V.F. Corporation

Greetings and welcome to the VF Corporation second quarter fiscal 2020 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Joe Alkire, Vice President of Investor Relations. Thank you, sir. You may begin.

Good morning and welcome to VF Corporation's second quarter fiscal 2020 earnings call. Participants on today's call will make forward-looking statements. These statements are based on current expectations and are subject to uncertainties that could cause actual results to differ materially. These uncertainties are detailed in documents filed regularly with the SEC. Unless otherwise noted, amounts referred to on today's call will be on an adjusted We use adjusted constant dollar amounts as lead numbers in our discussion because we believe they more accurately represent the true operational performance and underlying results of our business. You may also hear us refer to reported amounts which are in accordance with U.S. GAAP. Reconciliations of GAAP measures to adjusted amounts can be found in the supplemental financial tables included in the press release which identify and quantify All excluded items and provides management's view of why this information is useful to investors. During the first quarter of fiscal 2020, the company completed the spin-off of its jeans business, which included the Wrangler, Lee, and Rockin' Republic brands, as well as the VF Outlook business, into an independent, publicly traded company under the name Contour Brands. Accordingly, The company has removed the assets and liabilities of the jeans business as of the date noted above and included the operating results of this business in discontinued operations for all periods presented. Unless otherwise noted, results presented on today's call are based on continuing operations. Joining me on today's call will be BVS Chairman, President, and Chief Executive Officer Steve Rendell and Chief Financial Officer Scott Rowe. Following our prepared remarks, we'll open the call for questions.

