Consumer

Brooke Sutherland is a Bloomberg Gadfly columnist covering deals. She previously wrote an M&A column for Bloomberg News.

VF Corp. is the company many consumers have never heard of whose brands may fill their closets.  

The $27 billion accumulator of retail and clothing labels counts North Face outerwear, Splendid premium T-shirts and Ella Moss dresses among its collection. It relies in large part on adding more apparel and accessories makers to its distribution system to keep revenue climbing. CEO Eric Wiseman has said acquisitions remain a top priority for VF -- but he's dawdled lately. 

VF hasn't publicly announced any deals for four years -- its longest drought ever, according to data compiled by Bloomberg. It's last big takeover was the $2 billion purchase of boot maker Timberland in 2011, and  it dropped a pursuit of surf brand Billabong in 2013 after the company wanted more than VF thought it was worth.

The dearth of new deals is starting to make itself felt: Analysts are projecting VF's sales will rise just 2.8 percent this year, the smallest gain since 2009.

Deal Wanted
An acquisition could help spur revenue growth for VF
Source: Bloomberg

Part of that slowdown is tied to a broader trend among retailers from which VF hasn't been immune. Cheap, fast-fashion brands such as H&M and Zara are drawing customers away from middle-of-the-road purveyors of basics like jeans and T-shirts, just as they get slapped by the strong dollar. Weaker demand and piled-up inventory forced VF to cut its profit forecast in October, sending the shares into a tailspin

VF still has a lot going for it. The company's brand mix is diversified enough to help shield it from downturns in specific categories and a robust supply chain lets it better manage inventory levels in response to changes in demand, says Canaccord analyst Camilo Lyon. All of that should position VF to ride out the retail industry's current hardships. But taking advantage of opportunities to bargain shop for more brands as others struggle would put it in an even better position. 

Sputtering Stock
VF has underperformed this year, but there's a lot to like like with its business.
Source: Bloomberg

Because Wiseman has said he's interested in expanding in action sports and outdoor gear, a favorite speculated target for the company is Lululemon. And the combination makes sense.  VF has the big supply-chain and manufacturing management skills that the $6.3 billion yoga-wear maker needs. VF's international expertise also could come in handy as Lululemon explands into other markets.

Valuation was always the big deterrent, but Lululemon is getting cheaper. The company slumped 13 percent on Wednesday after reporting third-quarter profit and sales that missed analysts' estimates. The drop has left the retailer bumping along near the lowest multiple of enterprise value to revenue since 2010.

Then there's Puma. Kering is open to selling its majority stake in the sportswear producer, people familiar with the matter told Bloomberg News last month. The brand may be valued at as much as 4 billion euros ($4.4 billion), according to analysts. Elsewhere in that area, Adidas is reviewing its portfolio for possible divestments. Should the Reebok sneaker unit become available, that's another one that would fit well with VF. Puma, on the verge of a turnaround amid a doubled-down focus on sports, is the more appealing of the two, though.

If VF wanted something more upscale, it could go after Vince. The maker of $745 suede tunics and $295 tweed knit sweaters might be worth a look after losing 80 percent of its value since going public in 2013. A glut of inventory forced the company to take a writedown last quarter. (It reports third-quarter results after the close of trading Thursday.) But while the brand has lost some of its luster, there's still value to it -- particularly in the capable hands of VF. Vince's market value of about $200 million is bite-sized for the consumer giant and could be an opportunity to tap into higher-end markets. 

Private-equity firms, meanwhile, are sitting on a whole host of brands that could fit nicely within VF's portfolio.  Golden Gate Capital is still holding on to Eddie Bauer after Jos. A. Bank scrapped a planned takeover in favor of a deal with Men's Wearhouse. TSG Consumer Partners has Paige jeans, which would go nicely with VF's Rock & Republic and 7 for All Mankind brands.

Altamont Capital has a whole cluster of potentially appealing action-sports and skater brands, including Dakine windsurfing and skiing gear, Mervin snowboards and the Brixton and HUF hipster clothing lines. That's a portfolio perfectly crafted for VF's stated interest in outdoor and action sports. 

Given the opportunities, now might be a good time for VF to go out and claim a bigger share of closet space.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Brooke Sutherland in New York at bsutherland7@bloomberg.net

To contact the editor responsible for this story:
Beth Williams at bewilliams@bloomberg.net