EU CONSUMER CYCLICALS: VF Corp | 4Q (to March) earnings (x4)

(VFC: Ba1/BB) (equities -12%)

Focus will be on the fall in Vans (-20% rolling over -27% fall from last year - and nearly half the size it was at its peak/in 2022). It is pointing to Timberland that did its second straight quarter of double digit growth as evidence it knows how to do a turnaround: "as I said, we've demonstrated that we can do this at Timberland, for example, where we also had a period of decline"..."but we'll get there. We've done it in Timberland, we know how to do this, we just got to execute." Re Q1 guidance being down y/y (on EBIT) its flagging seasonality which skews it heavily to Vans (North Face is seasonal into the autumn/winter Q2/3). Otherwise all guidance is 'technically' credit positive including EBIT up, FCF up and paydown of 26s. Only negative is the continuing dividend which is not nice to see. Equities are not confident pricing growth here (13x on forward P/E, $5b market cap vs. $4.9b net debt) but stability will be enough for credit to log excess returns (trades wide). It will continue to trade high-beta on macro given Vans issues, we are still skewed to see this as turnaround story.

• Vans down a sharp -20% mostly (60%) from purposeful pullback on unprofitable or unproductive channels/stores. It says excluding those it was down high-single digits (same as last quarters pace).
  • The pull back (including shutting of stores) does mean structurally lower revenue -> it is guiding to continued proportionate drag in Q1 and Q2 of this year (i.e. out to September).
  • Re. impact to group, Vans made up 25% of revenues last year and though it does not break out operating profit explicitly, it makes up most of the 'active' segment which is 16% of the adj. EBIT.
  • Sun Choe was lifted from Lululemon to fix this brand - the poaching itself caused a -7% slide in Lulu's stock. In late Jan mgmt said her work was yet to appear stating "I'm going to keep the expectations low for Vans as long as possible because I want to give her plenty of room to operate". Sentiment around her still optimistic.
• $150m impact on costs from current tariffs if unmitigated but based on current timing of tariffs only 65% will be felt in FY26 (i.e. $98m). FY25 adj. EBIT guided to be up on this years $556m - and if so its <18% headwind. It says it can mitigate all of it through sourcing relocation and pricing actions.
• FCF guidance is for it to be up y/y ($313m) - this excludes any non-core asset sales and will be driven by higher operating cash flows. No guidance on capex yet (LY: OCF $465m, capex $161m).
• Not considering cutting the $35m/qtr ($140m/yr) dividend despite leverage (4.1x) holding outside 2.5x target.
• Will pay down front €500m Mar-26s with a mix of FCF and/or drawing on the $2b revolver.