Release Date: May 22, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- VF Corp (VFC, Financial) is on track to deliver $300 million in cost savings by mid-fiscal year 2025.
- The company has significantly reduced its inventory by 23%, amounting to over $500 million.
- VF Corp (VFC) generated over $1 billion in operating cash flow and more than $800 million in free cash flow, exceeding previous guidance.
- The North Face brand showed strong performance in the APAC region, growing 15%, with Greater China up almost 30%.
- Supreme delivered another strong quarter with sales up low double digits, reflecting a good start to the spring season.
Negative Points
- Overall revenue for VF Corp (VFC) was down 13% in Q4, largely driven by U.S. wholesale performance.
- Vans revenue declined 27% in the quarter, reflecting the impact of inventory reset actions.
- The North Face experienced ongoing wholesale weakness in the U.S., particularly in winter apparel products.
- Timberland was down 14%, with significant pressure in the Americas wholesale channel due to reduced order books and soft sell-out trends.
- Adjusted gross margin declined 120 basis points in the quarter to 48.4%, impacted by elevated promotion and clearance activity.
Q & A Highlights
Q: Bracken, you spoke to Vans Europe, DTC turning positive. Can you just help us maybe connect the dots in that market a little bit more? I know you like that as a leading indicator. You said this is happening with the inventory cleaned up the DTC turn positive. Is it safe to say that inventories in the wholesale channel there also had to be clean for that to happen in direct-to-consumer? And if so, are there any signs of improvements in the forward season order books from wholesale that we can look to or thoughts that we can -- anything we can maybe think about as far as order book stabilizing similar to DTC as the -- I'm trying -- I guess, I'm trying to think, are there reasons to think the rebuild there will be more uneven between the channels? Or do you -- do you see some evidence that DTC could be a leading indicator on wholesale?
A: Yes, I do think -- as I think I mentioned in the last call, and I mentioned in the opening today, I do think that turnaround start in one channel or one part of the world and then they start to spread not virally but systematically, and I think that's what we're seeing now in Europe. I'm going to let Martino answer the specific question about Europe and DTC versus wholesale. But I think you can generally say that I think we're seeing -- we're going to see wholesale come pretty quickly there, but DTC is already positive. Go ahead, Martino.
A: Yes. Thank you, Bracken. Michael. Nice to hear from you. I think we can see a direct consumer in Europe has definitely improved, and it's simply driven by focus on experience, a bit of newness starting to get traction and definitely a better assortment mix that allowed a much stronger conversion from consumers. So that was a little bit offset traffic that may remain challenging, but we really see improved engagement with the brand. At the same time, we have better inventories in the marketplace, as we discussed. And definitely, we see search trends improving, and we see a better opportunity to win with our partners that are really interested in the Vans brand. They love the brand. They want to engage with the brand, and they want to win again together with us. So we've been, I think, creating the conditions to now work against that opportunity.
A: Yes. And if I can just add. I think it is a good leading indicator because we were never as is overloaded in the channels in Europe as we were in the Americas, which meant the cleanup in Americas didn't need to happen in Europe the same way.
Q: Bracken, I'd like to ask about The North Face. I know Nicole is not on the call tonight. But in the press release, it says ongoing wholesale weakness in the U.S. Can you maybe just give a little bit of framework around there. how do we think about -- I know you're not guiding by brand or by revenues for the company, but how do we think about North Face overall for this coming year?
A: Yes. The overall -- the ongoing wholesale weakness is especially true in the U.S. and in the kind of winter apparel products. So I think that's very relevant. I'm going to let -- I'm going to start to let Martino take a lot of these regional questions, and I'll buy brand, so I'll let you take this.
A: Yes. I think one comment about, honestly, our performance overall in the Americas region and specifically in the wholesale channel. I think it's been one of our key challenges. You probably know the number that we lost there. But also, this is our biggest information opportunity and TNF can not face definitely lead into that. The brand specifically has now the opportunity to double down on the stronger partnership that we are really focused to reset and actually strategically frame for the future in the Americas wholesale market. So I would say it's a bit of a common opportunity or issue so far in the Americas region across brands. and the opportunity for The North Face to really leverage into their strength, to have a more relevant and more diversified and a more segmented play into the American distribution, including also high materials of the distribution.
A: Not guiding brand, certainly not by brand by region of the world. But I continue to be very bullish about The North Face. I think it's a great brand, great position. We have a lot of awesome products out and coming and we're going to continue to invest at the same kind of rate in both product and brand building.
Q: Matt, if I heard correctly, I think you said you expect you're going to pay down the $1 billion tranche in December. Should we assume refinancing of the $750 million that comes due in April? And if so, how should we think about interest expense for fiscal year '25. I don't know if you can kind of give us some guardrails for the audience on that front.
A: Yes, what I said in the prepared remarks there was that we can -- we'll end the year with more than $2 billion of liquidity, which contemplates the paydown of $1 billion in December, right? So that's going to come from -- we've got a little bit of excess cash on the balance sheet coming into the year. We're going to generate quite a bit of cash. We kind of talked about what that is. And then quite honestly, a little bit of an increase in short-term borrowings that we would kind of fund with and pay back pretty quickly, just some cash from the business. So that's the assumptions there. And I think I think you're right. I mean, you start to do the math, it gets pretty difficult to see the $750 million not needing to be refinanced, barring other actions, which obviously, we're aggressively looking at some other things, right? And we talked about the strategic portfolio review is now complete. And -- and obviously, ongoing work there associated with that. So -- but I think you have the math right. The other thing on interest, it will be modestly lower year-over-year, but not dramatically so.
A: And if I could just add and Matt said it, but we don't have any intention to refinance any of that.
Q: Bracken, and just a follow-up on the last one. Nice hear about the positivity around North Face. Just maybe higher level, how do you think about the North Face revenue decline? How do they differ from Vans? Like any thoughts on just diagnosing the depth of any potential declines there would probably be helpful? And then I'm sorry if I missed it, did you give North Face's wholesale sell inverse sell-through. Just trying to think through what the challenge at U.S. wholesale North Face versus its growth tells you about the brand and how people are seeing it.
A: I'm going to take the first one and I'm going to let Matt handle the second one. But I'd say, overall, I feel very good about The North Face. So I think we're in
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
