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V.F. Corp Picks Bracken Darrell to Turn the Company Around – C-Suite Transitions

  • June 29, 2023

Several years ago I came across someone who happened to be thrilled with her latest purchase of a t-shirt for $80. I am usually unable to maintain a poker face and my confusion was writ large on my face. I was looking at a plain white t-shirt with a large red logo that had the word Supreme on it. She went on to explain how Supreme “merch” was difficult to come by and that she had scored a deal by paying just $80 for this wonderful t-shirt. As they say, beauty is in the eye of the beholder.

I was intrigued and looked into the company to discover the company was the brain child of Jame Jebbia, who opened his first store in Manhattan in 1994 and it was primarily focused on skating enthusiasts. It took him nearly 25 years to open his 12th store in San Francisco in 2019.

The business model was based on very limited “drops” of products that would sell out quickly. The merch would then be flipped on the secondary market for much higher prices. Mr. Jebbia’s genius didn’t just lie in this unique business model but also in how he flipped the company to the apparel group V.F. Corp (VFC) in December 2020 for $2.1 billion in an all cash deal.

The deal left V.F. Corp with a leveraged balance sheet and investors weren’t particularly thrilled with this move. The stock, which was trading north of $84 when the deal was consummated, currently trades for $18 and change. In this article we discuss V.F. Corp’s appointment of a new CEO to turn around a company know for its iconic brands like The North Face, Vans and Timberland.

Welcome to edition 47 of C-Suite Transitions, a weekly series on InsideArbitrage that tracks appointments and departures at publicly traded companies during the prior week. We highlight five appointments and departures each week by picking the largest companies from the full list of management changes.

Sudden Departures

  1. NNBR: On June 23, 2023, Chief Commercial Officer Andrew Wall notified NN, Inc. of his decision to resign from his position effective June 30, 2023, to pursue another opportunity.
  2. MRCY: On June 19, 2023, President and Chief Executive Officer Mark Aslett notified Mercury Systems of his decision to resign from his positions. Mr. Aslett has been removed without cause from his position as a member of the Board effective as of June 24, 2023.
  3. ITOS: On June 26, 2023, ITeos Therapeutics Chief Medical Officer Joanne Jenkins Lager, M.D resigns effective as of June 23, 2023, for personal reasons.
  4. CYCN: On June 26, 2023, Cyclerion Therapeutics Chief Operating Officer Cheryl Gault announced her resignation in order to pursue other opportunities.
  5. EAR: On June 23, 2023, Eargo Board approved plans for President, and Chief Executive Officer Christian Gormsen to step down from his positions effective June 30, 2023.
  6. FLGC: On June 21, 2023, Chief Executive Officer Hussein Rakine tendered his resignation effective June 25, 2023.
  7. QUBT:  On June 21, 2023, Quantum Computing Chief Financial Officer Christopher Roberts notified the Board of Directors that he will step down effective June 30, 2023.
  8. HCDI: On June 20, 2023, Harbor Custom Development Chief Financial Officer Lance Brown, notified the company of his decision to resign, effective July 21, 2023.
  9. SANW: On June 26, 2023, S&W Seed President and Chief Executive Officer Mark Wong notified the company of his decision to retire effective as of July 1, 2023.
  10. MBLY: Mobileye Global Chief Financial Officer Anat Heller will be stepping down as Chief Financial Officer effective as of June 26, 2023, for personal reasons.
  11. NXTP: On June 19, 2023, NextPlay Technologies Chief Operating Officer Andrew Greaves provided notice of his resignation effective June 20, 2023.
  12. GRPH: On June 19, 2023, Graphite Bio Chief Financial Officer Alethia Young, notified the company of her decision to resign, effective June 30, 2023.
  13. JANX: On June 21, 2023, Janux Therapeutics Chief Medical Officer  Wayne Godfrey, M.D. resigned from his position effective July 5, 2023. Dr. Godfrey’s decision to resign was for personal reasons and was not a result of any disagreement with the company.
  14. AIG: On June 20, 2023, American International Group announced that Shane Fitzsimons will step down from his position as Chief Financial Officer of AIG, following a medical leave of absence effective immediately.

