Steve Rendle On VF’s China Slowdown, Portfolio Power, and More – WWD

October 22, 2021 Mary

Steve Rendle is looking at the big picture at VF Corp.

While shares of the company took a ding on Friday after supply chain disruptions and a slowdown in the rapidly shifting landscape in China hurt second–quarter results, the chief executive officer was underscoring the power of portfolio.

The company has 12 brands — from the established Vans, The North Face and Timberland to the sub-$1 billion next generation of Supreme and Dickies to the smaller Smartwool, Icebreaker and Altra — and so everyone seems to see something a little different when they look at VF.

Analysts on the second-quarter conference call obsessed over the powerhouse Vans — one even jokingly asked if the company was going to be renamed Vans after all the questions on the business. Meanwhile, the streetwear and luxury fashion crowd is keeping close tabs on the much loved Supreme to see how the business will evolve after its acquisition last year.

But Rendle, who is also chairman and president of the company, underscored a broader view in an interview with WWD.

“We continue to see broad-based momentum across our portfolio,” Rendle said. “While Vans is an important part of our story, it’s not the only part. You’ve got businesses like North Face where we raised our outlook … Timberland is inflecting … Dickies is an amazing story, powerful story.”

Dickies has not only grown larger, it’s doubled its operating margin since the acquisition four years ago. “That’s being part of VF,” the CEO said.

Supreme is expected to add $600 million to the company’s top line this year.

And Smartwool, Icebreaker and Altra together represent $550 million in revenue and carry a mid- to high-teen growth profile.

Rendle noted that there are other brands scoring “outsized valuations” in the market today that aren’t performing as well, although perhaps they might get more credit.

“We’re out growing our competitive set,” he said of the smaller brands.

“It’s just elevating the conversation and getting off of just one part of the portfolio,” Rendle said, referring to Wall Street’s focus on Vans.

So expect VF to continue to tout just how many billion-dollar brands it has — and how many billion-dollar contenders it has.

There’s nothing magic about the billion-dollar sales figure, but it does signify a certain sense of scale and importance.

“We’re all competitive and it’s a big milestone,” Rendle said. “There’s not many billion-dollar brands that have global reach and when you hit one of these big milestones, you’re now at a scale where your awareness is growing, the access to your brand is growing and your ability to tell your story in a more compelling way is increasing.”

VF has used its portfolio of brands to build a stable business that has proven it can ultimately grow through most any shift, even COVID-19.

That doesn’t mean the company is hiccup-free.

The group continues to look for adjusted earnings per share of about $3.20, compared with EPS of $1.31 a year ago. About 25 cents of the company’s EPS this year is expected to come from Supreme, which it bought in 2020.

The firm’s sales outlook did get a minor tweak, with the company now projecting annual revenue growth of 30 percent to “approximately $12 billion,” where the projection in July left more room open for upside and called for revenues of “at least $12 billion.”

Revenues for the second quarter ended Oct. 2 rose 22.6 percent to $3.2 billion from $2.6 billion a year earlier. Net income increased 81 percent to $464.1 million, or $1.18 a diluted share, compared with $256.7 million, or 66 cents a year ago, when the first coronavirus lockdowns took a big bite out of the business.

Adjusted earnings tallied $1.11 a share, coming in shy of the $1.15 analysts anticipated.

Investors were feeling cautious despite the gains and pushed VF shares down 4.8 percent to $70.54 on Friday.

Baked into the numbers is a bit more caution about China — where the landscape has grown more complicated as the government changes its tack on key pillars that fashion links into, including celebrity culture and big tech.

VF guided Wall Street toward the lower end of Vans’ revenue outlook, which called for 7 percent to 9 percent growth this year.

“If it weren’t for the slowdown in China, we would not have reset the Vans growth for the year,” Rendle said. “There is a consumer confidence element in China today.”

In addition to generalized COVID-19 anxiety, he said there is a “changing dynamic in how brands are able to market in China. It’s having an impact not just on us, but on all brands. There’s a slowdown in China and we’re navigating it.”

But Rendle said VF has geopolitical and local challenges everywhere it sells and still sees big potential in China, where the company relocated its headquarters to Shanghai from Hong Kong and is relying on local knowledge to navigate the terrain.

It’s a longer-term shift that is playing out against the backdrop of unprecedented supply chain disruptions.

On the call with analysts, executive vice president and chief financial officer Matt Puckett said: “The environment remains challenging and has continued to deteriorate … The resurgence of COVID-19 lockdowns in key sourcing countries like Vietnam have resulted in more impactful production delays and the logistics network continues to face unprecedented challenges.”

But VF’s large sourcing base has helped it continue to chug along.

Eighty-five percent of the company’s production capacity remained operational during the quarter, with most of the pressure in Vietnam, which represents about 10 percent of the company’s total sourcing mix.

Supply delays have led to “a material shift of revenue from Q2 into Q3, with more than half of this tied to Vietnam,” Puckett said.

“The Supreme brand has experienced around 30 percent less inventory around drops,” he said. “So despite strong sell-through trends, we are losing volume from limited supply.”

For Supreme, that’s a hit that no doubt stings a little less with the backing of VF — and its portfolio.

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