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Negative inflection · Case study

VF Corp: the promotional ensemble flagged North Face and Vans

In August 2022 our system captured email discounting at North Face and Vans never seen in six years of data. We alerted clients to a potentially severe supply and demand mismatch. Within about two months VF Corp lowered its outlook three times, and its Chairman and CEO retired.

VFC▲ Promotions intensifyingRandom WalkQ3 2022
+462%our measure of significant North Face discounts vs the prior year
−41%VFC share price decline through the end of 2022
3 cutsto the FY2023 earnings outlook; consensus EPS fell 32%

What changed

In August 2022, Random Walk identified explosive growth in every category we use to measure promotional intensity for VF Corp's top brands, North Face and Vans. Our system was capturing levels of email discounting never seen before in six years of data capture.

On August 15 we flagged a negative inflection and alerted clients to a potentially severe supply and demand mismatch at the company's largest apparel and footwear brands. VF Corp subsequently lowered its earnings outlook on three separate occasions in roughly two months and announced the retirement of its longstanding Chairman and CEO.

Exhibit 1 · VFC share price, 2022, with the RW signal and guidance cuts
$25$35$45$41.45$29.91$28.25$32.82$27.61Aug 1Aug 31Sep 30Oct 31Nov 30Dec 30
Aug 15: RW flags negative inflectionGuidance cuts: late Sep, late Oct, early Dec

Month-end share prices per Koyfin; Aug 1 level approximate.

Highlights after the Aug 15 inflection

What followed

  1. 01
    North Face significant discounts +462% vs prior yearPromotional volume ran +186% to +303% year over year from September through November.
  2. 02
    Vans significant discount volume +185% vs prior yearPeaking at +774% in October.
  3. 03
    Inventory rose 17% quarter over quarterManagement cited "increasing inventories" and a "more promotional environment".
  4. 04
    FY2023 outlook cut three times; consensus EPS down 32%Shares fell 41% to end 2022, and the Chairman and CEO resigned.
Exhibit 2 · Significant discounts vs prior year, by month
+141%+181%+206%+143%+326%+774%+440%+489%+368%+11%Aug 2022Sep 2022Oct 2022Nov 2022Dec 2022
North FaceVans
Seasonal read

The product wasn't selling through the key seasons

Vans · Back to School 2022+113%significant discounts vs prior year. Promo volume kept climbing week after week; in 2021, promotions tapered as the season wound down.
North Face · Holiday 2022+501%significant emails vs prior year across Black Friday and the holidays, against moderate volume and lower discount intensity in 2021.
The outcome

Management confirmed the promotional pressure

In late September, ahead of its investor day, VF Corp lowered FY23 guidance, citing "increasing inventories" and a "more promotional environment". With its fiscal second-quarter results in late October it reported a net loss and cut guidance again, pointing to "heightened inventory levels and increased promotional activity in the marketplace." In early December it announced the retirement of its Chairman and CEO and lowered FY23 targets once more, with estimated FY23 diluted EPS down 35% year over year.

"Heightened inventory levels and increased promotional activity in the marketplace"VF Corp, Q2 FY23 results
Exhibit 3 · Random Walk promotional data vs key financial metrics, 2022
Metric (vs prior year)Aug '22Sep '22Oct '22Nov '22Dec '22
North Face
Promotional volume+57.8%+185.8%+302.5%+285.2%+217.2%
Significant discounts+141.4%+206.2%+326.1%+439.5%+367.5%
Vans
Promotional volume+42.6%+80.1%+51.1%+37.1%−11.6%
Significant discounts+181.0%+142.7%+773.7%+489.1%+10.8%
VF Corp
Consensus FY23 revenue*$12.17B$12.14B$11.82B$11.70B$11.70B
Consensus FY24 revenue*$12.93B$12.89B$12.52B$12.33B$12.30B
Share price**$41.45$29.91$28.25$32.82$27.61

*Consensus estimate on the first day of the month per Koyfin. **Share price on the last day of the month per Koyfin.

Conclusion

The inbox moved first

Discounting at North Face and Vans broke out in August, weeks before the first guidance cut. Our promotional index failed to stabilize through the holiday period, and each subsequent update from VF Corp confirmed what the email data had already shown.

Promotional data from Random Walk. Financial data per company releases and Koyfin. Not investment advice.

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