V.F. Corporation (VFC): $18.79

In yesterday’s edition of Buyback Wednesdays, we explored Logitech’s significant share buyback announcement and the departure of its CEO. Today, we move our focus to a major C-suite addition as we examine VF Corporation, which added Logitech’s veteran CEO to its leadership team.

VF corporation brands

Founded in 1899, VF Corporation is a multinational American apparel and footwear corporation. It operates through three segments: Outdoor, Active, and Work through its diverse portfolio of iconic lifestyle brands like Timberland, The North Face, Icebreaker and Vans.

After an extensive tenure of over 25 years with the company, including nearly six years as CEO, Steve Rendle, the former Chairman, President, and Chief Executive Officer of VFC, exited suddenly in December 2022, following disappointing revenue growth. Following the departure of Steve Rendle, the company initiated a search for a permanent Chief Executive Officer.

Bracken Darrell

Bracken DarrellOn June 20, 2023, VF Corporation (VFC) announced that its Board of Directors has appointed Bracken Darrell as President and CEO, effective July 17, 2023. Darrell will join VF from Logitech International S.A., where he served as President and CEO since 2013.

Mr. Darrell said “Like millions of people around the world, I love VF’s iconic brands. I’m so impressed by this organization’s sustained ability to keep its portfolio of brands at the forefront of culture over time during its 124-year history. I look forward to working closely with the Board, leadership team, and talented associates across VF to build on the initiatives underway to strengthen business performance and drive strong and sustainable growth and shareholder value creation. I can’t wait to get to work.”

Following Mr. Darrell’s appointment, Benno Dorer, who has been fulfilling the role of VF’s Interim President and CEO since December 5, 2022, and has been a member of VF’s Board since 2017, will continue to serve as a member of the VF Board.

Prior to joining Logitech, Mr. Darrell held leadership positions at General Electric, Whirlpool Corporation, and Procter & Gamble. He served as President of Braun for Procter & Gamble.

Tenure at Logitech

Logitech International (LOGI) experienced significant growth and expansion, during Mr. Darrell’s 10-year stint as the President and CEO of the company. The company ventured into over 20 additional product categories, witnessed a remarkable tenfold increase in market capitalization, and revenue more than doubled. Net income increased at an even more impressive rate during his tenure even after discounting the pandemic related jump. Logitech is currently debt free and has over $1 billion in net cash on the balance sheet. On June 21, 2023, Logitech announced a $1 billion buyback which represents around 11.5% of its market cap at the announcement.

VF Divests Occupational Workwear Brands

In 2021 V.F. Corp. (VFC) completed the sale of the occupational portion of its Work segment to a subsidiary of Redwood Capital Investments, LLC. The divestiture encompasses several work apparel brands, such as Red Kap, VF Solutions, Bulwark, Workrite, Walls, Terra, Kodiak, Work Authority, and Horace Small. Notably, the sale does not include the Dickies and Timberland PRO brands, which remain under V.F. Corp.’s ownership.

According to Bloomberg, VF Corp. (VFC) is considering the potential sale of its JanSport backpack business which may value JanSport at about $500 million

Cash Flow, Debt, and Dividends

VF Corp. (VFC) faces a significant debt burden, exceeding its current market capitalization, with net debt of $4.89 billion without taking capital leases into account. The company’s Board of Directors cut its quarterly dividend earlier this year, reducing it by 40% from $0.51 to $0.30 per share. The current dividend yield works out to 6.27% and could be subject to further cuts considering GAAP EPS last year was $0.31 per share and free cash flow was negative.

