V.F. Corporation

Greetings and welcome to the VF Corporation fourth quarter and fiscal 2020 earnings conference call. At this time, all participants are in 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, sir.

Good morning and welcome to VF Corporation's fourth 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, The amounts referred to on today's call will be on an adjusted constant dollar basis, which we define in the press release that was issued this morning. 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 US 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 fourth quarter of 2020, the company determined that the occupational workwear business met the held for sale and discontinued operations accounting criteria. Accordingly, The company has reported the related assets and liabilities of the occupational workwear business in discontinued operations as of the date noted above and included the operating results of this business in discontinued operations for all periods presented. During the first quarter of fiscal 2020, the company completed the spinoff of its jeans 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 welcome, everyone. I hope my comments this morning find you and your families safe and healthy. Please bear with us today as we are all working from separate locations. It is remarkable how quickly the world has changed since our last call just a few months ago. Through the first 10 months of the year, VF had a powerful momentum, tracking ahead of our long-range plan And while COVID has profoundly impacted the world, as well as our business for the last two months of our fiscal year, I've never been more confident in our people, our brands, and our future. It's times like these that serve as a purifying fire, separating the best companies from the rest. We have prepared ourselves well for a time such as this. Our strong brands, our financial and supply chain disciplines, coupled with our fortress balance sheet, allows us to weather almost any storm. I'm confident that VF will emerge from this crisis in a position of strength, prepared to accelerate at a time when many are under tremendous financial strain and unable to adequately invest in their business. And while COVID has appropriately been a dominant theme recently, let's not forget that 2020 has been a year of significant accomplishments for VF. To name just a few, the move to Denver, the release of science-based targets in line with our commitment to sustainability, The successful spinoff of Contour Brands and the announcement of our intent to sell the occupational workwear business. Even with this exceptional activity, we were managing our way to a strong year. Through the first three quarters of fiscal 20, we had delivered 9% organic revenue growth, more than 100 basis points of gross margin expansion, and 19% organic earnings growth. Vans in the North Face, our two largest properties, were growing 17% and 9% respectively. And our global D2C platform was growing at a double-digit rate, led by 20% digital growth. So what's giving me confidence about our future? First and foremost, our incredible community of associates. From our experienced leadership team actively managing this crisis to our distribution center associates working tirelessly to enable our brands to continue serving their consumers. Words cannot fully express how thankful I am for the entire VF family and their infallible commitment to each other and our business. Next, the nimbleness of our enterprise, which has demonstrated once again the ability to adapt and act with agility to protect our people, protect our enterprise, and preserve liquidity, and to quickly pivot to those priorities which position us to emerge in an advantaged position. And I'm thankful that we have been aggressively transforming VF into a consumer-led, This transformation, coupled with a renewed focus on the three lens approach to managing the portfolio, has honed our organizational focus and simplified our business model. Our ability to pivot in light of changing consumer and distribution environments through portfolio actions has been and will continue to be both a catalyst for growth as well as a hedge against risk. Our movement away from challenged distribution channels while focusing more deeply on the most attractive, addressable markets gives us a real advantage in an uncertain and fast-evolving world. Finally, for the commitment across our organization to act as a purpose-led, performance-driven enterprise during a time of crisis. In addition to providing paid continuity to retail associates during the global lockdown and increasing hourly wages for our distribution center associates, VF has committed nearly $7 million in financial support and product donations across more than 20 different branded initiatives. And we're in the process of producing up to 3.5 million pieces of urgently needed PPE for COVID-19 relief efforts. Our most recent COVID-related actions are in addition to the ongoing efforts around our Made for Change initiatives, leading with science-based targets focused on improving people's lives and planet. Using the considerable scale and resources of VF for the betterment of both people and the planet are not just the right thing to do. It's good business as we forge even deeper connections with our consumers during this time of crisis. Collectively, these characteristics position VF to not only weather this storm, but to emerge as an even stronger, leaner, digitally oriented enterprise on the other side of the current pandemic. In light of the current environment and the new world we find ourselves operating within, I'd like to spend a few minutes highlighting the key elements of how VF is managing the now, as well as how we are approaching emergence from this crisis and how we intend to capitalize on the next. Regarding the now, from the early days of the outbreak in China, we've taken a people-first approach in our COVID-19 response, prioritizing the health and safety of our people while also protecting their financial well-being. As my good friend and North Face athlete Jimmy Chin told me, all storms pass, It's how you weather them that matters. We have a bias for action and decisiveness to effectively manage this crisis and I'm proud of the actions we've taken guided by our values. As we've implemented measures to care for and protect our people, we've also taken several key actions to advance our enterprise protection strategy. These prudent actions have helped us preserve and