VF Corp. just got a lot leaner.
The apparel and footwear company has officially spun off its staid jeans and outlet business into a separate company called Kontoor, turning its focus on capitalizing on its powerhouse brands — outdoor wear label The North Face and sneakers giant Vans.
On top of the newly slimmed-down VF’s list is China — and the current political climate is not deterring the company, which is in the process of relocating its headquarters from Greensboro, N.C., to Denver.
“We have a tremendous opportunity to continue to see outsized growth in that important marketplace,” said Steve Rendle, chairman, president and chief executive officer of VF, in an interview with WWD.
He is one of the few executives in retail who doesn’t appear to be overly concerned about the escalating trade dispute between China and the U.S., despite the latter threatening to slap 25 percent levies on Chinese imports of apparel and footwear.
Just a few years ago it would have been a different story, but the company has worked hard to diversify its supply chain and now only 7 percent of U.S. merchandise is produced in China, which he describes “as minimal in the grand scheme of things.”
That’s not to say, though, that it won’t have to make some adjustments if the levies do come into force and it’s monitoring developments closely, but so far any impact from previous rounds of levies has been small.
“We’ve been working on diversifying and mitigating potential impacts. We’re certainly paying tremendous amount of attention to dialogue taking place today between the U.S. and China,” added Rendle.
It’s also not seeing much evidence of a recent slowdown in the Asian giant’s economy when it comes to the business it does in China, which Rendle attributes to the global popularity of the Vans brand.
“(The Vans brand) really rises above any political pressure. It’s about creative self-expression and its origin is really immaterial. It’s more about what this brand enables consumers to do,” he said.
Indeed, revenue in China is projected to grow by more than 20 percent in the 2020 fiscal year, also helped out by The North Face, Timberland and Kipling.
Another key focus market this year is Europe, where there are numerous political and economic risks on the horizon including Brexit. VF, however, is also confident that it has the ability to navigate these safely.
“A lot of companies talk about the challenges in the European market, but we have over our history navigated a lot of those ups and downs because of our diversified portfolio, or ability to look at different countries and different channels of distribution,” added Rendle.
But despite VF’s confidence about life after Kontoor, its share price ended the day in the red, closing down 1.9 percent, or $1.77, to $90.33.
Investors looked past a respectable sales gain and earnings beat in the final quarter of the 2019 fiscal year and zeroed in on the fact that VF lowered its 2020 revenue outlook to be in the range of $11.7 billion to $11.8 billion. While this reflects growth of about 5 percent to 6 percent, analysts had penciled in $14.6 billion.
Within that, sales in its active category, which includes Vans, is projected to slow to between 6 percent and 7 percent, following a 16 percent increase in 2019.
At the same time, adjusted earnings per share are expected to be in the range of $3.30 to $3.35, reflecting estimated growth of approximately 15 percent to 17 percent, but again lower than Wall Street’s expectations for $4.25.
Figures for the fourth quarter were rosier. Revenue increased 6 percent to $3.2 billion, driven by VF’s largest brands, international and direct-to-consumer businesses and matched Wall Street estimates. Outdoor revenue, including The North Face, was 13 percent higher, while active revenue was up 7 percent.
On an adjusted basis, earnings per share declined 10 percent to 60 cents, but slightly ahead of analysts’ average forecasts, according to FactSet.
“Fiscal 2019 marked one of the most significant periods of transformation in VF’s 120-year history, highlighted by our announcement to spin off our jeans business as an independent, publicly traded company,” said Rendle in a statement accompanying the results. “Despite the tremendous workload, we remained sharply focused and delivered another year of strong financial results and top quartile returns to our shareholders.”
As for Kontoor, whose brands include Wrangler and Lee, it will remain in Greensboro and will be run by a separate dedicated management team led by Scott Baxter, who can focus on capturing a bigger slice of the resurgent denim market — a category that is bouncing back after some tough ath-leisure competition.
Its executives will also no doubt be hoping that it can ride the wave of Levi Strauss & Co.’s blockbuster return to the stock market last month.
Rendle added that the separation is about “thinking through the investor lens and creating maximum value for shareholders.”
Kontoor Brands will start trading Thursday morning under the stock symbol “KTB.” Scott Roe, VF’s vice president and chief financial officer, told WWD that the unusual name was partly due to the difficulty of finding a name that didn’t already have a trademark.