VF to spin off denim business

Dive Brief:

VF Corp intends to separate itself into two independent, publicly traded companies through a tax-free spin-off, the apparel and shoe seller said in a press release. The move would create a new global apparel and footwear conglomerate, called VF Corporation, and a yet-to-be named company that will hold VF's denim business — which includes the Lee and Wrangler brands — as well as its outlet business.
VF said it plans to announce the details of the executive team and board of directors for the new VF conglomerate before the transaction is complete. The new denim company's global headquarters will be in Greensboro, North Carolina, where the Lee brand will join Wrangler from Kansas City. Scott Baxter is expected to be named CEO and Rustin Welton Chief Financial Officer of the denim entity, VF said.
The company said the spin-off would reduce managerial and operational complexity, allow each entity to focus on its core brands and create a flexible capital structure to fund growth.

Dive Insight:

VF has been under pressure to create value for some time now. Just a couple of years ago, analysts expected the company, which also owns Vans, North Face and Timberland, to acquire Lululemon or Lands' End.

In the past months, however, the conglomerate has instead acquired workwear label Williamson-Dickie, performance wear label Icebreaker and running shoe company Altra. It has also divested the Nautica brand (bought by Authentic Brands) and the Licensed Sports Group, including the Majestic brand (bought by Fanatics). But the revamp began even earlier, when the company in 2016 sold off its contemporary brands businesses — including 7 for All Mankind, Splendid and Ella Moss — to Israeli apparel company Delta Galil Industries for $120 million.

As it adjusts its portfolio and consolidates its denim business in North Carolina in a company that VF estimates will yield annual revenue of more than $2.5 billion, its remaining brands are moving to Denver, a place it said is fitting for its new focus "on activity-based outdoor, active and work lifestyles." The company will also run its Global Innovation Center for technical fabrics and Digital Lab there, the company said on Monday. The new denim company, meanwhile, plans to further extend its geographic footprint with "a sharp focus on Asia," building on its success in China.

There are clues about VF's move in its results. Last month the company reported that first quarter revenue from continuing operations rose 23% to $2.8 billion. Revenue for its active segment — a major area where the new VF wants to focus — rose 25%, which included a 35% increase in the Vans brand. The outdoor segment revenue rose 6%, including an 8% increase in The North Face and a 6-percentage point contribution from acquisitions, the company said.

While some observers see VF's split as a nod to the strength of athleisure, those sales have been slowing, according to The NPD Group. More broadly, streetwear and sales to women are the best bets for apparel companies these days, according to Matt Powell, vice president and senior industry advisor at The NPD Group.

And indeed Vans is the brand carrying VF, according to a note emailed to Retail Dive from investment research firm Jane Hali & Associates, which called the skater brand VF's "only true strength." The North Face, meanwhile, is not delivering on promised women's merchandise, though its men's assortment has strengthened, and the best items from its Lee denim brand are found abroad and through its direct channels, rather than at retailers like Kohl's and J.C. Penney, the note warned.