enhance liquidity and given us more flexibility to manage our operations through a prolonged crisis. These actions have included Reducing discretionary spending and compensation across the VF senior leadership team and our board. Proactively executing a $3 billion bond offering to establish a significant cash buffer and ensure over $5 billion of near-term liquidity. Implementing a thorough and rigorous review of current inventory and forward inventory commitments. Dispending our share repurchase program. Collaborating closely with our most important strategic partners across the value chain. and finally, proceeding with our previously announced divestiture of VF's occupational workwear business as a potential source of additional cash. One of VF's greatest assets has always been our operational discipline and the rigor with which we manage our balance sheet. Today, that discipline and know-how are coming together to create a range of options for how we maintain and further bolster our position of strength, which Scott will cover shortly. Turning to our brands, All of which remain focused on driving consumer connectivity and brand engagement during these unprecedented times. Our brand teams are more than ever using this unique opportunity to share best practices, key insights, and learnings among our marketing and digital leaders to accelerate impact and efficiency. We've made a purposeful shift in our consumer engagement actions to employ greater empathy and compassion, connecting with consumers in the unique stay-at-home environment we all find ourselves in. This strategic shift has resulted in stronger engagement and affinity, leading to higher consideration and conversion. I encourage you to explore our brand websites and social platforms to see this come to life. Demonstrated in the North Face's Healthcare Worker and First Responder Initiative, coupled with the United to Move the World program, along with Vann's Bouncing Off the Walls campaign, Shoebox Challenge Activation, and Foot the Bill programs, or Altra's Embrace Space virtual workouts and Timberland's Stay Strong campaign. I'm proud of our brand's ability to maintain strong emotional connectivity with our consumers, despite this disruption in the world around us. None of us knows exactly how the COVID-19 outbreak will change our world, but we're already beginning to see signs of what's to come. Unfortunately, our brands and businesses are uniquely positioned to address certain evolutions in consumer behaviors and value systems. For example, we believe people will place greater value on exploring the outdoors after spending so much time in their homes. We believe there will be an increased commitment to personal well-being and active lifestyles, with health becoming a major new priority. We believe people will have a greater appreciation for the frontline workers who keep others safe and the tradespeople who keep our world running. We believe there will be an elevated focus on environmental sustainability That will lead to a sharper focus on combating global climate change. And with online shopping serving as a lifeline for so many consumers around the world during the pandemic, we believe the proliferation of e-commerce will be significant. Regardless of whether these changes are subtle or seismic, our brand teams are already working to connect even more intimately and meaningfully with consumers in a post COVID world. Today, we're preparing for this new future and positioning our brands to set the standard for what's next. The long-term strategy we've introduced in 2017 has repeatedly proven that we're activating a powerful plan capable of delivering sustainable, high-quality growth and top quartile returns. And I strongly believe that our strategy will be even more relevant in the years ahead. We've evolved and focused our strategy since it was introduced, but the key choices at the heart of it remain the same. Driving and optimizing the portfolio, distorting investments toward Asia with a heightened focus on China, elevating D2C and digital, and finally, underpinning our strategy is the steady transformation of our business model to make VF more consumer-minded, retail-centric, and hyper-digital in everything we do. As we prepare for the next, our work is focused, amongst other things, on evolving our systems landscape and building better capabilities and tools to power our brands forward. It is focused on leveraging enterprise data and analytics with an emphasis on critical end-to-end data and digital capabilities to drive consumer engagement and loyalty. This will take on a new level of importance as digital activity and engagement continues to rise in a post COVID world. We're also working to become increasingly agile in how our teams work together, enabling us to move faster to seize opportunities whenever and wherever they exist. It will result in a more agile and efficient operating model and organization design through the lens of our consumer-minded, retail-centric, hyper-digital transformation. Before passing the call over to Scott, I want to reiterate the deep gratitude I have for the incredible effort each of our 50,000 associates put in during this past year. Fiscal 20 was an unprecedented year for many of our teams, even before the pandemic hit. Spinning off Jean's business, Relocating associates and their families to different cities and countries and now managing through the disruption of COVID-19 has been an extraordinary ask. Our associates have been tested to the extreme and they've responded just as you would expect with determination and a sharp focus on getting the job done. But they did more than that. I'm so proud of the way our associates have rallied to help others in this time of great need, living out our purpose in a very real and meaningful way. It's been truly humbling to see how our teams have answered the call in our communities, and it gives me great hope in our collective ability to overcome this moment together, driven by the power of human spirit. It also gives me even greater confidence that VF Corporation will be better on the other side of the COVID-19 crisis. I believe that truly purpose-led brands and companies will fare better than others when the situation is over because their decisions will be principled and based on values that consumers share. and continuing to foster a sense of community with our consumers during these trying times. We are positioning VF and our brands for a bright future. And with that, I'll turn it over to Scott.