

of tariffs.0.05 3 0.15

Threats Weight Rating Weighted Score1. Gap, Timberland, Nike, Adidas, and Reebok are all strong

competitors.0.10 2 0.20

2. Product life cycles are short and fashion trends can change quickly. 0.09 3 0.27

3. Timely delivery and low cost transportation and oil from supply chain being over seas. 0.05 2 0.10

4. US has high unemployment around 9% and low home prices. 0.05 2 0.105. Cotton prices are up over 100% from 2009. 0.06 2 0.126. Many consumers are obsessed with promotional pricing. 0.05 2 0.107. Volatile nature of world currency rates. 0.04 1 0.04

TOTALS 1.00 2.64

E. Internal Audit

Strengths

1. Diversity of products (more than 25 brands).2. Largest branded apparel company in the world.3. Excellent organizational structure with 5 distinct SBUs.4. Produces around 34% of what it sells.5. International revenues account for 30% of revenues.6. Opened 15 new stores in first quarter 2011 bringing total number of owned retail stores t o788.7. Weathered the 2008-2009 recession better than competitors.8. EPS of $6.20.9. Stock price increased from $40 to $140 or 140% from 2009 to year end 2011.10. Detailed mission statement.


Weaknesses

1. Current Ratio of 1.5 compared to 3.0 for the industry suggests VF is more highly leveraged than competition.

2. Receivables turnover is only 6.7 compared to 38 for the industry.3. Revenues have not increased in the last 3 years.4. Property, Plant, & Equipment remained the same.5. Approximately $2.5 billion or 40% of assets come from goodwill or intangibles.6. Many consumers know the brands but not the company (VF).7. Sportswear, Contemporary Brands and Other segments are not operating efficiently.8. Currently paying over 18% of revenue for labor.

Financial Ratio Analysis

Growth Rate Percent VF Corp. Industry S&P 500Sales (Qtr vs year ago qtr) 23.20 26.10 14.40Net Income (YTD vs YTD) NA NA NANet Income (Qtr vs year ago qtr) 23.90 48.30 48.60Sales (5-Year Annual Avg.) 6.38 15.36 8.29Net Income (5-Year Annual Avg.) 3.50 25.71 8.71Dividends (5-Year Annual Avg.) 17.18 8.24 5.64

Profit Margin PercentGross Margin 45.7 48.8 39.5Pre-Tax Margin 10.2 12.7 18.1Net Profit Margin 7.9 9.0 13.25Yr Gross Margin (5-Year Avg.) 43.8 45.0 39.8

Liquidity RatiosDebt/Equity Ratio 0.67 0.44 0.96Current Ratio 1.5 3.0 1.2Quick Ratio 0.8 1.8 0.8

Profitability RatiosReturn On Equity 16.3 16.8 25.9Return On Assets 8.1 11.3 8.9Return On Capital 10.5 14.3 11.8Return On Equity (5-Year Avg.) 15.9 16.2 23.8Return On Assets (5-Year Avg.) 9.1 10.3 8.0Return On Capital (5-Year Avg.) 11.0 11.8 10.8

Efficiency RatiosIncome/Employee 14,632 20,595 126,810Revenue/Employee 184,579 267,559 1 MilReceivable Turnover 6.5 37.6 15.3Inventory Turnover 3.1 3.6 12.3


Net Worth Analysis (in millions)

Stockholders' Equity $3,861Net Income x 5 $2,855(Share Price/EPS) x Net Income $12,566Number of Shares Outstanding x Share Price $14,960Method Average $8,560

Bebe Stores Net Worth Analysis (in millions)

Stockholders' Equity 352,353$ Net Income x 5 (8,895)$ (Share Price/EPS) x Net Income (669,794)$ Number of Shares Outstanding x Share Price 634$ Method Average (81,425)$

IFE Matrix

Strengths Weight Rating Weighted Score1. Diversity of products (more than 25 brands). 0.10 4 0.402. Largest branded apparel company in the world. 0.10 4 0.403. Excellent organizational structure with 5 distinct SBUs. 0.07 4 0.284. Produces around 34% of what it sells. 0.05 4 0.205. International revenues account for 30% of revenues. 0.04 4 0.166. Opened 15 new stores in first quarter 2011 bringing total number

of owned retail stores to 788. 0.03 4 0.12

7. Weathered the 2008-2009 recession better than competitors. 0.03 4 0.128. EPS of $6.20. 0.04 4 0.169. Stock price increased from $40 to $140 or 140% from 2009 to year

end 2011.0.06 4 0.24

10. Detailed mission statement. 0.03 4 0.12

Weaknesses Weight Rating Weighted Score1. Current Ratio of 1.5 compared to 3.0 for the industry suggests

VF is more highly leveraged than competition.0.04 1 0.04

2. Receivables turnover is only 6.7 compared to 38 for the industry. 0.06 1 0.063. Revenues have not increased in the last 3 years. 0.05 1 0.054. Property, Plant, & Equipment remained the same. 0.05 1 0.055. Approximately $2.5 billion or 40% of assets come from goodwill

or intangibles. 0.08 1 0.08

6. Many consumers know the brands but not the company (VF). 0.07 1 0.077. Sportswear, Contemporary Brands and Other segments are not

operating efficiently. 0.04 2 0.08

8. Currently paying over 18% of revenue for labor. 0.06 2 0.129. 0 0.00 0 0.00

TOTALS 1.00 2.75


F. SWOT

SO Strategies

1. Build 100 new stores in Eastern Europe (S1, S2, S5, S6, O1, O9).2. Develop line of products attractive to Baby boomers (S1, S2, O2).3. Increase from 34% to 50% production of own products (S4, O5).

