V.F. Corporation

Greetings and welcome to the VF Corporation third quarter 2024 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. You may begin.

Good afternoon and welcome to VF Corporation's third 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.

Hello, everyone. Thanks for joining us. It's nice to be here with you for my second earnings call with VF six months in. Before I get started, I'd like to let you know about an important development within my leadership team. Matt Puckett, who's sitting right next to me, will be stepping down as our CFO later this year. He and I have agreed that it's time to make a change as part of the overall transformation efforts we're introducing across the company. Matt will stay on until we appoint his successor to help ensure a smooth transition. I want to thank Matt. His tenure at VF spans almost 23 years, with roles across the organization and around the world. Since my arrival last July, Matt has been a valuable member of the team and an important player in helping to advance our transformation agenda. I really appreciate his contributions and his continued service to VF during the transition. He's also just a great person, and we'll miss him. But not just yet. He'll be here for a while. Moving back to the quarter, or back to today's order of business, first I'll review the quarter, then I'll update you on our four near-term priorities we described in last quarter's call, which we call re-invent, I'll then talk briefly about our newly announced strategic portfolio review, and then I'll hand it over to Matt to cover the financials a little more deeply. Q3 was a particularly disappointing quarter, with total revenue down 17% compared to down just 4% last quarter, where the results did benefit from that timing shift in deliveries. Results were challenged across our brands, including the North Face and the rest of the outdoor brands. The big delta came down to five things. Number one, unseasonably warm weather most of the quarter. The average temperature was 3 to 4 degrees higher than average in the northern hemisphere. Number two, a difficult compare given the operational challenges we faced last year. As a reminder, last year we were late with deliveries, leading to revenues that would have been recorded in the second quarter coming in the third quarter. We corrected these operational issues this year, which led to a tougher compare. Number three, continued America's underperformance. This was the last quarter operating without an America's regional platform, and we expect these changes to result in improved America's results over time. Number four, we also made our results this quarter a little worse by cleaning up vans as we reset our channels. And finally, number five, there was some impact on the cyber incident as we closed the quarter. These are disappointing numbers across the board, and we're acting with urgency to improve performance, but we did not report another quarter like this. We expected a weaker quarter for the North Face, but results were worse than our expectations, impacted largely by the Americas region, while international performance remained strong. Of course, the weather was a factor, as temperatures were substantially warmer than normal throughout the quarter. Of note, in January, the weather got cold, and the North Face returned to growth across all three regions. We believe our performance is strongly held back by the operating model that we're now transitioning away from. Let's talk a little bit about the Americas. We now have our new commercial organization in America's platform in place and are confident this will translate to improved results for the brand and across the rest of our brands. At Vans, the decline looked like it did last quarter by the numbers, but underneath, there's a lot changing. I've been spending more than half my time with our team reviewing strategies, new products, and marketing plans. Product and marketing are obviously every brand's foundation. Brand turnarounds have certain features, Three of them are a clear brand purpose, a product plan that will eventually result in growth, and marketing that weaves them together. If you look at the history of every great brand, a founder creates a trademark and launches its products under it. But as truly strong brands move through time, ownership evolves and almost becomes shared. The best brands learn to share and pay respect to their most important customers, those who are the most influential. While customers don't create products in marketing campaigns usually, They are the ones who drive the success through their ownership and advocacy. During the period from 2015 to 2020, the brand really took off. It got energized and accepted by new groups thanks to cultural trend makers. More celebrities started to wear them. Moms bought them for their kids. We actually took our eye off the core youth audience that had been the lifeblood of Vans. The brand had to evolve, but rather than continue to respect and serve the youth audience that had built the brand, We only fed the trend that grew it rapidly. We largely withdrew marketing to the core youth and instead focused on everyone else. We extended our lineup to lower price points and value stores, and we offered more and more color waves of the same old things to pour more fuel into a fire built on a trend. The trend fuel burned out 18 months ago. The trend moved on. When a brand loses its way, the answer starts at its foundation, its purpose and target audience. So now I'll whet your appetite with my opinion about where we are. We have created a package of a deeply rooted brand purpose, clear segmentation, 18-month marketing plan, and a solid product roadmap. This package is in place. We have a map back to growth for Vans. I'm not ready yet to commit to when the brand will return to growth, but it will. In the meantime, let me talk about a few dynamics we're starting to see emerge. First, we continue to see a strong performance from newer things in the band's product portfolio, which are becoming a larger share of our business. The new school, for example, is still small, but it's growing well, especially among young girls in the U.S. I'm not pointing to that style to suggest it's the turnaround shoe. There won't be a single one, as you will see. We will have a cascade of new products over the next several years, but I am encouraged by how this style is resonating with the very cohort we've lost over recent years. We're resetting the marketplace in Q3 and