V.F. Corporation (NYSE: VFC) — a global powerhouse in the lifestyle apparel and footwear sector — is poised for a resurgence. The esteemed entity, with an impressive roster including The North Face, Vans, and Timberland, is embarking on a strategic transformation led by a new CEO, Bracken Darrell. Darrell has relevant turnaround expertise and will focus on cutting costs and reviving the Vans brand to achieve the turnaround.
Known for strategic acquisitions and brand diversification since its inception in 1899, VF Corporation has faced challenges during its growth trajectory. The financial crisis of 2008 and changing consumer preferences toward e-commerce and sustainability tested the company’s resilience.
To counter these obstacles, the company strategically diversified its portfolio. Acquisitions of The North Face, Vans, and Timberland allowed V.F. Corp to position itself as a leader in outdoor and action sports apparel. Additionally, the company embraced sustainability trends, incorporating eco-friendly practices into its operations and products.
These strategic decisions not only mitigated the impact of economic downturns and changing consumer preferences, but also strengthened V.F. Corp’s position in the competitive market.
In recent years, V.F. Corp witnessed a calculated shift under the leadership of former CEO Steve Rendle. Rendle spearheaded ambitious initiatives marked by high-profile acquisitions and a significant corporate relocation. The bold move to acquire the streetwear brand Supreme in 2020, valued then at $2.1 billion, aimed to tap into the lucrative youth market, but posed integration challenges for the company. Furthermore, the decision to relocate the corporate headquarters from Greensboro, North Carolina, to Denver, Colorado in 2017 was intended to bring the company closer to its major brands and talent, but resulted in a notable increase in operational costs.
These tactical decisions, while innovative, led to unforeseen complications. The company’s stock price witnessed a drastic decline, shedding about 85% from its pre-pandemic levels. This downturn was a stark indicator of the difficulties V.F. Corp faced, stemming from increased operational expenses, integration issues with new acquisitions, and dilution of brand autonomy. These impacts on the corporation’s financial stability and growth prospects were significant, leading to a critical reevaluation of its corporate strategy.
V.F. Corp.’s trajectory now faces a significant shift with Bracken Darrell assuming the CEO role in July 2023. Darrell, acclaimed for his revolutionary leadership at Logitech, turned around the company’s fortunes after the share price of the company had fallen 82%, lifting its stock from a price of $5 per share in 2013 to an impressive peak of $130 per share in 2021, a 26 bagger. At V.F. Corp, Darrell introduces a focus on operational efficiency, brand investment, and careful financial management.
In a classic move for new CEOs in turnaround scenarios, Darrell initiated a kitchen sink quarter — a strategy used to consolidate all losses at once, slash the dividend, and set lower forecasts so that, moving forward, all news is positive and can beat Wall Street expectations. This bold approach not only showcased Darrell’s commitment to transparency and accountability, but also positioned the company for a fresh start.
By addressing the challenges head-on and implementing immediate corrective actions, Darrell instilled confidence in investors.
Despite a superficial glance at the stock suggesting troubles, a closer examination of the business fundamentals tells a different story. Though the stock price has gone down, the company’s revenues have been increasing. The most recent operating report reveals that V.F. Corporation is performing well in Europe with a 14% year-on-year sales increase and an 8% rise in Greater China. Although the Americas saw an 11% decline, driven by the Vans Brand, their flagship brand, The North Face, witnessed a 19% increase. These indicators suggest underlying strengths, with the primary challenge for revenue being to rejuvenate the Vans Brand and sales in the U.S.
A key risk that contributed to the decline in V.F. Corp’s share price is its heavily leveraged balance sheet. The company’s free cash flow and margins suffered from increased inventory levels, higher operational costs, and significant impairment charges, particularly with the Supreme brand acquisition. These issues, along with debt concerns, significantly strained V.F. Corp’s financial resources; however, with stable revenues, targeted strategies can rectify these issues by cutting costs and getting back to the basics.
Mirroring his strategy at Logitech, Darrell is streamlining V.F. Corp by making decisive changes such as replacing the president of Vans, selling off the packs business (JanSport, Eastpak, Kipling) to strengthen the balance sheet, and implementing a $300 million restructuring plan to cut costs and reinvest in brand development.
Another catalyst to consider is V.F. Corp’s position as a multinational entity, with 48% of its revenue generated internationally. This places the company in a favorable position to benefit from a potential long-term decline in the U.S. dollar. Factors such as anticipated interest rate cuts in 2024, growing U.S. national debt, and global initiatives like the BRICS alliance moving away from the U.S. dollar could contribute to this decline. Consequently, a weaker U.S. dollar would enhance the value of V.F. Corp’s international revenues, as foreign earnings will yield more U.S. dollars upon conversion.
The strategic transformation underway at V.F. Corporation, guided by CEO Bracken Darrell, is a long-term endeavor. While immediate results may not be apparent, the comprehensive nature of this restructuring with a focus on operational efficiency, market realignment, and brand revitalization, sets the stage for a successful turnaround.
