Costa Mesa-based footwear and apparel company Vans Inc. plans to step it up after a year of missed expectations.
Despite seeing 19% growth in revenue from the year prior to $4.2 billion, “we are not satisfied with [Vans’] current performance,” Denver-based parent company VF Corp. (NYSE: VFC) CEO Steven Rendle told analysts in a May 19 conference call.
Company officials cite lower “brand heat” and pandemic-related lockdowns in China as key reasons for the recent underperformance of Vans, which counts an estimated 650 local workers at its campus along the San Diego (405) Freeway.
Vans brought in about $991 million in revenue for the latest quarter, flat from a year ago, not factoring in foreign currency fluctuations. Company officials a few years ago said they thought the brand could reach $6 billion in annual revenue by 2024.
New President
To get back on track, recently reappointed Vans Global Brand President Kevin Bailey told analysts that the company will refocus on its Classics footwear line and improve its direct-to-consumer experience, both of which comprise a large part of the company’s business.
“I’ve been back for nearly two months now and have been impressed by the team [and] their commitment,” Bailey said. “We’ve dug in quickly together and are in the process of refreshing and refocusing Vans’ strategy.”
The day after releasing its latest earnings report, the VF Corp.’s stock rose 3%, opening at $45.94 per share and closing at $47.49.
Shares for VF Corp.—whose other brands include North Face, Timberland, Dickies and the recently acquired Supreme—are down about 45% since their 52-week high last June. The company currently counts a nearly $18 billion valuation.
Vans is the largest unit of VF Corp., and was responsible for about 35% of the parent company’s revenue for the last fiscal year. VF Corp. bought Vans in 2004 for about $400 million.
Bringing the Heat
Vans “has enjoyed outsized brand heat in its history, though we have not emerged from the pandemic with as much velocity as expected and have lost some momentum,” said Bailey, who cited a need “to drive more energy with influencer consumers and provide geographic relevance” going forward.
Vans has a multi-pronged approach to reignite its “brand heat.”
For one, the company will turn back its attention to its Classics line, which includes its Old Skools, Authentic and SK8-HI styles and comprises roughly two-thirds of the company’s global footwear business.
“Our focus [on] our progression footwear and apparel led to strong double-digit growth in those areas in fiscal 2022, but we underestimated the level of balance needed to maintain appropriate growth in our Classics business,” Bailey told analysts.
In refocusing on its C=-lassics line, the company hopes to optimize and extend consumer trends with style adaptations.
At the same time, the company will enhance its direct-to-consumer experience, which represents 55% of its global business.
The initiative is Bailey’s “sweet spot” and where he started his career, he said.
Bailey also told analysts the company will refresh itself on consumer research to “deeply understand and reshape our brand strategies for today’s evolving shopper.”
Mixed Reactions
VF Corp.’s latest earnings report received mixed reactions from analyst firms.
Goldman Sachs Group Inc. (NYSE: GS) maintained its “sell” rating and lowered the company’s price target from $46 to $40.
Analysts at the firm “remain skeptical on the path to outperformance for this stock,” believing that “underlying soft brand momentum at Vans remains a show-me story and will continue to weigh on future estimate revisions,” according to a May 19 report by Brooke Roach and Julie Hoover.
Credit Suisse shared a more optimistic outlook. The firm maintained its “outperform” rating while still lowering the company’s target price to $61 from $81.
“We’re encouraged the new Vans brand president offered a sober but clear strategy of how to reboot and reaccelerate the brand after underperforming last year,” Credit Suisse analysts Michael Binetti, Daniel Silverstein and Carson Paull said in their May 20 report.
Presidential Shifts
Bailey is no stranger to Vans.
His career with the company began in 2002, where he served as the vice president of retail until 2007. He left that year to become the executive vice president of LA-based denim manufacturer Lucky Brand.
After two years at Lucky, he boomeranged back to Vans and served as Global Brand President until 2016, where he helped the company’s revenue grow from $800 million to $2.3 billion.
He took on various leadership roles at VF Corp. before Bailey returned to Vans in March, taking over the Global Brand President role from Doug Palladini, a longtime Vans exec.
“It’s good to be back in my old chair at Vans,” Bailey told analysts. “I know this brand, understand the consumer and competition, and have a clear point of view on our challenges and of the opportunities that lie ahead for us.”