Earnings Report (Investor Presentation)

Q4’FY23 Financial Highlights

The total revenue for the fourth quarter of 2023 amounted to $2.7 billion, representing a 3% decrease compared to the same quarter in 2022, although it remained unchanged in constant dollars. Vans revenue specifically saw a significant decline, reaching $0.9 billion, down 14%. The company reported an operating income loss of $161 million during this period. In terms of earnings per share (EPS), there was a loss of $0.55 per share, a big decline from $0.21 in fiscal Q4 2022. However, when adjusted, the earnings per share amounted to $0.17, showing a decline from $0.45 from the previous quarter.

FY23 Financial Highlights

Total revenue for fiscal year 2023 was $11.6 billion, a 2% decrease compared to the previous year. However, when adjusted for constant dollars, revenue actually increased by 3%. Gross margin experienced a decline of 200 basis points, settling at 52.5%. The company reported an operating income of $328 million. In terms of earnings per share (EPS), there was a significant decrease, with EPS dropping to $0.31, compared to $3.10 in the previous fiscal year. Adjusted EPS stood at $2.10, a decrease from $3.18 in FY22.

Conclusion 

VF Corporation has experienced a drastic decline in its stock price over the past five years, down 75%. A combination of high debt, negative cash flows and declining revenue imply Mr. Darrell has a a big challenge on his hands.

I ran a quick DCF model, using average analyst EPS estimates for the next two years of 2.45 and 2.57 (after 15 downward revisions), a modest 5% increase in EPS for the next eight years, a discount rate of 10% and a terminal growth rate of 2%.

If the new CEO can pull this off, the stock should be valued at around $35, more than 85% above current levels. I plan to track the progress of the company under new leadership closely to see if these EPS targets are achievable.

Investor Presentation
Investor Presentation

Appointments 

1. Realty Income Corp. (O): $60.15

On June 22, 2023, the company announced its appointment of Jonathan Pong as Chief Financial Officer and Treasurer of the company, effective as of January 1, 2024.

MarketCap: $40.60BAvg. Daily Volume (30 days): 5,223,086Revenue (TTM): $3.47B
Net Income Margin (TTM): 25.77%ROE (TTM): 3.27%Net Debt: $$19.43B
P/E: 42.41Forward P/E: 44.84EV/EBIDTA (TTM): 19.38
P/S (TTM): 10.83P/B (TTM): 1.3852 Week Range: $53.75 – $72.17

2. Integra Lifesciences Holdings (IART): $40.20

On June 21, 2023, Integra LifeSciences Holdings Corporation announced the appointment of Lea Daniels Knight to serve as its Executive Vice President and Chief Financial Officer effective June 28, 2023.

MarketCap: $3.29BAvg. Daily Volume (30 days): 720,432Revenue (TTM): $1.56B
Net Income Margin (TTM): 11.00%ROE (TTM): 10.45%Net Debt: $1.28B
P/E: 19.47Forward P/E: 12.71EV/EBIDTA (TTM): 11.74
P/S (TTM): 2.14P/B (TTM): 1.9752 Week Range: $37.36 – $60.69

3. Tenet Healthcare (THC): $79.75

On June 23, 2023, Tenet Healthcare Corporation announced that Sun Park has been appointed Chief Financial Officer effective January 1, 2024.

MarketCap: $8.13BAvg. Daily Volume (30 days): 1,378,203Revenue (TTM): $19.67B
Net Income Margin (TTM): 2.11%ROE (TTM): 22.06%Net Debt: $14.31B
P/E: 20.90Forward P/E: 14.06EV/EBIDTA (TTM): 7.30
P/S (TTM): 0.44P/B (TTM): 6.5052 Week Range: $36.69 – $85.40

4. Sotera Health (SHC): $18.79

On June 26, 2023, Sotera Health announced the appointment of Jonathan M. Lyons as Senior Vice President and Chief Financial Officer of the company, effective June 26, 2023.

MarketCap: $5.31BAvg. Daily Volume (30 days): 1,230,970Revenue (TTM): $6.99B
Net Income Margin (TTM): -26.47%ROE (TTM): -52.10%Net Debt: $1.68B
P/E: -20.18Forward P/E: 23.04EV/EBIDTA (TTM): 15.30
P/S (TTM): 5.24P/B (TTM): 14.4152 Week Range: $5.78 – $20.41

5. Autozone (AZO): $2,437.63

On June 24, 2023, the Board appointed Philip B. Daniele, III to the additional role of CEO-Elect, effective immediately.

