With the jeans business spun off to operate on its own, executives at VF Corp. say they’re going to focus on a message of environmental sustainability and the outdoor lifestyle with many of its remaining brands, which include The North Face and Timberland.
Kontoor Brands Inc. began trading under the ticker “KTB” on Thursday with a portfolio that includes the Wrangler, Lee and Rock & Republic brands of jeans. VF Corp. VFC, +0.77% shareholders will receive one share of Kontoor Brands common stock for every seven shares of VF Corp. stock held as of the close on May 10.
Kontoor Brands opened Thursday at $37.15 and quickly dropped 4%.
Now the RemainCo brands can turn their attention to eco issues and marketing, emulating rival brands like Patagonia and R.E.I. that have made outdoor gear and nature key to their business. VF Corp. Chief Executive Steve Rendle says it’s a “purpose-led” approach that puts “purpose on par with value creation as a philosophy of a profitable company.”
“Our brands are able to create an intimate relationship with consumers,” he said. “These are brands that help define a lifestyle and connects you to a like-minded community.”
Read: Neiman Marcus, H&M join growing list of brands that are tapping the secondhand market
One of VF Corp.’s most recent acquisitions is Icebreaker, a brand of outdoor apparel that uses merino wool, a natural fiber, rather than synthetic materials. VF Corp. already owned SmartWool, another merino-wool brand.
The acquisition is part of a commitment VF Corp. made in 2017 to remake the company’s portfolio with purpose in mind.
“We look for brands that can be number one or number two in their category,” Rendle said. “The commitment to natural performance fiber can move into the balance of the portfolio.”
VF Corp. has also shed brands, selling the Nautica business, among others.
“We’re focused on the specialty aspect of the marketplace,” Rendle said, noting the challenges faced at department stores and in the mid-tier of the apparel market.
“We didn’t think we were well suited to compete in that area.”
Not all of the remaining VF Corp. brands are focused squarely on the outdoors. Vans, which is rooted in the skateboard culture and is a bright star at VF Corp., occupies a space where the competition is big names like Nike Inc. NKE, -0.65% and Adidas AG ADS, -1.56% .
See: Target shoppers who use same-day delivery at urban stores buy five times more items
Vans, which Rendle said is focused on “creative expression,” has soared, with $1.4 billion in growth in last two years.
“This is their moment,” he told MarketWatch. “It’s a powerful machine that has consistently grown over a period of time.”
Also: Vans will be a brand leader for VF Corp. after jeans spin-off: analysts
Cowen analysts think VF Corp will make another acquisition in the coming years, and is bullish on both the Vans and The North Face brands.
“We would be buyers of VF Corp. (now officially RemainCo) with our view that initial sales and EPS guidance is conservative for FY20, including The North Face re-accelerating with improved innovation and brand positioning, and Vans remaining above targets,” said analysts led by John Kernan.
VF Corp. reported fourth-quarter earnings on Wednesday that beat expectations and revenue in line with consensus. Vans revenue grew 24% and The North Face was up 9%.
“VF Corp. has significant competitive advantages that include manufacturing nearly 33% of its product in its owned factories, and owning significant expertise in the supply chain, as well as management’s focus on outdoor, active and work wear brands and ability to reinvest significant amounts of cash flow to innovate product and acquire deep knowledge of their core consumer,” Cowen wrote.
Cowen rates VF Corp. shares outperform with a $90 price target, down from $100.
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The ongoing trade war with China won’t have much impact, said Scott Roe, VF Corp.’s chief financial officer.
“We’ve been taking measures over the past year-plus to minimize exposure to China,” Roe said. “We’re a big company with a large supply chain footprint, which gives us optionality. We’re always rebalancing across the network to deliver the lowest cost at the best service levels.”
Baird analysts think VF Corp.’s Remainco brands are “firing on all cylinders,” maintaining their outperform rating and $95 price target.
“We are encouraged by ongoing momentum for VF Corp.’s core businesses as strong brand positioning, solid execution, and strategic investments behind key growth drivers (especially direct-to-consumer/digital) are driving healthy sales/gross margin gains,” analysts led by Jonathan Komp wrote.
VF Corp. stock closed down 2% on Wednesday but opened up 0.6% on Thursday. Shares have climbed 20% for 2019 so far while the S&P 500 index SPX, -1.39% has rallied 12.5% for the period.
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