VF Corp (VFC; Baa3 Neg/BBB- Neg) Today's Rally

€ lines 10-14 tighter, equities +5.5%

No issue with 26s coming in but long-end is leading the moves today. It's a bit of no-man's land for local retailers where long end is - the carry pick-up over IG curves might be helping it in. Despite the RV we are still cautious on duration and note key event risk is 3 weeks away.

• ~$500m in sales coming out of Supreme vs. $1.5b in deleveraging powder is an obvious net positive for BS, leverage metrics & credit ratings. It's been lucky to hold off HY ratings (our view) and raters staying put for another quarter looks likely now.
• Net debt was $5.3b at March which included ~$1.5b in lease liabilities and ~$4.7b in bonds. On FY24 consensus EBITDA of $850m (-6%yoy and -60% vs. 2019) it would be a still hefty net 4.5x levered...while running a 8% EBITDA margin.
• The turnaround in core business is still not here and mgmt guidance is for it to stay rough for the 3m to June (1Q25). Those results come in 3 weeks (6th Aug) and are a key event risk. Lead indicators from US card data and google search trends don't point to a recovery either.
• Reminder the only numeric guidance we got then was FY25 FCF (including small asset sales) to total $600m.

Struggling French grocer Elo/Auchan brings 1H results next Thursday & before VF earnings. If it shows a recovery then ample (>100bps) spread pick up will be there. For those that don't want to wait, €26s at Z+142 still screen value.