V.F. Corporation

Greetings and welcome to the VF Corporation third 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's now my pleasure to introduce your host, Joe Alkire. Please go ahead.

Good morning and welcome to VF Corporation's third quarter fiscal 2020 conference 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 gap 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 provide management's view of why this information is useful to investors. During the first quarter of fiscal 2020, the company completed the spinoff of its jeans business, which included the Wrangler League and Rockin' Republic brands, as well as the VF Outlet 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 VF's 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. Steve?

Thank you, Joe, and good morning, everyone. Our third quarter performance was strong, and our year-to-date results are at the high end of our long-term growth objectives, and we're on track to deliver solid performance this year, and we're well-positioned for continued growth and value creation in fiscal 21. Before we review our third quarter results and adjusted outlook for the year, I'd like to take a moment and comment on the news we disclosed Tuesday morning regarding our intent to explore strategic alternatives for the occupational work portion of our work segment. Hereafter, we're referred to as occupational work brands. Scott will cover the specifics, but I'd like to highlight a few messages from the announcement materials. Driving and optimizing our portfolio continues to be a top strategic priority for VF, and exploring strategic alternatives for our occupational work brands is the next natural step in that process. Our decision reflects management's continued focus on transforming VF into a more consumer-minded, retail-centric enterprise with a portfolio of more growth-oriented, outdoor, active and work brands. First, it is important to note that the Dickey's and Tillman Pro brands are part of our review. We remain fully committed to these brands as well as our worthy work purpose territory. There are fundamental differences between the occupational work brands and the Dickies and Timberland programs, including the ability to connect directly with consumers, distribution footprint, supply chain infrastructure, and financial profile. The leadership teams within our occupational work brands have done an excellent job building these businesses over many years, putting VF in an ideal position to find the best future owner for these brands to better enable their next phase of growth and success. In terms of timing, the review process is underway, and we will keep you appraised as things evolve over the next few months. Now, let's review our third quarter results in the current state of our business. As we head into the final quarter, we remain confident in our ability to deliver another strong year at the high end of our long-range plan. Year-to-date, organic constant ballot revenue and EPS increased 8% and 16% respectively, driven by our two largest brands, and our international and D2C growth platforms. Our strategic growth drivers performed well over the holiday season and we are well positioned as we look toward fiscal 2021. For the quarter, revenue increased 6% or 7% excluding the occupational work brands just discussed. While our revenue performance for the quarter was generally in line with our long-term algorithm, it was slightly below our expectations due primarily to the performance at Timberland More challenging conditions in our occupational work brands as well as a mixed holiday season in the U.S. Despite the revenue shortfall, the quality of our growth remains strong as evidenced by 100% basis points of gross margin expansion, 12% operating income growth, and 14% EPS growth. Our performance during the quarter highlights the diversity and resiliency of our operating model and the momentum we have across our strategic growth drivers. And now let me turn to the performance of our largest brands. Vans continues to deliver strong, balanced performance across all regions and above its stated long-term growth objective. Revenue for Vans increased 13% in the quarter, and importantly, growth remains well diversified across product categories, channels, and geographies. Heritage footwear increased 8%, progression increased more than 30%, and apparel increased 14%. Following another quarter of broad-based momentum, we are again raising our fiscal 2020 outlook for vans. We now expect revenue for vans to increase about 15% for the full year, well ahead of its long-term target. Moving on to the North Face, revenue increased 8% in the quarter, led by our international business. Growth was balanced across both our D2C and wholesale channels globally, and we saw solid performance in our urban exploration and mountain lifestyle product territories as the brand continues to attract new consumers and capitalize on growth opportunities beyond the core mountain sports. Footwear also increased at a high single-digit rate during the quarter. In mountain sports, strong performance internationally was somewhat offset by more mixed results in the U.S. market. While limited in scope, the performance of Futurelight well exceeded our expectations during the key holiday season and continues to cast a strong halo for the brand. The disruptive innovation has been available to consumers for about four months now and we're seeing four times the sales volume in our Pinnacle Summit, Steep and Flight Series products, which feature the Futurelight technology. Given our holiday performance and additional visibility through the end of the year, we now expect revenue for the North Face to increase about 9% at the high end of its long-term growth objective. Despite early signs of success this year, our results at Timberland were disappointing