V.F. Corporation

Greetings and welcome to the VF Corporation fourth quarter and full fiscal year 2021 earnings 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. I would now like to turn the conference over to your host, Mr. Joe Alkire, Vice President of Investor Relations, Corporate Development, and Treasury for VF Corporation. Thank you. You may begin.

Good morning and welcome to VF Corporation's fourth quarter fiscal 2021 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 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 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 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. 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 recently appointed Chief Financial Officer, Matt Puckett. Following our prepared remarks, we'll open the call for questions. Steve?

Thank you, Joe, and good morning, everyone. Welcome to our fourth quarter call. As always, I hope our comments today find you and your loved ones healthy and safe. As we conclude our fiscal 21 year, I'm proud of the way both VF and our people navigated what turned out to be one of the most disruptive years in our company's 122 year history. We didn't know how the pandemic would unfold, and we didn't know how long it would last, but we did know one thing. We were determined not just to survive the situation, but to capitalize on the moment, emerge even stronger, and position VF and our brands for the next chapter of growth and value creation. Thanks to the incredible resilience and agility of our people, combined with our early actions to preserve liquidity and protect our balance sheet, today I can say with confidence that VF is indeed emerging from this crisis as a stronger, smarter, and more focused enterprise. Throughout fiscal 21, our teams remain sharply focused on executing their plans, and we continue to invest in our brand's greatest opportunities to drive growth. As you all know, our organic portfolio had strong momentum heading into this crisis. delivering 9% revenue and 19% earnings growth through the first nine months of fiscal 20. All of the actions we've taken throughout fiscal 21 have been squarely focused on regaining the strong organic momentum as we exit the pandemic. We also remain focused on driving inorganic growth by evolving our portfolio to align with near and long-term market opportunities. This is exactly what we did by acquiring Supreme in late 2020. which we believe will deliver significant value creation for VF shareholders in the years to come. In addition, we announced late last month that we've entered into a definitive agreement to sell our occupational workwear businesses. The sale of this business will provide greater financial flexibility to fuel the long-term strategic growth initiatives for our remaining portfolio. The continued effects of the pandemic forced an ongoing reaffirmation of our priorities. We've been actively working to accelerate our hyperdigital journey in fiscal 21 with continued focus on a central consumer data platform that's accessible to our brands and that enables them to understand consumers more deeply and to engage them in more meaningful and personal ways. And we leverage new technologies and processes to further digitize our go-to-market approach with advancements in 3D design and development, virtual product reviews, and digital printing capabilities that shorten production calendars and accelerate our ability to flow newness and innovation. We also kicked off Project Enable, a multi-year initiative to evolve our organizational design to ensure we have the right capabilities, resources, and talent in place to propel us forward. This work includes upskilling and reskilling parts of our workforce to equip them with the know-how to thrive in a digital-first world. Project Enable will help us accelerate our business model transformation and reduce our global cost structure by about $125 million over three years. Along with our focus on business performance and advancing our strategy, we have remained determined to continue building our reputation as a purpose-led company that leads by example. We continue to activate our people-first approach through Fiscal 21. We prioritize the health and safety of our people worldwide and went to great lengths to support their financial well-being. I'm extremely proud to say that even during the darkest days of the crisis, when nearly all our stores around the world were closed for months on end, not one of our retail associates was laid off or furloughed because of the pandemic. We also continue to meet our commitments to the communities we serve and the planet we all share. Last year was a year of tremendous progress in our efforts around the world to advance environmental sustainability. We allocated the net proceeds from our 500 million euro green bond, the first in the apparel footwear industry, toward VF's eligible sustainable projects worldwide. Collectively, these projects are helping to deliver meaningful environmental benefits. In addition, we announced our goal to eliminate all single-use plastic packaging, including poly bags, by 2025. Going forward, all remaining non-plastic packaging used by VF and our brands will originate from sustainable sources and be designed for reuse or recyclability. We also published our first human rights report in alignment with the United Nations Guiding Principles on Business and Human Rights. We're very proud of this work, and we aim to continuously improve as we uphold human rights in all our operations and across our global supply chain. Beyond the global pandemic, other events of last year laid bare the pervasive racial and social economic injustices that plague our world, especially as they impact people of color. In response, VF&R Brands took action to build on our inclusion and diversity work by establishing the Council to Advance Racial Equity, CARE. Although CARE is still young, we believe it will be a galvanizing force for our entire company as we take collective actions in the years ahead to fight for racial equity and social justice. Operating as a purpose-led company is not just the right thing to do. It is what our employees and our consumers expect. Brands are more than businesses which deliver product. They have the ability to influence positive movements within their communities. This builds deeper connectivity and engagement between our brand and their consumers, supporting long-term