VF Corp. Seeks ‘Strategic Alternatives’ For Licensed Sports Group; Analysts React

Is VF Corp. placing a “for sale” sign on its $550 million Licensed Sports Group (LSG) business?

The Greensboro, N.C.-based brand management firm announced last week that it is exploring “strategic alternatives” for the division, part of its imagewear coalition.

As active portfolio managers, we constantly assess the composition of our company to ensure VF’s portfolio is aligned with our strategic objectives and positioned to maximize growth and return to our shareholders,” said Eric Wiseman, VF’s chairman and CEO. “In this respect, we are exploring options for our LSG business to position the organization to continue its success and achieve its future potential.

By and large, the news has been interpreted as an announcement of an impending divestiture of the business, which includes the Majestic brand, as well as supplies, apparel and fanware through licensing agreements with U.S. and international professional sports leagues, colleges and universities, and lifestyle brands.

While VF said its LSG business represents about half of the $1.1 billion in revenues earned by its imagewear coalition (as of 2015), analysts seem upbeat about the move.

[It’s] probably a wise decision,” Sterne Agee CRT analyst Sam Poser wrote Sunday.

Despite its sizeable revenue contribution, Poser noted, “licensed sports does not appear to be aligned well with the overall outdoor, more rugged focus of VF.”

What’s more, explained UBS Investment Bank analyst Michael Binetti, the imagewear coalition, as a whole, was likely hurting VF’s margins more than helping them in recent years.

Selling LSG would make strategic sense in our view as VF transitions its portfolio toward higher growth/higher margin businesses,” Binetti wrote today. “We estimate imagewear has been a 120 basis points drag to VF’s three-year revenue compound annual growth rate and margins have a ceiling due to royalties.”

Binetti added, “Importantly, LSG has limited growth potential as VF can’t really open owned stores, category expansion is limited (no footwear opportunity), and the sports LSG manufactures for are U.S.-focused with limited international expansion.”

Both Binetti and Poser favor a potential divestiture and expect VF to ramp up its M&A activity sooner rather than later.

We think M&A potential is high for VFC in ’16, and news that VFC plans to dispose of low margin/low growth assets should be an early reminder that the company is serious about bolstering shareholder returns in 2016,” Binetti said.

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