This Clothing Retailer isn’t Wowing Financial Pros

[View in browser]( [The Juice Logo] BROUGHT TO YOU BY: [Logo]( Proprietary Data Insights Financial Pros’ Top Apparel Stock Searches in the Last Month Rank Name Searches #1 'V.F. Corp 31 #2 'Abercrombie & Fitch Company 14 #3 'Lululemon Athletica 13 #4 'Canada Goose Holdings Inc 10 #5 'Carter's Inc 9 #ad [Tickers Trending Among FinPros & Retail Investors]( Brought to you by [Masterworks]( [Which platform delivered millions to investors in 2022?]( [ Masterworks - Which platform delivered millions to investors in 2022?]( In the same year that everyday investors lost a whopping $350 billion, Masterworks had its best year ever. Their 9 art sales returned $25.8 million to investors – a record amount. Talk about a Happy New Year… So, what did investors do with their cash? Charter a yacht in Ibiza? Finally close on that Alpaca farm? Maybe save a little? Naaah. Either way, Masterworks wants to do the same thing for you. This fintech unicorn is unlocking an asset class that was once only available to billionaires. To kick off the new year, Masterworks is inviting you to open a free, no-obligation account today. Isn't it time you check them out? [Skip the waitlist]( *See important Reg A disclosures at [masterworks.com/cd](. This Clothing Retailer isn’t Wowing Financial Pros Life hasn’t been easy for apparel stocks. YTD, the Retail ETF (XRT) is up 2%, while the broader market gained 14%. V.F. Corp. (VFC), the top search by financial pros in the industry, epitomizes the challenges faced by the sector. Revenues are up just 4% since 2015, while profit margins plunged from 11.2% to just 1.0%. Although the almost 6% dividend is fairly safe, we don’t like the growth prospects for this top financial pro search. V.F. Corp’s Business Remember when North Face jackets were all the rage? You can thank VFC, or VF Corporation, a global leader in lifestyle apparel and accessories that's been around since 1899., operating in over 50 countries with over 50,000 employees. The company holds a rich portfolio of over 30 renowned brands like The North Face, Timberland, and Vans, targeting outdoor-based lifestyles to performance-driven activewear. VFC distributes its products through a network of specialty stores, department stores, e-commerce sites, and other digital platforms. Its business segments into the following areas: - Outdoor (39.7% of revenues) - Includes renowned outdoor-based lifestyle brands such as The North Face, Timberland, and Napapijri. - Active (51.1% of revenues) - Features performance-based and youth culture-inspired brands like Vans, Supreme, and Eastpak. - Work 9.2% of revenues) - Comprises work and work-inspired lifestyle brands like Dickies and Timberland PRO. Other breakdowns include brand, region, and channel. [Summary] [Source: VFC Q1 ‘24 Earnings Release]( While Vans and the Americas are the top sellers, both saw dramatic sales declines YoY as consumer apparel spending pulled back. However, Asia Pacific provides the company with consistent growth. Financials [Financials] Source: Stock Analysis Although revenue stagnated and gross margins improved, operating margins compressed as SG&A costs rose as a percentage of revenue. Our research suggests diversification of its product lines, digital transformation, and acquisitions & divestitures contributed to this problem. However, despite a lower sales forecast for the year, management maintained its EPS and free-cash-flow targets as it optimizes supply chains and reigns in costs. Management currently pays an almost 6% dividend yield while carrying $7.9 billion in debt with a 2.5% interest rate. While the trailing 12-month operating cash flow is negative, VF has delivered positive free cash flow for the last three quarters. If VF can hit its free-cash-flow targets for the year, it will cover its dividend payouts by roughly $500 million. Valuation [Valuation] Source: Stock Analysis Apparel companies are largely valued on their growth. VFC trades at just 10x forward earnings and ~8.3x forward free-cash-flow. That’s cheaper than Lululemon Athletica (LULU) and Canada Goose Holdings (GOOS), though in line with Carters (CRI) and a bit cheaper than Abercrombie & Fitch (ANF). Growth [Growth] Source: Seeking Alpha Looking at the growth over the last year and 5-year period, it’s easy to see why each stock is valued where it is. VFC, ANF, and CRI struggled with sales growth, while LULU and GOOS saw double-digit gains. And for the latter two companies, that also translated to free-cash-flow growth. Profitability [Profit] Source: Seeking Alpha All the gross margins are roughly in line. However, LULU runs a whopping 22% EBIT margin, while VFC and ANF are below 10%. Plus, LULU is the only one with a net income margin of over 10%. VFC and ANF barely hold 1%. [It's time you learn about Alternative Investments!]( Real Estate.. Private Equity… Commodities.. They can help you make a fortune. But it’s hard to figure out which to invest in. Ready to learn how to take your investments to the next level? [Sign up for The Alt for FREE.]( Our Opinion 2/10 We simply don’t see any reason to own VFC. While the brands are well known, the company needs to find a pathway to higher profitability and growth, something we haven’t seen yet. We’d prefer to see management deliver more savings on the SG&A line before considering a long position. 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