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Strategies & Market Trends : Value Investing

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Lance Bredvold

Spekulatius

To: A1111 who wrote (71406)	10/29/2022 9:24:10 AM
From: JohnyP	2 Recommendations Read Replies (1) of 78740

Your mention of North Face and Timberland led me to take a look at VFC. Also, because I see so many North face jackets and backpacks here in Europe. VFC has come down a lot since its peak. Market cap now is a bit below $11 Billion. I didn' t like the outlook though. Inventory increased in the last quarter by 89% ! Now they explained that part of it is because they changed inventory recognition at the point of shipment, instead of upon delivery. Still, even without that their inventory is up 58 % in the last quarter! Vans brand is struggling and they are trying to turn it around and the consumer seems to be really weakening. They claim that they will probably have $900 million cash flow from operations for 2022, but capex is at $240 million. Their dividend payment is at $800 million per year. Given their debt levels, weakening consumer I expect that the dividend will be cut maybe next year. Another red flag is that they raised the dividend by a penny ($0.5 to $0.51 per share). Lynch had said to watch out for such changes, it is just to claim growing dividend but clearly they have trouble covering it. So back to your JRSH company, I would expect demand to deteriorate as VFC has to manage their inventory levels. For VFC I will be on the lookout in case price drops further after a potential dividend cut and if I see reduction in inventories to step in, sometime in 2023 maybe.

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