V.F. Corp's Outlook Remains Solid Despite Stumbling Share Price

As inflation weighs heavy on consumers' pocketbooks, shares of apparel retailers have fallen nearly 30% this year, almost double the broader market decline.

On top of shoppers' stretched budgets, clothing retailers continue to battle shipping and supply challenges exasperated by this year's Covid-related lockdowns in China, the world's largest textile producer.

These economic headwinds have pushed shares of V.F. Corp back down to levels last seen during the depths of the pandemic in 2020, when it was unclear if retailers would survive the shuttered economy.

While inflation and supply chain challenges are likely to persist in the near term and may continue to weigh on V.F. Corp's stock price, we believe the company's long-term outlook remains intact. As such, we are reaffirming V.F. Corp's Safe Dividend Safety Score.

In fact, with an improved balance sheet that has less debt and more cash than at the start of the pandemic, we believe V.F. Corp is likely to continue its nearly 50-year streak of annual dividend growth despite the challenging operating environment.

Even if earnings were to fall 30%, the dividend would remain fully covered by profits. Plus, the firm has enough cash on hand to cover nearly two years of dividend payments.

Macro concerns aside, V.F. Corp owns a collection of reputable brands with strong customer loyalty that have proven resilient. These brands, including Vans (35% of sales) and The North Face (28%), harness the growing outdoors and active lifestyle apparel trends that should outlast existing economic pressures.

Although the firm's brands remain well-aligned with consumer trends, it's worth noting that they are non-essential higher-end products easy for consumers to go without in recessionary times. 

While this does create some concern with the global economy on edge, V.F. Corp has a strong history of weathering downturns while maintaining the dividend. We expect the company to manage through this fragile market environment with its dividend intact.

With V.F. Corp shares offering a near decade-high dividend yield, conservative income investors willing to stomach some near-term volatility may consider giving the company a closer look. 

V.F. Corp's earnings report on May 19 could disappoint if supply chain challenges in Asia have intensified, but the stock's beat-up valuation appears to provide a reasonable margin of safety for investors who believe in the long-term durability of the firm's brands.