VF Corp.

The stable outlook reflects our forecast that VF will prioritize deleveraging over the next two years to the high-2x area in fiscal 2022 and the low-2x area in fiscal 2023. We expect VF will benefit from a healthy recovery in consumer spending in 2021 and that consumer trends will continue to favor outdoor, active, and casual apparel. We could lower the rating if the company did not deleverage as quickly as we expected, such that we believed leverage would remain above 2.75x for an extended period. This could happen if: Another wave of the COVID-19 pandemic resulted in a prolonged recession, reducing consumer spending on apparel, or One of its major brands fell out of favor due to fashion misses

...We expect VF Corp. to continue to make acquisitions and maintain leverage in the 2x-2.5x range. The 2020 acquisition of Supreme for $2.1 billion illustrated a shift toward more aggressive financial policies for VF. The acquisition took leverage to above 4x after credit metrics were already deteriorated from the pandemic and base business revenue was still declining. Last 12 months pro forma leverage for the period ended July 3, 2021 is about 3.1x. The current ratings reflect our expectation that leverage will be managed in the 2x-2.5x range, compared with the previous under 2x, since the company's main use of cash after internal investments is acquisitions. Our current forecast projects the company can reach our expected range in fiscal 2023, absent further acquisitions. VF's portfolio of brands is positioned to grow amid casual, outdoor, and active trends. VF's big four brands--Vans, The North Face, Timberland, and Dickies--all compete in categories that are on trend and growing. We forecast...

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