Friday, December 5, 2008
(Cont'd from above)...

Jim (cont'd):   

Departmental stores that through huge sales... even to the point of giving the merchandise away... did a lot better than retailers who didn't... We are not even talking about turning a profit... By throwing these enormous sales, these department stores were able to raise cash and cut down on their inventory, which is really the best they could hope for.

This is yet another reason for the rich to get off their duffs... and stop watching the Eagles-Giants game, and get to the mall!...

But it's also a reason to find companies that make apparel that's being sold for a discount in these departmental stores...

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Many of them are not public... Ahh... but maybe there is one familiar with but not by the brand name...

I'm talking about the VF Corp. (VFC)... It fits the bill...

This is the company that makes North Face... I mean, those are quality coats...

VFC doesn't care what price department stores sell their goods at... they are just happy to be paid... As long as their product is being moved, they are going to be paid well...

If you want to own something in retail, I think you should take some VF Corp. (VFC)...

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The company has a somewhat accidentally high yield of 4.3%... along with a portfolio of strong brands... Hey, it's not just North Face... how about the Nautica... how about the Jansport... how about the Wrangler Jeans... the East Pak... Lee...

I think this is the best company in the industry, and it got to where it is by acquiring these brands, investing heavily in them, to expand the public lines and distribution.

Now, it's got about $600 million in free cash flow that it can use to buy additional strong brands that are on the ropes... you know, the ones belonging to the companies that can't take the heat right now... And VFC is increasing marketing spending in order to continue taking market share. They are using this recession to the best of their abilities... Eric Wiseman, the CEO, is smart... because they know they will make it, so they might as well try to take down the competition while they can...

Right now, VFC's strategy is to grow its outdoor and lifestyle brands... I want you to think VANS... these are 75% outdoor... because these brands carry higher margins, and have higher growth opportunities than the other stuff they sell...

Their jeans brands - that's Wrangler and Lee are more mature - so I VFC uses the cash to is the growth in its outdoor... Given the weather and the huge discounts, I'm sure North Face garb is going to be flying off the shelves this weekend at 50 to 70% off... plus the gasoline being down... re-financings... Hey, this is the play... people are killing each other for these discounts and they only hurt the retailer, not the actual apparel maker...

I am sure that Wrangler Jeans are only going to come down in price... where do you go buy some VANS...

Alright, the company bought North Face in 2000 when you add $250 million in sales and was losing money... this is a great example of how VFC "VFC-izes" things... Since the deal, sales grew at 27% compounded annual growth, and now, North Face is $1 billion in sales...

I'm not worried about VFC's sales, because it's got one of the most diversified distribution networks in the retail game. Their stuff in all kinds of stores, they're getting 26% of their sales from overseas, and no particular retailer closing should hurt them.

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This is a company that's making the best of the recession...

It's going to spend $200-$300 million on acquisitions... VFC, at least, is following in the footsteps of Johnson & Johnson (JNJ*), and taking the advice of yenta Cramer...

As of the third quarter, VFC had only done $80 million dollars in deals, so we were going to see a lot going forward...

It's true, the management privately lowered numbers just a few weeks ago to around 7% earnings growth for 2008... but they kept their long-term growth of 10 to 11%... Hey, by the way, with oil down this much, maybe they can't exceed that. They didn't see a 25% decline in oil this week...

They are still expecting double-digit revenue growth from their outdoor and lifestyle programs, which is pretty incredible... and, with VFC trading at eight times earnings... or a little bit more than that... the really low end in the historical range... I think you buy this one...

Although, because it's got that great yield... you should buy it in small increments on the way down, as I usually counsel...

Alright, here's the bottom line...

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The Bottom Line!:     Retailers need to throw huge sales if they want to survive... We know that from the New York Times today... their suppliers, like VF Corp. (VFC), are the ones who benefit, and these sales are yet another reason for rich people to get off their lazy butts, and start shopping like crazy to save the economy.

Read Jim's next Segment here