Put Play on VFC

By Linda McDonough • July 20, 2016

VF Corp. (NYSE: VFC) is an American apparel and footwear company in trouble, and we’re recommending profiting from its likely decline with a put option.

I expect VFC will have weakness in sales to struggling department stores. And when the company reports second quarter earnings before the market opens on Friday, July 22 it is likely the company will lower guidance for the critical September quarter when holiday orders are placed.

Buy to open a put option with a strike price of $62.5 and expiration on August 19 2016 at or below $1.50.

Here is the case:

The Outdoor and Action category, which includes The North Face and Timberland, represents 62% of profits.
Profits for this group declined 13% and 11% in the March and December quarters respectively.
Department stores were left to markdown The North Face product last winter and will likely cut back orders for the critical fall season based on the poor sell through.
Wholesale sales, which represent 73% of total revenue, are sales mostly to department stores. Recent horrid results from Macy’s and Nordstrom’s points to more pain for the wholesale revenue which has just started to decline. After a 1% drop in 2015, revenue to these customers dropped 2.6% in the first quarter.
Inventories have risen for the past 5 quarters a sign that VFC is continually overestimating demand.
The number of days VFC waits for retailers to pay them increased to 65 days from 60 in the March quarter, a sign that some customers may be struggling to pay their bills.
The company accumulated $2.5B in debt as it scooped up various brands hoping for a home run to replace faltering brands. Instead, most have floundered. VFC recently sold 2 brands ( 7 For All Mankind jeans and Ella Moss) for $120 million versus the $775 million it paid just for 7 For All Mankind in 2007.

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Jon D.

07/20/16 ‐ 10:04am ET July 20, 2016 at 10:04am ET

Hi Linda,
Thanks for notifying readers of a nice short term opportunity. It was uncomplicated to “put” the trade on.
Just got back from the gym and was able to “put” this in my IRA, at 1.45 so this was in your recommended area.
On a different stock I see the Charty of BC is looking good including the Chaiken Money Flow indicator shows money is coming into BC. CRL iOS having a good AM too.

Linda McDonough

07/20/16 ‐ 10:18am ET July 20, 2016 at 10:18am ET

Hi Jon,
Thanks for the note and your continued support. I’m very excited to be introducing some bearish ideas to Profit Catalyst subscribers. The VFC put trade is intended to be short term so stay on the look out for the exit trade. The company reports this Friday before the open.
Linda

Jon D.

07/20/16 ‐ 5:25pm ET July 20, 2016 at 5:25pm ET

Thanks for the heads up Linda. I like trading options in a short time frame. And to really be good traders we must work in both directions, since this is how the markets go.
Actually I should be thanking you for continued support, with your well researched candidates.
Jon

Budd

07/20/16 ‐ 11:29am ET July 20, 2016 at 11:29am ET

Hi Linda,

The breakeven for this put trade is almost 5% below where it’s trading now. What is your price target for VFC?

Linda McDonough

07/20/16 ‐ 12:10pm ET July 20, 2016 at 12:10pm ET

Budd,
My short term target is $57-$58.
Linda

Budd

07/20/16 ‐ 3:04pm ET July 20, 2016 at 3:04pm ET

I bought a the Aug 57.5/62.5 put debit spread for .89.

Jon D.

07/21/16 ‐ 1:55pm ET July 21, 2016 at 1:55pm ET

Here is a link to a chart on VFC: http://schrts.co/MDk45y
Looks as though timing must be on Linda’s side because as I show todays candle grouped with yesterdays form a BEARISH Engulfing. I indicated the target zone with a blue tone.When RSI passes down thru 50 this means the price action is falling. We can see in the MACD area the icon has fallen below the 0.0 line this can be considered a short term SELL signal. The short tern PPO is telling us the same thing. At the bottom the fast moving Stoch RSI has been dubbed RSI on steroids by Art Hill of stock charts.com.
May the Force be with us

Jack

07/20/16 ‐ 11:31am ET July 20, 2016 at 11:31am ET

I have joined in, never “bought” a put before. Got it for 1.21.

Jon D.

07/21/16 ‐ 11:25am ET July 21, 2016 at 11:25am ET

Jack,

A good source for learning more about options is online every day. Two free websites associated with Think or Swim: one is called TastyTrade and the other is called Dough. It is their goal to educate those who would like to learn about options – free.

Jon D

Jack

07/21/16 ‐ 11:39am ET July 21, 2016 at 11:39am ET

Thanks Jon, I will look into them.

Jon D.

07/22/16 ‐ 11:58am ET July 22, 2016 at 11:58am ET

For everyones use look into this:TOS manual options.pdf
hope that link works

Fred Lamoureaux

07/21/16 ‐ 10:53am ET July 21, 2016 at 10:53am ET

Hi Linda,

Bought VFC puts this morning for $1.17.

Looking forward to participating in future option trades.

Fred

John Kiefer

07/21/16 ‐ 5:11pm ET July 21, 2016 at 5:11pm ET

Hi,
I can find no 8/19 put for VFC at 62.5. Only at 65.
john k

Linda McDonough

07/21/16 ‐ 6:19pm ET July 21, 2016 at 6:19pm ET

Hi John,
The recommendation for the VFC puts is timed to coincide with the company’s earnings report which is tomorrow before the market opens. I do not recommend buying them now as we’ll have the news in hand before the open tomorrow.
In the future I will include the exact symbol for the option series. The 62.5 puts with August expiration traded 825 units today.
Linda

Jon D.

07/22/16 ‐ 7:26am ET July 22, 2016 at 7:26am ET

Still too early but: 7:04 ET – Amid in-line 2Q results, apparel maker VF Corp. (VFC) cuts anticipated 2016 sales for its outdoor/action sports and sportswear segments after logging growth of 2% and a slump of 19%, respectively, last quarter. Sportswear was hit by a 20% slide at the Nautica brand and mid-teen decline for Kipling amid ongoing woes at US department stores and outlets. For outdoor/action sports, Timberland revenue fell 7%, nearly offsetting 2% growth for The North Face and a 4% gain at Vans. Still, VFC reiterates 2016 EPS guidance once the impact of a pending divestiture is backed out. Shares, inactive premarket, are up 2.7% this month. (kevin.kingsbury@wsj.com; @kevinkingsbury)

(END) Dow Jones Newswires

Linda McDonough

07/22/16 ‐ 8:13am ET July 22, 2016 at 8:13am ET

The number was pretty messy and the Outdoor category’s profitability is really crumbling. The company kept annual guidance but lowered its tax rate, a sneaky way to say that operating profits will be worse than expected. I’ll be listening to the call at 8:30 to hear if they are pushing earnings out from Q3 to Q4. More to come!

Jon D.

07/22/16 ‐ 10:02am ET July 22, 2016 at 10:02am ET

Remember the phrase Bears make $ bulls make $ but pigs get slaughtered.
Any day I can make 27.58% and $200 in profits in 24 hours is a good day.
I am out and I don’t look back remember folks this put is ITM, so it could go against you when the time value is gone. It still has time on its side. But fer me I am adding that 200 bucks to other profits I have recently made and paying my mortgage with them.
Thank you Linda for a Super idea that I would never have been aware of without your alert
You are Brilliant Linda!

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