V.F. Corporation

Greetings and welcome to the second quarter fiscal 2024 VF Corporation earnings call. At this time, all participants are in a listen-only mode. A brief 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 is now my pleasure to introduce your host, Allegra Perry, Vice President of Investor Relations. Thank you, Allegra. You may begin.

Good afternoon and welcome to VF Corporation's second quarter fiscal 2024 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. Joining me on the call will be VF's President and Chief Executive Officer Bracken Darrell and EVP and Chief Financial Officer Matt Puckett. Following our prepared remarks, we'll open the call for questions. I'll now hand over to Bracken.

Good afternoon, everyone. I'm excited to be here for my first quarterly call. I'll start us off and then Matt will cover Q2 and other financial aspects of the comments I'm about to make. Having now been here for over 100 days, I've had a chance to go far and wide within the company and outside of it. I've talked to employees, customers, wholesalers, investors, analysts, and more. There's a universal desire for VF to be successful again. It's been exciting to hear the power of our brands and appreciate the consistent performances of our international business, as well as the North Face. And it was also important for me to hear firsthand where the biggest issues are, including in the U.S. and Vans. I've come to many conclusions about the organization, business, and opportunities we have. Most importantly, I've gained conviction about what we need to do next, and I've begun to see how we could evolve the company longer term into a new kind of brand builder and innovator. I'll save that last part for another day. Before I go into our plans, I want to mention that I'm struck by the parallels between VF and my former company when I first started there 11 years ago. It too required a turnaround. Turnarounds have many consistent features and similar themes. There are always key focus areas in the beginning that evolve over time. The seriousness of the situation gives you a sense of urgency and a desire to move quickly on key steps. Our biggest business is declining. The U.S. isn't working well. The innovation engine that has historically been strong but has drifted down the road the past few years. Employees still love the brands and business, but the morale has been hurt by the poor performance, and costs are too high. All of those were features of my last turnaround. My first turnaround long ago was the Old Spice brand at P&G. Similarly, sales were falling, profit was down, costs were too high for the business, and the innovation engine and marketing just weren't working. By the time I left, Old Spice had more than triple market share. Today, it's the market share leader in the category. My last turn at Logitech is now worth more than 10 times what it was when I started 11 years ago. While no two turnarounds are the same, I've been here before, and I feel quite at home. I've not encountered any big surprises. I won't start with a replay of the past and a diagnosis of how we got here. I recognize many of you already have opinions on that, but it's clear we got here through our own doing. It's also clear that getting out of it is in our control, and we're focused on doing just that. We have amazing brands that are recognized around the world. I'm energized and excited by their potential, all of which is in our power to unlock. Our talent is world class. I continue to be amazed by the depth and breadth of experienced people in this company. and their passion and commitment to VF. Some people surely left along the way, but so many stayed. We brought in great people along the way, too. I will spend most of my time looking forward towards the future and what we need to do to return to consistent growth and value creation. Long term, we'll turn VF into a company that relentlessly focuses on delighting consumers throughout the world through superior product design and engaging consumer experiences. backed by a well-oiled execution machine and simple, effective structure, supporting highly energized employees. These are the four key areas we're prioritizing aggressively, and we'll go into some of the specific actions we're taking to address them next. The four key areas are fix the U.S., deliver the van's turnaround, lower our cost base, and strengthen our balance sheet. Now let me highlight some of the immediate actions that will begin to deliver those. First, we're establishing a global commercial organization, inclusive of an America's region. Throughout my career, I've been in a lot of different corporate structures. From an execution standpoint, having an engine with fast transference of best practices and ensuring as things work they get transferred throughout the company and throughout the different parts of the world, in my view, is absolutely critical. We don't have that in North America, and our results show it. However, we do have anemia, and we recently successfully transferred that model to APAC, which is also operating well. To ensure we're executing consistently across the globe in terms of supply chain management, relationships with wholesale customers, customer service, and more, we are changing our operating model and creating a global commercial organization led by