V.F. Corporation

Greetings and welcome to the VF Corporation fourth quarter fiscal 2022 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. Please note that this conference is being recorded. I will now turn the conference over to our host, Allegra Perry, Vice President, Investor Relations. Thank you. You may begin.

Good afternoon and welcome to VF Corporation's fourth quarter fiscal 2022 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've defined in the press release that was issued this afternoon and which we use 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's 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. Due to the significant impact of the COVID-19 pandemic on prior year figures, today's call will also contain certain comparisons to the same period in fiscal 2020 for additional context. These comparisons are all on a reported dollar basis. On June 28, 2021, the company completed the sale of its occupational workwear business. Accordingly, the company has reported the related held-for-sale assets and liabilities of this business as assets and liabilities of discontinued operations and included the operating results and cash flows of this business in discontinued operations for all periods through the date of the sale. Unless otherwise noted, results presented on today's call are based on continuing operations. Joining me on the call will be VF Chairman, President, and Chief Executive Officer Steve Rendell. EVP and Chief Financial Officer Matt Puckett, Global Brand President Vance Kevin Bailey, and Global Brand President The North Face Steve Murray. This quarter's earnings presentation has been designed as a visual aid to our prepared remarks. You have the option to follow along via the slide window in the webcast portal. The presentation is also available to download on our website. Following our prepared remarks, we'll open the call for questions. I'll now hand over to Steve.

Good afternoon, everyone, and thank you for joining our fourth quarter earnings call. We are happy to be here and to go through our fiscal 22 performance and our growth plans for fiscal 23. After I take you through the enterprise portfolio strategy update, I will hand off to two of our global brand presidents. First, Steve Murray from the North Face, followed by Kevin Bailey from Vant. We've extended the duration of the call today to give Steve and Kevin the opportunity to share some additional insights on the brands as well as layout in more detail plans for the year ahead. This will be followed by the financial update from Matt before we move on to Q&A. We delivered solid results in a challenging and highly dynamic environment by leveraging our extensive scale, relationships, talented people, and world-class brands. Our results underscore our competitive advantage as an enterprise portfolio company and our strong execution. I'm incredibly proud of our teams and what they have been able to achieve. VF revenue of $11.8 billion increased 27%, which represents high single-digit organic growth relative to pre-pandemic levels. We achieved this growth despite continued headwinds from COVID impacting Asia Pacific and the emergence of new challenges, including geopolitical tensions and acceleration in inflation and lower consumer sentiment globally. We generated record sales for five of our brands, representing over 70% of our revenue. and highlighted by incredible growth at the North Face. The group's diversified and broad-based performance reflects the strength of our brands and the outstanding efforts of our teams across all core areas of the organization. The North Face revenue grew 32% for the year, surpassing the key $3 billion milestone for the first time with broad-based, double-digit growth across all regions in the year and fourth quarter. Business in EMEA passed the $1 billion mark for the first time. Globally, we continue to see strong growth across channels and categories, with momentum in both on-mountain and off-mountain product. Consumer engagement remains a key focus, with the North Face loyalty program growing to over 13 million members globally and representing nearly half of our D2C revenue. We have a great pipeline of exciting new products and a strong order book with healthy inventory levels in our channels, which positions us well for continued strong growth ahead. You'll hear more details about the North Face performance and its plans from Steve. Timberland grew revenue by 20% in fiscal 22, representing growth above pre-pandemic levels. Growth during the year was driven by strong sellout trends, particularly in the U.S. and the MEA, which contributed to a strong, significant increase in profitability. The brand is achieving more balanced growth, with apparel being the strongest category in Q4 and up to 20% of quarterly sales. In footwear, men's and women's icons performed well, and outdoor and hike product further accelerated. We saw a continued strong sell-through on our GreenStride platform, reinforcing our commitment to eco-innovation, as well as pro, driven by the reaction in radius athletic footwear families. We launched a number of innovation initiatives for the brand, including Timberloop, an end-to-end circular design re-commerce platform. We're pleased with the momentum at Timberland, and are excited