S&P Global Ratings revised its debt ratings outlook on VF Corp. to positive from stable due to the company’s progress in paying down debt.
S&P noted that over the past year, VF has improved its S&P Global Ratings-adjusted EBITDA margin by about 240 basis points (bps) to 14.6 percent, and lowered its S&P Global Ratings-adjusted leverage by 1.5x, to 3.1x, in the most recent quarter ended June 30. The ratings agency expects VF will reduce leverage below 3x in fiscal 2027 as it grows organic revenues and improves EBITDA margins.
The positive rating outlook reflects the possibility that -S&P could raise our ratings on VF over the next 12 months if the company reduces and sustains S&P Global Ratings-adjusted net leverage below 3x while maintaining relative stability across its portfolio of brands.
S&P said in its analysis, “VF should be able to sustain the operating performance that’s resulted in improved credit metrics. Following three consecutive years of revenue declines, VF returned to growth in fiscal 2026, supported by meaningful improvements in operating and financial performance across the majority of its portfolio and a moderation in the pace of decline at Vans. These improvements resulted in stronger profitability and deleveraging. On a rolling-12-month basis, S&P Global Ratings-adjusted EBITDA margin increased 240 bps to 14.6 percent in the first quarter of fiscal 2027 driven by cost savings, favorable price/cost dynamics, lower product costs, and a more favorable mix toward higher-margin products. We expect momentum from fiscal 2026 will continue into fiscal 2027 and forecast organic revenues (excluding Dickies, which was divested in November 2025) to grow at least 2 percent and EBITDA margins to improve to about 15 percent as the sales mix continues shifting toward higher-margin products and direct-to-consumer (DTC) channels. Excluding Dickies, revenue for the first quarter increased 1.3 percent partly due to DTC growth, fewer discounts, and bringing new products to market more quickly. As a result, we forecast S&P Global Ratings-adjusted leverage to improve to 2.8x in fiscal 2027 and further to 2.4x in fiscal 2028.
“VF remains committed to strengthening its balance sheet and reducing leverage. The company has made significant strides toward reaching its 2.5x net leverage target by fiscal 2028, reducing leverage from 4.7x to 3.1x over the last four quarters through operational improvement and debt reduction. The company’s pause in share repurchases and its solid free cash flow generation, which we expect to be about $370 million in fiscal 2027 despite increased capital spending and inventory investments, are both supportive of achieving this target. As a result, we expect VF will reduce leverage below 3x over the next few quarters.
“The company continues to see improved performance amid Vans’ moderating revenue declines. Excluding Dickies, VF saw 70 percent of its businesses expand in the first quarter of fiscal 2027, including 6 percent growth in The North Face, 4 percent in Timberland, and 5 percent growth in its other brands category (which accounted for about 21 percent of first quarter revenues). Vans, VF’s second-largest brand, contracted 8 percent in the first quarter of fiscal 2027, compared with a 14 percent decline in the prior-year period, continuing a trend of moderating year-over-year declines over the past two years. While Vans remains under pressure, particularly from weaker demand in certain international markets, the sequential moderation in its rate of decline as well as two consecutive quarters of growth in Americas direct-to-consumer sales provides some evidence that the brand’s performance is stabilizing. We believe that strengthening performance across the broader portfolio will increasingly offset the negative impact from Vans and help support a return to consolidated revenue growth.
“We lowered our business risk assessment on VF Corp. Given the company’s smaller scale, narrower focus, and increased business concentration following the divestitures of Dickies and Supreme in Nov. 2025 and Oct. 2024, respectively, and four consecutive years of revenue declines at Vans, we revised our view of the company’s business risk to fair from satisfactory. The revision indicates that we now view VF’s business risk as broadly comparable to apparel peers Levi, Carter’s, and Kontoor Brands. With the reassessment, our leverage threshold for a potential upgrade narrowed to leverage being sustained below 3x. At the same time, our ratings are less dependent on operational improvement and place a lower emphasis on returning Vans to growth in the near term.
“The rating remains constrained by competitive pressures and an uncertain macroeconomic environment. Ongoing geopolitical uncertainty, including the war in the Middle East, and slowing income growth could weigh on consumer spending and make it more difficult for VF to sustain its improving revenue trends. The company has benefitted from a period of resilient consumer demand amid inflation-related price increases and lower promotional activity. However, the company’s ability to sustain growth and margins may be challenged if discretionary spending weakens or competition intensifies, particularly during peak selling periods over the next two quarters. In particular, VF may be challenged to sustain growth and margins at The North Face in fiscal 2027 and 2028 as Columbia Sportswear and Kontoor Brands’ Helly Hansen aggressively seek to expand in the U.S. outdoor clothing market. As a result, while the company’s improving operating performance, stronger margins, and deleveraging support the positive outlook, the sustainability of the improved credit metrics remains key to a potential upgrade.
“The positive rating outlook reflects the possibility that we could raise our ratings on VF Corp. over the next 12 months if the company reduces and sustains S&P Global Ratings-adjusted net leverage below 3x while maintaining relative stability across its portfolio of brands.”
Image courtesy The North Face