Q4, changing our marketing, and beginning to launch relevant new products in the coming seasons. I'm energized by the progress at Vance, including with the search for a new brand president. There's more to come. Timberland also sagged under the weight of the warm, high-season weather and underperformance in the Americas. Importantly, our global DTC business was only down a bit single digits in the quarter despite the weather. The important news this quarter was my announcement of Nina Flood as the new global brand president. She is the second strong internal VF leader I've promoted within my leadership team, the first being Martino, who runs a global commercial organization. Nina brings extensive experience across general management, brand marketing, and strategy, with a 20-year career at VF spanning multiple leadership positions. I've been impressed by Nina since the first time I met her six months ago in Stabio. In early Q4, you might have seen the brand's Louis Vuitton-Timberland collaboration created enormous buzz at Paris Fashion Week, and I'm excited about the brand's potential. More to come on that in future calls. To round out our highlights, VF continues to be recognized for our sustainability leadership by MSCI, where as of December 2023, we carried the top rating available for companies for the first time. In fact, we are the highest ranked in our industry. I'm immensely proud of our ongoing commitment to sustainability, and it shows what we're capable of in this business across all parts of it when focused and invested. I'm keenly aware that sustainability performance without company performance is not satisfying. To me, it's not just a good thing to do, but it's an example of what we're capable of in every part of our business. Now we have to work to get our company performance to match that. Now let me update you briefly on reInvent. which prioritizes aggressively four key areas we introduced last quarter, which are, first, fix the U.S., second, deliver the van's turnaround, three, lower our cost base, and four, strengthen our balance sheet. As part of the recently established global commercial structure led by Martino, the America's regional platform is taking shape. Every day this platform improves, and changes have already resulted in giving management greater transparency on the business. and it will take time to bring it up to the standard we have around the world. EMEA and APAC have consistently outperformed our U.S. business, and Martino has imported the same key processes to the U.S. platform, including the areas of key account management, go-to-market execution, merchandise planning, and forecasting. The overall discipline of one approach has been sorely missed in the U.S. The Americas team is expected to be fully in place and operational as we begin the next fiscal year. I discussed the band's turnaround already. I'll just reiterate a few things. Along with the work we are doing on brand purpose, product innovation, and marketing, we're resetting the marketplace to accelerate our progress now. This marketplace cleanup will integrate with products and marketing spun from the same storylines, and that is a new approach relative to the past few years. I'm excited about what's ahead. On costs, we're on track to deliver the $300 million fixed cost savings target, which is entirely within our control. This quarter, we began to simplify and right-size the company's structure, real estate, and others non-strategic areas. I will talk you through some of the numbers here. There's more to do, but we're making very good progress. Reducing debt and strengthening the balance sheet remains a top priority, and during the quarter, we benefited from the reduction of inventories and the recent reduction of the dividend. We're already reducing the net debt substantially this quarter versus last year, and that's before we sell any assets. We've also identified non-core physical assets which will be monetized in the coming quarters. And we're activating a plan to pay down our next two rounds of debt without refinancing. As the next phase of our transformation plan, today we announce a strategic review of our brand portfolio in alignment with the board of directors. This is the next natural step in our turnaround plan as we continue to execute on reInvent. BF has a long history of growth and value creation through evolution of our portfolio. We're objectively assessing what fits and what doesn't as we look to reshape our business toward the greatest opportunities for near and long-term profitable growth and value creation. Looking ahead to the rest of the fiscal year, as we continue to implement actions and make instrumental change across our business, we remain focused and committed to achieving our cash flow objective for fiscal 24. We eliminated revenue and profit guidance for now, but we're committed to cash flow and we're on track to deliver it. Now let me briefly address the cyber incident we experienced in December. It obviously impacted us, but it could have been much worse. I'm super impressed by the quality of work done by our teams across the company. Rarely have I seen a company rally so quickly and so effectively to a cause. Great preparation beforehand, leadership and teamwork during, and meticulous follow-through mitigated the impact. I don't think it could have been handled much better, and I'm really proud of the team. We've instituted a range of additional controls to de-risk the potential for any future incidents. Now I want to summarize what I see VF becoming over the next several years. We're leveraging our strengths, world-class brands and great people, while taking action to make VF leaner, faster, and stronger through proactive measures. As I outlined last quarter, this will take time, but we're making progress quickly and building on what we laid out just a few months ago. The ultimate outcome will be a leaner, more cohesive set of brands, relentlessly focused on the consumer, and will deliver industry-leading innovation in products and marketing, enabled by much more efficient operations. Design, or perhaps a better word for it in this industry for now, innovation, will be at the center of our transformation agenda. Our commercial operations will run efficiently and effectively across all three regions. Each brand will have powerful capabilities to build innovative products, consumers are hungry for with powerful marketing to tell their story. With that, I'll now hand this over to Matt to talk you through the financials.