WO Strategies

1. Build 100 new stores in Eastern Europe (W4, O1, O9).2. Introduce and advertising campaign to ensure customers associate all of VF Corp’s brands with the VF

Corp. (W6, O6, O7).3. Acquire Bebe Stores (W4, O3, O4, O7).

ST Strategies

1. Increase from 34% to 50% production of own products (S4, T2).2. Open 5 new production plants in the United States (S1, S2, S3, T2, T3).

WT Strategies

1. Expand accounting staff to aid in collections (W2, T1).2. Liquidate Sportswear, Contemporary Brands, and Other segments (W7, T1).


G. SPACE Matrix

7

6

5

4

3

2

1

-7 -6 -5 -4 -3 -2 -1 1 2 3 4 5 6 7-1

-2

-3

-4

-5

-6

-7

IPCP

Defensive

AggressiveConservativeFP

CompetitiveSP

Internal Analysis: External Analysis:Financial Position (FP) Stability Position (SP)

4 -25 -23 -23 -43 -2

Financial Position (FP) Average 3.6 Stability Position (SP) Average -2.4

Rate of InflationTechnological ChangesPrice Elasticity of DemandCompetitive PressureBarriers to Entry into Market

Return on Equity (ROE)LeverageLiquidity Working Capital Cash Flow

Internal Analysis: External Analysis:Competitive Position (CP) Industry Position (IP)

-3 4-2 3-2 4-3 4-2 4

Competitive Position (CP) Average -2.4 Industry Position (IP) Average 3.8

Growth PotentialFinancial StabilityEase of Entry into MarketResource UtilizationProfit Potential

Market ShareProduct QualityCustomer LoyaltyTechnological know-howControl over Suppliers and Distributors


H. Grand Strategy Matrix

VF Corp.

Strong Competitive

Position

Slow Market Growth

Weak Competitive

Position

Quadrant III Quadrant IV

Rapid Market Growth

Quadrant II Quadrant I


I. The Internal-External (IE) Matrix

4.0 I II III

High

3.0 IV V VI

Outdoor/ActionTheEFETotal Medium ImagewearWeightedScores

Jeanswear2.0 VII VIII IX

Low

Sportswear

1.0

The Total IFE Weighted ScoresStrong Average Weak4.0 to 3.0 2.99 to 2.0 1.99 to 1.0

(in millions) Revenues ProfitsProduct Class 2010 2010Outdoor/Actionwear $3,205 $642Jeanswear 2,538 432Imagewear 909 111Sportswear 498 52Contemporary Brands 439 14Other 114 (61)


J. QSPM

Opportunities Weight AS TAS AS TAS1. Eastern Europe is a fast growing market with Ukraine leading the

way.0.10 2 0.20 4 0.40

2. Baby boomers are the largest per capita consumers of apparel. 0.04 3 0.12 1 0.043. 71 million teens in the US are maturing into young adults. 0.07 3 0.21 1 0.074. Consumers 20-34 account for 24% of the appeal spending in the

US. 0.07 3 0.21 1 0.07

5. Consumers make choices at the last second and styles must be adaptable. 0.06 0 0.00 0 0.00

6. Social media enables retailers to listen to customers in real time. 0.04 4 0.16 2 0.087. US consumers spent $192 billion in 2010 on apparel. 0.07 3 0.21 1 0.078. Southeast Asia has many skilled workers trained in apparel. 0.06 1 0.06 3 0.189. There continues to be reduced trade regulations and elimination

of tariffs. 0.05 1 0.05 4 0.20

Add 100 stores in Eastern Europe

Increase advertising

by 20%

Threats Weight AS TAS AS TAS1. Gap, Timberland, Nike, Adidas, and Reebok are all strong

competitors.0.10 2 0.20 3 0.30

2. Product life cycles are short and fashion trends can change quickly.

0.09 0 0.00 0 0.00

3. Timely delivery and low cost transportation and oil from supply chain being over seas.

0.05 0 0.00 0 0.00

4. US has high unemployment around 9% and low home prices. 0.05 1 0.05 2 0.10

5. Cotton prices are up over 100% from 2009. 0.06 0 0.00 0 0.006. Many consumers are obsessed with promotional pricing. 0.05 0 0.00 0 0.007. Volatile nature of world currency rates. 0.04 1 0.04 3 0.12