a chief commercial officer who will lead the day-to-day execution of the business around the world and bring execution excellence back to North America. The leader of this combined platform across North America, EMEA, and APAC will be Martino Scavia Grini, who many of you know well, and who we have promoted to this newly created role, reporting directly to me. Some of you already know that Martino has been highly effective in building a platform for EMEA that has delivered sustained growth in revenue and operating income for many years, a platform that has delivered superior growth in all our brands, and a winning spirit that's palpable when you meet our people in EMEA. Second, a second step we're taking is to sharpen brand presence focus on sustainable long-term growth and brand health. A direct consequence and intent of the operating model change, which is particularly critical at this stage for all the brands, but especially Vans, is that the new structure enables brand presence to focus on what matters most, getting closer to the customer and creating consistent pipeline, a consistent pipeline of amazing products and creating excitement around our brands. If you think about it, we really do two things for the world. We create products that people choose to wear, and we build brands which operate like clubs that consumers want to be part of. Those two things are so critical to the success of any brand in our business, and that's where our brand presence will focus. Three, we'll be making a change in brand presence in advance. Trends today for Vans aren't getting any better, and in fact, could even be viewed as getting worse. We will not see a turnaround this year. The good news is that the brand continues to be loved by so many consumers. There are many good steps that we've made, but we now have to make some changes and move faster. To that end, today we're announcing that Kevin Bailey will be stepping down from the position of Global Brand President Vans. Kevin will remain on the executive leadership team, reporting to me, in a leadership role in reInvent. His long history at VF as brand president and a regional president helping build the APAC platform will be valuable as we build a more effective and efficient organization in the months ahead. I'd like to thank Kevin for stepping back into this role about 18 months ago. He's been a loyal and wise leader for this company for many years. An external search is underway for a new president for Vans, and in the interim, I will personally take a very active role in delivering the turnaround strategies to the brand. Fourth, We will optimize cost structure to improve operating efficiency and profitability, and I predict also effectiveness. I've never seen a turnaround situation that didn't have a need for addressing cost structure. We're committing to $300 million of cost reductions across the business. This program is comprehensive and will touch almost everything. But importantly, we will invest back a portion of our savings into brand building and product innovation as we organize to return to growth and at the same time improve profitability. Of course, addressing our cost base is an important factor in making progress on our critical financial priority too, deleveraging the balance sheet, which is our next topic. The last section I'll be talking about today will be to bring down our debt and reduce leverage. This is our top financial priority, to strengthen the balance sheet. Bringing down debt levels and deleveraging are important for shareholders, and today As a consequence, the dividend reduction we've announced is one step toward achieving this objective, but there will be more. We also will not be doing any acquisitions until we bring the debt level down. I want to underscore our full commitment to creating and maximizing value for all our shareholders. In order to bring down our debt levels and improve our operations, the Board and I are fully aligned that everything is on the table and there are no sacred cows. Now moving on to our outlook for fiscal year 24. The headline here is that we're not guiding revenue and profit for the remainder of the year. We are providing an update on free cash flow and projected liquidity levels at year end, which remain more than ample under a wide range of scenarios. So why are we removing guidance? As a new CEO, I want to hit our numbers. At the end of the day, the first numbers I'm going to give you, we will hit. There are a lot of moving pieces in our business and in the market, and we're moving even more as a function of our reInvent programs. I withdrew guidance in my early days 11 years ago at Logitech and quickly reinstated it at the appropriate time. There's no reason why we can't do the same here. To conclude, this is a turnaround. I've been here before, so I know what it takes. We have a strong foundation, world-class brands, and great people, and we're taking aggressive action as we started to announce today. This will lead the way to a new future for VF in which the company will be leaner, faster, and stronger. While it will take time for the initiatives we're implementing to take full effect, we do expect to make progress big and quickly, and we will build on that in the quarters to come. With that, I will now hand it over to Matt to talk to you through the financials. Matt?