The first of 2019’s slew of planned corporate retail breakups has happened — and it ended the day on a positive note despite a shaky start.
VF Corp. officially spun off its jeans and outlet business into a brand-new company called Kontoor Brands Inc. by listing it on the New York Stock Exchange on Thursday and its stock closed up 3.9 percent at $38.60 despite being down for the better part of the day.
At one point during the day, it was down as much as 7 percent, which may have had something to do with investors’ jitters over the U.S.-China trade dispute. The Dow Jones Industrial Average closed down 280 points to 25,490.47, while VF was 1.1 percent lower to $84.09.
The likes of Gap Inc. and J. Crew will no doubt be watching Kontoor’s stock performance closely, as they are planning their own spin-offs this year.
Gap is splitting itself into two publicly traded companies. One will be made up of stronger Old Navy, while the other — a yet-to-be-named company — will consist of Gap, Athleta, Banana Republic, Intermix and Hill City. J. Crew, meanwhile, is mulling a Madewell initial public offering.
While Kontoor managed to turn around a difficult start to the day, it still has a harder message to sell than its rival Levi Strauss & Co., which marked a blockbuster return to the market in March, valuing itself at $8.1 billion.
That’s because its jeans companies are seen as weaker performers and that is part of the reason behind the spin-off, so VF can focus on its powerhouse brand, sneakers giant Vans and outdoorwear retailer The North Face.
This divergence was laid bare in VF’s 2019 full-year results, released earlier this week. While Vans’ global revenue was up 24 percent and The North Face by 9 percent, Lee and Wrangler saw a 7 percent and 1 percent drop, respectively, and the hope is that by separating the companies, they can get the attention they needed to thrive under expert management teams.
While only time will tell how Kontoor will perform in the long run, its new executive team, led by chief executive officer Scott Baxter, will be busy in the background, focusing on capturing a bigger slice of the resurgent denim market — and hoping their efforts will boost the share price. The category is bouncing back after some tough ath-leisure competition.
For Baxter, a VF veteran, expanding the labels’ global footprint and connecting with the young consumer, as well as keeping its traditional buyers happy, are among his top priorities.
“Wrangler, right now, is not even sold in China. We’re going to introduce it in China in January of 2020 so we have a really big and nice opportunity,” he told WWD in a phone interview from the business’ headquarters in Greensboro, N.C. (The new VF is moving its headquarters to Denver.)
He also explained there’s a lot of room to play with that brand’s breakdown in sales. Eighty-five percent of Wrangler’s business is men’s, so there’s a lot of room to expand its women’s division.
As for connecting with the young consumer, Wrangler was recently given an unexpected helping hand from rapper Lil Nas X and his song “Old Town Road,” which features the lyrics “Cowboy hat from Gucci, Wrangler on my booty.”
“It is driving a very young consumer into our brand and also blowing up on social media,” said Baxter, who learned about the song from his 13-year-old daughter.
His plans for Lee revolve around turning it into more of a lifestyle brand, a move that has helped its competitor Levi’s in its bid to claw back market share.
“Here in the United States it [Lee] is more of a denim bottoms business and we have a chance to turn it into a lifestyle brand with tops and outerwear and accessories,” added Baxter, who divulged that in order to achieve these goals, management has for the first time placed a global designer at each brand.
“We want to get closer to the consumer. We want to continue to drive our relationships with our wholesale customers, but continue to lean in and develop our digital and e-commerce business going forward to make sure that we’re always staying connected to the consumer and we want to go ahead and invest appropriately in the brands because we think that both Wrangler and Lee have a fairly large runway,” he added.