VF Corp (VFC; Baa3 Neg/BBB- Neg) 1Q (to June) Results up ahead

Reminder VFC earnings after the US close tonight. Since our comments last week it's sold off +40bps on the 4Y+. Seems investors sharing our nerves. As we said lead indicators we look at don't look great, macro backdrop adding fuel on that. Levels do make tonight's print more interesting/2-sided.
Couple of asides from us;

1. 1Q is seasonally weaker - i.e. stick to YoY terms (not QoQ) and expect margin contraction/deleveraging as SG&A stays sticky through the fall. Seasonality is driven by Outdoor segment which is stronger in Q2/Q3. WC tends to be negative particularly in Q2 as inventory builds up ahead of a peak Q3 sales but unclear if we will see that tonight - it may be doing targeted clean-up on inventory. Focus on FY FCF guidance.
2. Outside of North-Face no one is rolling over "tough comps". Vans & Dickies are rolling over double digit falls last year, timberland a -6% fall. By geography similar story ex. APAC (rolling +18% growth last year). I.e. little-to-no excuses for falls now.
3. Consensus (cc sales at -11%) has set the bar well low; in-line earnings is nothing to celebrate over and is not indicative of a turnaround.
4. Focus on any spreading of weakness in headline sales; it's currently concentrated (i.e. double digit) in Vans and geographically in the US. Also continuing losses in those segments cannot be ignored; they are 26% and 52% of group sales respectively.
5. Stock is up +35% yet analyst earnings estimates have stayed subdued leaving it trading rich on forward P/E. I.e. do not be too surprised if you see a sharp fall for equities.
6. If it continues using the term "FCF including non-core asset sales" in guidance we (and seems consensus) estimate the non-core asset sales component to be small ($50-100m). That guidance is currently at $600m (12m to March 2025).

1. Supreme brand sold for $1.5b in cash and will go towards paying down debt leaving only $0.5b of the debt due over the next two years unfunded. Pro-forma leverage will be net 4.5x/gross 5.5x on NTM EBITDA consensus of $850m. Stock rallied on the announcement - a rare sight when proceeds were earmarked for deleveraging - and likely reflective that investors & mgmt can now focus on fixing profitability. The brand was a $538m business running a strong 22% margin - one of its best performers.
2. New Vans Head was announced as Michelle Choe, the then Chief Product Officer of Lululemon. Impressively she wiped $3b in market cap from lululemon on departure and added back $350m into VF. Whole VF management is new.
3. Moody's came after the supreme sale echoing our above pro-forma leverage numbers and leaving ratings unch but on neg. outlook. It's patience in IG - after 7-straight quarters of falling sales - is remarkable. Leverage is well into its downgrade territory.