V.F. Corp VFC, -10.71% announced in August that it would spin off its Jeanswear business to create two publicly traded companies. The yet-to-be-named company, referred to as NewCo., is expected to be separated at the end of April 2019, Chief Executive ...and more »
V.F. Corp.’s jeans business, which includes brands like Lee and Wrangler, slipped 7% in the second-quarter, signaling the impact of the Sears Holdings Corp. bankruptcy.
V.F. Corp VFC, -10.71% announced in August that it would spin off its Jeanswear business to create two publicly traded companies. The yet-to-be-named company, referred to as NewCo., is expected to be separated at the end of April 2019, Chief Executive Steven Rendle said on the earnings call, according to a FactSet transcript.
During the earnings call, V.F. Corp. Chief Financial Officer Scott Roe acknowledged that the jeans business had a “difficult quarter, compounded by the impact of a customer bankruptcy.”
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“We now expect Lee to decrease between 3% and 4% and our Jeans segment to decline approximately 1% to 2% in light of the previously mentioned bankruptcy,” Roe said. “There is no change to our Wrangler outlook of a 1% increase this year.”
The Sears SHLD, -9.48% bankruptcy and the impact on the jeans business is one of a few reasons for concern highlighted by Wells Fargo analysts, who attribute the Friday stock decline to troubles in jeans.
V.F. Corp. closed Friday down 10.7%.
“The exposure to Sears came into focus,” analysts said. Wells Fargo estimates sales to Sears at $75 million.
They also note that Europe “declined precipitously,” which had an impact on both the Timberland and Vans brands. Vans is one of the company’s strongest brands.
“While V.F. Corp. has bucked the trend in Europe year-to-date (while almost all other brands have called out weakness), the macro slowdown overseas appears to be hitting them at both footwear brands, as Vans slowed to 9% growth (from 33% in 1Q) and Timberland slowed to a 1% decline (from 5% growth in 1Q),” Wells Fargo said.
Vans revenue was up 26% overall. The company expects 18% to 19% growth for the Vans brand for the year.
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Wells Fargo rates V.F. Corp. shares market perform with a $90 price target.
Cowen analysts are bullish despite the hit to jeans.
“Jeanswear weakness ahead of next year’s spinoff creates uncertainty but guidance suggests improvement into year-end,” analysts led by John Kernan said.
Analysts forecast sustainable gross margin and ROIC (return on invested capital) improvements at The North Face, Vans and Timberland as they expand internationally, and see an acquisition in the company’s future.
“V.F. Corp. has significant competitive advantages that include manufacturing nearly 33% of its product in its owned factories, and owning significant expertise in the supply chain, as well as management’s focus on outdoor and active sports brands and ability to reinvest significant amounts of cash flow to innovate product and acquire a deep knowledge of their core consumer,” the note said.
Cowen rates V.F. Corp shares outperform with a $106 price target.
Susquehanna Financial Group advises investors to “buy the dip” based on strong fundamentals and its management of supply and demand to maintain brand health.
“With the exception of the Jeans business, progress to enhance The North Face and Timberland businesses is well under way,” analysts led by Sam Poser wrote in a note.
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“We believe today’s pullback in the stock is driven by investors’ unfounded fear that the 2H19 deceleration of Vans reflects poorly on the long-term health of the brand. We reiterate that we think the slowdown is intentional, was telegraphed by management, and aligns with management’s objective of keeping the marketplace hungry for Vans’ product.”
Susquehanna rates V.F. Corp stock positive with a $108 price target.
V.F. Corp. shares have gained 19% for the past year while the S&P 500 index SPX, -0.04% is up 8% for the period.
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