VF has plans to fix the Vans brand which lost its way more than a year ago

By Tomi Kilgore

VF's stock tumbled as weak North Face results and Vans cleanup led to 'particularly disappointing' earnings

Shares of VF Corp. got tripped up Wednesday, after the footwear and apparel company reported "particularly disappointing" fiscal third-quarter results, citing weakness in its iconic North Face and Vans brands.

The company blamed warmer-than-usual weather for its North Face woes, especially in the Americas region, and said it was focused on righting the Vans brand, which appeared to lose its way more than a year ago. And a cybersecurity breach in December also affected results.

The stock (VFC) tumbled 9.8% in morning trading. That puts it on track to suffer the worst one-day performance since the stock sank 11.1% on Nov. 1, the day after it plunged 14% on the back of second-quarter results.

"We expected a weaker quarter for The North Face, but results were worse than our expectations, impacted largely by the Americas region, while international performance remained strong," said Chief Executive Bracken Darrell, according to an AlphaSense transcript of the post-earnings call with analysts.

Darrell said the average temperature during the quarter was 3-to-4 degrees higher than average in the Northern Hemisphere, which hurt sales of North Face outdoor gear. But as "the weather got cold" in January, he said North Face sales returned to growth across its geographic regions.

Regarding Vans, the troubles go a lot deeper than the weather, with revenue down sharply from a year ago amid weakness across all regions. Darrell acknowledged that a lot of the brand's troubles was management's fault.

Darrell said one of the mistakes made on Vans was that the company focused on feeding the trend that saw the brand's popularity take off from 2015 to 2020, which was fueled by cultural trend makers, and as celebrities started wearing them.

Basically, the company took its eye off the core youth audience that had been the "life blood" of Vans, and focused only on fueling the latest trend.

"The trend burned out 18 months ago. The trend moved on," Darrell said. "When a brand loses its way, the answer starts at its foundation, its purpose and target audience."

Darrell, who was appointed CEO in July 2023, said he spends more than half his time working with the Vans team. He said a "package" to fix the brand was in place.

The company took reset actions to "clean up" Vans inventories in the marketplace, which weighed on third-quarter results and will likely also hurt the current quarter.

"I'm not ready yet to commit to when the brand will return to growth, but it will," he said.

For the fiscal third-quarter ended December, VF reported late Tuesday that it swung to a net loss of $42.5 million, or 11 cents a share, from income of $507.9 million, or $1.31 a share, in the same period a year ago.

Excluding nonrecurring items, such as goodwill impairment charges related to the Timberland and Dickies brands, adjusted profit per share of 57 cents missed the FactSet consensus of 77 cents.

Revenue dropped 16.2% to $2.96 billion, below the FactSet consensus of $3.24 billion, with all of its brands seeing declines.

North Face revenue was down 9.8% to $1.19 billion, Vans revenue tumbled 27.9% to $668.2 million, Timberland revenue slid 20.6% to $473 million and Dickies revenue shed 16.4% to $147.9 million. Revenue from all other brands slipped 6.1% to $479.1 million.

Among regions, Americas revenue sank 24.2% to $1.59 billion and international revenue eased 5.1%.

For 2024, the company reiterated its guidance for free cash flow of about $600 million.

The stock has lost 46.4% over the past 12 months, while the S&P 500 index SPX has rallied 19.5%.

-Tomi Kilgore

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

02-07-24 1016ET

Copyright (c) 2024 Dow Jones & Company, Inc.