VF Corp. Has Officially Split Into Two Companies — Here’s How Analysts Feel About It

VF Corp. has officially split into two entities.

In August, the Greensboro, N.C.-based firm announced its separation into VF — centered on its more profitable active and outdoor businesses including Vans, Timberland and The North Face — and Kontoor Brands Inc., a new home for its heritage denim brands Wrangler and Lee, as well as the corporation’s outlet operations.

With today’s completion of the move, Kontoor is now an independent, publicly traded company under the stock ticker “KTB.” VF said the split allows will allow it to expand into new categories but also fine-tune its portfolio as it continues to invest in its mergers-and-acquisitions strategy. (As part of the split, VF stockholders will receive one share of Kontoor Brands for every seven shares owned of VF stock.)

A day after the release of its fourth-quarter and full-year earnings report, several analysts seemed bullish on VF’s future following the spinoff, with Canaccord Genuity analyst Camilo Lyon expecting the apparel and footwear firm to enter the fiscal year “as a much leaner and more agile business, with revenue and gross margin characteristics that should show accelerated growth from the faster growing brands and margin expansion from mix now that Kontoor Brands has effectively been spun out.”

For the full year, VF’s sales climbed 12% to $13.8 billion, driven by Vans’ sneakers and The North Face’s clothing, as well as its international and direct-to-consumer businesses. Its fourth-quarter adjusted earnings were at 60 cents per share — besting Wall Street estimates by 2 cents — on revenues that rose nearly 6% to $3.2 billion. Nevertheless, the firm lowered its 2020 outlook and now expects sales in the range of $11.7 billion to $11.8 billion, compared with forecasts of $14.6 billion.

Cowen analyst John Kernan, meanwhile., reiterated his buy rating on VF’s stock following the earnings release — noting that Vans’ above-target performance and The North Face’s improved innovation and brand positioning will lead the company to a more profitable fall season.

“VFC will likely make another acquisition in the coming years to add to its portfolio of brands,” Kernan added. “[The corporation] has significant competitive advantages that include manufacturing nearly 33% of its product in its owned factories and owning significant expertise in the supply chain, as well as management’s focus on outdoor, active and work wear brands and [the] ability to reinvest significant amounts of cash flow to innovate product and acquire a deep knowledge of their core consumer.” (In the past year, VF has bought Dickies owner Williamson-Dickie Mfg. Co., Icebreaker and Altra.)

Susquehanna Financial Group analyst Sam Poser also remained steady with his outperform rating, writing that VF is poised for growth now that it has offloaded its struggling denim brands. (Following the announcement of the split in August, the firm expected annual revenues north of $11 billion, as well as earnings before interest, taxes, depreciation and amortization of more than $1.5 billion.)

“By shedding the low-growth jeans business, VFC is now better positioned to fully allocate resources and attention to areas of the portfolio that are providing the best growth and ROI opportunities,” Poser said. “VFC is one of the best managed, operationally efficient and highest growth companies in our coverage universe.”

Post-spinoff, Poser puts the firm’s top- and bottom-line growth profile closer to that of athletic apparel retailer Lululemon and sportswear giant Nike. “We contend the company should trade at a valuation closer to the aforementioned companies,” he said. “Over the next two years, we expect revenue growth for VFC, NKE and LULU to average of 6.8%, 7.7% and 14.5% respectively, and we expect EPS growth for VFC, NKE and LULU to average 15.7%, 16.9% and 17.9%, respectively.”

As of 4:00 p.m. ET, VF shares were down 6.9% to $84.09. Kontoor Brands’ stock was in the green 3.9% at $38.60.

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