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VF CEO Breaks Down the Good, the Bad and the For-Sale Brands

VF Corp. executives expounded on their decision announced this week to review a portion of their workwear group consisting of nine brands, confirming they are for sale, while discussing how they plan to improve the performance of their remaining core brands.

“Driving and optimizing our portfolio continues to be a top strategic priority for VF and exploring strategic alternatives for our occupational work brand is the next natural step in that process,” Steve Rendle, chairman, president and CEO, told analysts on a conference call to discuss third quarter results.

“Our decision reflects management’s continued focus on transforming VF into a more consumer-minded, retail-center kind of enterprise with a portfolio of more growth-oriented outdoor, active and work brand,” he added.

Shedding brands

Rendle highlighted the fundamental differences between the occupational work brands for sale and the Dickies and Timberland programs, including an ability to connect directly with consumers, distribution footprint, supply-chain infrastructure and financial profile.

Chief financial officer Scott Roe these brands up for sale operate primarily in the B2B wholesale sector and represent the majority of VF’s existing own manufacturing footprint.

“These brands tend to be more cyclical in nature and have minimal exposure to VF’s international and D2C growth platforms,” Roe said. “From a financial standpoint, the occupational work brands contributed about $865 million of revenue and $130 million of adjusted operating income in fiscal 2019.”

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Core focus

VF’s largest brands generally continue to deliver strong balanced performance across all regions and above long-term growth objectives, Rendle said. Revenue per brands increased 13 percent in the quarter ended Dec. 28 that saw overall revenue increase 5 percent to $3.4 billion and net income tick up 0.3 percent to $465 million.

“Importantly, growth remains well diversified across product categories, channels and geographies,” Rendle said, noting that heritage footwear increased 8 percent in the quarter and apparel grew 14 percent.

“Following another quarter of broad-based momentum, we are again raising our fiscal 2020 outlook for Vans,” he said. “We now expect revenue for Vans to increase about 15 percent for the full year, well ahead of its long-term target.”

North Face revenue increased 8 percent in the quarter, led by international, and balanced across DTC and wholesale channels globally, with solid performance in the Urban Exploration and Mountain Lifestyle Product territories, “as the brand continues to attract new consumers and capitalize on growth opportunities beyond the core Mountain Sports,” Rendle said.

With a strong holiday performance and additional visibility through the end of the year, VF now expects revenue for The North Face to increase about 9 percent, at the high end of its long-term growth objective, he noted.

On the downside, despite early signs of success this year, results of Timberland “were disappointing this holiday season as revenue decreased 4 percent in the quarter,”  Rendle said.

“Solid momentum in apparel, outdoor footwear and China was not enough to offset challenging decisions in men’s footwear in the Americas and Europe particularly in our classic business,” he said. “Men’s non-classics and women’s performed relatively better, as our diversification strategy continues to evolve.

“As a result of the third quarter performance and improved visibility through the rest of the year,” he added, “we are lowering our revenue outlook for the Timberland brand in fiscal 2020 and now expect full year revenue to decline between 1 percent and 2 percent.”

On the brighter side, the Dickies brand “had a great quarter, as revenue increased 13 percent,” Rendle said. “Growth was strong across all key strategic growth drivers, highlighted by 68 percent growth in China and 16 percent growth in digital.”

Stepping back to discuss the macro business environment, the CEO said the U.S. economic backdrop “remains generally solid, led by a healthy consumer and low unemployment. That said, we believe performance across retail and our sector was mixed during the holiday season.”

“In Europe, international trade and the Brexit uncertainty have impacted business confidence and investment,” Rendle said. “However, consumer confidence and spending remain relatively strong. Our EMEA business accelerated in the third quarter and our outlook is generally bullish across the region. In Asia, our brands continue to perform very well in China, despite continued unrest in Hong Kong. The recent Phase One trade deal between China and the U.S. should yield a more constructive consumer and retail environment.”

Investment plans

As fiscal 2020 comes to a close and the transition into fiscal 2021 begins, VF will focus investments on four key programs, according to Rendle. The first is to enhance investments that drive proprietary real-time consumer and marketplace knowledge “to establish emotional connections, guide personalization, inspire must-have products and create consumer-centric experiences that enable lifelong loyal relationships.”

The second is developing a more digitally-enabled responsive go-to market approach by leveraging more end-to-end digital platforms, processes and best practices and manufacturing innovations that help brands create and deliver high-value products and experiences to consumers.

The third is a more seamless integration across physical and digital touch points, “be it digital, physical, owned and partnered and strategic wholesale accounts,” he said, while the fourth is the “construction of more robust engagement models that help build and create enduring relationships.”