about the brand's plans and outlook for the coming year as it heads into its 50th anniversary in 2023. We grew Dickey's revenue by 19% to $838 million for the year, while also driving strong profit growth and margin expansion. Our work business has seen strong double-digit growth in men's and women's, driven by our iconic 874 work band and work shirt. And Work Inspired has seen growth across Bottoms, outerwear, and tops. During the year, we launched the Made in Vickie's campaign to celebrate the brand's 100-year anniversary, which generated a strong uptick in web sales. The rise of our three outdoor emerging brands, which play in segments that have enjoyed strong consumer tailwinds, has been a key driver of profitable growth. This further underscores the success of our portfolio strategy, including our international platforms and supply chain to add value through balance and diversification. Ultra accelerated strongly in Fiscal 22 across channels and geographies, growing by 57% versus Fiscal 21, up 84% versus Fiscal 20, primarily driven by elevated product, marketing, and marketplace management coming together in Fiscal 22 for the first time under the new leadership team. We are confident the brand will continue to increase share in the specialty running segment and is well positioned for continued strong growth in Fiscal 23. Smart will also continue to gain momentum in fiscal 22, with revenue up 40%, representing strong double-digit growth across both the Americas and EMEA. This was driven by an expanding apparel business, which has been up nearly 60%, and now represents approximately 50% of global sales. The brand is well positioned to continue to accelerate in its key markets, leading with apparel. Icebreaker generated near-record revenue in fiscal 22 and transitioned its headquarters to our Stavio office, setting the brand up to leverage our significant enterprise capabilities housed there. The brand's move to natural message and consistent product offering is resonating with a growing consumer base. The brand is set to accelerate momentum in fiscal 23. Now on to Vance, which despite growing by 19% over the full year, did not deliver on our initial expectations. During the year, the brand achieved double-digit growth in the MEA, 30% growth in progression footwear styles, and further growth of Vans family, which passed 22 million global members. These wins, however, have not been enough to offset the three key headwinds, COVID lockdowns in China, lower brand heat, and lower performance in classics, which has sequentially improved but remains negative as a category. While we are confident in the health of the Vans brand, we are not satisfied with with current performance. As you know, Kevin Bailey has recently returned as brand president, and later in the call, he will take you through the actions they're putting in place to improve performance and their plans to refresh and refocus the band's strategy. Finally, on Supreme, the brand's performance was softer than planned, reflecting a significant impact from supply chain disruption. That said, the brand's full-price brick and mortar business rose by 35%, partly reflecting the contribution of two new stores in Europe. Looking ahead, we're excited about the brand's outlook in fiscal 23, fueled by the initial contribution of the new creative director, Tremaine Emery's vision, relocations and updates to key stores in the US and in Japan, and new distribution planned in strategic Asian cities. Before turning to an update on key progress on enterprise strategy, I'd like to take the opportunity to commend our organization on the consistent execution we delivered throughout the year. Our family of brands has strengthened And as a result, we are well positioned to continue to generate strong, broad-based, and sustainable growth. Our enterprise strategy enabled us to generate another year of strong earnings and margin growth, executing against our long-range plans target. In addition to growing revenue by 27%, we again drove strong execution throughout the P&L. We expanded gross margins by 150 basis points to 54.8%. and operating margins by over 500 basis points to 13.1%, comparable to pre-pandemic levels, and grew EPS by 143%. We returned a total of $244 million to shareholders during the quarter, including dividends of $194 million for a total of over $1.1 billion returned to shareholders during the fiscal year. I'm incredibly proud of our teams and what we've achieved during what was a year of disruption. Thanks to our consistent execution, we have strengthened our brands and we are well positioned to continue to deliver strong broad-based and profitable growth. A key area of investment in portfolio infrastructure is our digital ecosystem, which influences everything we do from how we create and develop product to making sure we get the right product in the right place at the right time to providing a seamless and elevated experience for our consumers across all regions and channels. Consumer data and analytics. We've made significant progress leveraging data and analytics to better understand our consumers and what they want. Through standardized engagement, social sentiment, brand health, and consumer-based value metrics, we were able to capture changes in consumers' behavior