Activists Come for VF: Engaged Capital Seeks Portfolio Review
If the investor gets its way, brands from Supreme to Timberland could be reviewed for potential sale.
is just getting his start as chief executive officer of VF Corp. and already he has some vocal investors looking over his shoulder.
Shares of VF shot up 14 percent to $18.45 on Tuesday on word that activist investor Engaged Capital was pushing the company to conduct a strategic review of all the brands in its portfolio except Vans and The North Face.
That left the company with a market capitalization of $7.2 billion — a fraction of the nearly $40 billion market cap the stock enjoyed at the start of 2020.
Engaged is led by Glenn Welling, principal and chief investment officer, and has previously taken on Shake Shack, Hain Celestial and others. If the investor gets its way, a series of high-profile names across street, active and workwear could be considered for sale including Supreme, Timberland, Icebreaker and Dickies.
Already the company has been working to sell its backpack business — which includes the Kipling, Eastpak and JanSport brands — as it seeks to turn around its business.
Engaged described itself as “a top shareholder of VF Corp.” and outlined steps that it said can get the firm back to a share price in the mid $40s within three years.
In addition to the review of non-core assets, the activist is calling for VF to:
Cut costs by more than $300 million. Reinvest about $100 million “to accelerate innovation and support” The North Face and Vans.
Make targeted board changes.
In a statement, VF said: “We are aware of Engaged Capital's investment in VF Corp. and their comments regarding our company. We value the views of our shareholders and seek to maintain an open dialogue with the investment community. VF has globally recognized and iconic brands and bestin-class talent. VF's board and leadership team, including our recently appointed
CEO Bracken Darrell, are taking immediate and decisive actions to strengthen the company's position and return VF to strong, sustainable, and profitable growth in the interests of all our shareholders.”
Engaged's interest in VF was reported earlier by the Wall Street Journal.
Darrell, former chief of Logitech and a Procter & Gamble veteran, took the top spot at VF in July and has promised to lay out more of his vision for the company when fiscal second-quarter results are reported on Oct. 30.
Thus far, he's been generally positive on the company's positioning, noting this summer that VF has a “portfolio of globally powerful and iconic brands” with both purpose and talent.
“These are the key ingredients needed to unlock the company's significant value potential and return to strong sustainable and profitable growth,” the CEO said.
But VF still has a way to go.
First-quarter net losses widened to $57.4 million from $56 million a year earlier, as revenues fell 8 percent to $2.1 billion.
The North Face was a bright spot, with revenues up 12 percent to $538.2 million, but Vans, the company's largest business,
continued to struggle with revenues down 22 percent to $737.5 million amid wholesale weakness in the Americas.
The continuing weakness at Vans — long the company's powerhouse contributor — has been vexing VF for some time and no doubt contributed to the sudden departure last year of former CEO Steve Rendle.
Rendle made some dramatic moves as head of VF — spinning off the Wrangler and Lee jeans businesses into Kontoor Brands Inc., moving the company to Colorado and, in 2020, buying Supreme.
The $2.1 billion Supreme acquisition brought a very fashion-forward brand to the company's skate and street offering, but the business was blunted by pandemicera supply chain backups — an area that was supposed to be a strength of VF's.
And last year, the company took $735 million worth of impairment charges against Supreme, citing “non-operating factors including higher interest rates and foreign currency fluctuations,” a function in part of the brand's business in Japan.
In a presentation to other investors,
Engaged said, “The Supreme acquisition was, in our view, a breakdown in risk management, paying a full multiple for a high fashion brand and lowering financial flexibility due to the assumption of debt.”
Tom Nikic, an analyst at Wedbush, said: “It's hard to push back aggressively against the crux of Engaged's argument. While some of their proposals already seem to be in motion — debt-leverage reduction, reinvestment in Vans innovation, etc. — it could take time for these initiatives to bear fruit, and in the meantime we think Vans continues to struggle amid a highly competitive footwear industry.
“So we remain sidelined on VF shares, though we admit that the presence of an activist could put a near-term ‘floor' on the shares,” Nikic said.
Between Vans, Supreme and other difficulties, VF had cut back on its dividend and lost the faith of many investors. What now remains to be seen is what Darrell will do to get that faith back and if the highprofile proddings of Engaged impacts his plans at all.