S&P Global Ratings downgraded VF Corp.’s credit rating in large part because of continuing declines at its top four brands, most notably Vans.

Last week, S&P said VF’s credit rating is now BB – which is considered junk status – down from BBB-, which is investment grade.

“We revised downward our view of VF’s competitive advantage due to ongoing revenue declines at its top four brands and weaker profit margins,” S&P said.

S&P mentioned the continuing challenges at Vans several times in its report.

“Vans declined 11% in the second quarter of fiscal 2025, after declining over 20% in each of the last five quarters, and in the teens for the past three quarters of fiscal 2023,” according to S&P. “The sharper declines in fiscal 2024 include an inventory realignment and strategic decision to take inventory out of the wholesale channel to make space for newer products, given excess inventory levels and products not resonating with consumers in a weaker demand environment. The weak demand and inventory misalignment led to significant deterioration of (VF’s) operating results and credit metrics.”

The S&P report noted that VF’s other large brands declined as well in the first quarter, including The North Face, Dickies and Timberland.

Big Four Softness

Especially worrisome, according to S&P, was the performance of VF’s DTC business, which dropped 8% in the quarter, worse than the 3% decline last year.

S&P believes that softness “further highlights deteriorating brand relevance beyond Vans,” according to the report.

While VF recently sold Supreme for $1.5 billion, which helped the company reduce its debt obligations, S&P believes it will take several years for VF to further deleverage its balance sheet given VF’s commitment to paying dividends and its decision to not sell any more brands at this time.

“Management’s lack of incremental asset sales demonstrates financial policies that are not as supportive of investment grade-ratings,” the report said.

S&P estimates that VF’s net debt to EBITDA ratio will remain above 4.5x in fiscal 2025 – VF has previously said its long-term target is 2.5x.

S&P’s Take on Vans – “Waning Resonance”

As Vans works to reinvigorate the brand, new entrants like Hoka and On are gaining traction with a wide age range of consumers, S&P said.

“We expect turnaround efforts at Vans will take time”, according to the report. “While we acknowledge the inventory reduction effort for Vans was necessary, it hurt operating results. VF has taken actions to remedy the declines at Vans such as focusing on reinvigorating its classic product lines, instilling greater product innovation and brand-building capabilities into the brand through investments, and leveraging its newly created global commercial model and Americas region platform.

“However, weak demand in the North America wholesale channel, and an increasingly competitive landscape means progress against these actions will be slow in the near-term. We view the recent hire of Sun Choe as brand president favorably given her success at Lululemon, but believe it will take time for her vision for the brand to hit the shelves.

“In addition, we believe the brand’s waning resonance with consumers over the last few years will continue to hamper turnaround efforts in fiscal 2025. Specifically, the brand fell to the No.13 share position in the global sportswear category in 2023 from No. 6 in 2018 according to Euromonitor.

“The athletic and lifestyle footwear category continues to be competitive, but the landscape is evolving. Newer entrants On Running and Hoka, while still a small portion of the overall industry, have gained market share and traction with consumers.”