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VF Corporation CEO: 'M&A is the number one priority in our capital allocation strategy'

Yahoo Finance's Alexis Christoforous and Brian Sozzi speak to VF Corporation CEO Steve Rendle about the current state of retail, future of e-commerce and the potential of merger and acquisitions.

Video Transcript

ALEXIS CHRISTOFOROUS: --earnings report that was disappointing for VF Corporation last week. Susquehanna is maintaining its positive rating and believes the company behind brands like Timberland, North Face, and JanSport will emerge out of this crisis stronger than its competitors.

VF Corporation CEO Steve Rendle is joining us now for more on this. Hey, Steve. Good to see you, as always.

I don't want to talk so much about last quarter because that's sort of backward looking. Right now in this current quarter, lots of places starting to reopen, especially in Asia where you have a large presence. What are business conditions looking like right now?

STEVE RENDLE: Yeah, well, hey, thank you for having me this morning. So business conditions for us in China are improving. We-- most of our stores are now open in China, and we are seeing consumers coming back to our retail environments. Traffic is down year over year, but we are seeing, you know, really nice sequential improvement. Our digital platform is above plan, and we're seeing really strong engagement and strong conversion.

I think the value of China for us is beyond just the revenue and what we're seeing with our consumer. It's really-- it's the playbook for us. We started to see the impact of the pandemic late January. We began to very quickly move into action to support our people. But our understanding of the consumer, understanding how to react is helping us in our European and North America businesses as well.

BRIAN SOZZI: Steve, you have-- about 5% of your business is for US wholesale. I know you've worked quite extensively the past few years in getting that exposure down, but I'm sure you saw the news on JCPenney. A lot of people are struggling out there in the department space. As you take a step back, is there a place-- is there a place in the future of retail for a mid-tier department store?

STEVE RENDLE: You know, Brian, you know, we've been seeing consolidation in the US, you know, wholesale marketplace now since 2014, 2015. So further consolidation should not be a surprise to any of us.

Retailers need to bring a very strong point of view. They need to provide differentiated service, product, and experience. And if you're not doing that, you are at risk of falling to the wayside.

And the work we've been doing with our portfolio, the strategy we've put in place around being consumer minded, much more retail centric with a hyper-digital focus is allowing us to pivot our operating model, our portfolio of brands to compete in a much more strong and productive way in this rapidly changing consumer marketplace.

BRIAN SOZZI: Steve, you mentioned on your earnings call that 80% of all of your planned strategic investments this year are for digital. That's a lot of investment going on in digital. What are you working on? How do you view the future of e-commerce shopping?

STEVE RENDLE: Well, Brian, we've been under this transformation since 2017, you know, where we came out and declared, you know, that we would reshape our portfolio as the number-one choice, and that's really about aligning brands that are able to connect with consumers in a more direct way. We reupped our emphasis on Asia, specifically China, which is a very digitally driven environment.

And the element around D2C and digital was the third critical area, and we began to invest at that point in our digital-commerce capability with a mobile-first mindset and really understanding through our end-to-end consumer-data platform, what is it the consumer's looking for? How should we be engaging? How do we build greater affinity and bring you through that funnel where we are getting you to consider the products we offer, you know, through greater experience? And if you're there to transact, how do we simplify, you know, that shopping, you know, cart at the end of the journey?

ALEXIS CHRISTOFOROUS: Hey, Steve, I know you recently completed a $3 billion bond offering to create sort of a cash buffer and be able to stay liquid. But is merger activity part of the plans going forward? I mean, sort of when you look out post this pandemic, does that looks like something you'd be interested in?

STEVE RENDLE: You know, M&A is the number-one priority in our capital-allocation strategy. We moved quickly on the bond offer, you know, to really shore up our near-term liquidity just to take that off the table so we really could ensure our focus and our investment goes against our organic portfolio.

So today, number-one priority really is the strength of our enterprise, the strength of our organic portfolio. We will be opportunistic. We will look for those possible M&A actions that will come through this environment, and we'll do it around, you know, the total addressable market that we've spoken about since our investor day last fall, around the outdoor space, the active athleisure. And we're quite intrigued by this work lifestyle, you know, element of the marketplace where our Dickies brand sits.

ALEXIS CHRISTOFOROUS: All right, Steve Rendle. A lot of us are getting out now outdoors and not staying inside to help with social distancing as we sort of come back online, so I'd imagine that's going to help VF Corporation as well. Steve Rendle, CEO, thanks so much.

STEVE RENDLE: Thank you very much.

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