The Board intends to appoint Philip B. Daniele, III to the role of Chief Executive Officer in January 2024.

MarketCap: $44.26BAvg. Daily Volume (30 days):Revenue (TTM): $17.11B
Net Income Margin (TTM): 14.45%ROE (TTM): -64.34%Net Debt: $10.16B
P/E: 19.15Forward P/E: 16.95EV/EBIDTA (TTM): 14.17
P/S (TTM): 2.81P/B (TTM): N/A52 Week Range: $2050.21 – $2750

Departures

1.  Mobileye Global (MBLY): $38.12

Anat Heller, Chief Financial Officer of Mobileye Global will be stepping down as Chief Financial Officer effective as of June 26, 2023, for personal reasons. Ms. Heller notified the company of her decision to step down on June 20, 2023

MarketCap: $30.71BAvg. Daily Volume (30 days): 4,935,582Revenue (TTM): $1.93B
Net Income Margin (TTM): -5.23ROE (TTM): -0.66%Net Cash: $1.11B
P/E: -291.37Forward P/E: 59.88EV/EBIDTA (TTM): 1,409.28
P/S (TTM): 14.93P/B (TTM): 1.9652 Week Range: $24.85 – $48.11

2. Autozone (AZO): $2,437.63

On June 24, 2023, William C. Rhodes, III, Chairman, President, and Chief Executive Officer, notified the Board of Directors of AutoZone of his intention to relinquish his roles effective January 2024.

MarketCap: $44.26BAvg. Daily Volume (30 days):Revenue (TTM): $17.11B
Net Income Margin (TTM): 14.45%ROE (TTM): -64.34%Net Debt: $10.16B
P/E: 19.15Forward P/E: 16.95EV/EBIDTA (TTM): 14.17
P/S (TTM): 2.81P/B (TTM): N/A52 Week Range: $2050.21 – $2750

3. Corebridge Financial (CRBG): $17.25

Mia Tarpey, Executive Vice President and Chief Operating Officer of Corebridge Financial step down from her position at the company, effective July 1, 2023.

MarketCap: $11.18BAvg. Daily Volume (30 days): 4,399,299Revenue (TTM): $23.70B
Net Income Margin (TTM): 18.25ROE (TTM): 27.24%Net Debt: $7.34B
P/E: 2.59Forward P/E: 4.41EV/EBIDTA (TTM): 3.15
P/S (TTM): 0.47P/B (TTM): 0.9552 Week Range: $13.50 – $22.08

4. Realty Income (O): $60.15

On June 22, 2023, Christie Kelly notified Realty Income Corporation that she will retire from her service to the company as Chief Financial Officer and Treasurer, effective December 31, 2023.

MarketCap: $40.60BAvg. Daily Volume (30 days): 5,223,086Revenue (TTM): $3.47B
Net Income Margin (TTM): 25.77%ROE (TTM): 3.27%Net Debt: $$19.43B
P/E: 42.41Forward P/E: 44.84EV/EBIDTA (TTM): 19.38
P/S (TTM): 10.83P/B (TTM): 1.3852 Week Range: $53.75 – $72.17

5. American International Group  (AIG): $56.46

On June 20, 2023, American International Group announced that Shane Fitzsimons will step down from his position as Chief Financial Officer of AIG, following a medical leave of absence effective immediately.

MarketCap: $40.86BAvg. Daily Volume (30 days): 4,499,566Revenue (TTM): $52.38B
Net Income Margin (TTM): 11.71%ROE (TTM): 12.70%Net Debt: $14.44B
P/E: 7.09Forward P/E: 8.90EV/EBIDTA (TTM): 4.48
P/S (TTM): 0.81P/B (TTM): 0.9352 Week Range: $45.37 – $64.03

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