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V.F. Corp. plans to pursue M&A after denim spinoff


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V.F. Corp. plans to pursue M&A after denim spinoff

V.F. Corp. on Aug. 13 disclosed that it is looking to update its wardrobe — and there is no place in it for denim.

In a conference call with analysts following an announcement that V.F. plans to spin off to shareholders its jeans brands, Lee and Wrangler, Chairman and CEO Steve Rendle said the company intends to continue to pursue mergers and acquisitions to develop its portfolio of brands.

"It's who we are," Rendle said. Rendle listed some of the company's most important transactions, such as the purchase of the Timberland lifestyle brand in 2011, the acquisition of workwear-maker Williamson-Dickie Manufacturing Co. in 2017 and the 2007 divestiture of Vanity Fair Intimates.

Its dealmaking has stepped up in the past 12 months with the addition of sportswear-maker Icebreaker and footwear brand Altra and the sale of clothing label Nautica as it sharpened its focus on activity-based outdoor, active and work lifestyles.

V.F., whose portfolio includes North Face and Vans, would "look at brands that align with our financial and strategic objectives," added Rendle, who did not identify potential targets.

V.F.'s goal, Rendle said, was to "deliver superior results in the years ahead."

The company in 2017 unveiled a five-year strategy to accelerate growth that includes shaking up its portfolio, transforming to a more consumer- and retail-centric model and elevating its direct-to-consumer business while prioritizing digital. It also planned to increase investment in China.

In a presentation that accompanied the Aug. 13 conference call, V.F. outlined its total shareholder return target at 14% to 16% versus 8% to 10% for the yet-to-be-named new spinoff, which will comprise the jeans brands plus the company's outlet businesses.

Revenue from V.F.'s jeanswear businesses has been in decline in recent years. According to the company's 2017 annual report, revenue from jeanswear in the year ended December shrank to $2.66 billion from $2.74 billion in 2016 and $2.79 billion in 2015.

V.F. estimated revenue for the unit to be spun off at $2.5 billion although it did not specify the period.

Under the terms of the separation, the new company would carry about $1 billion in debt, equivalent to a ratio of net debt to EBITDA of about three times, CFO Scott Roe said during the conference call, adding that there was a path for deleveraging to about two times in "a couple of years."

Roe estimated the cost of the spinoff to V.F. at 5 cents per share as a one-time charge in the current quarter. In its fiscal second quarter through September, V.F. is forecast to report normalized earnings per share of $1.32, according to a mean consensus of analysts' estimates compiled by S&P Global Market Intelligence.

In late-morning trading in New York, V.F. shares were down $4.45, or 4.6%, at $91.84.