V.F. Corporation

Greetings. Welcome to the VF Corporation first quarter fiscal 2023 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 this conference is being recorded. I will now turn the conference over to your host, Allegra Perry, Vice President of Investor Relations. Thank you. You may begin.

Good afternoon and welcome to VF Corporation's first quarter fiscal 2023 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 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. On June 28, 2021, the company completed the sale of its occupational workwear business. Accordingly, the company has reported 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's Chairman, President, and Chief Executive Officer, Steve Rendell, and EVP and Chief Financial Officer, Matt Puckett. 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 first quarter fiscal 23 earnings call. I'll take you through an operational update of our business, which will be followed by a review of our financial performance by our CFO, Matt Puckett. I want to start by addressing the evolution of the macro environment since we last met in mid-May. Excluding China, consumer health is generally good across our markets, although I won't be the first person to point out that sentiment has softened, leading to changing behavior amongst consumers who are being forced to be more choiceful and cautious in their spending in the near term. From our point of view, we see this being largely confined to the value end of the marketplace, where VF has very little exposure. To date, we've seen limited impact on the mid to higher end consumer, where the majority of our brands are positioned in terms of demographic and distribution. We have a strong and resilient family of brands that are well positioned within their respective segments. And across the VF portfolio, we have a greater number of high performing brands today than ever before. Our TAMs are healthy and maintain good momentum, and we remain under-penetrated in certain areas with the opportunity to gain further share in growing markets. We are continuing to invest in our brands, enabling the creation of innovative products and capabilities to drive enhanced consumer engagement and loyalty across all touchpoints. We're working closely with our retail partners to drive sell-through and ensure our family of brands remains at the forefront of consumers' minds. Through our well-established strategic platforms and capabilities, we are mitigating headwinds faced across the marketplace and the persistent impact of COVID in China, while reinforcing our competitive advantages. Amidst this backdrop, we delivered a healthy top-line performance in Q1, achieving revenue of $2.3 billion, up 7% on a constant dollar basis, ahead of our initial expectations. And in fact, excluding China, the business grew low double digits. Our big four brands grew 6% in aggregate led by the North Face and Timberland. The remainder of the portfolio grew 16%. And lastly, before I go into more details on the brands, I'd like to highlight that we remain committed to returning cash to shareholders with our dividend, which amounted to $194 million in the quarter. I'll start with Vance. I'd like to take a minute to update you on the work underway, then go into the details of the brand's performance. Behind the scenes, our teams are diligently working to address the key headwinds we've identified. First, on China, which was largely in line with our cautious expectations, reflecting macro challenges and COVID disruption. Driving energy and engagement, Vans opened its first owned Taiwan store in June, along with a brand mobile app. We launched a new collaboration with Braindead, which sold out completely in the first hour. Our 618 shopping event was expanded onto the Douyin and Douwu platforms and rose by mid-single digits versus last year. Finally, we partnered with Tencent on 58 virtual products for phase one of our Metaverse activation and in four days achieved 43 million impressions. We remain confident of the long-term growth opportunity Vans has in China. Second, we're seeing early signs of positive response from customers on our ongoing efforts to rebuild our core classic strategy and energy around our five icons. The classic Since Forever campaign is showing improved ROI in the first two months, with over 25 million views globally. Phase two of the campaign launched with support from Anderson Paak, Vann's music influencer, including live appearances in London stores and a live performance at our House of Vanns venue. The first signature product drops on our U.S. online platform sold out in 24 hours. Brand heat has begun to show some bright spots. We saw nearly 8% growth in Vans family members versus Q4, reaching nearly 24 million members globally, which represents a 41% increase versus last year. We also generated strong sell-through of Sailor Moon and Stranger Things collaborations, including exclusive online customs pre-releases. Our Stranger Things collaboration was the second biggest customs launch since Harry Potter, and the inline product will launch in early September. We hosted pre-launch events for our new Pinnacle business unit at Paris Fashion Week with top-tier accounts, including a sell-in event and a Twitch live stream of the Brain Dead launch. The Joe Fresh Goods Pinnacle Collabs sold through quickly with three times average sales price in resale market. A second drop is coming in holiday. Finally, in our America's D2C business, we're working through a set of agile actions to capture and optimize traffic and drive higher conversion. such as front-of-store merchandising updates and quick floor set changes. We're seeing a positive initial response across key product styles. We continue to monitor our customer satisfaction levels where we're scoring above the peer set. Vans Q1 sales declined by 4%. Excluding China, global sales were up 4%. As mentioned, a number of targeted actions are being implemented at Vans under the leadership of Kevin Bailey. While our financial performance is not yet where we'd like it to be, we're encouraged by the work underway to reignite momentum. The brand is healthy, which is clearly evident when we launch truly innovative product as indicated with the recent global collaborations, all of which resonated with our consumers and generated high rates of sell-through. We continue to see strong growth in our Vans family membership, where members have higher frequency and rates of spend. Overall, we're encouraged with the early progress being made with actions underway and confident in a brand's long-term prospects to reignite growth. The North Base had another outstanding quarter, with sales up 37%, representing broad-based growth across regions and channels. Growth during the quarter was fueled by our 365 product initiatives, with warm weather apparel and accessories, as well as rainwear, generating strong performances. Collaborations continued to drive brand heat, including the Members Only to Earth Day-inspired which drove high digital sell-throughs in the U.S. and EMEA. Our return to travel lines also performed well, including bags and luggage, and we saw early positive performance