this holiday season as revenue decreased 4% in the quarter. Solid momentum in apparel, Outdoor Footwear and China was not enough to offset challenging conditions in men's footwear in the Americas and Europe, particularly in our classic business. Men's, non-classics, and women's performed relatively better as our diversification strategy continues to evolve. As a result of the third quarter performance and improved visibility through the rest of the year, we are lowering our revenue outlook for the Timberland brand in fiscal 2020 and now expect full year revenue to decline between 1% and 2%. And last but not least, as expected, the Dickies brand had a great quarter as revenue increased 13%. Growth was strong across all key strategic growth drivers, highlighted by 68% growth in China and 16% growth in digital, with category momentum across icons and new seasonal product. After a flat first half, we had high expectations for the Dickies brand heading into the back half of this fiscal year, and the global teams delivered. The brand launched its Yours to Make marketing campaign this quarter, the largest in brand history, driving significant brand heat and consumer engagement. We expect another quarter of double-digit growth, providing us with strong momentum as we head into fiscal 2021. We continue to be bullish about the growth opportunities at Dickey's and are even more confident in our fiscal 2020 revenue growth outlook of 5-6%. Over the last few quarters, we've We've discussed a more uncertain geopolitical and macroeconomic environment and the impact it has had on our business results and forward outlook. As we exit the holiday season, I'd like to briefly provide our perspective on business conditions across our largest markets. The U.S. economic backdrop remains generally solid, led by a healthy consumer and low unemployment. That said, we believe performance across retail and our sector was mixed during the holiday season. While inventory levels at retail were in good shape heading into the fall-winter period, sell-through performance in certain categories was slower than expected, which has led to elevated inventories in select areas and a more promotional environment. In Europe, international trade and the Brexit uncertainty have impacted business confidence and investment. However, consumer confidence and spending remains relatively strong. Our EMEA business accelerated in the third quarter, and our outlook is generally bullish across the region. In Asia, our brands continue to perform very well in China despite continued unrest in Hong Kong. The recent phase one trade deal between China and the U.S. should yield a more constructive consumer and retail environment. As I talked about in Beaver Creek, our strategy is to become more consumer-minded, retail-centric, and hyper-digital in all that we do. Transforming how we operate is essential to our ability to create value for shareholders and stakeholders. We are in the early stages of our journey, and as our work progresses, we increasingly gain clarity on what's required to achieve our vision. As we exit fiscal 2020 and transition into fiscal 2021, we will focus our investments on four key programs. The first is to gain a deeper understanding of new and existing consumers. We will further focus our investments on deriving proprietary real-time consumer and marketplace knowledge to establish emotional connections, guide personalization, Inspire must-have products and create consumer-centric experiences that enable lifelong, loyal relationships. The second is developing a more digitally-enabled, responsive go-to-market approach. We will increasingly leverage more end-to-end digital platforms, go-to-market processes and best practices, and manufacturing innovations that help our brands create and deliver high-value products and experiences to consumers whenever and wherever they want. The third is a more seamless integration across physical and digital touchpoints. We will work to provide a seamless and consistent brand experience across and between all consumer touchpoints, be it digital, physical, owned and partnered, and strategic wholesale accounts. The fourth is the construction of more robust engagement models that help build and create enduring relationships. We will invest and leverage best-of-breed marketing and technology platforms and enable our brands to drive new consumer acquisition and more. Our transformation journey is a multi-year endeavor. Investments over the past two and a half years have laid the foundation that will now begin to build on. We have an aggressive agenda and look forward to providing more details and updating you on our progress against these programs as the years unfold. Before turning the call over to Scott, I'd like to highlight that on December 5th, we launched our latest sustainability and responsibility report, Made for Change. This report outlines our aspirations for advancing environmental and social improvements across our enterprise and communities worldwide. Included in the report, we publicly announced new, ambitious, science-based targets and commitments around our use of sustainable materials aimed at reducing greenhouse gas emissions. Details behind these commitments, highlights from the last reporting year, and the value this work adds to our business and stakeholders can be found in the report. Consistent with our commitment to be a purpose-led enterprise, VF has established a clear position as a leader in the work to combat global climate change. Looking ahead, and with our made-for-change strategy providing the roadmap, we will strengthen our role as a company that is leading meaningful initiatives that not only lessen our impact on the planet, but also drive purpose-led, profitable growth for our business and brands. And with that, I'll turn it over to Scott.