Vans, North Face, And Timberland Will Face Declining Demand

Key Takeaways

• Structural decline in legacy brands and chronic demand weakness are driving sustained revenue and profit challenges, with turnaround efforts unlikely to fully offset these pressures.
  
• Rising environmental, regulatory, and reputational costs, combined with increased discounting, are compressing margins and undermining long-term earnings power.
  
• Strategic cost reductions, brand elevation, global expansion, digital investments, and debt management are driving improved profitability, stronger consumer engagement, and reduced financial risk.

Catalysts

Offers branded apparel, footwear, and accessories for men, women, and children in the Americas, Europe, and the Asia-Pacific.

• Intensifying consumer preference for digitally native direct-to-consumer brands continues to erode the relevance of legacy brands like V.F., with accelerating channel rationalization and persistent declines at key franchises such as Vans likely to result in sustained long-term revenue contraction that the company's current turnaround initiatives may only partially offset.
  
• Ongoing macroeconomic headwinds, including persistent inflation and wage stagnation, are expected to structurally pressure discretionary apparel spending worldwide, particularly impacting V.F.'s predominantly mid-tier brands and resulting in chronic demand weakness and compressed organic revenue growth for the foreseeable future.
  
• Heightened scrutiny of environmental practices poses an escalating cost and reputational risk for V.F., as legacy supply chain transparency and historic fast-fashion associations could trigger increased regulatory compliance expenses that permanently erode net margins, especially as ESG expectations rise.
  
• Chronic brand fatigue and loss of relevance in the core portfolio-evidenced by continued double-digit sales declines at Vans and inconsistent growth at North Face-are driving increased promotional activity and discounting to stimulate demand, directly compressing gross and operating margins while undermining long-run earnings power.
  
• The accelerated shift toward premium and luxury segments within the global apparel market structurally disadvantages V.F.'s mass-market business model, leaving the company squeezed by nimble direct-to-consumer upstarts above and price-driven fast-fashion competitors below, resulting in a prolonged structural reduction in both revenue and profitability as category share declines.

V.F Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on V.F compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming V.F's revenue will decrease by 1.5% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 1.1% today to 4.8% in 3 years time.
• The bearish analysts expect earnings to reach $435.1 million (and earnings per share of $1.1) by about August 2028, up from $104.9 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 12.6x on those 2028 earnings, down from 51.0x today. This future PE is lower than the current PE for the US Luxury industry at 19.4x.
• Analysts expect the number of shares outstanding to grow by 0.33% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 11.56%, as per the Simply Wall St company report.

V.F Future Earnings Per Share Growth

Risks

• The company has made significant progress in structurally transforming its cost base, reducing over $300 million in costs, and is targeting an additional $500–$600 million in net operating income improvement, which supports a strong path to higher earnings and improved net margins.
  
• Premiumization and brand elevation initiatives-especially at brands like The North Face, Vans, and Timberland-are resulting in higher average selling prices and mix shift opportunities, providing sustained gross margin expansion and supporting more robust profitability.
  
• V.F. is demonstrating early gains in global and regional brand momentum, with The North Face and Timberland both posting strong revenue growth and plans to further accelerate brand reach and penetration, particularly through innovative product pipelines and international growth, which would benefit top-line revenue.
  
• Ongoing investments in digital, direct-to-consumer, and integrated marketing-such as the reopening and redesigning of flagship stores and large consumer events-are leading to improving sell-out trends and increased consumer engagement, with the potential to significantly accelerate revenue and margin growth as these efforts scale.
  
• Management has prioritized balance sheet strength and deleveraging, with net debt down $1.4 billion year-over-year and a clear plan to reach 2.5 times leverage by fiscal 2028, thereby reducing financial risk and supporting higher free cash flow and earnings in the medium term.

Valuation

• The assumed bearish price target for V.F is $10.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of V.F's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $40.0, and the most bearish reporting a price target of just $10.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $9.1 billion, earnings will come to $435.1 million, and it would be trading on a PE ratio of 12.6x, assuming you use a discount rate of 11.6%.
  
• Given the current share price of $13.7, the bearish analyst price target of $10.0 is 37.0% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.