Strengths Weight AS TAS AS TAS1. Diversity of products (more than 25 brands). 0.10 0 0.00 0 0.002. Largest branded apparel company in the world. 0.10 2 0.20 3 0.303. Excellent organizational structure with 5 distinct SBUs. 0.07 1 0.07 2 0.144. Produces around 34% of what it sells. 0.05 0 0.00 0 0.005. International revenues account for 30% of revenues. 0.04 2 0.08 4 0.166. Opened 15 new stores in first quarter 2011 bringing total number

of owned retail stores to 788.0.03 2 0.06 4 0.12

7. Weathered the 2008-2009 recession better than competitors. 0.03 0 0.00 0 0.008. EPS of $6.20. 0.04 2 0.08 3 0.129. Stock price increased from $40 to $140 or 140% from 2009 to year

end 2011.0.06 2 0.12 3 0.18

10. Detailed mission statement. 0.03 0 0.00 0 0.00

Increase advertising

by 20%

Add 100 stores in Eastern Europe

Weaknesses Weight AS TAS AS TAS1. Current Ratio of 1.5 compared to 3.0 for the industry suggests

VF is more highly leveraged than competition. 0.04 0 0.00 0 0.00

2. Receivables turnover is only 6.7 compared to 38 for the industry. 0.06 0 0.00 0 0.003. Revenues have not increased in the last 3 years. 0.05 0 0.00 0 0.004. Property, Plant, & Equipment remained the same. 0.05 1 0.05 4 0.205. Approximately $2.5 billion or 40% of assets come from goodwill

or intangibles.0.08 0 0.00 0 0.00

6. Many consumers know the brands but not the company (VF). 0.07 3 0.21 1 0.077. Sportswear, Contemporary Brands and Other segments are not

operating efficiently. 0.04 0 0.00 0 0.00

8. Currently paying over 18% of revenue for labor. 0.06 0 0.00 0 0.009. 0 0.00 0 0.00 2 0.00

TOTALS 2.38 2.92

K. Recommendations

1. Build 100 new stores in Eastern Europe at $1.5M each for $150M.2. Acquire Bebe Stores for $350M.3. Increase advertising by $100M.

L. EPS/EBIT Analysis (in millions)

Amount Needed: $600Stock Price: $136Shares Outstanding: 110Interest Rate: 5%Tax Rate: 24%


Recession Normal Boom Recession Normal BoomEBIT $700 $900 $1,200 $700 $900 $1,200Interest 0 0 0 30 30 30EBT 700 900 1,200 670 870 1,170Taxes 168 216 288 161 209 281EAT 532 684 912 509 661 889# Shares 114 114 114 110 110 110EPS 4.65 5.98 7.97 4.63 6.01 8.08

Common Stock Financing Debt Financing

20 Percent Stock 80 Percent StockRecession Normal Boom Recession Normal Boom

EBIT $700 $900 $1,200 $700 $900 $1,200Interest 24 24 24 6 6 6EBT 676 876 1,176 694 894 1,194Taxes 162 210 282 167 215 287EAT 514 666 894 527 679 907# Shares 111 111 111 114 114 114EPS 4.63 6.00 8.06 4.65 5.98 7.99

M. Epilogue

V.F.’s third-quarter 2011 adjusted earnings of $2.87 per share surpassed earnings of $2.22 per share in the prior-year quarter. V.F. Corp.'s third quarter revenue of $2,750.1 million exceeded the prior year figure by 23.0 percent. Double-digit revenue growth at all V.F. Corp.'s coalitions led to the overall climb. The company’s operating income increased 21.3 percent compared to the prior year, to reach $430.1 million. V.F. is a well managed company performing nicely in an uncertain economic environment.

Revenue at V.F.’s Outdoor & Action Sports jumped 37 percent in the third quarter of 2011 from the year-ago quarter to $1,436.8 million, of which Timberland acquisition contributed $163.6 million. Timberland was acquired in 2000 as a bankrupt business but has become V.F. leading brand. Business from both the Americas and beyond contributed to V.F.’s revenue increase in the third quarter. The company’s America's revenue grew by 13 percent while International revenue increased 38 percent. V.F.’s Jeanswear revenue increased 8 percent to $613.4 million. The company’s Imagewear revenue increased 14 percent in the quarter to $277.6 million while revenue at the company’s Sportswear division improved 18 percent in the third quarter to $151.8 million. The company’s Contemporary Brands revenue rose 11 percent to $126.2 million.

In total for the third quarter of 2011, V.F. Corp.’s international revenues increased 44.0 percent, largely driven by solid growth in the Outdoor & Action Sports and Jeanswear businesses, along with strength across the biggest brands in Asia and Europe. Timberland contributed 15.0 percent to this growth. Also doing well, the company’s direct-to-consumer revenue increased 21.0 percent in the quarter, driven by new store openings and Timberland acquisition. During that quarter, VF Corp. opened 32 stores across diverse brands, bringing the total number of owned retail stores to 1,077.


V.F.’s Board of Directors recently declared a quarterly cash dividend of $0.72 per share, an increase of 14 percent. The dividend is payable on December 19, 2011. This marks the 39th consecutive year of higher dividend payments to shareholders of V.F. Corp.


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