VF Corp (VFC) is changing out of its jeans.
The apparel manufacturer said on Monday it planned to spin off its $2.5 billion-a-year denim business, made up primarily of the Lee and Wrangler brands, into a separate publicly traded company, to focus more on its soaring activewear, outwear, and footwear businesses, which include Vans, The North Face and Timberland.
The still unnamed new jeans company will be created via a tax-free spinoff to its shareholders and also hold 80 VF outlets as well as other jeans brands like Rustler and Rock & Republic.
“The decision to separate these businesses will allow VF to sharpen its focus as a consumer-centric and retail-minded organization anchored in activity-based lifestyle brand,” CEO Steve Rendle said in a statement.
VF, one of the largest manufacturers of footwear and apparel, has been on a dealmaking tear in the last couple of years to rejig its portfolio, shedding businesses like Nautica and licensed sports merchandise maker Majestic, while last year adding the maker of Dickies hospital scrubs and Kodiak boots in an $820 million acquisition. Investors have cheered these moves, sending VF shares to an all-time high last week and giving it a market value of $38 billion.
It’s easy to see why VF wants to get out of the jeans business and focus on its other segments: in its most recent quarter, revenue from activewear rose 25%, and outdoor revenue rose 6%, while revenue from denim fell 3%.
Total denim sales have fallen in the United States for a number of years, hurt by a glut of brands on the lower end where VF plays, though higher end jeans have held their own. VF has relied heavily on mass merchants like Walmart (WMT) and department stores like J.C. Penney (JCP) for its jeans business.
The spinoff marks a big break from its long heritage: VF bought Lee, its first denim brand, in 1969 and added Wrangler, Rustler, and JanSport via its purchase of Blue Bell Holding in the mid-’80s. At one point, VF had 50% of the U.S. denim market. All the while, VF made acquisitions that dramatically transformed its portfolio, including The North Face in 2000, sneaker brand Vans in 2004 (and its largest brand overall), and Timberland in 2011. VF’s other businesses generate about $11 billion a year altogether and have outperformed jeans for years.