Susquehanna lifted its estimates and price targets on VF Corp., in part due to a greater entrepreneurial push across brands being pushed by Steve Rendle, who became CEO at the start of 2017.
“Rendle has established a culture that encourages and rewards entrepreneurial initiative across brands, and a less “corporate” culture has taken hold,” wrote Sam Poser, the lead analyst at Susquehanna, in a note to clients. “Such change has ushered in a period of much greater focus on the sanctity of VFC’s brands, and elevated operational discipline.”
He also said that under Rendle, VF has refined the messaging across its brands to establish a “truer connection with consumers and communities” and how they impact their lives. In the past, Poser noted he has been critical, with messages touting issues such as “sustainability” without emphasizing those connections that help form stronger identities across brands.
Poser added, “While potential improvements in ‘purpose’ and messaging are almost always subtle, we believe they can be meaningful drivers of shareholder returns over the long-run.”
The note came out after Susquehanna met with VF’s management at the ORWM Snow Show in Denver, and Poser also wrote that “checks at OR indicate that VFC’s inventories are exceptionally clean following a strong holiday season.”
Among specific brands, Poser noted that The North Face’s booth “was the busiest we, perhaps, have ever seen it.” He said the brand is re-gaining space in mountain accounts through efforts to tighten inventory in the marketplace.
He described Vans as “on fire,” with checks at OR likewise continuing “to support a very positive outlook for Vans.” Timberland is “undergoing positive change” and Poser is encouraged that management recognizes that a “significant amount of work needs to be done (particularly in the U.S. as business is better overseas) to restore the brand to its prior glory.”
Following the talks with management, Poser said he continues to see the potential for “significant” revenue and cost synergies as Dickies’ benefits from being absorbed into VF’s workwear unit, as well as “meaningful” synergy opportunities as Icebreaker complements its SmartWool brand. The Icebreaker acquisition is expected to close in April, and combined sales of Icebreaker and SmartWool are expected to be about $300 million.
Susquehanna increased its FY18 and FY19 EPS estimates from $3.46 and $3.87 to $3.82 and $4.28, respectively. Susquehanna raised its price target on VF from $82 to $95.
On Monday, shares of VF closed at $82.55, up 98 cents, or 1.2 percent.
Photo courtesy The North Face
