MNI China Daily Summary: Tuesday, July 23

MNI: PBOC Net Drains CNY408.7 Bln Via OMO Tues

MNI: PBOC Sets Yuan Parity Lower At 7.1334 Tues; -1.30% Y/Y

CHINA PBOC CONDUCTS CNY267.3 BILLION VIA 7-DAY REVERSE REPOS TUES

CHINA SETS YUAN CENTRAL PARITY AT 7.1334 TUES VS 7.1335

MNI PBOC WATCH: PBOC Cuts 7-Day Rate As Reconfigures Framework

EZ/UK T-Bill Calendar: 3/6-Month RATB Auction on Tuesday

EZ/UK Bond Supply Calendar: UK, Germany Auction on Tuesday

Philippine's FinSec Open To Rate Cuts, Front-End Yields Lower

RPT-MNI: Canada Sticks To Fiscal Anchors, Spends Chunk Of Windfall

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VF Corp (VFC; Baa3 Neg, BBB- Neg) 4Q24 Results

CONSUMER CYCLICALS
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Key Points below (in order of relevance for us/credit). Curve thoughts further down. One line summary we pull from CEO in earnings call; "While overall financial results have not yet improved, we are deep in execution..."

  • It beat on FCF this year ($804m vs. guidance for $600m) on inventory sell-downs ($382m in Q4 & $500m+ benefit over the year) assisted by promotional activity but its dragged Q4 gross margin to 48.4% (vs. c50.3%) which is down -120bps yoy. It says ex. the reset in inventory actions, gross margins would have been +100bps.
  • That benefit will not hold next year; FCF guidance including smaller asset sales (not business sales) is for $600m (consensus ex. asset sales was at $720m). We were eyeing the total as $1.3b over FY24/25, co is coming in at $1.4b but directionally negative here (see headline colour below for more on that).
  • On BS: Net debt at $5.3b little changed over the quarter, net of cash & eqv's at $700m with stated liquidity at $2.65b - sees that at $2b which "contemplates the $1b loan payment in Dec". Its still guiding to not refi-ing the $1b loan and $750m $ line in April & confirmed that implies "brand sales would come ahead of the $750m maturity". On Brand sales "strategic portfolio review is complete" and it will share updates soon. The €500m March 26s will become the front maturity after it takes out the above $1.75b in $ debt.
  • As we mentioned ratings have little relevance (co's income statement reads worse than most BBs) but there is (some) good news here with a effective deadline around timing of brand sales - size remains a key uncertainty. Also note depending on which brands it disposes this is not necessarily long-term positive; Supreme - which rumours emerged last week bankers were mandated to sell - bucked its core brands with LSD growth, mgmt adding "strong performer". Nothing on if rumours were true (as expected) & analyst did not broach the question directly.
  • On sales; Q4 fell -8% in constant currency terms (c-7%), with only North Face showing some recovery (-5%). Vans (-26%), Timberland (-14%) and Dickies (-15%) stayed in free-fall. APAC (+2%) & EMEA/Europe (-5%) were firmer while US continued its fall (-23%) which its blaming on Wholesale weakness & inventory reduction actions. Reminder the co generates just over half in US sales. Vans weakness has now skewed 35% of sales to North Face, 27% to Vans & 15% to Timberland.
  • Lower revenues dragged on SG&A (margin deleveraging) by 650bps on the qtr translating to similar moves (-770bps) on operating margins. $80m of the $300m annualised savings as part of reinvent program was delivered (rest by mid FY25).
  • No guidance on headline but "revenue will remain challenged in near term, particularly in Q1" with it seeing results comparable to Q4 ex. impact of reset actions. Sees gross margins to fall yoy in Q1 on continued work-through on 'residual excess inventory'.
  • Org. changes continue with a replacement CFO announced (expected). The 10-month in new CEO adding VF has "almost completely changed the leadership".

