VF服装集团

In its seasonally weak first quarter, VF's sales fell 5% but rose 1% if adjusted for the Dickies divestment. Adjusted gross margin increased 10 basis points to 54.9%, but adjusted operating margin fell 210 basis points to negative 5.7% on planned marketing investments.

Why it matters: CEO Bracken Darrell's Reinvent plan has brought cost cuts, an improved balance sheet, and a more focused portfolio. We anticipate a return to mid-single-digit annual sales growth by fiscal 2029 and an operating margin that rises to 13% in the long run from about 8% this fiscal. VF's sales beat our estimate for a 7% decline, and its operating margin nearly matched our minus 5.8% forecast. Given expense and sales trends, we have lifted our fiscal 2027 sales decline estimate to 1% from 2% and our adjusted operating margin estimate by 10 basis points to 8%. Separately, VF announced that chief financial officer Paul Vogel will depart and be replaced by current chief operating officer Abhishek Dalmia. Although disappointing that Vogel is leaving after just two years, we anticipate that debt reduction and cost control efforts will be unaffected.

The bottom line: No-moat VF's shares are attractive relative to our unchanged $40 fair value estimate. Investors are skeptical that the firm can reach its fiscal 2029 10% operating margin target, but we think it is on track to do so through its efficiency, brand investment, and divestment efforts. VF's shares fell by a midteens rate after the report, possibly because of the unexpected finance chief change and Vans' ongoing struggles (sales down 8%). However, VF anticipates Vans' sales growth will improve to minus 2% or better in the second half with greater wholesale. Moreover, The North Face and Timberland achieved sales growth rates of 6% and 4%, respectively. We think investors are overlooking the progress that has been made with these two brands, even though VF's outdoor segment accounted for 60% of its fiscal 2027 sales.

We maintain our fair value estimate on VF’s shares at $40 after the firm reported its first-quarter results.

In a seasonally weak period, VF's sales fell 5% but rose 1% if adjusted for the Dickies divestment. Adjusted gross margin increased 10 basis points to 54.9%, but adjusted operating margin fell 210 basis points to negative 5.7% on planned marketing investments. VF's sales outperformed our estimate for a 7% decline, and its operating margin nearly matched our minus 5.8% forecast. By brand, The North Face and Timberland achieved sales growth rates of 6% and 4%, respectively, to offset Vans’ 8% sales decline.

Despite concerns related to tariffs and higher oil prices, we anticipate further progress on VF’s turnaround in fiscal 2027. For the period, we project a 1% sales decline (up from an expected 2% decline previously), an 8% adjusted operating margin (up from 7.9% previously and 6.9% in fiscal 2026), and $1.11 in adjusted EPS (up from $0.84 in fiscal 2026).

VF operates in attractive active and outdoor apparel and footwear categories, and we are confident in the success of its Reinvent plan. We think the firm has successfully expanded The North Face’s market from outdoor and winter sports and has become more of an everyday brand, and Timberland shows signs of improved stability. Vans, meanwhile, should return to growth through operational and merchandising changes. We forecast VF’s adjusted operating margins will trend up to 10% in fiscal 2029 (thereby meeting VF’s target) from 8% in the current fiscal. In the long run, we anticipate 54% gross margins (well above historical gross margins of below 50%), mid-single-digit annual sales growth, and 13% operating margins.

We do not believe VF has a moat. The company's three largest brands, Vans, The North Face, and Timberland, are established but lack the differentiation and pricing power to provide a competitive edge. These brands operate in attractive categories and are well-known, ranking in the top 50 in terms of awareness with US consumers in the clothing and footwear category (YouGov). However, VF’s sales and margins have weakened considerably in recent years as the firm has fallen behind on consumer trends and its product innovation has lagged.

There is substantial quantitative support for our contention that VF lacks a moat. Over the past three years, we calculate that VF’s adjusted returns on invested capital, including goodwill, have averaged just 6%, short of our estimated 8% weighted average cost of capital. Moreover, VF’s annual adjusted operating margins have dropped to the midsingle digits from 12%-13% in the years before the pandemic. We forecast the firm’s sales, margins, and returns on capital will improve, but we lack confidence that it will outearn its cost of capital for more than 10 years.

VF has been a serial buyer and seller of clothing and footwear brands. After numerous acquisitions in the 2000-11 period, the firm has slashed its number of brands to 10 from more than 30 by divesting brands with limited prospects. Today, it is focused on outdoor and active products. We agree with VF’s management that the active (28% of fiscal 2026 sales) and outdoor (60%) categories are attractive, but the performance of its largest brands has been uninspiring.

