The parent company of The North Face and Vans, VF Corp., on Friday reported earnings and sales that fell short of analysts’ expectations. It also revealed plans to sell its Nautica business.
Though the news wasn’t taken lightly on Wall Street, CEO Steve Rendle, who’s been at the helm of the North Carolina-based house of brands for about a year now, told CNBC it’s all part of VF’s goal to become a more consumer-facing business and focus on the best labels. VF also owns Timberland, Wrangler and Lee, among a handful of other apparel and footwear banners.
“Consumers absolutely are still interested and excited to purchase apparel,” Rendle said in an interview. “There are new players and new channels, but the underlying demand from consumers is still there. … We just want to move into a more digital-native mindset.”
VF’s sales in the fourth quarter were fueled by growth in international markets (namely Europe) and a boost to its direct-to-consumer business, moving away from middlemen such as department stores and off-price sellers that are threatened by bankruptcy and store closures.
The company is looking to create a higher-margin business, Rendle said, and has also started “cleaning up the Amazon environment,” which poses its own challenges.
About five months ago, VF began working with Amazon to sell its North Face-branded merchandise on Amazon.com and boot out unauthorized sellers. The test has been running smoothly, management told CNBC, but VF is “constantly policing that environment” and still hopes to “raise the level of the brand’s presentation” on the site.
Looking ahead, VF expects 85 percent of its overall sales growth will stem from digital and direct-to-consumer initiatives. The company anticipates most of its wholesale growth will be outside of the U.S.
Physical stores are also a key part to that success, and Rendle expects the company will continue to create experiential environments for shoppers, like the flagship Vans location near Herald Square in New York.
“[VF] management continues to strengthen its portfolio by surprise announcement of shedding underperforming Nautica (which should be viewed very favorably),” said Omar Saad of Evercore ISI. Although the company’s report Friday was viewed unfavorably by some investors, “management continues to invest behind its strength and plow some of the earnings upside into further brand investments — helping sustain the momentum into 2018 and beyond,” he said.
“Not only does VFC continue to screen amongst the best in our Social Media Tracker [i.e. consumers are talking about VF’s brands on Instagram, Twitter] … but it continues to reposition its portfolio to flex aggressively towards areas of strength,” Saad said.
VF said sales for the fourth quarter of 2017 climbed 20 percent to $3.6 billion, including a $247 million contribution from VF’s recent acquisition of Williamson-Dickie (“Dickies”). Analysts were expecting revenue of $3.7 billion, according to a Thomson Reuters survey.
The company reported a net loss of $90.3 million, or 23 cents per share, compared with net income of $264.3 million, or 63 cents a share, a year ago. Excluding one-time items (i.e., a charge related to new U.S. tax legislation), VF earned $1.01 per share, 1 cent short of analysts’ estimates.
“We are probably going to be a wholesaler forever,” VF’s CFO Scott Roe told CNBC. “But it’s just recognizing the reality that there is a lot of carnage, and not everybody is successful.”
VF’s shares dropped more than 8 percent Friday afternoon, having climbed more than 50 percent from a year ago.
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