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V.F. Corp (VFC -8%) is in need of stitches after being knocked down once again today with a downgrade to "Neutral" from "Outperform" at Exane BNP Paribas, the second downgrade this year. Shares of the outdoor apparel retailer, operating brands The North Face, Timberland, and others, have now sunk by over -30% on the year, reaching 2009 levels.

What has led to such aversion to VFC shares lately? Briefing.com notes that the most obvious issue facing VFC is inflation, weighing heavily on discretionary goods. However, that does not explain why others operating in similar spaces, like Deckers Outdoor (DECK), have been on a tear this year. VFC struggled to overcome a sharp drawdown in consumer demand during 2022, with its former CEO departing unexpectedly at the end of that year. Inventories were piling up, particularly in VFC's Vans brand, forcing retailers to slash orders. Promotions were not generating much demand, and VFC ultimately withdrew its FY24 (Mar) outlook in February and cut its dividend by 70%.

However, despite such calamity, there are reasons not to hastily discount VFC's turnaround potential.

• Newly-minted CEO Bracken Darrel has a solid turnaround-related past, revitalizing brands Old Spice and Logitech. While apparel is vastly different from those two brands, Old Spice and Logitech were not very similar either, and yet Mr. Darrel's turnaround formula still managed to succeed. What those brands shared was widespread recognition. VFC's brands are no different -- plenty of consumers know the advantages of VFC's products. It is up to the company to market them appropriately and offer them at competitively attractive prices.
• On that note, VFC already has a strategy for turning around Vans, which is off to a healthy start outside North America. During DecQ, Vans revenue grew by 7% in EMEA but fell by 13% in North America. Management attributed the disparity to a more precise growth strategy and more vigorous marketplace execution in EMEA, which it will implement domestically.
• Alongside spurring product demand, Mr. Darrel's turnaround strategy involves aggressive cost-cutting, targeting $300 mln in annual savings, which management noted was on track to achieve in February. Slicing its dividend considerably also aligned with the company's actions toward cutting costs, reducing debt, and preserving cash flow, which it anticipates will reach $600 mln in FY24.
• Divesting of some of its lesser-known brands, such as Timberland, Supreme, and Dickies, is not out of bounds. CFO Matthew Puckett mentioned that, in February, the company began the marketing process to dispose of certain assets over the next few quarters, which could result in the divestment of any brands. Realigning its focus on just The North Face and Vans would likely be a solid move to further its turnaround plans.

Following weak Q3 (Dec) results in February, we noted that VFC's turnaround path is far from smooth. However, with shares slipping by an additional 20% since, VFC is becoming a compelling comeback play. Given the extent of its past struggles, volatility will likely remain elevated. Still, we think VFC is worth a second look.