Outdoor apparel and footwear manufacturer VF Corp. (NYSE: VFC) had a disastrous fiscal Q4 2024 earnings report. The consumer discretionary sector giant missed top and bottom line estimates and experienced sales drops in all its brands as excess inventory is being worked through.
In fact, VF Corp's revenue growth slumped in Q4 2022 and has remained in negative territory for the past 7 quarters. You'd expect the stock to unravel even as the company withdrew further guidance completely. However, shares rallied on the gap down and have returned to pre-earnings levels for the maker of iconic brands, including The North Face, Vans, Timberlands and Dickies. The market still has hopes for a VF Corp turnaround story or a takeover.
VF Corp faces tough competition from outdoor apparel retailers, including Deckers Outdoor Co. (NYSE: DECK), Canadian Goose Holdings Inc. (NYSE: GOOS), Visto Outdoor Inc. (NYSE: VSTO) and Columbia Sportswear Co. (NASDAQ: COLM).
VF Corp's “Reinvent” Turnaround Strategy
VF Corp is in the process of a turnaround spearheaded by the man who turned around Old Spice and was the former CEO of computer and gaming accessories and peripherals giant Logitech International S.A. (NASDAQ: LOGI), Darrel Bracken. There's no arguing the household name status of its brands, which cover outdoor, athletic streetwear lifestyles and casual wear. Bracken took over in fiscal Q2 2024 and implemented this Reinvent strategy.
CEO Bracken’s Reinvent strategy has three phases for a turnaround: Reset, Ignite, and Accelerate. Reset is focused on resetting all of the U.S. business, Vans, the cost base, and the balance sheet. Ignite centers around improving the customer experience and how the brands appear in front of the customer. Accelerate brings the two phases together simultaneously to accelerate growth.
VF Corp: Takeover Speculation Halo Looms
VF Corp has also been under the halo of a potential takeover due to the strong recognition of its brands. Rumors surfaced in 2023 of a potential takeover and crept up again after its latest earnings of takeover interest. This could be another factor that caused shares to rebound after a disastrous fiscal Q4 2024. There are rumors that VF Corp is looking to unload its Supreme brand of backpacks. In fact, all brands are up for strategic reviews, with the exception of The North Face and Vans.
Daily Descending Triangle Pattern on VFC Stock Continues to Defy Gravity
VF Corp has a daily descending triangle pattern. The descending triangle commenced at the $15.45 swing high on April 1, 2024. Shares sold off to the $11.91 flat-bottom support level, maintaining this position until its earnings release. The fiscal Q4 2024 release caused shares to break down, creating a gap, but VF Corp managed to trigger a reversal, bringing them back into the triangle range. The daily market structure low (MSL) trigger formed at $12.60. A breakout above this level can initiate a trend reversal and signal further upward movement. The daily relative strength index (RSI) is attempting to bounce again through the 45-band. Pullback support levels are at $11.91, $11.00, $10.50 and $9.51.
A Miserable Fiscal Q4 2024 Report for VF Corp
VF Corp reported a fiscal Q4 2024 EPS loss of 32 cents, missing analyst estimates for a profit of 2 cents by 34 cents. Revenues fell 13.4% YoY to $2.37 billion, missing consensus estimates of $2.42. Gross margins contracted 120 bps and 770 bps YoY. The company saw each of its key brands lose more momentum. The North Face saw a 5% YoY drop in revenues. However, its direct-to-consumer (DTC) channel saw a 6% YoY spike. Vans saw a sharp 26% drop in revenues. Timberland saw revenues fall 14% YoY. Dickies revenues fell 15% YoY.
VF Corp's Challenges: Preparing for a Turnaround
VF Corp CEO Bracken acknowledged the weak performance. viewing it as a necessary step for the turnaround to take place. Bracken even warned that pressure will continue in fiscal Q1 2024 with comparably lousy results as Q4 2024. Transformation action will result in YoY margin erosion as the company works through excess inventory from the cleanup actions in the last 2 quarters.
How VF Corp's Inventory Strategy and Marketing Simplification Are Paying Off
That said, VF Corp has reduced inventories by 23% YoY over $500 million, helping to reduce net debt by $540 million. The company generated over $1 billion in operating cash flow and over $800 million in free cash flow. Vans is showing promising growth in its European DTC channel. Marketing efforts have been streamlined from 274 stories to a few powerful key stories, which will drive higher ROI. Google search trends are also moving in the right direction.
Bracken concluded, “We have a strong and data-driven approach to improve our in-store execution. You'll see more as we roll across the year. I'm a big believer in testing, learning, and scaling in stores, which are a wonderful place to do it. We're testing a lot of things across regions in areas of visual merchandising, four-wall formats and SKU productivity that will scale across the globe over time. Advanced, we've moved from theory to action.”
VF Corp analyst ratings and price targets are on MarketBeat.