VF’s main problem has been Vans’ decline. When VF acquired Vans in 2004, it was a zero-growth, barely profitable, sub-$350 million brand. In the ensuing years, it grew from its roots as a California skateboarding/action sports brand into a major lifestyle sportswear brand for teens and young adults; it reached nearly $4.2 billion in sales in fiscal 2022. However, sales have fallen dramatically since then as consumers have moved on to newer and more innovative brands. Consequently, markdowns of Vans shoes became commonplace.

We think innovation has been lacking at Vans. Given the speed at which fashion trends change, footwear brands like Vans need to develop new products regularly, but it has mostly stuck to historical styles. In addition, low-priced knockoffs of Vans are widely available.

VF has prioritized a turnaround for Vans, which accounted for 22% of its fiscal 2026 sales. New footwear styles are coming, and the company hired former Lululemon executive Sun Choe to head the brand. While these moves are positive, VF’s management has been promising better results from Vans for the last two years, and its results have only worsened. At this point, a return to historical margins and sales growth rates above 20% appears to be out of reach. Ultimately, we think Vans’ brand-based competitive advantage has been lost to the rise of other brands and fashion shifts.

VF’s outdoor brand Timberland has also struggled at times. Like Vans, Timberland has seemingly been unable to build on its prior momentum. Indeed, despite years of investment, its current annual sales of about $1.7 billion are not much different from those in 2011, the year that VF bought it. We think Timberland is too dependent on the wholesale channel in the US and lacks The North Face’s broad appeal. Specifically, Timberland’s traditional dependence on boots has probably limited its success in casual footwear and apparel.

The North Face has been VF’s strongest performing brand. Known for its winter coats, VF was in a distressed state when acquired in 2000, but it has since become a major international lifestyle brand. Its sales reached $4 billion in fiscal 2026, up from an estimated $1.9 billion in 2012. While it could be regarded as having a competitive advantage, The North Face only accounted for 42% of VF’s total sales in fiscal 2026, so we do not believe it is large enough to provide a moat for the entire company. Moreover, it is too dependent on third-party sellers in the US, so control over pricing, inventory, and demand is limited.

We do not think VF’s smaller brands provide any advantage. In fiscal 2026, Vans, The North Face, and Timberland accounted for 82% of VF’s total sales, while its other brands accounted for only 18%. Although we think Altra, especially, has breakout potential, VF’s once-successful strategy of brand acquisition and development has simply not been working as it once did. Since 2016, VF has divested multiple brands that were either declining or underperforming to focus on the remaining portfolio.

A major problem for VF has been its dependence on third-party retailers. The company has made some progress in this area, having steadily increased its share of sales from direct channels to 44% of its total sales in fiscal 2026 from less than 40% in the years before the pandemic. Moreover, we forecast that direct-to-consumer sales will account for more than 50% of sales by fiscal 2031. This shift could improve VF’s margins, as we think inconsistent ordering and excessive discounts within the wholesale channel have affected its profitability, as well as the perceived value of its brands with consumers. However, for now, VF is unable to overcome a slow wholesale market with direct selling.

As VF deals with its internal problems, it is pressured by both entrants and established brands. The appeal of VF’s core active and outdoor categories has attracted many startups and innovative products. For example, Vans’ share of the US sports footwear market declined to 2.1% in 2025 from 6.5% in 2019 (Euromonitor).

Apart from the possibility of a brand intangible asset, we do not think that any other moat sources would apply to VF. There is nothing to prevent consumers from purchasing products from the firm’s many competitors. Moreover, VF has no cost advantage as it outsources its production to third parties in Asia and elsewhere.

Improving results for Vans is a major part of the Reinvent strategic plan. We think Vans can be fixed and that it has growth potential given its small share in the global sports-inspired apparel and footwear market, estimated at $171 billion in 2025 (Euromonitor).

The North Face has been a solid performer even as VF has struggled. With $4 billion in sales in fiscal 2026, its sales have about doubled over the past dozen years.

Once a big problem, VF has cut its debt through divestiture and cash management. We project it will reach its 2.5 times leverage goal by the end of 2027.

Each of VF’s major brands has, to varying degrees, experienced inconsistent sales growth. In its industry, it is very difficult to boost margins while sales are flat or declining.

Competition has increased in both of VF’s key segments, outdoor and active. The company faces a difficult task in winning back lost share.

Vans has had significant sales declines in recent years. The success of efforts to fix the brand is uncertain. Vans' performance (both positive and negative) tends to have a large impact on VF's market valuation.