Release Date: August 06, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- VF Corp (VFC, Financial) achieved $50 million in cost savings during the quarter, contributing to their $300 million target.
- Inventories were reduced by 24% year-over-year, indicating improved inventory management.
- Net debt decreased by $587 million year-over-year, supporting the company's deleveraging plan.
- The sale of Supreme for $1.5 billion will help sharpen focus on core business and improve leverage.
- The North Face brand saw 8% growth in direct-to-consumer (DTC) sales globally, with strong performance in the APAC region.
Negative Points
- Overall revenue was down 8% year-over-year, reflecting ongoing challenges.
- Gross margin decreased by 80 basis points, primarily due to clear-out activities from Vans product reset.
- Operating margin declined by 360 basis points, driven by SG&A deleverage.
- Vans brand continued to struggle, with a 21% decline in Q1, although showing modest improvement from Q4.
- The Americas region performed below potential, with a 12% decline in Q1, although an improvement from the previous quarter.
Q & A Highlights
Q: I was hoping you could provide additional color on your plans for the Vans brand going forward now that you have a permanent brand president in place. Can you elaborate a little bit more on what you expect the path to look like for the brand for the next couple of quarters, both in terms of new innovation, scaling, changes in brand marketing?
A: Yes, I'll save a little bit of that for the next quarter or two. And of course, by the time we get to the end of the year when Sanjay has a chance to speak to it. But I'll give you what you're asking, I think. I expect you'll see more of the same. We just turned on a new marketing campaign for Vans, which is tied directly to a cascade of product launches. As I mentioned in my opening remarks, the new franchises are doing well. And we've now got two of our new franchises, I think, are in the top five. So UltraRange and Knu Skool, one's number -- is number five. I think it just shows you how responsive we are to new products when they're right. And so you're going to see more new products as we come through the year. We will launch several new styles just this month. Of course, they're not incorporated in what we've done so far this year. On top of that, we've completely revamped our approach to marketing. We just introduced our always pushing campaign, which started in Paris when we had that event that we mentioned in June. And it's now moving right down through everything we do. And you'll see more and more of that as time goes on. Our grassroots campaign is well underway, as is our influencer campaign. You may have seen a few celebrities caught wearing Vans just recently. If you Google it, you'll see it. So you're just going to see more and more of that as you go through the year. This is the kind of energy we need from Vans, and I'm super excited about it.
Q: Could you speak to the diverging trends here in North Face with the global brand direct-to-consumer up 8% ex currency? And then it sounds like US wholesale was the issue. Can you maybe just help us roll forward what's holding wholesale back right now with good real-time trends at B2C? How you expect that to trend as we get into the important season for North space on the wholesale side?
A: Yes. First of all, I apologize to you. It didn't cross our mind that would be spoilers such good news on our side. But if we did spoil it, it's still good news. Yes. So on TNF, the underlying reality is we continue to have good solid DTC growth around the world and China continues to just be super strong, which is exciting. Wholesale is relatively weak, both mainly driven by traffic and conservatism, I think, on the retail side, both in the US and to some extent, you're up to and you can see on the numbers you gig into it. I think it's probably a function of a couple of things. One is the overall macro environment and also a little bit of skittishness just because of the weather last year when it was so warm during the holiday season. So we're not guiding TNF going forward, but I feel really good about the brand. I feel really good about the product initiatives that are coming. And I'd say stay tuned. I think TNF going to be just fine.
Q: Curious within that free cash flow guidance that you reiterated, can you talk about what might have changed within that guidance on a brand channel or geographic level, anything that you are now assuming it's getting better or worse versus what you were thinking previously or any changes in your working capital assumptions and might factor into what you're looking for on free cash flow now?
A: Yes. I'm happy to say there aren't any changes. So I'd say, overall, this is a good reflection, but I think, are getting a better handle on our on our forecasting. And it's very much the same in terms of the underlying dynamics as it was last quarter. The only real change will be, at some point, we will pull Supreme out, of course, which is as you may or may not realize it's pretty back-end loaded. So most of the cash would come into the back end of the year. But other than that, there won't be a big change.
Q: Just to start a clarification question. With the Supreme sale, are you done with the portfolio cleanup? Or are there additional asset sales contemplated as potentially appropriate?
A: We don't have anything specific contemplated, but I don't think we're ever really done in terms of reviewing our portfolio. So we've certainly finished our portfolio review, at least for now. We'll probably recycle on that on a regular basis, but we will recycle on a regular basis. There's no specific plans now. This puts us in a good position to pay off the next two tranches of debt as we promised. And from there on, it will be about a good strong cash generation unless we decide to divest something else in the future. And I'd say stay tuned on that. The October Investor Day will give you a good sense for how we expect that debt to come down.
Q: Bracken, as we think about your first year at the helm, larger picture, maybe where do you stand on the priorities that you laid out initially? Maybe first, on the management team, any key roles that you're looking to fill from here? Second, I know you cited today sequential improvement, but any visibility to a return to top line growth as you see it today? And then maybe just last, how do you feel about organic free cash flow and debt pay down priorities?
A: So I won't repeat the famous four that are probably not famous to you, but I feel like I told you so many times those four priorities that I think I said in my first full call. So I won't go through those, but you referenced kind of a summary of those. From a management team, I feel great. I mean I think we've really got an all-star team, and it's all I could have asked for. And everybody is on the floor, everybody is on the team now. We're about half of them are new in the last months, half of them are not. And it's really a terrific team. Now it's my job to make sure that we together work well as a team, so we're really going to be working on that. The Vans turn and the turn in general on the business, when do I forecast it happening? I'm not going to give you a number today, but I will tell you in October, we'll be ready to talk about that. So I feel very good about the progress we're making. It feels very similar to where I was when I was in my last company, and I feel like I can see it, and I feel good about it. In terms of the debt paydown, we'll certainly talk about that in October when you can expect that leverage to come down.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
