Company Overview - The North Face
The North Face was acquired by VF Corporation in the year 2000 and now operates as a private division of the same. The company's business is on a growth trajectory and is expected to grow at a CAGR of 8 to 9 percent over the next five years. The brand is prioritizing to ensconce itself in sportswear and footwear categories.
Previous Quarter’s Earnings
- As per the latest reported quarterly earnings for Q2'2020 (ended September 2019), the global revenues for The North Face brand increased 8% in both the three and six months ended September 2019 compared to the 2018 periods.
- The above growth in revenues was primarily driven by strong operational growth across all channels and regions, including strong wholesale performance, and growth in the direct-to-consumer (DTC) channel.
- The growth in the DTC channel was majorly driven by an expanding e-commerce business and comparable-store growth of The North Face.
- The parent company, VF corporation, does not report any dollar number for the quarterly earnings of its individual brands including The North face.
- Overall VF Corporation reported a 5% spurt in its Q2'2020 revenues and the same aggregated to $3,393.3 million for three months ended September 2019. The brand reported $3,219.4 million in sales for the corresponding 2018 period.
Stock Price Changes
- The North Face operates as a private company and hence is not listed on the stock exchanges. However, its parent company, VF Corporation is a public entity and is listed on NYSE under the ticker 'VFC'.
- The stock price of VF Corporation has increased by 4.65% over the past year.
State of the Business
- The North Face is among the largest and best-performing brands of VF Corporation with the highest retail growth potential, and is expected to grow at a CAGR of 8 percent to 9 percent over the next five years.
- The sales for The North Face brand are expected to reach $4 billion in fiscal 2024, up from $2.6 billion in fiscal 2019. The same had thus far grown at a 7 percent CAGR from 2016 to 2019.
- In terms of channel, the majority of sales growth is expected to come from DTC digital which is expected to grow to 19 percent of The North Face’s sales, up from 12 percent in fiscal 2019.
- The APAC region is expected to constitute the fastest sales growth for the brand over the next five years, growing at a 13-to-14 percent CAGR. The USA region, on the other hand, is expected to shrink as a percent of sales to 54 percent from 58 percent in 2019.
- The 'Urban Exploration' business segment is one of the best performing segments for the brand and is expected to expand at a 14 to 15 percent CAGR over the next five years; followed by Mountain Lifestyle (9 to 10 percent) and Mountain Sports (5 to 6 percent).
- In July 2019, the company newly appointed Steve Lesnard as global vice president of marketing, and Tina Rolen as vice president of marketing for The North Face EMEA.
- Overall the company's business is extremely robust, healthy, and on a growth trajectory due to which the management has increased its sales growth projection for the brand to 8 percent to 9 percent over the next five years as compared to 6 percent to 8 percent range provided in 2017.
- The company is working to capitalize on untapped opportunities in women’s product range which currently represents about 35 percent of The North Face’s total sales. The company aims to increase the same to 40 percent.
- The other priority categories where the brand aims to make headway include sportswear and footwear.
- The company is prioritizing on becoming more of a Spring/Summer brand and reduce its reliance on outerwear solely.
- As part of its "365" strategy, the brand has recalibrated its supply chain to be more sportswear-focused, more agile, and more sportswear specific.
- In order to tap the new opportunities in the footwear space, the brand is focusing on setting up an entirely new leadership team along with an innovation platform to be launched in spring 2021. The priority is to double the share of footwear business from current 7 percent to 14 percent.
- The brand, in order to, establish a deeper and stronger connection with consumers is working on transforming its existing store locations into "base camps for exploration". Through this, it aims to provide its customers with a retail environment that feels more like the brand and less like a store.
- The brand is also focusing on winning over Gen Z shoppers and hence is prioritizing relationships with influencers, YouTube stars, and organizations like Girls Scouts of America.
New Products or Mergers/Acquisitions
- The North Face has not undertaken any new M&A transactions over the past 3-6 months.
- In addendum, the parent company VF Corporation has also not made any recent M&A transactions. It last acquired Altra Footwear in March 2018.
- In October 2019, The North Face launched the first outerwear garments featuring its new FutureLight waterproof fabric which has been tested in temperatures ranging from -50°F to 60°F.
- The first products that were launched featuring the new fabric included jackets and outdoor apparel.
- In July 2019, the brand, in collaboration with the Girl Scouts of the USA (GSUSA), announced the launch of 12 new outdoor adventure badges to support the next generation of female explorers in activities like hiking, trail running, snow sports, and climbing.