No turnaround yet with sales still in free fall in largest US market and most core brands. We recommend caution on the name (pls ignore ratings) and still see room for steepening in € curve (flagged heading into earnings). Even on 26s, brand sales were not confirmed yet (though timing before April given) and the impact/size remains uncertain. Aroundtown in REITs was well north of this on 26s even once it showed committed liquidity, and fellow falling knife & French supermarket retailer Elo (NR/BB+) trades 20bps north. We would revisit the 26s on sale announcements or if it moves towards Z+200 (+50 from yest. close). Equities were down -12% in aftermarket.

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Key Points below (in order of relevance for us/credit). Curve thoughts further down. One line summary we pull from CEO in earnings call; "While overall financial results have not yet improved, we are deep in execution..."

  • It beat on FCF this year ($804m vs. guidance for $600m) on inventory sell-downs ($382m in Q4 & $500m+ benefit over the year) assisted by promotional activity but its dragged Q4 gross margin to 48.4% (vs. c50.3%) which is down -120bps yoy. It says ex. the reset in inventory actions, gross margins would have been +100bps.
  • That benefit will not hold next year; FCF guidance including smaller asset sales (not business sales) is for $600m (consensus ex. asset sales was at $720m). We were eyeing the total as $1.3b over FY24/25, co is coming in at $1.4b but directionally negative here (see headline colour below for more on that).
  • On BS: Net debt at $5.3b little changed over the quarter, net of cash & eqv's at $700m with stated liquidity at $2.65b - sees that at $2b which "contemplates the $1b loan payment in Dec". Its still guiding to not refi-ing the $1b loan and $750m $ line in April & confirmed that implies "brand sales would come ahead of the $750m maturity". On Brand sales "strategic portfolio review is complete" and it will share updates soon. The €500m March 26s will become the front maturity after it takes out the above $1.75b in $ debt.
  • As we mentioned ratings have little relevance (co's income statement reads worse than most BBs) but there is (some) good news here with a effective deadline around timing of brand sales - size remains a key uncertainty. Also note depending on which brands it disposes this is not necessarily long-term positive; Supreme - which rumours emerged last week bankers were mandated to sell - bucked its core brands with LSD growth, mgmt adding "strong performer". Nothing on if rumours were true (as expected) & analyst did not broach the question directly.
  • On sales; Q4 fell -8% in constant currency terms (c-7%), with only North Face showing some recovery (-5%). Vans (-26%), Timberland (-14%) and Dickies (-15%) stayed in free-fall. APAC (+2%) & EMEA/Europe (-5%) were firmer while US continued its fall (-23%) which its blaming on Wholesale weakness & inventory reduction actions. Reminder the co generates just over half in US sales. Vans weakness has now skewed 35% of sales to North Face, 27% to Vans & 15% to Timberland.
  • Lower revenues dragged on SG&A (margin deleveraging) by 650bps on the qtr translating to similar moves (-770bps) on operating margins. $80m of the $300m annualised savings as part of reinvent program was delivered (rest by mid FY25).
  • No guidance on headline but "revenue will remain challenged in near term, particularly in Q1" with it seeing results comparable to Q4 ex. impact of reset actions. Sees gross margins to fall yoy in Q1 on continued work-through on 'residual excess inventory'.
  • Org. changes continue with a replacement CFO announced (expected). The 10-month in new CEO adding VF has "almost completely changed the leadership".

No turnaround yet with sales still in free fall in largest US market and most core brands. We recommend caution on the name (pls ignore ratings) and still see room for steepening in € curve (flagged heading into earnings). Even on 26s, brand sales were not confirmed yet (though timing before April given) and the impact/size remains uncertain. Aroundtown in REITs was well north of this on 26s even once it showed committed liquidity, and fellow falling knife & French supermarket retailer Elo (NR/BB+) trades 20bps north. We would revisit the 26s on sale announcements or if it moves towards Z+200 (+50 from yest. close). Equities were down -12% in aftermarket.