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After Wrangler Spinoff, VF Corp Looks to Shed More Brands

By Rich Duprey - Jan 25, 2020 at 11:00AM

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The apparel company is making a surgical decision based on future growth prospects.

Following the successful spinoff of its Kontoor Brands denim business last May, VF Corp (VFC 2.68%) is looking for more businesses to shed, deciding a focus on the consumer market may be its best option. The apparel maker said it was considering strategic alternatives for the occupational portion of its work segment, which includes brands like Red Kap, Bulwark, Walls, and Kodiak, but Dickies and Timberland PRO are not part of the review.

Considering the performance of its Vans business last quarter and Timberland this time around, maybe everything should be on the table.

A pair of Timberland boots

Timberland Pro, along with Dickies, is not being included in VF's strategic review of its work segment.

A portent of things to come

Perhaps investors should have been warned that VF's fiscal third-quarter earnings report wasn't going to be all that good, as it announced a couple of days beforehand that it was considering calving off portions of the work segment.

In a statement announcing the brand review, president and CEO Steve Rendle said, "Divesting these brands would leave VF with a simplified portfolio of higher-growth, consumer-focused brands, while providing financial flexibility to fuel further strategic initiatives and enhance shareholder value."

The brands represent about $865 million of its total fiscal 2019 revenue of $13.9 billion and about half of the workwear segment's sales. Customers include the federal government and a number of Fortune 100 companies. Dickies, though, is actually the largest portion of the segment, accounting for about 40% of sales.

There's good reason the apparel company didn't include it and Timberland Pro in the strategic alternative plan -- it expects both to record strong growth, especially Dickies, where China is expected to play a big role.

Last quarter, VF had sounded particularly hopeful about the smaller, emerging brands in this category, believing that one or two of them could be "the next North Face or Vans." However, as VF's domestic business continues to face weakened conditions in the manufacturing sector, it may be that management believes jettisoning some brands now will help improve VF's bottom line.

Tripping over its Tims

VF reported third-quarter revenue rose less than 5% to $3.38 billion, below analyst forecasts of $3.43 billion, though adjusted earnings of $1.23 per share beat the consensus estimate of $1.21 per share.

The apparel maker's performance was dragged lower by the Timberland brand, which may have been a surprise to management since it had been expecting improved performance in Europe. Last quarter, it was Vans sneakers that impacted its results the hardest, but this time around it saw 13% growth in currency-adjusted sales.

The shortfall in performance this quarter, however, caused VF to cut its full-year revenue and profit forecast; it now expects to post annual revenue of $11.75 billion versus its prior guidance of $11.8 billion. Adjusted earnings from continuing operations are now expected to be $3.30 per share, down from its previous range of $3.32 to $3.37 per share, and also well below the $3.36 per share Wall Street had been anticipating.

An even narrower focus

Rendle had hinted last quarter that VF's way forward was as a "more consumer-minded and retail-centric enterprise," but even after getting rid of these nine brands, it might not be the end of VF's divestments.

Rendle says the current round will give it the "financial flexibility to fuel further strategic initiatives and enhance shareholder value," but the weak state many retailers find themselves in as consumers shift how they shop should make investors cautious about the plan.

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V.F. Corporation Stock Quote
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$50.18 (2.68%) $1.31
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