VF Corp (VFC; Baa3 Neg, BBB- Neg) 4Q24 Results
3 main points we are eyeing when the parent of North Face, Vans, Timberland & Dickies reports on Wednesday - below. On RV; curve may struggle to head much wider from here (not a flow view) & rating downgrades into HY are irrelevant to that (pricing in-line with BB- here). Rating agencies seem to be holding onto co's guidance for turnaround in operating performance & gross deleveraging using asset & business sales; we are hoping for progress on both in results this week. We see €26s as the likely candidate for a screen cheap (Z+150) not 28/29s given curve steepness is not HY like (PVH 27/29s looks steeper and its firm IG).
- FCF; guidance currently at $600m for this year (implies neg. $390m in Q4) & consensus is at $720m next year (total $1.3b). Any changes down on this would be quiet negative. Curve is currently priced to around BB- ratings but issue becomes ability to paydown upcoming maturities (which its guided to doing/not refi-ing); $1b term loan due in Dec and $750m dollar line in April next year. For reference co has $1b of cash on hand against $6.2b in debt.
- Business & asset sale updates; Even on poor operating results, strong progress on this could help us take a view on the €26s. Pack business (includes brands of Eastpak, JanSport & Kipling) have been long earmarked for sale. Last qtr mgmt update was "We've got a number of parties who are highly interested and engaging through kind of round of bids...middle of pretty substantive due diligence as we speak". Unconfirmed reports last week were bankers were working to now sell Supreme Brand (acquired in 2020 for $2.1b) - any confirmation of that would be positive.
- Margins; though 4Q sales is expected to continue falling (c-12%) it has guided to project reinvent helping trim costs (particularly SG&A & most of it in FY25). In-line with that consensus does have yoy (not qoq) expansion in gross (+70bps) & flat SG&A. As we've walked through on co, net of COGS & SG&A it is struggling to make money; asset sales paired with a lack of margin improvement could warrant 26/28s to steepen (only spread at +40 right now).
Bloomberg second measure; https://marketnews.com/vf-corp-vfc-baa3-neg-bbb-neg-vfc-us-equity
Rumoured supreme brand sale; https://marketnews.com/vf-corp-vfc-baa3-neg-bbb-neg-vfc-us-equity