While releasing new financial data and targets and announcing new measures to refinance itself, VF Corporation indicates that it wants to acquire more fast-growing action brands like Altra or Icebreaker and become more “vertical,” boosting a direct-to-consumer (DTC) business that has come to represent 39 percent of its turnover.
As previously reported, the parent of The North Face, Timberland, Vans and other sports brands has spun off its loss-making jeans business and is divesting most of its workwear business, which has been generating slim margins.
In a preliminary statement about its results for the financial year ended on March 28, VF Corp. indicated that they should show an operating profit of between $1.0 billion and $1.1 billion for its continuing operation, including its occupational wear business, on revenues of $11.3 billion to $11.4 billion. Analysts were projecting a turnover of $11.5 billion for the year.
On an adjusted basis, excluding a goodwill impairment charge of $320 million on Timberland, which has not been performing as well as its other brands, and other charges, the operating income should amount to between $1.4 billion and $1.5 billion.
Standard & Poors revised its debt rating for VF to negative because of “significantly weaker” operating results than previously expected, as shown by the revision of its financial outlook. The rating agency said that its current store closures will likely be extended, that consumers will be slow to go shopping due to the risk of infection in the next quarters and that they may not spend much on apparel or footwear because of high unemployment. S&P anticipates that VF will take longer to meet a debt/Ebitda ratio of 2.
Meanwhile, VF announced an offer to issue senior notes worth $3 billion, maturing between 2022 and 2030, to repay the borrowings made under its senior unsecured revolving credit facility, which has been completely drawn down by $2.25 billion, and for general corporate purposes. The sale of the notes, which expires on April 23, has already been underwritten by institutional investors.
Moody’s assigned an investment grade of A3 to the offering, but changed its outlook from stable to negative. It felt that it will take years for VF to return to its former debt/Ebitda ratio. It noted that VF has cash of $2.4 billion on its balance sheet and has suspended a share buyback program, but is still planning to pay a dividend.
