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. Customers
2. Products or services
3. Markets
4. Technology

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 5. Concern for survival, growth, and profitability
6. Philosophy
7. Self-concept
8. Concern for public image
9. 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

EFE Matrix

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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.

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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 500

Sales (Qtr vs year ago qtr) 23.20 26.10 14.40
Net Income (YTD vs YTD) NA NA NA
Net Income (Qtr vs year ago qtr) 23.90 48.30 48.60
Sales (5-Year Annual Avg.) 6.38 15.36 8.29
Net Income (5-Year Annual Avg.) 3.50 25.71 8.71
Dividends (5-Year Annual Avg.) 17.18 8.24 5.64

Profit Margin Percent

Gross Margin 45.7 48.8 39.5
Pre-Tax Margin 10.2 12.7 18.1
Net Profit Margin 7.9 9.0 13.2
5Yr Gross Margin (5-Year Avg.) 43.8 45.0 39.8

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

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

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

Net Worth Analysis (in millions)

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 Bebe Stores Net Worth Analysis (in millions)

IFE Matrix

F. SWOT

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 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

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H. Grand Strategy Matrix

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I. The Internal-External (IE) Matrix

(in millions) Revenues Profits

Product Class 2010 2010

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 Outdoor/Actionwear $3,205 $642
Jeanswear 2,538 432
Imagewear 909 111
Sportswear 498 52
Contemporary Brands 439 14
Other 114 (61)
J. QSPM

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

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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.

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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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