VF Corporation: CEO Appointment Comes at Critical and Uncertain Time; Shares Very Undervalued

Narrow-moat VF VFC announced that Bracken Darrell will join as CEO on July 17. The firm has been without a permanent CEO since December when Steve Rendle was dismissed and replaced on an interim basis by former wide-moat Clorox CEO Benno Dorer. Darrell comes to VF from consumer electronics and software firm Logitech, where he has served as CEO for the past 10 years. He also has management experience at wide-moat Procter & Gamble and Whirlpool. He joins VF at a crucial time after a poor (March-ended) fiscal 2023 in which it repeatedly lowered guidance, cut its dividend, recognized large write-downs related to Supreme, and paid nearly $900 million after losing a tax case (being appealed). Now, in fiscal 2024, VF faces sluggish demand for apparel and footwear while it endeavors to improve its supply chain and fix Vans and Supreme. While Darrell’s history of leading a public company for a decade provides confidence, it is perhaps surprising that VF has chosen a CEO with no experience in the apparel and footwear industry.

We intend to lower our capital allocation rating to Standard from Exemplary. For years, VF had an excellent track record of acquisitions and dispositions, a solid balance sheet, and a history of consistently returning cash to shareholders. However, recent corporate decisions, including the $2 billion purchase of Supreme in late 2020, have been questionable, and the CEO change adds uncertainty about future capital allocation policies.

Although troubled, we believe VF has strengths, including the popularity of The North Face, which achieved 17% constant-currency sales growth in fiscal 2023, and its exposure to the attractive active and outdoor categories. We believe our medium-term estimates, including yearly sales growth of around 6% and operating margins in the low teens, remain within reach. VF’s shares, down about 50% over the past year, are very undervalued relative to our $60 per share fair value estimate, which we do not expect to change.