Has Vans Suddenly Slowed Down The Tide Card?

The latest quarterly report of VF Corp. (NYSE:VFC) group has dragged down its own share price, and has also hit Kontoor Brands Inc. (NYSE:KTB), which has just completed the spin off of denim and discount stores.

The sudden slowdown of the Vans, the biggest clothing giant in the United States, has alerting investors. VF Corp. (NYSE:VFC) plunged nearly 7% in the 22 day.

In the fourth quarter of 2019 fiscal year ending March 30th, Vans's fixed exchange rate growth rate slowed sharply from 27% in the three quarter and 39% in the same period last year to 18%, the lowest growth rate in the past six quarters.

The first question on the conference call was launched around Vans, and Scott Corp., chief financial officer of VF Corp. group, said the slowdown in analysts' eyes was a "soft landing" for the group.

He pointed out that the brand has achieved explosive growth of 27% and 26% in the 2018 and 2019 fiscal years. The incremental revenue in the past two years has reached 1 billion 400 million US dollars. Although the speed of the four quarter has eased, the strong momentum has basically remained unchanged, and the channels and social media performance is still positive.

The group maintains a target of US $5 billion in Vans fiscal year 2023, and expects to have double-digit growth in the 2020 fiscal year and earn 4 billion US dollars in revenue.

Vans's sports department increased its fixed exchange rate revenue by 10% to 1 billion 142 million 300 thousand US dollars in the four quarter, and the organic growth rate of fixed exchange rate was 16%.

Management expects that the organic growth rate of the sector in the 2020 fiscal year will be reduced from 19% in the fiscal year to 9%-10% in the fiscal year of Kipling, Jansport and Eastpak. This is also one of the reasons for the group's annual revenue target of 117-118 billion US dollars, far below the market expected US $14 billion 600 million.

Contrary to Vans, the flagship brand The North Face (North) grew faster, and the fourth quarter growth rate increased from 7% in the same period last year to 11%.

Group Chairman, President and CEO Steve Rendle pointed out to analysts that what is more important is The North Face's resumption of high single digit growth in the North American home market, and the growth of Timberland Tim Pak LAN has reached 5%, and the classic boots business of the brand has stabilized.

With the two brands showing different degrees of recovery, the fourth quarter outdoor sector recorded a revenue of 1 billion 1 million 300 thousand dollars, excluding the exchange rate, 17% growth and an organic growth rate of 9%.

The income of the work clothes department rose by 4% to $453 million per year and the organic growth rate was 7%.

VF Corp. rich group has a total revenue of US $3 billion 213 million, which is in line with market expectations, 5.5% higher than the US $3 billion 45 million 400 thousand in the same period last year, and the growth in revenue and organic sales excluding the impact of the exchange rate is 9%.

The denim business, which includes Lee and Wrangler's two traditional brands, has been released on the following day by the VF Corp. group. It has renamed Kontoor Brands Inc. (NYSE:KTB) and landed at the NYSE.

However, due to the continuous regression of performance, coupled with the escalation of Sino US trade tensions, the stock fell more than 7% on the first day of trading on Thursday, and it gained 3.9%, or 38.6 U.S. dollars, on the whole day.

In contrast, Levi Strauss & Co. (NYSE:LEVI) surged more than 30% on the day of listing in March 21st.

Next, the Gap Inc. (NYSE:GPS), the largest brand Old Navy Old Navy with high density denim business, will also be listed independently. J.Crew Group Inc. will consider promoting the IPO of the Cowboy brand Madewell.

The denim business realized $597 million 300 thousand in the four quarter, and fell 1% after the exchange rate impact. The annual income was $2 billion 491 million 800 thousand. Lee, which was the fourth largest brand before the spin off, fell 5% by year, while the fifth brand Wrangler increased by 1%.

In recent years, the jeans market has been completely captured by sports and leisure products all over the world. In the United States, the import of elastic knitted trousers has surpassed jeans for the first time in 2017, and the retail sales of jeans resumed growth until 2018.

Against this background, the VF Corp. rich group accelerated its restructuring. It not only sold Nautica at the same time when it bought the Williamson-Dickie Mfg Co., the outdoor clothing brand Icebreaker and the running shoes brand Altra, but also decided to split down the growth and drag the profitable cowboy business.

Scott Baxter, chief executive of Kontoor Brands Inc., points out that expanding the global footprint of its brand, enhancing interaction with young consumers and continuing to please traditional customers are priorities for the new company.

Take Wangler as an example, Scott Baxter revealed that the brand will enter China in January 2020, and at present, only 15% of the women's clothing business that sells brand has huge room for development.

Lee will expand its goals in the way of Levi 's Levi's lifestyle, and strengthen the category of tops, jackets and accessories.

Scott Baxter also pointed out that since the company has become independent, the future will consider stepping out of the cowboy field and exploring the acquisition opportunities in the clothing market. "We don't want to be a cowboy company for a long time," Scott Baxter said.

China is naturally a fixed topic in the recent conference call of American apparel companies.

Steve Rendle said that the current tariff policy had a very low impact on the group, and revealed that after the divestiture of Kontoor Brands Inc., the Chinese products in the US market accounted for only 7% of the cost of the group's sales.

Scott Baxter also told Bloomberg Television that China's business is not affected by trade relations, because all the jeans sold by Lee brand in China are produced locally. Wrangler will follow the strategy after entering China. On the other hand, only 2% of Kontoor Brands Inc.'s products are exported to other markets in China, and the main producing areas in non China market include Bangladesh, Mexico and Nicaragua.

China's revenue in the fourth quarter of VF Corp. is increasing by 25% compared to the same period last year. Chief financial officer Scott Roe expects that the growth rate of 20%+ will be maintained in the current fiscal year. Steve Rendle has revealed that Vans, The North Face and The contributed most of the growth.

The group achieved a net profit of $128 million 800 thousand in the four quarter, a sharp decrease of 49.1% from the $252 million 800 thousand a year ago, and EPS also dropped from $0.66 to 0.32 US dollars.

Adjusted EPS is US $0.60, which is better than FactSet's combined forecast of US $0.58.

Management expects that the adjusted EPS will fall from $3.78 in the fiscal year to 3.30-3.35 US dollars in fiscal year 2020, much less than FactSet's combined estimate of $4.23.