S&P Global Ratings affirmed the debt rating of VF Corp. following the report that VF plans to sell Dickie’s and use the proceeds to pay its own debt.
S&P said VF’s S&P Global Ratings-adjusted leverage declined to 4.3x as of the end of fiscal 2025 from 5.1x in 2024, with more de-leveraging expected in the coming year. S&P said VF continues to experience a top-line decline in Vans and is focusing on its turnaround.
VF’s ‘BB’ issuer credit rating and ‘B’ short-term and commercial paper ratings were all affirmed. S&P also affirmed the ‘BB’ issue-level ratings on the company’s unsecured notes and maintained the recovery rating at ‘3’, which indicates S&P’s expectation for meaningful (50 percent-70 percent; rounded estimate: 60 percent) recovery in the event of a default.
The stable outlook reflects the expectation that S&P Global Ratings-adjusted debt leverage will be below 4x by the end of fiscal 2026.
S&P said in its analysis, “VF continues to prioritize debt reduction and improving the business across key brands. The company reduced long-term debt in the latest 12 months ended June 28, 2025, to just under $4 billion. It used asset sale proceeds, including from Supreme, along with free cash flow generation, to repay more than $2 billion in debt in the past year. This included a $1 billion delayed draw term loan due December 2024, $750 million of April 2025 notes, and $450 million of commercial paper borrowings.
“The company deleveraged to 4.3x in its fiscal year ended March 29, 2025, versus the 4.8x we previously forecasted. This is because its S&P Global Ratings-adjusted EBITDA came in $113 million higher as the company recognized cost savings faster than we expected, while sales and debt came in roughly as forecasted.
“We noted earlier in September that VF announced it entered into a definitive agreement for Bluestar Alliance LLC to acquire the Dickies brand for $600 million in cash. The deal is expected to close by the end of the 2025 calendar year. We expect it will use the net proceeds to repay its 4.125 percent notes due March 2026 ($539.6 million outstanding as of June 2025).
“Factoring in both the lost profits (we estimate about $35 million in operating profit at Dickies this past year) and debt reduction from this asset sale transaction, we forecast S&P Global Ratings-adjusted leverage will improve to the mid-3x area by the end of fiscal 2026. As a result, we believe the company is executing on its plan to get to its defined 2.5x leverage target by the end of fiscal 2028.
“We forecast revenues will continue to decline modestly in fiscal 2026. In the first quarter of fiscal 2026 (ending March 2026), revenues remained flat after a decline of 10 percent in fiscal 2025. This decline was led by Vans, which saw a 14 percent revenue decrease in the first quarter, and offset by gains in The North Face and Timberland brands. The North Face reported revenue growth of 6 percent in the latest quarter, with strong performance across channels and the Europe and Asia Pacific regions, which more than offset the declines in the Americas. Timberland also posted 11 percent revenue growth in the latest quarter, driven by its marketing strategy. This included strength in the six-inch premium boot and the boat shoe. We expect continued growth in North Face and Timberland sales in the coming year.
“VF’s “Reinvent” restructuring program helped stabilize profitability. In October 2023, the company introduced “Reinvent,” a transformation program to enhance focus on brand-building and improving operating performance. Key priorities under the program have been to optimize cost structure and reduce debt. The company incurred just over $200 million in cumulative Reinvent restructuring charges in fiscal 2024 and 2025. Substantially all restructuring actions were completed by the end of the first quarter of fiscal 2026.
“We believe margin benefits from this program will be modestly offset in the coming year by tariff impacts. We expect tariffs to hinder gross profit by $60 million-$70 million in fiscal 2026 after considering mitigation efforts. VF has implemented actions such as sourcing savings and pricing actions for mitigation, which are expected to take effect later in the year. Management forecasts that all currently anticipated tariff impacts will be fully mitigated by fiscal 2027.
“S&P Global Ratings believes there is a high degree of unpredictability around policy implementation by the U.S. administration and possible responses–specifically with regard to tariffs–and the potential effect on economies, supply chains, and credit conditions around the world. As a result, our baseline forecasts carry a significant amount of uncertainty, magnified by ongoing regional geopolitical conflicts. As situations evolve, we will gauge the macro and credit materiality of potential shifts and reassess our guidance accordingly (see our research here: spglobal.com/ratings).
“We forecast EBITDA margins of 12.5 percent in fiscal 2026, a 50-basis point (bps) improvement compared with fiscal 2025. This is due to the realization of cost savings from the Reinvent program, the divestiture of the lower-margin Dickies brand, and modest price increases to offset additional tariff-related costs. It’s also due to lower discounts and continued benefits from productivity initiatives, partially offset by continued project-related costs, in the coming year.
“We expect VF will focus on debt reduction until it achieves its target. The company has undergone significant management changes since the new CEO, Bracken Darrell, joined in July 2023, with 14 of 15 members of the global leadership team new to VF or their roles in the past two years. This includes new global brand presidents for Vans and The North Face, chief financial officer and chief operating officer. In addition, the company has made several changes to its board with the addition of new independent directors.
“The company’s priorities include cost reduction, reinvestment into brands, and reducing debt, which come ahead of returning cash to shareholders. VF paid only $143 million in dividends in fiscal 2025 compared with $303 million in fiscal 2024. We expect it will abstain from mergers and acquisitions (M&A) and share repurchases with the goal of restoring net leverage to its current target. We note free operating cash flow (FOCF) declined meaningfully in fiscal 2025, given working capital unwind, but we expect VF to continue to generate FOCF above this level going forward.
“The stable outlook reflects our forecast for leverage to improve to below 4x over the next 12 months through modest business improvement, debt paydown from asset sale proceeds, and cash flow improvements from cost savings realization.”
Image courtesy VF Corp.