for our Pax business for back to school. Our marketing campaigns are clearly resonating with our consumers, starting with our Full Circle Everest Expedition, which promoted access to the outdoors with over 5 billion impressions. Our pride campaign was well received and allowed us to broaden our reach and welcome new consumers to the brand. And the North Face ranked number one in pre-sale revenue for the outdoor category during the all-important 6-18 China shopping holiday. We continued to see growth in our Explore Past loyalty program as we celebrated its one-year anniversary with over 900,000 sign-ups, translating to 50% growth year-over-year. Finally, we're thrilled to have welcomed Nicole Otto as our new brand president during the quarter following a successful transition period. She brings with her a deep understanding of the consumer engagement strategies and a wealth of industry experience. As a proven innovator and future-focused leader, she steps in at an opportune time with strong product pipelines positioning the team to further drive our strategies. The positive inflection at Timberland continued in Q1 with another quarter of double-digit sales growth up 14%, driven by strong performances in EMEA and Asia Pacific. We're sharpening our consumer focus and accelerating a launch culture to attract new consumers to the Timberland brand. And it's paying off as we see success stories, from the elevation of our iconic boat shoes globally with Generation Boat, to the creation of a footwear design and innovation experience inside Fortnite. Our commitment to product innovation and craftsmanship continues to serve us well. Our Q1 growth was driven by men's footwear, led by outdoor, across lifestyle hike, trekkers, and seasonal executions like trail-ready sandals. Apparel was also strong, especially lightweight outerwear and logo tees, with apparel as a whole accounting for 20% of quarterly sales. We continue to drive eco-innovation with a focus on circularity and building a greener future. On Earth Day, we introduced the Timberloop Trekker, our first footwear product that can be disassembled and recycled at the end of its journey. We also expanded our Timberloop Take Back program from the U.S. to include the U.K., France, Italy, and Germany. In Pro, we saw excitement around our first collaboration with Samuel Adams with a limited edition work boot selling out in one week. Initiatives like these are key to connecting new and existing consumers from work to weekend. Across the board, we're excited about the trajectory of the Timberland brand and its opportunities for future growth. Finally, on Dickey's, global brand sales were down 13%, reflecting softer trends in the America's value-end consumer and a more conservative inventory posture of our largest customer in the U.S. It's worth noting that excluding sales from this customer, revenue in the Americas and globally were up mid-single digits in Q1. Dickies was impacted in China by lockdowns, but saw positive growth across other markets in the region. Our reset European business has seen continued strong performance, with regional sales up 30% driven by work lifestyle products. We kicked off our 100-year anniversary campaign made in Dickies, which drove higher traffic to and average order value on our e-comm sites in the US and EMEA. We're generating solid growth globally across icons. women's and work lifestyle, while workwear has been soft, reflecting a larger exposure to the value end. Exciting collaborations such as with Supreme and New York Sunshine are generating momentum and energy while enabling Dickies to broaden its distribution into tier zero accounts. The underlying performance of Dickies remains positive. Outside the top four brands, the balance of the portfolio generated revenue growth of 16%, starting with Supreme. The brand was broadly flat in the quarter and largely in line with our plan. Our European stores performed well and benefited from the openings in Berlin and Milan in the prior year, where there continues to be a high level of energy and excitement for the brand. As we indicated in May, we are excited to be resuming enhancement and expansion of the store network in coming months. We've also returned to conducting in-person consumer engagement with recent events in Milan, New York, and Paris, which have received a positive response. We continue to be pleased with the performance of our outdoor emerging brands, which collectively grew 15%, driven by Altra, which was up 34%, maintaining its number one position in trail and capturing new consumers as it leverages its new products on the road. We continue to focus on product innovation and development and recently entered the space of speed shoes with the launch of the Vanish Carbon Shoe. We're seeing an improving performance of our PACS business with stronger demand across the bag and travel category, and our brands in the Americas and EMEA during the first quarter. Revenue was up more than 30% versus last year, a little ahead of schedule, driven by healthy order books, higher reorder rates, and anticipation of back-to-school shipments, but the season is off to a good start. Now let me take a minute to update you on the progress we're making on our purpose-led sustainability initiatives. As part of our roadmap to meet our science-based targets, VF is invested across a number of key regenerative materials. Through a collaboration between VANS, the North Face, and Timberland, we invested in the first regenerative rubber pilot in the world in Thailand with Paragenesis International. We continue to partner with New Zealand Merino to create the first regenerative wool platform in the world in collaboration with Smartwool and Icebreaker. These projects help deepen the understanding of these benefits to support farmers' regenerative journey and have been creating a captive supply of raw materials for use in our products. We continue to receive recognition for our efforts in transparency, with Timberland and the North Face tied for second place and Vans taking third place on the Fashion Transparency Index. Finally, we remain committed to advancing our efforts on diversity and inclusion with the first all-black Mount Everest climb sponsored by the VF Foundation, the North Face, and SmartWall. In summary, we delivered a solid top-line performance in Q1, ahead of our initial expectations, amidst a softer consumer environment, and importantly, we're maintaining our operating outlook for fiscal 23. This is a testament to the resiliency of our purpose-built family of brands, which is focused on the outdoor, streetwear, and active spaces that benefit from favorable consumer tailwinds. I remain impressed by and proud of our teams whose passion, perseverance, and execution continue to drive our success. Looking forward, while uncertainty persists across geographies and marketplaces, from ongoing macroeconomic headwinds, we are confident in our strategies. We remain focused on the things that we can control and will continue our strategic investments to ensure long-term, sustainable, and profit growth. With that, I will hand over to Matt and take you through the financials. Matt?