VFC VF Corporation

By Dana Mattioli and Suzanne Kapner 

VF Corp., owner of Lee and Wrangler jeans, is exploring strategic options for its denim business that could include a sale or spin off of the classic American brands, according to people familiar with the situation.

The apparel conglomerate has owned Wrangler and Lee for decades and they were once its core, but the company's jeans sales have slowed in recent years as more women opt for yoga pants or premium denim brands like J Brand or Frame.

VF, which has a market valuation of $38 billion, has been pairing back its wide-ranging portfolio to focus on its fastest-growing brands, such as Vans sneakers, The North Face jackets, and Timberland boots.

VF's denim business last year had $2.66 billion in sales and $422 million in profit. A typical multiple in the apparel industry could value the business at several billion dollars. It isn't clear what other brands might be part of the company's review.

The overall U.S. jeans category had total sales of $16.2 billion in 2017, down from $18.8 billion in 2013, according to Euromonitor International. One big brand bucking the downward trend is Levi Strauss & Co., whose revenue increased 8% in its most recent fiscal year.

VF's jeans division, which also includes the Rustler and Rock & Republic brands, hasn't fared as well. Sales have fallen nearly 5% since 2015, while profit in the division is down 2% over that period.

VF sells its jeans through mass merchants like Walmart Inc. and department stores, many of which have curtailed orders in recent months as they sell off excess supply. On its most recent earnings call in July, VF forecast growth this year for most divisions except jeans, where revenue is expected to be unchanged from last year.

VF Chief Executive Steven Rendle did allude to a possible recovery for the denim business, particularly Wrangler, which he said had shown improved results for four consecutive quarters. "Is there a jeans cycle going on out there?" Mr. Rendle said in July. "Maybe."

Unlike today, when jeans are often a fashion statement, the Lee and Wrangler brands were originally designed for laborers and cowboys. The Lee brand was introduced in 1912 by Henry David Lee, a wholesale grocery distributor who was unhappy with the inconsistent delivery of workwear from suppliers.

Wrangler made its debut in 1947 as western wear, with stiff, blue jeans designed by celebrity tailor Rodeo Ben. Its early endorsers included professional rodeo riders, and it continues to sponsor rodeos, bull riders and former Nascar driver Dale Earnhardt Jr.

By the 1980s, after VF had acquired Lee and Wrangler, it had 25% of the jeans market, according to the company's website. The denim business was VF's core -- delivering more than half of its revenue in 2002 -- until the company began to diversify by scooping up other brands.

The Greensboro, N.C., company acquired North Face in 2000, sneaker brand Vans in 2004 and Timberland in 2011. It currently owns nearly two dozen labels, including backpack maker JanSport, surf brand Reef, and workwear brand Dickies, which it acquired a year ago for $820 million.

The company has been shedding some brands. In March, it sold the apparel brand Nautica and last year it divested its Majestic brand, the official supplier of Major League Baseball uniforms, to Fanatics, an e-commerce startup.

In 2016, VF sold its once-hot denim brand Seven For All Mankind, which helped spark a premium denim boom with jeans that ran to $200 or more and were worn by celebrities including Sarah Jessica Parker and Heidi Klum. Seven struggled after a plethora of newer and edgier labels flooded the market.

Investors have cheered the moves. VF's shares have surged more than 53% in the past year. On Thursday, the shares closed at an all-time high of $95.55.

Write to Dana Mattioli at dana.mattioli@wsj.com and Suzanne Kapner at Suzanne.Kapner@wsj.com

(END) Dow Jones Newswires

August 10, 2018 15:42 ET (19:42 GMT)

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