Consumer Discretionary
VFC has not one brand problem, but three, which Brian McGough thinks can only be fixed by a quality CEO with a massive capital deployment programme. In VFC’s case, that would cost $1bn+ in incremental capital annually. But here, the company is also facing a crippling balance sheet problem and is responding by cutting costs out of the model, which is likely to cause the undoing of its portfolio. The only way out is a heavily dilutive equity deal of $2bn+. Without one VFC will almost certainly be backed into a corner to sell another brand (likely to be Timberland). Brian wouldn’t go long this stock over $10/share. Without an equity deal, a zero is not off the table.
Edition: 206
- 07 March, 2025
Consumer Discretionary
Shorts should beware of complacency - Vans are becoming cool again. Field research conducted by OWS suggests that after 5-6 years of being very much off trend, Vans trainers are becoming notably popular among tastemakers in Paris, a key leading market for fashion trends. At 0.6x sales (practically an equity stub valuation for a business whose historical operating margins were mid-teens) you need to think that the brand is in terminal decline, that VFC will languish at ~breakeven for years, and/or the company will go bankrupt under its debt load, to be actively selling the shares here. OWS does not think any of those scenarios are likely and sees the stock doubling in 2-3 years.
Edition: 195
- 20 September, 2024
Long & short ideas in the Consumer and Retail sectors
Target (TGT) - product improvements continue; stronger value message positions TGT for a better year ahead.
Gap (GPS) - key brands Gap & Old Navy building momentum; while the new CEO is expected to have a positive impact.
Nike (NKE) - lower expectations off Nov Qtr impacted the stock, but adding back retailers allows for EPS acceleration throughout 2024.
Williams-Sonoma (WSM) - the stock is at an all-time high; sees a mismatch between expectations and earnings performance.
Kohl's (KSS) - continues to struggle with its business, yet the stock has traded up with peers, look for share weakness on 4Q results.
VF Corp (VFC) - not convinced the company can turn it around after a tough 2023 as it looks to trim its portfolio of brands.
Edition: 180
- 23 February, 2024
Consumer Discretionary
JJK continues to worry that FY24 guidance is back-end-weighted, with 1H -MSD revenue guidance expected to rebound to +M to +HSD in 2H, despite Vans’ ongoing underperformance and a challenging macro backdrop. Further, at TNF, JJK has noticed heavy promotional activity recently. They see this as a negative for the brand given its traditional staunch full price stance and an indication that inventory reduction remains a challenge (forecasts for margin expansion are unrealistic). It is going to be a steep learning curve for newly appointed President & CEO, Bracken Darrell, especially given his lack of direct experience in the sector, pushing VFC’s turnaround into 2H25.
Edition: 163
- 23 June, 2023