profitable relationships. We are a purpose-led and performance-driven organization. Transitioning to our financial results. I want to start with a few highlights from this past year. By any measure, the collective work of our associates to navigate fiscal 21 was nothing short of remarkable. Despite unprecedented challenges from rolling virus surges and lockdowns globally, we were able to deliver global revenues of $9.2 billion and adjusted earnings per share of $1.31, in line with our outlook shared in January. Throughout the year, digital in China propelled our business forward, our D2C digital business delivered 55% organic growth. And when combined with pure play digital wholesale, our total digital business grew over 40% and accounted for nearly 30% of total revenue. These figures demonstrate how quickly the world turned online and how well our teams adapted to the new reality with incredible speed and agility. In fact, during a five month period, our digital technology teams engineered homegrown solutions to enhance our e-commerce platform and stand up a new omni-channel capabilities, including buy online, pick up in store, ship from store, and reserve online buy in store programs. These new offerings further simplified the shopping experience for our consumers and enabled us to utilize retail inventory through our digital channels when stores were closed, all of which helped to generate around 50 million of incremental revenue this year. Our China business also remained consistently strong throughout fiscal 21, growing 20% and surpassing $1 billion in revenue and exceeding our long-term plan targets. We bolstered our China operations by appointing VF's first-ever President of Greater China. And we're in the process of restructuring our Asia-Pacific operations by moving our brand's regional center from Hong Kong to Shanghai. This will enable our brands to strengthen their in-country presence and gain even deeper insights into our Chinese consumers. We have generated approximately $1 billion in free cash flow in fiscal 21, a testament to the resiliency of our portfolio and strong execution from our global teams. While many of our peers were forced to pause their dividend commitments, our strong balance sheet and command over free cash flow supported our ability to modestly raise our dividend this year, returning $760 million to shareholders. A key objective throughout this year was to exit fiscal 21 in a clean inventory position, I'm pleased to say that we ended this year with owned inventories down 18%, and our disciplined brand and marketplace management approach globally has resulted in clean inventory positions across channels. Turning to our outlook, as you saw in this morning's release, we expect fiscal 22 revenue to be about $11.8 billion, representing more than 25% growth. Excluding Supreme, this represents high single-digit organic revenue growth, above prior peak fiscal 2020 levels. Said differently, we expect our big four brands to not only fully recover revenue loss during the pandemic, but to deliver strong growth relative to prior peak levels. Before getting into our fiscal 22 plan, I want to take a moment to address a specific question which always is top of mind with this audience. What gives me confidence in VAN's ability to re-accelerate and deliver on its forward growth commitments? Throughout the past year, the VANS conversation has been focused on the disruption caused by supply delays, the outsized impact of store closures, and the cumulative impact of inventory and marketing investment constraints. As we have consistently discussed, these issues are all short-term and episodic, which have no impact on the long-term runway for this brand. As we enter fiscal 22, there are several near-term catalysts which give me confidence in VANS' ability to regain momentum and return to the low double-digit growth path we laid out in 2019. First, we know that the deep connectivity of Vans stores and associates are a distinct competitive advantage for the brand. Our stores drive higher loyalty member enrollment, greater purchase frequency, and higher average order value. A return to in-store shopping will restore this advantage, growing the Vans community while driving a higher annual spend per consumer. A return to normal social use occasions will accelerate purchases from depressed levels the brand experienced during the pandemic. This is not just a return to in-person schooling for younger consumers. This is a return to seeing family and friends, dining out, attending concerts and sporting events, and traveling. We know Vans has remained top of mind for its core consumers who are ready to re-engage with the brand as they return to a normal cadence of lifestyle activities. And lastly, beginning next month, Vans will initiate a globally coordinated weekly drop cadence that marries both product and experiential demand creation to drive energy, excitement, and brand heat. A key learning from the past year has been the importance of flowing new product and associated storytelling to deepen engagement with existing consumers and attract new consumers to the brand. This will be accompanied by an elevated Vans.com experience to enhance the consumer journey around these exciting drops. While Vans is our largest brand, I don't want to lose sight of the momentum we're seeing across the remainder of our portfolio. As Matt will unpack shortly, our recovery this quarter and the strength of our fiscal 22 plan is broad-based. There is tremendous momentum at the North Face and Dickey's, which we expect to accelerate. We believe Timberland has reached an important inflection point, and Supreme is off to a strong start in its path for sustainable long-term growth. Growth and value creation could not be more clear. Taken together, I'm entering this year with a strong sense of optimism. We have a best-in-class portfolio of brands with momentum, a leadership team across our brands and enterprise that possesses the skills and capabilities to lead our teams and to deliver on our commitments. There are tailwinds from both a strengthening consumer across the globe and in the categories where we are most present, and inventory levels are in good shape. Each of our brands are uniquely positioned to thrive in the coming year and return to their respective long-range plans as we emerge from this crisis as a stronger company. And now I'll turn it over to Matt. Good morning, everyone.