Shares of VF Corporation (NYSE:VFC) rose during pre-market trading on Wednesday after an upgrade from Barclays, which revised its rating to "overweight" from "equal weight."
Barclays cited an attractive risk-reward profile at current levels and identified a series of catalysts that could drive a meaningful turnaround under the leadership of CEO Bracken Darrell.
Barclays pointed to the incremental progress it expects to see in VF Corp's fundamentals over the next four to six quarters, beginning modestly in fall 2024 and accelerating into 2025.
Central to the upgrade is Barclays' confidence in the strategic shifts led by CEO Bracken Darrell, particularly in areas like product development and leadership changes, which are setting the stage for a broader turnaround.
While it's still early in the process, Barclays suggests that VF Corp could be nearing a pivotal moment, as stocks often start to recover once meaningful changes are underway.
One of the most pivotal elements of VF Corp's evolving story is the company's effort to stabilize gross margins.
“Despite ongoing near-term uncertainty, we are encouraged by sequential (but not yet positive) sales improvement at Vans and the gross margin beat for FY1Q25 despite margin pressure from optimizing the product and brand portfolio and sales in decline,” the analysts said.
This gradual improvement in margins could provide a foundation for stronger earnings as the company continues to streamline operations.
Barclays also flagged the financial relief provided by the pending $1.5 billion sale of Supreme, which is expected to close by the end of 2024.
This sale will allow VF Corp to reduce its debt, helping to bring the company's leverage ratio down and providing greater operating flexibility in the future. Debt maturities scheduled for December 2024 and April 2025, along with further debt reduction efforts, are seen as key moments in the company's financial repositioning.
Another driver of VF Corp’s recovery hinges on the revitalization of the Vans brand, which has faced challenges in recent years.
Barclays remains cautiously optimistic, noting the early signs of brand re-engagement through new marketing initiatives and product launches.
While it’s too early to declare a complete turnaround, the brokerage believes 2025 could mark a turning point for the brand, which is critical to the company’s broader recovery efforts.
In terms of overall sales growth, Barclays believes VF Corp could see a return to positive territory by mid-to-late 2025, driven by improved brand performance and operational efficiency.
This anticipated return to growth would be a major milestone for the company, marking a significant shift after a period of declines.
Investors are also looking ahead to VF Corp's Investor Day on October 30, 2024, which Barclays sees as a key moment for management to provide greater clarity on its forward guidance.
CEO Bracken Darrell is expected to share updated performance metrics, which could further boost investor confidence as the company continues to execute its turnaround strategy.
Despite the optimism, Barclays acknowledged that challenges remain. The biggest hurdle is the successful turnaround of Vans, which has been a major pressure point in the company’s portfolio.
Additionally, VF Corp’s other marquee brand, The North Face, could face increased competition and potential disruptions from climate-related factors, particularly as it depends heavily on the winter sports season.
Shares of the company were up 4.3% in pre-open trade on Wednesday.