Bracken Darrell, who in previous lives supercharged Logitech and turned around Old Spice, has his work cut out for him at VF Corp.
The newly minted president and chief executive officer gave a few first impressions of the company — parent to Vans, The North Face and Supreme — on its first-quarter conference call with analysts. But out of necessity, his remarks came against a backdrop of continued losses, significant weakness in the wholesale business and a lower revenue outlook.
Darrell laid relatively low given that he’d been at the company for just 12 days, but was unsurprisingly optimistic in his remarks, saying VF had a “portfolio of globally powerful and iconic brands” that have both purpose and talent.
“These are the key ingredients needed to unlock the company’s significant value potential and return to strong sustainable and profitable growth,” the CEO said.
Darrell drew parallels to his time at computer hardware and software company Logitech, where he grew the company’s value tenfold — a stat that no doubt plays to the VF shareholder, who has seen the stock fall more than 57 percent over the past year.
He said Logitech transformed by “putting the customer at the center of everything we do.”
At VF, he has been doing a world tour, visiting the headquarters in Denver and stores in San Francisco, New York, London and beyond.
“I talk to customers everywhere I go and I started to dig into the brand equity data,” Darrell said. “My conclusion is that our brands are as strong as I expected. Our team is loaded with talent, our business is simply not performing at the level equal to those because of things in our control. I feel a strong sense of urgency with respect to the challenge we face and we collectively work with the team to get VF back on track through disciplined and thoughtful actions….This company has what it takes.”
But right now, it doesn’t have the results.
Net losses for the first quarter widened to $57.4 million from $56 million a year.
Adjusted losses per share of 15 cents were slightly weaker than the 12 cent deficit Wall Street analysts projected, according to FactSet.
Revenues for the three months ended June 1 slipped 8 percent to $2.1 billion from $2.3 billion a year ago and were in line with expectations.
While there were bright spots in the quarter — The North Face saw revenues grow 12 percent to $538.2 million while VF’s business in Greater China was ahead 31 percent, both in constant dollars — those wins were not enough to make up for weakness elsewhere.
Revenues at Vans, VF’s largest business, were down 22 percent to $737.5 million and were hit hard by weakness at wholesale in the Americas, which was down 39 percent. Across the company, wholesale fell 12 percent and the direct-to-consumer business slipped 3 percent.
The company stood by its earnings estimate for the year, which calls for EPS of $2.05 to $2.25, but expects continued weakness at wholesale to hit revenues.
VF is now looking for revenues this year to be “modestly down to flat” instead of the “flat to up slightly” projected in May.
Chief financial officer Matt Puckett, who did much of the heavy lifting on the conference call, said VF is continuing to focus on strengthening its supply chain and turning around Vans — two areas of historic strength for the firm.
But everything is being filtered through the balance sheet, another area where VF hasn’t been looking like its old self lately.
“While we have ample liquidity and financial flexibility to pursue our key priorities, our number one financial objective is to return VF to our historical balance sheet strength,” Puckett said. “Accordingly we will use any excess free cash flow to reduce debt, and you can be sure that any strategic decision we are making is through this lens. We expect to end this fiscal year with gross leverage of about 4-times and will continue to make progress on the path to moving toward our target of 2.5-times.”