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V.F. Corp Reviews Nine Workwear Brands for Strategic Options

Zacks Equity Research

V.F. Corporation VFC is looking for strategic alternatives for the occupational part of its Work division, which comprises nine brands and businesses. The nine brands include Red Kap, VF Solutions, Bulwark, Workrite, Walls, Terra, Kodiak, Work Authority and Horace Small. These brands essentially provide work wear and uniforms for workers in the industrial, service and government sectors. However, the company remains committed to retain its Dickies and Timberland Pro brands.

Collectively, the brands under review contributed about $865 million to the company’s fiscal 2019 top line and make for nearly 50% of the Work segment's revenues.

The divestiture of the aforementioned brands is part of V.F. Corp’s efforts to optimize its portfolio. This is also the next step in transforming the company into a consumer-minded and retail-centric enterprise. Moreover, this will enable it to focus on consumer-focused brands, with improved financial flexibility to fund strategic initiatives and boost shareholder value.

Further, this announcement confirms that the company’s transformation plan, known as 2024 growth plan, is well on track. The 2024 growth strategy primarily focuses on creating a dynamic and optimum portfolio, directing investments to Asia and uplifting direct channels by prioritizing digital. The strategy targets generating revenue growth of 7-8% at a five-year CAGR, through 2024, driven by its largest brands — The Vans, The North Face, Timberland and Dickies.

Further, the company expects revenue growth through the period to be driven by strong contributions from the International and Direct-to-Consumer business platforms. It expects earnings per share growth of 12-14% at a five-year CAGR, from fiscal 2019 levels. In fiscal 2024, the company anticipates gross margin to exceed 55.5%, with an operating margin of more than 15%.


 

Moreover, V.F. Corp expects to generate cumulative free cash flows of nearly $8 billion during the five-year period. Of this, the company plans to return about $10 billion to shareholders in the form of dividend payouts and share repurchases. It anticipates delivering top quartile total shareholder return (TSR) performance with annual TSR of 14-16%.

We note that, shares of this company have increased 7.2% in the past six months compared with the industry’s growth of 3.5%.  V.F. Corp currently carries a Zacks Rank #4 (Sell).

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