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V.F. Corp (VFC) Divests Workwear Brands, Streamlines Portfolio

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V.F. Corp. VFC has closed the sale of the occupational portion of its Work segment to a subsidiary of Redwood Capital Investments, LLC, which was agreed upon on Apr 28, 2021. The occupational portion sold under the deal includes work apparel brands like Red Kap, VF Solutions, Bulwark, Workrite, Walls, Terra, Kodiak, Work Authority and Horace Small. However, the divestiture deal did not include the Dickies and Timberland PRO brands.

The company’s Work segment has been making meaningful contributions to its growth. In fourth-quarter fiscal 2021, revenues at the Work segment improved 23% year over year (up 20% in constant currency) to $259.5 million. For fiscal 2022, the company expects revenue growth of 10-12% for the Work segment.

The aforementioned divestiture is in sync with V.F. Corp’s efforts to optimize its portfolio, keeping in mind consumers’ shifting preferences. The company remains on track with its 2024 growth plan, which focuses on transitioning to a consumer-minded and retail-centric business in a hyper-digital way. It will also focus on creating a dynamic and optimum portfolio, directing investments to Asia, and uplifting direct channels by prioritizing digital.

In the past three months, shares of this Zacks Rank #3 (Hold) company have gained 3.4% compared with the industry’s growth of 8.5%.

Zacks Investment Research
Zacks Investment Research

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Other Things to Note

V.F. Corp is progressing well with its digital and hyper-digital business model transformation. The company’s global digital revenues advanced 106% (up 99% in constant dollars) in fourth-quarter fiscal 2021. The digital business benefited from strong performance across almost every brand in the portfolio, including the pure-play digital wholesale partners. Notably, the total digital business represented about one-third of the total revenues in the reported quarter. Also, buy online, pickup in store and curbside delivery options have been aiding digital sales.

Backed by the strong performance, the company now expects digital revenue growth of 29-31% for fiscal 2022 on a reported basis. Including its pure-play digital wholesale partners, digital penetration is expected to account for more than 30% of revenues in fiscal 2022. Moreover, the company predicts direct-to-consumer revenue growth of 38-40%.

Additionally, V.F. Corp’s transformation plan for its Asia-Pacific operations aims at evolving the organizational design and footprint in the region alongside developing the latest capacitates to speed up brand growth. As part of the transformation plan, the company has relocated the hub of its brand operations from Hong Kong to Shanghai. This is likely to help V.F. Corp build stronger ties with consumers in China.

Further, the transformation initiative involves the company moving its Asia Product Supply Hub from Hong Kong to Singapore. This is likely to facilitate improved integration in the company’s worldwide supply chain, which includes key centers in the Americas and Europe. It will establish an additional shared services center for the Asia Pacific region in Kuala Lumpur, Malaysia. Nonetheless, management stated that Hong Kong will continue to serve as a key retail market for the company and its brands. Notably, V.F. Corp will initiate a phased transition to undertake the above-mentioned relocations.

Following a strong fourth quarter of fiscal 2021, management outlined a detailed outlook for fiscal 2022. It expects revenues of $11.8 billion for fiscal 2022, suggesting year-over-year growth of 28%. Further, it anticipates adjusted earnings per share of $3.50, including nearly 25 cents earnings contribution from the Supreme brand. The company anticipates adjusted gross margin of more than 56%, suggesting growth of more than 270 bps. It expects adjusted operating margin of 12.8%, suggesting growth of 480 bps.

3 Better-Ranked Stocks to Watch

GIII Apparel Group, LTD. GIII has a long-term earnings growth rate of 11.6% and it sports a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Gildan Activewear, Inc. GIL has a long-term earnings growth rate of 28.6%. The company currently flaunts a Zacks Rank #1.

PVH Corp. PVH has a long-term earnings growth rate of 18% and it presently sports a Zacks Rank #1.

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