quickly, enabling us to rapidly adjust as needed to meet their needs. The North Face's fast-growing loyalty program, Explore Pass, is a good example of how we're using enhanced data capabilities to drive stronger engagement. Members have a 60% greater purchase frequency relative to non-loyalty members and spend more across every region. Digital go-to-market. We're transforming how we go to market, increasing the level of digitization across product creation, merchandising, and supply, further elevating the output while becoming quicker and more agile with shorter lead times and greater efficiencies. Our enhanced use of 3D design across product creation has led to a significant increase in new apparel and footwear styles developed with these technologies. And in fact, nearly 40% of Vans' global footwear line is now designed and developed on an automated 3D configurator. These are clear examples of actions that will result in both speed and cost benefits. Consumer experience. We continue to invest in enhancing the consumer omnichannel experience by adding intelligence to the way we collect, connect, manage, and govern cross-channel consumer profiles that provide dynamic segmentation capabilities that serve all direct-to-consumer channels and marketing solutions at the brands. This has enabled us to provide a true, seamless, omnichannel experience, allowing brands to build stronger connections and personalize the way we communicate with our consumers, which in turn increases satisfaction, engagement, and conversion. Our click to deliver rate in the U.S. has improved further to just over two business days. Investing in our transformation will continue to be a key strategic priority as we look to the future. Our world-class supply chain enables our portfolio to thrive. This critical competitive advantage has never been more apparent than over the last two-plus years. Matt will take you through the details, but in the meantime, I'd just like to pay tribute to our teams who have successfully leveraged our leading platform to overcome significant obstacles and challenges to continue to drive the business forward while ensuring we are well positioned for future success. We are leveraging our insights and capabilities to further develop and grow our international business, which accounts for nearly 50% of our revenue. We continue to sharpen, expand, and implement our Local for Local strategy, which enables our teams to apply relevant knowledge and relationships to drive decisions from product design to marketing, to merchandising, to distribution. EMEA has continued to be a bright spot for VF, with revenue up 30% in fiscal 22 and a significant increase in profitability. Through strong execution, we further elevated our brand's positioning with higher quality sales, strengthened partnerships, and leading go-to-market capabilities supporting a foundation for sustainable and profitable future growth. We continue to make progress in digital where the digital D2C and digital wholesale partner business combined account for nearly a third of regional revenue. We're well positioned to continue to build on yet another very successful year in this region. In Asia Pacific, it's been a challenging year, but we're taking action to manage through the current climate while ensuring we are poised to accelerate when the market conditions improve. As part of our local for local approach, we've invested in talent growing our teams in Shanghai during the year with a focus on strengthening product design and development as well as marketing capabilities. Our teams are focused on increasing local product creation and evolving channel and product segmentation, embracing new emerging channels, elevating store formats, and driving further omni-channel integration. Longer term, we continue to see significant distribution and brand awareness opportunity in greater China across all of our brands. as well as other markets in the region with a rapidly growing consumer base and outsized interest in our core strategies. In conclusion, against the challenging backdrop, we made continued progress against our strategic priorities and delivered on our commitments, including achieving robust earnings growth. Our total addressable markets are big and healthy, and our portfolio of brands is strong, balanced, and gaining in momentum. We are continuing to invest to drive the business forward and are well positioned for another year of profitable growth in fiscal 23. Before I hand it over to Steve, I'd like to thank him for the past two years of intense work at the North Face to clarify brand positioning, strengthen the team, enhance integrated marketplace discipline, and elevate product merchandising and product creation capabilities. The brand's incoming president, Nicole Otto, who will be joining us next month, has the right skills to build upon the foundation that Steve has established. Today I've asked Steve to talk us through the transformation he's led at the North Face and explain how he leaves the brand in a great position for sustainable growth as he hands over the reins to Nicole. He'll be followed by Kevin Bailey, who was brought back in to lead Vans about two months ago to restore the brand's performance and unlock its future growth potential. Steve, over to you.