By Eric Smith
VF Corp. shares fell 3.6 percent Monday after the company announced plans to split into two separate, publicly traded entities and move VF’s corporate headquarters and some of its outdoor brands to Colorado.
Of the two entities, one will retain the VF Corp. name, continue to own VF’s existing outdoor, active and work portfolio and relocate to Denver, CO. The other is a to-be-named tax-free spinoff to VF shareholders that will hold VF’s jeans brands and outlet business and remain in Greensboro, NC.
These moves derive from VF’s 2017 strategic plan to reshape its brand portfolio “to better position the company for long-term success in a quickly changing business landscape.” Recent moves in this pursuit include acquiring Williamson-Dickie, Icebreaker and Altra, and divesting Nautica and the Licensed Sports Group, including the Majestic brand.
In other words, VF will focus squarely on the outdoor and active brands—led by Vans and The North Face— while NewCo, an internal temporary moniker for the new company, will handle the company’s “denim” and outlet divisions.
Steve Rendle
“In alignment with our strategic plan, the decision to separate these businesses will allow VF to sharpen its focus as a consumer-centric and retail-minded organization anchored in activity-based lifestyle brands,” said Steve Rendle, VF chairman, president and CEO.
“Our jeans platform is a successful, sustainable business with iconic global brands and a clear path to value creation as a standalone entity. This exciting step forward will mean that both VF and NewCo have the resources, management focus and financial flexibility to thrive in a dynamic consumer marketplace, creating an even brighter future for both organizations and all of their stakeholders.”
VF has many iconic outdoor and active brands, including—in addition to the aforementioned companies—Smartwool, JanSport, Timberland and others. On the work side, VF owns such brands as Dickies and Bulwark. All of these will continue to be held under the VF banner, with Rendle remaining as president and CEO.
On the jeans side, VF’s most notable brands are Lee and Wrangler. This part of the company will be given a new name in 2019 and will be led by Scott Baxter.
The stock market’s reaction to the split wasn’t favorable. Shares dropped at open and were down throughout the day “as investors grapple with an appropriate valuation for the new independent company and scratch their head on ‘why now’ given the valuation of VF shares currently,” wrote Erinn Murphy of Piper Jaffray & Co.
Though shares were down, reaction was mostly positive based on analyst notes published following the deal’s announcement. Many said the $11.8 billion company should be able to focus on acquiring new assets to broaden and deepen the outdoor, active and work portfolios.
“There is potential to create more value and focus with each entity,” Murphy wrote. “For VF, focus is on M&A and has a more assertive growth focus. We’d expect it to trade at a higher PE ratio accordingly. For [the new company], the profile is more along the lines of income generating fund with superior dividend pay-out and slower growth. We believe this announcement has created a lot of energy internally.”
Jonathan Komp of Baird wrote: “More importantly, the planned move leaves a high-margin, high-growth portfolio capable of delivering +high-single-digit top-line growth and mid-teens total shareholder returns, while potentially supporting even more aggressive acquisition opportunities.”
One of those acquisitions opportunities could even be “transformative” to VF’s portfolio, wrote Laurent Vasilescu of Macquarie Capital (USA) Inc.
Something else important to keep in mind, wrote Jim Duffy of Stifel, is that the divergent companies—one focused on outdoors and active brands and one focused on jeans—can each flourish following the split.
“Our initial reaction to the planned spinoff of the jeans and outlet business is positive,” Duffy wrote. “While capital structure details remain vague, our initial take on sum of the parts supports the current valuation on trailing metrics and builds a compelling case for upside projecting to FY20E underlying metrics. The two independent entities will appeal to distinct separate investor bases, and we expect good investor appetite for each. Operationally, we expect the new corporate structure and planned move of outdoor, action and work businesses to a Denver HQ will create synergies and unlock value.”
Although Rendle wasn’t available for an interview on Monday, his statements concerning the deal hinted at what VF hopes to accomplish by spinning off the denim and outlet businesses and moving outdoors, active and work divisions to Colorado.
Rendle said Colorado made sense for VF’s new home because of the state’s “unrivalled heritage and culture of outdoor and activity-based lifestyles, as well as a thriving business environment. It is a great strategic fit for our business, and we are excited to be relocating our headquarters and several brands to the metro Denver area next year. We believe that the creation of our new headquarters in the area will help us to unlock collaboration across our outdoor brands, attract and retain talent and accelerate innovation.”
Not only is VF moving the company’ corporate headquarters to Colorado, bringing about 80 jobs to the Mile High City, but some of the iconic brands in VF’s portfolio will also relocate to Denver as well, including The North Face, Smartwool, JanSport, Eagle Creek and Altra.
“Relocating these brands along with select VF leaders at a shared headquarters at the base of the Rocky Mountains will better enable us to collaborate across brands and functions, unlock innovation and business opportunities, attract and retain talent and connect with our consumers,” Rendle wrote Monday in a LinkedIn post titled “Creating Two Global Leaders.” “It will also simplify VF’s North American physical office footprint and create a dynamic environment that will amplify our One VF culture, while reinforcing the individual cultures of our outdoor and active brands.”
As VF’s shares slipped on Monday, the city of Denver’s stock continued to rise. The new home for Outdoor Retailer—the city hosted its first Summer Market last month—will now serve as the headquarters for even more outdoor brands. Not surprisingly, the move was lauded by Colorado’s Office of Economic Development and International Trade.
“We are thrilled to welcome a new partner that embodies the values that define Colorado,” said Colorado Gov. John Hickenlooper. “VF’s move underscores the critical driver that the outdoor recreation industry plays in our economy where business meets lifestyle.”
The company will receive tax credits in exchange for a long-term commitment to the state; Rendle said, “For every dollar of job growth tax credit that we receive and use, we will match that dollar in a donation to the VF Foundation and designate those funds to support the charitable interests of the citizens of Colorado.”
Rendle spoke at length about VF’s “purpose-led” mission at the Camber Outdoors Thought Leader Keynote Breakfast at last month’s Outdoor Retailer Summer Market, where he said the company wants to be a leader in the outdoor space for improving hiring practices and ensuring an inclusive workforce.
In his speech, “Equity in the Outdoors: Powering a Movement,” Rendle outlined VF’s journey that the company began last year to elevate its mission of achieving more than merely growing the bottom line.
“We are striving to become a purpose-led, performance-driven corporation,” Rendle said. “Historically, VF has been a strong business operator. Yes, we acquire brands and help them achieve their full potential to grow, but really what sits at the heart of VF is our business discipline, our operational discipline and how we think about driving value for shareholders.”
Photos courtesy VF Corp. and John Evans
[author] [author_image timthumb=’on’]https://s.gravatar.com/avatar/dec6c8d990a5a173d9ae43e334e44145?s=80[/author_image] [author_info]Eric Smith is Senior Business Editor at SGB Media. Reach him at eric@sgbonline.com or 303-578-7008. Follow on Twitter or connect on LinkedIn.[/author_info] [/author]
