VF Corp, the parent company of renowned brands like North Face and Vans, has taken decisive action to address investor concerns by withdrawing its fiscal year guidance and introducing a comprehensive transformation plan. This strategic shift comes in direct response to mounting pressure from activist investor groups, Engaged Capital and Legion Partners Asset Management.
The transformation plan is designed to tackle several critical areas, including enhancing results in North America, reducing operational costs, decreasing existing debt, and orchestrating a substantial overhaul of the Vans brand. Notably, Vans encountered a challenging quarter, with a 21% decline in revenue in the fiscal second quarter ending on September 30. Excluding Vans, sales within the Americas also experienced a notable 11% dip.
These challenging performance figures have had a discernible impact on VF Corp’s stock price, with shares plummeting by as much as 18% in late trading in New York. Year-to-date, the company’s stock has seen a substantial decline of 38%.
Looking ahead, VF Corp anticipates that the performance of its footwear brands, including Vans, may not see significant improvement in the second half of the fiscal year, which concludes in March. In response to the ongoing challenges at Vans, Kevin Bailey, who formerly served as the head of Vans, will step down from his role. During the transition, CEO Bracken Darrell will oversee the Vans unit as the company initiates an external search for a suitable replacement.
In recent times, investor groups such as Engaged Capital and Legion Partners Asset Management have intensified their pressure on VF Corp due to unmet expectations. Engaged Capital is advocating for strategic divestment of certain brands and a concerted effort to reduce existing debt.
Notably, CFO Matt Puckett acknowledged the need for more substantial progress, noting, «Despite pockets of continued strong performance throughout the first half and solid profit margins in the second quarter, it’s not enough, and we are not making sufficient progress at Vans or in the US.»
In response to these shifting dynamics, the company has revised its financial outlook. VF Corp now anticipates free cash flow of approximately $600 million for the fiscal year, a significant adjustment from its previous projection of $900 million. In addition to the ongoing challenges at Vans, the company foresees a more complex US wholesale environment. Implementing its new strategic approach may entail various charges, including both cash and noncash items.
In the most recent quarter, VF Corp’s flagship brand, The North Face, emerged as the top-selling brand, followed by Vans and Timberland.