VF Corp (VFC; Baa3 Neg, BBB- Neg) {VFC US Equity}

VF (parent of Vans, North Face & Timberland) is looking at another rough earnings (for 3months ending March) when it reports next month. Despite curve trading wide, hard for us to have a firm view without a turnaround in sight noting liquidity is still point of concern.

• Bloomberg's Second measure (uses 20m+ card data to sample US spending trends) is pointing to a -16% fall in QoQ sales vs. Apparel peers -4.5% fall.
• Reported VF US revenue tracking error in trend terms is not bad with Second measure (below). This gives some insight into the ~60% of total VF sales that are in the US, noting Euro (& in particular Wholesale) has been where Apparel retails have been reporting more trouble recently - i.e. group sales may be in for more pain.
• Consensus reflects some of this - looking for low double digit fall in constant-currency sales yoy, at a gross margin of ~50% and operating margin in low single digits as SG&A continues running at sizeable ~47% of sales. Company guided to $600m in FCF this year at early Feb results - consensus still holding to guidance.
• '24 FCF guidance in isolation isn't enough for us to firm up a view in €lines given $1.75b in dollar debt stands in between the front €500m '26 line (vs. $1b cash on hand). Mgmt has talked about "strategic portfolio review" which is expected to include brand divestiture (helping raise cash), board changes (some of it activist driven) & cost cutting (project Reinvent).

The 26's trade at Z+147 (vs. $25s at +87) - well wide of any close comps, but for those looking at speculative short-end plays in IG, the Real Estate issuer Aroundtown 26's at +170-190 may screen more value given solid progress on shoring up liquidity.