(This story was updated on 7/21/2023.)

VF Corp. announced in February that it is selling its packs business, including the Kipling, Eastpak, and JanSport brands, as it looks to increase focus on its biggest strategic opportunities and improve its financial performance.

“Active portfolio management has long been a core competency and strength of VF and remains a priority of our board,” CFO Matt Puckett told stock analysts on the earnings conference call. “The evergreen evaluation efforts are always underway, and the process has led us to the determination we’re not the best owner of these brands at this time. We need to ensure the focus of our management team and the focus of our capital while at the same time giving these great brands the best opportunity to reach their potential.”

In 2021, VF sold Eagle Creek, another backpack and travel brand, because it was no longer a fit with VF’s portfolio.

Strong VF Corp. Brands

Puckett emphasized during the call Thursday that JanSport, Eastpak, and Kipling are currently posting strong results despite VF’s decision to sell them.

“These brands are terrific brands and businesses, and they’re performing well,” he said. “We’ve seen strong revenue and margin growth in fiscal year ’23 from all these brands. JanSport and Kipling collectively are benefiting from a return to usage occasions – they really are leaders in travel gear, school packs and school gear, and other activities. Since the process we’ve begun is going to take some time, we certainly don’t need to rush it. But we’re very confident we’ll find the right and best owner for these brands.”

More SG&A Cuts, Asset Sales

To further strengthen VF’s financial position and reduce leverage, the company is also:

• Cutting its dividend going forward. The next quarterly dividend will drop from 51 cents per share to 30 cents, a 41% decrease.
• Selling assets, including VF’s European headquarters in Switzerland, which it will then lease back.
• Reducing working capital and cutting inventory levels.
• Continuing to reduce SG&A.

Supply Chain Woes, Elevated Inventory

VF Corp. Interim CEO Benno Dorer – Photo courtesy of VF.

Another major priority is improving the company’s supply chain operations, an area that VF previously excelled at. However, since Covid, the company has struggled with longer lead times which caused earlier and less accurate inventory buys. That has been coupled with higher retailer cancellations due to late shipments and lower demand as retailers remain cautious about the economy.

Net inventory for the third quarter ended Dec. 31 was 101% higher compared to the same period last year. If in-transit inventory is removed, inventory was 75% higher.

“We are committed to improving execution through a sharpened focus on the biggest consumer opportunities and enhanced operational performance,” Interim CEO Benno Dorer said. “Consistent with this objective, we are shifting resource priorities across the company, including by reducing the dividend, exploring the sale of non-core assets, cutting costs and eliminating non-strategic spend, while enhancing the focus on the consumer through targeted investments. We are confident these actions will enable a return to profitable and sustainable growth and, with that, strong shareholder value creation.”

Dorer, a board member, became interim CEO after longtime CEO Steve Rendle unexpectedly retired last December.  The earnings report Tuesday was the first VF has given since Rendle left.

VF Q3 Results

VF revenue company-wide for the third quarter totaled $3.5 billion, up 3% in constant currency.

When it comes to the company’s biggest brands, The North Face was a star performer, with $1.3 billion in revenue, a 13% increase in constant currency.

Meanwhile, Vans revenue totaled $926.9 million, a 9% decrease in constant currency.

VF’s adjusted gross margin fell 140 basis points to 54.9% because of increased promotions. Adjusted earnings per share fell 17% to $1.12.

For the full fiscal year, VF expects revenue to rise approximately 3% in constant dollars, which is within the previously forecast range.

Adjusted earnings per share should range from $2.05 to $2.15, which is within the previous outlook of $2.00 to $2.20.