In an interview with SGB, Steve Rendle, president and CEO of VF Corp., said that while October started “a little slow,” sales have picked up as “the weather began to become more fall like” and the company remains optimistic about holiday selling.
The interview came after VF raised its outlook for the year as third-quarter results topped guidance. The company saw outsized gains in the quarter by Vans and its D2C business, particularly digital, as well as broad strength across international regions, and that momentum was part of the raised guidance.
“I will tell you there’s 80 percent of the fourth quarter yet to come and we think we’re pretty well positioned,” said Rendle. “We like the way we’re flowing merchandise into the winter weather retailers and feeling good about the opportunities to achieve what we’ve committed to.”
VF’s updated guidance calls for revenues to increase about 6 percent on a reported basis (up 5.5 percent currency neutral). Previous guidance called for a 3.5 percent increase on a reported basis (up 4.5 percent currency neutral). Adjusted EPS is now expected to be $3.01 compared to the previous expectation of $2.96, representing a gain of 1 percent of reported basis and 6 percent on a currency-neutral basis.
Generating a 26 percent hike in sales on a currency-neutral basis in the third quarter, Vans is now expected to show 15 percent growth in 2017, up from its prior outlook at the high end of the low double-digit range.
Rendle believes Vans’ momentum shows the brand has been able to reach an ever-wider range of customers while staying authentic.
“The way we think about this consumer is the expressive creator,” said Rendle. “These are very design-driven, art-and-music influenced individuals and what’s allowed Vans to move beyond the walls of the action sports marketplace is that ability to open up the lens and speak to a broader set of consumers while also staying very true to that heritage of specialty skate surf.”
Both The North Face, which was down 3 percent in the quarter on a currency-neutral basis, and Timberland, off 2 percent, were in line with plan and were impacted by a shift of fall orders into the fourth quarter as many retailers look to stock goods closer to when consumers need them.
Rendle believes the shift is positive for the industry as many stores have faced inventory challenges in recent years due to weather.
“It’s actually causing us to spend a lot of time looking our seasonal merchandising strategies, moving beyond when I was running The North Face where we had two seasons and then maybe two deliveries per season and we’d set outerwear right after Labor Day,” said Rendle. “It’s different today. Consumers aren’t looking for insulated goods in September and October. They’re looking for transitional product.”
Transitional light fleeces, rainwear, some packs and accessories performed well during the third quarter for The North Face. Being able to address additional seasonal opportunities also supports The North Face’s efforts to improve its segmentation reach by addressing four usage territories: Mountain Sports, Mountain Athletics, Mountain Lifestyle and Urban Exploration.
Said Rendle, “As we bring those four usage occasions to life across the 12 months of the year and flow products more in line with what consumers are looking for in each of those territories, we’re confident and that’s why we talked in March about getting North Face back to growth in the 6 to 8 percent range on a five-year compounded growth rate.”
For Timberland, the focus remains on bringing the “more balanced” offerings of heritage footwear, new footwear and apparel that’s driving its robust European business to other regions. The European team has been able to gain traction with some more “city-based, functional technical footwear” that has helped “move consumers into new silhouettes and open up a more productive twelve-month business.” Having Timberland’s apparel design team based in Switzerland is also leading to some “unique and a little bit more contemporary styling.”
In the U.S., Timberland’s Sensorflex and Aerocore businesses were up significantly in the third quarter and “that’s really validating that we too can transition and evolve the product offer to the Timberland consumer and get them to buy multiple silhouettes across that annual purchase cycle,” said Rendle.
VF continues to expect North Face’s growth to be at the high end of the mid-single digit range for 2017 while Timberland is expected so show low-single digit growth in 2017, including high-single digit growth in the fourth quarter.
Asked about the some of the smaller brands in the Outdoor & Action Sports portfolio, Rendle highlighted Napapijri, which has seen sales expand in the high-single to low-double digits for the last three or four quarters.
The maker of technical backpacks, bags and apparel, based in Sweden, has particularly benefited from hiring outside consultants to help fine-tune its “creative brand and vision” to improve its overall positioning to consumers. Said Rendle, “They’ve clarified their product offer and synched it better with their brand marketing and the experience elements of in-store merchandising. And the consumer’s responding really, really nicely.”
The same processes tapped by Napapijri are being applied to Vans, Timerland, The North Face and Wrangler. Added Rendle, “It’s only going to make us stronger with our big brands.”
Smartwool has been impacted by some consolidation and other disruption in the outdoor marketplace but remains “on track to deliver a good growth year,” according to Rendle.
Jansport’s revenues are down this year because VF sold the brand’s collegiate business as part of its decision to exit its LSG (Licensed Sports Group) business. The biggest part of LSD, Majestic Athletic, was sold to Fanatics. But Jansport’s core pack business is “doing quite well” and showing gains on the year. Said Rendle, “They’re speaking to their consumer with a really nice collection of heritage but also new styles.”
As noted by VF officials earlier this year, Lucy, the women’s activewear brand, is winding down and moving its design development and brand team into The North Face’s operations to serve as a “catalyst” to prop The North Face’s run and train positioning. Lucy’s stores are in the process of being closed with some being converted to VF’s other banners. Rendle stated, “The move is underway and you’ll start to really see that come to life in Spring 18 sales for The North Face in that category.”
Reef is “doing good” considering that the surf channel has been struggling for a few years. Rendle added, “We are the dominant sandal brand and we’re doing well considering the challenges within that sector.”
Rendle said that despite its $820 million-deal to acquire Williamson-Dickie, the owner of Dickies, VF’s top capital allocation priority is acquisitions.
The company looks for brands with growth potential, particularly those reaching consumers “that we know extremely well.” VF also looks for new capabilities that may “help unlock more rapid growth” for VF, as well as catalysts, such as Lucy, that could accelerate growth of its organic brands.
VF is also making progress on its 2021 strategic growth plan announced in March that Rendle said is designed to make the company “more agile and consumer centric with retail and digital at the center.”
VF plans to focus on the mass channel to support many of its jeans and work wear brands while relying on specialty retail, including outdoor specialty, action sports and specialty boutiques, to support its many brands the Outdoor & Action Sports coalition. Wholesale overall is not expected to grow as a channel over the next five years due in part to expected retail disruption amid a shift to online selling and the emerging mobile-led consumer. VF also plans to elevate direct-to-consumer while prioritizing digital as part of a shift to a more consumer and retail-centric model. Said Rendle, “Our stores allow us to bring out the best expression of the brand. And we’re being very thoughtful in how we’re looking at our fleet and evolving it with smaller footprints, more unique environments based on where the store is located, focusing very much on productivity and profitability, and absolutely using direct-to-consumer as a growth driver to connect with that consumer.”
Rendle said the company is “pretty much right on track, maybe slightly ahead” of its five-year plan and looks to build upon those gains in the coming year.
“We’ve had some businesses that are succeeding and maybe over achieving but we also have businesses where we’ve been very open about needing to work on to get back to historic growth levels, most notably the North Face and Timberland,” said Rendle. “We have new leaders in place there and we’re very excited about the leadership skills and business acumen that they bring to those businesses. We’re putting a lot of energy behind them to get those businesses back but we are absolutely committed to our long-range targets and feel really good about our opportunities ahead.”
Photo courtesy The North Face
