Shares of VF Corp (VFC 0.16%), the parent of apparel brands like Vans, the North Face, and Timberland, were surging today on reports that an activist investor is building a stake in the apparel stock.
As a result, the stock was up 13.8% as of 11:19 a.m. ET.
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The activists are coming for VF Corp
According to a report in The Wall Street Journal, activist investor Engaged Capital has been accumulating a stake in VF and plans to advocate for a number of changes, including aggressive cost-cutting. Engaged believes the company could reduce expenses by about $300 million annually, and it also aims to push for a strategic review that would include selling non-core assets and real estate. It may try to put new directors on the board as well.
Engaged sees potential for VF to triple its share price over the next three years by cutting costs and reinvesting that cash into refreshing the Vans brand, which is its biggest brand but has struggled lately.
In its own presentation, Engaged argued that the previous CEO, Steve Rendle, aggressively expanded the role of the corporate center, adding costs and removing brand-level autonomy, which was a key source of competitive advantage.
Can VF turn it around?
Shares of the diversified apparel company are down roughly 85% from late 2019, as the earlier growth in Vans and its overall performance has been weak.
VF was also renowned as a longtime dividend payer, but the company cut its dividend by 41% this year to $0.30 a quarter. It could be at risk of another dividend cut, as its yield has spiked to more than 7% even as profits continue to slide.
In its most recent quarter, revenue fell 8% to $2.1 billion, and it posted an adjusted loss of $61 million compared to a profit in the quarter a year ago. Meanwhile, three of its four major brands are in free fall, with sales plunging.
Given that background, it's not surprising that investors are welcoming an activist investor. VF has a long history of success, but the company is in need of a turnaround strategy.
Stay tuned to see if the company adopts some of Engaged's proposals. The upside potential is significant if the apparel stock can get back on track.
