North Face Parent VF Corp Sees Elevated Inventories and Cautious Spending

With an arsenal of a dozen brands and D2C websites, a vast wholesale business and 1,300 of its own physical stores, VF Corporation has a unique purview of the global apparel industry.

While the Denver-based holding company is actively pushing new product designs, designer partnerships and increased digital connectivity and loyalty efforts, the totality of macroeconomic trends are proving to be inescapable.

“While consumer health remains relatively intact across most of our markets, we continue to see global trends result in more choiceful and cautious spending behavior,” VF Chairman and CEO Steve Rendle told investors Wednesday (Oct. 26) in the wake of the company’s fiscal second-quarter earnings results.

For example, in North America — VF’s largest market — Rendle said the company is still currently seeing “variable traffic patterns across channels” as well as an elevated promotional environment in most markets

Even though the company is benefitting from continued consumer demand for active and outdoor lifestyle clothes and shoes, balancing that resilience against the strong dollar headwinds that are eroding foreign sales and the creeping pessimism and caution that exists ahead of an expected recession is proving to be difficult.

As such, the company said it was lowering its outlook for the current quarter “to reflect increased negative impacts from foreign currency fluctuations as well as heightened inventory levels and increased promotional activity in the marketplace.”

Lovin’ the Lifestyle

Putting aside the fact that VF’s stock has fallen about 60% this year and is currently wallowing at levels not seen in a decade, the company is experiencing several areas of notable resilience within its portfolio — especially from its North Face line of apparel and gear.

Specifically, North Face delivered an outlier 14% in sales this quarter, a result the company said supported its claim of the brand’s “undisputed leadership” in the outdoor category.

“[North Face’s results] reflect double-digit growth across all regions and channels and led to our biggest second quarter ever for the brand, bringing the year-to-date growth to 21%,” Rendle said, noting the benefit of an image shift to “365-day apparel” versus seasonal, as well as a jump in demand for packs, bags and luggage.

At the same time, Rendle said VF added more than 800,000 new members to its “XPLR Pass” loyalty program in the quarter and now has over 15 million customers enrolled.

In addition to its own in-house product development effort, VF’s biggest label is also pursuing eight more co-branded designs with Gucci this winter, a collaboration that Rendle said is “creating heat” for the brand.

The Uphill Climb

While North Face has momentum, the company’s investor presentation showed that the remaining 3 labels in VF’s top-4 basket of brands — Vans, Timberland and Dickies — posted sales declines of 13%, 4% and 19% respectively.

“Traffic to our [Vans] stores and digital platforms continue to be below historic levels,” Rendle said, noting that its high in-store and online purchasing rates remained intact, and the brand’s repurposing was still in its early stages.

“Our focus in the second half is to prioritize initiatives that drive traffic into our direct channels where we have the opportunity to benefit from our strong conversion rates.”

As far as plans to deal with inventory levels which it said were up 88% from a year ago, VF is adjusting forward purchases where possible and selling-down excess and distressed inventory, while planning to simply carry above-average inventory in certain areas in the near term.

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