Buy to open the Nov. 18, 2016 put on VFC with a strike price of $62.50 at $2.60 or lower. Symbol (VFC161118P62.5)

We are placing our second option trade on VFC. (Last month we bought and sold a VFC put for a 50% gain in less than two days.) 

This trade may be held for as long as one or two months as news comes out regarding the shape of VFC’s third quarter, which I expect to be horrible.

As expected, second quarter earnings were disappointing. However management maintained its full year guidance, expectations that blindly ignore the unraveling of VFC’s wholesale business.

• In the second quarter VFC’s wholesale business (mostly to department and sports stores) dropped 5.6%, a worse showing than the 2.6% decline in the previous quarter. Wholesale revenue makes up 73% of sales.
• Macy’s, one of VFC’s core customers, just announced the closing of another 100 stores due to wretched performance of its base business.
• Sports Authority, who filed for bankruptcy in March, will close all of its 450 stores, stores that VFC usually filled with The North Face clothing each fall.
• Profits for the Outdoor business which includes The North Face, declined 9% in the second quarter despite a 2% gain in sales. This is indicative of a company offering discounts to encourage customers to take on inventory.
• In order to just reach its annual estimate of 3.5% revenue growth, VFC will need to boost sales 7% in the second half of the year, an unlikely rate based on the poor sell through of its products last year. Wholesale customers base ordering patterns off of last year’s sales.
• In addition, management’s goal of 50 basis point annual profit margin improvement assumes a huge improvement (100 basis points) in second half margins. VFC has not been able to increase these margins for the past 6 quarters and offered no plan for reaching this goal.
• VFC reports third quarter earnings on or around October 23. It has already told investors that this year will be “back end weighted” meaning most of earnings will fall in the December quarter. As we approach the third quarter release we will consider rolling into the January puts.