VF Corp to spin off jeans business into separate company - Just Style
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VF Corp to spin off jeans business into separate company

By Giacomo Lee 13 Aug 2018

US apparel giant VF Corp has revealed plans to spin off the group's denim and outlet businesses into an independent, publicly traded company – in a move it says will sharpen its focus as a global clothing and footwear powerhouse focused on brands such as The North Face, Timberland and Vans.

VF Corp to spin off jeans business into separate company

US apparel giant VF Corp has revealed plans to spin off the group’s denim and outlet businesses into an independent, publicly traded company – in a move it says will sharpen its focus as a global clothing and footwear powerhouse focused on brands such as The North Face, Timberland and Vans.

In an announcement today (13 August), VF said its board of directors intends to transition the company’s jeans and outlet businesses into a separate yet-to-be-named entity (NewCo), which it is already hailing as a “global leader in the denim category.” This will include brands such as Lee and Wrangler, and “best-in-class supply chain” expertise.

“In alignment with our strategic plan, the decision to separate these businesses will allow VF to sharpen its focus as a consumer-centric and retail-minded organisation anchored in activity-based lifestyle brands,” said CEO Steve Rendle.

Revenue from the group’s jeans business declined 3% to $2.66bn from $2.74bn in the full year to 30 December 2017, compared to an 8% rise to $8.2bn year-on-year in the outdoor and action sports segment.

However, speaking on a call with analysts today, both Rendle and chief financial officer Scott Roe were keen to play up the separation on the success of the jeans business.

“It’s important to note that VF is taking these actions from a position of strength, with both the jeans and the remaining VF portfolio showing improving performance in line with our long-term growth plans,” said Rendle. “Our jeans business and the remainder of VF have evolved differently over time, resulting in two separate and distinct businesses with unique investment identities and operating models.”

Meanwhile, Roe explained that while the jeans business accounted for more than 50% of total profit and cash flow in 2000, it has not shrunk today, rather that the rest of VF has grown profit and cash flow at a much faster rate.

“While jeans is still a solid profitable and cash efficient business, it is no longer required to fund VF’s cash requirements,” he said, adding the jeans business has remained “exceptionally stable” through industry disruptions and economic cycles during an extended period of time.

“This stability, when coupled with a proven and experienced management team and board, provides a solid foundation for investors,” he said.

“We are pursuing this separation from a position of strength; this is a major milestone in our transformation journey and is yet another example of VF’s commitment to active portfolio management and delivering superior returns to shareholders.”

Reshaping brand portfolio

The US footwear and apparel giant outlined its latest five-year growth plan in April of last year. It sets out the company’s goals to 2021, including a ramped-up focus on its top-performing Vans, Timberland and The North Face brands, and a disciplined reshaping of its overall brand portfolio.

Since then, VF has acquired Williamson-Dickie, and the Icebreaker and Altra brands, and divested the Nautica business and the Licensed Sports Group, including the Majestic brand.

“The strategic priorities and financial characteristics of VF and NewCo have evolved over time and the synergies across these businesses have become less clear,” VF said. “Enabling the jeans business to operate independently from VF will allow it to focus on its long-term strategic priorities and achieve even greater potential as a separate company with a separate management team.”

The company believes the separation will offer several benefits, leading to enhanced long-term revenue growth and margin expansion. These include:

  • Both companies will benefit from enhanced strategic and management focus;
  • Each company will benefit from reduced managerial and operational complexity;
  • Both companies will be able to optimise their distinct capabilities and focus investment on independent growth priorities, positioning each for stronger, more sustainable value creation;
  • Each company will have a flexible capital structure with the ability to fund targeted profitable growth; and,
  • The operational and financial profile of each company will more closely align with its natural investor type.

A more focused VF

With estimated annual revenue of more than US$11bn, the so-called “new VF” will have a mid-teen total shareholder return target, including a strong dividend yield in line with the S&P 500. Building on VF’s successful track record of acquiring and accelerating brand growth, the separation will give the company more flexibility to pursue its merger and acquisition strategy, explore new growth and apply more investment behind its organic brand portfolio.

Consistent with its enhanced focus on the outdoor and active consumer, VF will move its global headquarters to the metro Denver area, which will also serve as the home for The North Face, JanSport, Smartwool, Altra and Eagle Creek brands and both VF’s global innovation centre for technical fabrics and digital lab.

“Locating these brands, along with select VF leaders, at the base of the Rocky Mountains will enable us to accelerate innovation, unlock collaboration across brands and functions, attract and retain talent and connect with consumers,” said Rendle, who will continue to lead VF.

A global leader in denim

Meanwhile, with estimated annual revenue of more than $2.5bn, NewCo will have best-in-class supply chain, channel and category management expertise.

Looking ahead, there are already plans to expand the company’s geographic footprint with a sharp focus on Asia, building on its established presence in China, and expand its distribution to new customers and categories, with a focus on both owned and wholesale digital partner channels.

In addition, NewCo expects to unlock “significant” scale and cost efficiencies by streamlining operations, providing flexibility to pursue strategic acquisitions over time.

VF also today announced Scott Baxter as the CEO of NewCo and Rustin Welton as chief financial officer, effective once the transaction has been completed.

NewCo’s global headquarters will be in Greensboro, North Carolina. As a result, the Lee brand will move its headquarters to Greensboro from Kansas City, joining the Wrangler brand.

Next steps

The separation is currently due to be completed in the first half of calendar 2019, and VF says that throughout the separation process its management will remain committed to business as usual with all key stakeholders.

“As I look ahead, I am truly excited about the opportunity this separation presents to each company, to unlock stronger long-term growth and total shareholder return,” Rendle said on today’s analyst call. “During the transition in the months ahead, we remain committed to operating our business as normal and building on the foundation and momentum we have generated with our 2021 strategy.

“The success that VF and the jeans business has achieved over the years has been remarkable; to continue, it requires the ability to consider the future and make bold decisions today that will deliver superior results in the years ahead.”

Investor days will be held for both VF and NewCo during the first half of calendar 2019.