Investors remain cold towards V.F. Corp (VFC, Financial) today after the outdoor apparel retailer recorded Q4 (Mar) numbers failing to meet analyst expectations. The company, known for The North Face and Vans, has struggled considerably since late 2021 to produce sustainable growth. Revenue growth slumped in 4Q22, drifting into negative territory shortly thereafter, where it has remained for seven consecutive quarters following a 13.4% drop year-over-year to $2.37 billion in Q4.
To reverse course, VFC kicked off a turnaround strategy in 2Q24 (Sep) under new CEO Bracken Darrel, who turned around Old Spice and Logitech. Mr. Darrel's strategy involves three key pillars:
- Reinvent: A blueprint for returning to positive year-over-year growth.
- Ignite: Elevating the consumer experience.
- Accelerate: Bringing the two phases together.
VFC withdrew its guidance last year and has yet to issue formal P&L forecasts. This increases uncertainty, as analysts and investors are without a roadmap on where management expects to go in the near term. It also can weigh on the market's patience. This dynamic is on display today.
- VFC registered a net loss of $0.32 per share, a striking drop from the positive $0.17 delivered in the year-ago period. Alongside disappointing sales growth, non-GAAP gross and operating margins contracting by 120 bps and 770 bps year-over-year, respectively, pulled down VFC's bottom line. Meanwhile, the double-digit year-over-year revenue decline emerged from weakness across The North Face, which endured a 5% sales decline, and Vans, which plunged by 26%.
- However, several highlights from the quarter are worth mentioning. For starters, VFC remains on track to deliver its $300 million cost-savings target by midway through FY25. Secondly, VFC has done a decent job reducing its excess inventory, bringing the total down by 23% year-over-year by the end of Q4 and helping to lower its debt profile meaningfully. Thirdly, VFC generated over $800 million in free cash flow in FY24, exceeding its $600 million target.
- Furthermore, green shoots from VFC's turnaround plan emerged. In Vans, management remarked that its inventory reset actions produced a cleaner market for introducing new products. While this has yet to generate noticeable financial improvements, it is the first step toward reigniting growth. Meanwhile, VFC has started elevating The North Face brand by increasing its portfolio of premium performance products, leveraging what the brand has been most known for over the years.
- As a result, VFC felt confident in quarterly performance steadily improving sequentially each quarter after Q1 (Jun), which will coincide with the completion of its channel inventory resets. VFC also warned that financials will remain constrained in Q1 as a result.
VFC's Q4 report did not underpin apparent benefits from the company's ambitious turnaround strategy. However, the company is starting to show some early signs of success, albeit relatively modest. Still, given VFC's past setbacks and its bearish Q1 commentary, investors are not springing to buy into VFC's anticipated recovery. It may take another quarter or two, whereby VFC must display noticeable turnaround signals before investors start warming up toward the stock.