Thank you, Joe, and good morning, everyone. I'm pleased with the strength and quality of our second quarter results, driven by our largest brands and our international and D2C platforms. Our results for both the second quarter and first half of the year were right in line with our expectations, and we delivered these results while investing more behind our growth priorities and despite absorbing the impact of a more uncertain geopolitical and macroeconomic environment. We are steadfast in our commitment to continue to evolve and transform VF into a more consumer-minded and retail-centric enterprise, and our results demonstrate the power, consistency, and resiliency of our diversified value creation model. Looking at our second quarter in more detail, revenue increased 7% or 8% on an organic basis. Growth was driven by our two largest brands, Vans and The North Face, which grew 16% and 10% respectively. as the strong momentum for both brands continued. The strength of our Vans brand was fueled by a strong back-to-school season. The brand's growth in our business overall remains well-balanced and diversified across geographies, channels, and product categories. While the core heritage business continues to generate strong double-digit growth, we are particularly encouraged by almost 30% growth in progression footwear, driven in part by the new Comfy Cush franchise, and continued momentum in apparel and accessories, which grew almost 20%. Based on our second quarter performance and our increased visibility to the full year, we are again increasing our growth outlook for the Vans brand. We now expect 13% to 14% growth for the full year, slightly ahead of the brand's long-term growth target. Similarly, momentum in the North Face continued in the second quarter as the brand achieved double-digit growth Thank you for joining us. We'll be right back. The disruptive innovation is casting a strong halo for the brand. We're looking forward to the second half of the year when investments in future light, specifically demand creation, come to life and consumers have the opportunity to experience a broader product assortment across the portfolio. Based on our second quarter performance and our increased visibility to the full year, we are again increasing our growth outlook for the North Face brand. We now expect 9% to 10% growth for the full year, slightly ahead of the brand's long-term growth targets. In line with expectations, Timberland and Dickey's were up 1% and down 3% respectively. Similar to last quarter, Timberland's results across the globe were mixed as solid revenue growth in U.S. and APAC were offset by softness at EMEA. Notably, the planned business model changes in South America negatively impacted global revenue growth by 1%. For the full year, we continue to expect low single-digit growth for the global Timberland brand, including sequential improvement in Europe. The performance of the Dickies brand in the second quarter was impacted by the timing of its shipments in the U.S. mass channel compared to a year ago. Excluding the timing issue, revenue increased 6% globally, driven by solid growth in lifestyle, China, D2C, and digital wholesale, all key growth drivers for the brand over the next five years. For the full year, we continue to expect mid-single-digit growth for the Dickies brand globally. Looking at our growth platforms, international increased 8%. including nearly 25% growth in China, 9% growth in non-US Americas, and 5% growth in Europe, with strength from the gas region, Italy, and France. Direct-to-consumer increased 12%, including a 9% total comp, and nearly 20% growth in digital. Our fundamentals remain strong, as gross margin, a key driver of our value creation model, reached 53.1%. providing us the fuel to continue to drive investment in the capabilities required to sustain our growth momentum. And lastly, adjusted EPS increased 8% in the second quarter to $1.26. To briefly recap our first half results, revenue increased 9%, gross margin expanded by 100 basis points to 53.6%, and EPS increased 18% versus the prior year. The quality and fundamentals of our business are sound. We are executing well, and our transformation is feeling broad-based growth across the portfolio as we head into the second half of the year. We are confident in the trajectory of our business and in the updated outlook provided today. However, the environment has become more uncertain over the past several months. Scott will cover the details in a moment, but several factors, mainly FX, tariffs, and the ongoing disruption in Hong Kong have largely offset the underlying operational strength of our business. Since we provided our last outlook in July. While all of the items just mentioned are small individually, collectively, they're weighing on our opportunities for upside performance for the remainder of fiscal 2020. Regarding business conditions across the globe, U.S. consumer and retail environment remains relatively strong. Unemployment is low, and we expect a healthy fall holiday season. In contrast, the industrial and manufacturing sectors have weakened somewhat over the past few months. resulting in more tempered growth expectations across the more cyclical parts of our work portfolio. In EMEA, uncertainty related to Brexit continues to impact consumer confidence, resulting in a slight deceleration in our UK market. Across the rest of Europe, performance has been generally solid as we head into fall holiday. In APAC, despite the rhetoric, our brands continue to perform very well in China. To date, we have not experienced a meaningful change in consumer behavior as a result of trade tensions. Further, the situation in Hong Kong has modestly impacted our regional performance. We will continue to evaluate all aspects of our business as events continue to unfold. Turning toward Denver relocation, I'm pleased to report that our move is at this point essentially complete. Collectively, we now have approximately 800 associates who are living and working in the Denver metro area. And in summer 2020, We're excited to have our icebreaker North American business and our smart wool business from Seymour Springs join the rest of us here in Denver. It's been nearly five months since the move began, and the progress and collaboration I've seen to date across our brands and corporate leadership team has been amazing. Finally, as many of you are aware, we have hosted an Investor Day in Beaver Creek, Colorado in late September. We shared information about our evolved integrated business strategy, individual brand strategies, regional overviews, and our global supply chain and digital technology organizations. The theme of our investor day was the power of and, which emphasizes the opportunities we see ahead when we strike the balance between working with a deep sense of purpose while also remaining sharply focused on delivering strong business results and top quartile returns to our shareholders. We also reinforced our continued focus on transforming to a more consumer-minded, retail-centric and hyper-digital enterprise. If you're not able to attend, I encourage you to listen to the webcast. To capture the spirit of our evolution and our focus on always becoming a better version of ourselves, at the Investor Day event, we also introduced a redesigned logo and branding that honors our 120-year history while also conveying the energy, confidence, and optimism we have for our future. Our evolved logo features a new tagline that clearly communicates the type of company we are and will continue to be, purpose-led, performance-driven. This marks our first logo update in 21 years, but it's important to note that our new corporate brand is about much more than just an updated design. It's about elevating how we position our company and engage with our associates and outside stakeholders. As we move forward, our communication will become sharper, more purposeful, and more consistent around the world. We believe the new logo and branding sets a powerful tone for enhanced communication and positioning. So, in summary, halfway through the year, our business is performing right in line with our expectations. We remain committed to investing in our brands for the long term, and we remain confident in our ability to deliver our outlook and another year of top quartile returns for our shareholders. And with that, I'll turn it over to Scott.