VF Corp. (VFC) Unloads a Struggling Business for $120 Million - TheStreet

VF Corp.'s (VFC) - Get Report vast product portfolio will soon be a little smaller.

The manufacturer of brands such as North Face and Timberland announced Thursday that it has signed a definitive agreement to sell its contemporary brands businesses to Delta Galil Industries (DELTY) for $120 million.

Brands included in the transaction are apparel lifestyles 7 for All Mankind, Splendid and Ella Moss, which have been challenged lately due to the sluggish demand for everyday, more basic apparel. The transaction is expected to close in the third quarter.

The news shouldn't come as a shocker to investors based on the performance of the contemporary brands portfolio last year and VF Corp.'s renewed focus on driving productivity. Sales for the segment fell 14% year over year to $344 million last year, or a drop of 11% excluding the impact of the strong U.S. dollar. Profit plunged 75% to $5.8 million, or 64% when backing out the effect of the strong U.S. dollar. The weak performance caused VF Corp. to record a $144 million pretax, non-cash impairment charge in the fourth quarter of 2015 to reduce the carrying value of intangible assets related to the 7 For All Mankind, Ella Moss and Splendid brands.

The business has been by far among the the lowest margin within VF Corp.'s portfolio, representing a mere 2.8% of total revenue in 2015.

More sales of lagging brands, or acquisitions of attractive ones, by VF Corp. shouldn't be ruled out.

"We think there is an opportunity right now to reshape our portfolio -- we have described ourselves over time as active portfolio managers, and what we haven't been lately is an active portfolio manager," VF Corp. Chairman and CEO Eric Wiseman told TheStreet in a Feb. 19 interview. He added, "In the fourth quarter of last year, we looked at ourselves and said we have to get back to being proactive in these types of activities -- and now we are -- we are more active on the acquisition front, and more active on asking ourselves why should these businesses be part of our portfolio."