Athleisure growth entices VF to split off its jeans business

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VF Corp., which rose to prominence on the strength of its Lee and Wrangler jeans, wants to pivot away from denim to focus on the faster-growing trends such as athleisure and outdoor apparel.

The spinoff to shareholders, which will allow VF to retain trendier brands like North Face, Timberland and Vans, should be completed in next year's first half, the company said in a statement Monday. The jeans business, which has yet to be named, will remain as a public company based in Greensboro, North Carolina, while VF will move its headquarters to the Denver area -- a mecca for outdoor sports enthusiasts.

Sales of denim have slowed in recent quarters, while consumers flock to the active-wear category. Jeans production also lacks overlap with the other product lines, VF Chief Financial Officer Scott Roe said.

"Over time, the business models of the jeanswear business relative to the remaining portion of VF have diverged," Roe said in an interview. "We just decided that VF is not the best owner of these iconic brands."

Chief Executive Officer Steven Rendle said snapping up other companies or brands will be key for the new, denim-less version of VF.

"We will be much more in the acquisition mode than we will in the divestiture mode," he said in an interview. The company may also invest in digital and data analytics.

Share trading on Monday showed Wall Street is skeptical of the move, however. VF shares, which had reached a record high on Aug. 10, plunged as much as 5.2 percent to $91.27, the most intraday in more than three months.

Brian Tunick, an analyst at RBC Capital Markets, said he'd heard concerns from investors that the spin-out and change of headquarters over the next 12 months "could add some distraction."

At the same time, the announcement of the new company has called investor attention to "how expensive the remaining VF Corp. business is," he said.

New structure

Scott Baxter, VF's group president for its Americas West division, will be CEO of the new jeans company, while finance executive Rustin Welton will be chief financial officer, VF said.

The jeans company would have estimated annual revenue of more than $2.5 billion, compared with more than $11 billion for the rest of VF. The existing company's faster-growing product lines have driven share-price gains, with the stock up 30 percent this year before Monday's decline.

In a conference call with investors, company officials said VF's shareholders at the time of the spinoff will own 100 percent of both companies, with the final distribution ratio determined "later in the process."

VF, once known as Vanity Fair Mills and founded in 1899 as Reading Glove & Mitten Manufacturing Co., has owned the Lee brand since the 1950s and Wrangler since the '70s.

Bob Phibbs, CEO of the Retail Doctor, an industry consulting firm, said VF is making the change to focus on the area that's growing the fastest.

"This split speaks to a rapidly growing interest in athleisure and outdoor brands, while consumers are less interested in what appears to be lower brow mass market denim brands," Phibbs said in an email.

Outdoor brands such as Timberland and North Face, meanwhile, are "upscale and aspirational, which helps them resonate with younger consumers," he said.

Barclays is acting as financial adviser to VF and Davis Polk & Wardwell LLP is acting as legal adviser. The announcement confirms a report last week from the Wall Street Journal.

—Bloomberg News

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