V.F. Corporation

Hello and welcome to the VF Corporation fourth quarter 2024 earnings call. If anyone should require operator assistance, please press star zero on your telephone keypad. A question and answer session will follow the formal presentation. We ask you please limit yourselves to one question. You may be placed into question queue at any time by pressing star one on your telephone keypad. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Vice President, Investor Relations, Allegra Perry. Please go ahead, Allegra.

Good afternoon, and welcome to VF Corporation's fourth 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, EVP's Chief Commercial Officer and President Emerging Brands Martino Scaviagorini, 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.

Thanks so much for joining us. I finished 10 months here, and we've made a lot of progress. I'll begin today with a deep dive on our reInvent program and why I'm confident we'll position VF to return to strong, sustainable growth. Then I'll briefly touch on our financial results before turning it over to Martino and Matt. While I've discussed reInvent on our prior calls, I'd like to go a few layers deeper today so you can have a better understanding of how we're approaching this. the progress we've made so far, and what's next. Almost everything is playing out as I expected it would when I took the role. We've taken the tough medicine that we needed to return to growth. Key organizational changes, leadership changes, and strategic moves have largely been executed by the time we get to the end of my first year, and I feel really, really good about them. reInvent, which we introduced back in Q2, is fundamentally how we get back to strong growth. Some perceive this as a simple restructuring plan or tactical steps. It wasn't, and it isn't. reInvent is a blueprint for transforming a company from declining to growing. It has three key phases running in parallel, reset, ignite, and accelerate. Reset is focused on a reset of the US business, VAMS, the cost base, and the balance sheet. Ignite is about elevating how we show up in front of the customer. Here, our focus is on product, design, innovation, and merchandising. On commercial excellence, and brand building. Our reset and ignite phases are occurring in parallel, and together we'll set the stage for the third phase, which will be accelerating growth. Before I get into details on the reset phase, let me talk a little bit about people. No turnaround happens without a strong team, and I've spent an enormous amount of time on this particular area. You have a CEO with a demonstrated turnaround and long-term demonstrated growth experience. and we are adding superstar talent. Our new CHRO is the former CHRO of Salesforce, a company 50 times larger than BF, who also happens to have deep retail and apparel experience. Our new head of strategy and digital was a managing partner at BCG and spent time at Lugo Lemon. Our new head of design was named by McKinsey and others as one of the top creative design leaders in the world. And we announced today Paul Vogel is our new CFO. Paul brings a wide range of financial, operational, and capital markets experience. We plan to announce very soon a new Vance president, and we're promoting strong internal talent, including Martino and our new Timberland president, Nina Flood. By the time I reach my one-year anniversary at VF in July, we'll have almost completely changed the leadership of this company. I have great confidence that we have the right team in place to successfully drive VF's turnaround and long-term growth. Now turning to an update on our key priorities under the reset phase I spoke about earlier. We're on track to deliver our $300 million cost savings target by the middle of the fiscal year, as previously discussed. We're also making progress on reducing debt and strengthening our balance sheet. In the fourth quarter, we delivered another significant reduction in inventories, bringing the total for the year down 23%, down over $500 million, which in turn enables us to reduce our net debt by another $540 million. We also generated over a billion dollars in operating cash flow, and more than $800 million in free cash flow, exceeding the only guidance we gave you earlier. Our strategic portfolio review is complete, and we'll provide an update when we have more views to share. We've established the Americas Regional Platform, which is now fully in place and operational as part of the global commercial organization. Under Martino's strong leadership, we are already seeing signs of progress. We've imported key processors from EMEA and APAC. The accuracy of our forecasting has dramatically improved, and Martina will talk through the actions we're taking to improve the Americas performance in more detail. Let me move to Vance. While overall financial results have not yet improved, we are deep in execution, and we are starting to see very early green shoots. I said you'd start to see the brand turn first in one channel or region, and it would spread to others. It started to happen. With DTC Europe positive in the corner, The inventory reset actions are helping create a cleaner market in which to introduce new product. Our weeks of supply have come down with our partners in all three regions. We're simplifying our product lineup and introducing a sustained level of investment in design and innovation. Ultra Range Neo is performing well in the U.S. The new school, which launched when I first got here, is gaining strength behind enhanced marketing and has now become our second largest style globally. And the A2.0, our newest and best skate shoe, has performed very well in the early months of its launch. You can expect more news here soon too. This is part of our icon management strategy, which will also reduce reliance on core icons. While the core remains in decline, we're seeing strong performance in our new products, and we have a cascade of product launches coming. We're also working to make our marketing efforts more effective. We're simplifying our storytelling. Our marketing has shifted to fewer, deeper campaigns. For example, we used to have 274 stories in one season. When you have 274 stories in six months, you're probably not telling any of them well. We've simplified it to a handful of powerful key stories, concentrating our investment. We're also rebalancing our marketing mix to drive higher ROI. These changes are starting to show positive results. Now we're cutting through. Search is a good leading indicator. We're seeing Google search trends move in the right direction for the first time in years. The last three months have improved compared to the previous 12. We don't only need to have simplification. We also need brand elevation to build brand equity and drive gross margin. We're leveraging our new OTW line as the pinnacle expression of the brand to drive energy and excitement. We're in the middle of a global series of events that bring together community, culture, and fashion that will continue to unfold. That's how we get in the middle of cultural trends. After the tease in June 23rd at Men's Paris Fashion Week, we officially launched OTW at Art Freeze in Los Angeles in February of this year with an amazing installation to drive brand elevation. And just last week, we had an exciting event on the Shanghai Bund that generated huge interest in person and on social media. Stay tuned for more. We have a strong and data-driven approach now to improve our in-store execution. You'll see more as we roll up across the year. I'm a big believer in testing, learning, and scaling, and stores are a wonderful place to do it. We're testing a lot of things across regions in areas of visual merchandising, four-wall formats, and SKU productivity that will scale across the globe over time. At Vans, we've moved from theory to action. Now let's talk about the North Face. Our core focus there has been investing in product design and merchandising. Our key growth drivers include category expansion with specific focus on trail and hike, women's, and footwear. We're starting to elevate the brand through premium performance products. Our pinnacle expression of the brand, Summit Series, is leading the way through brand campaigns and in-store activations across all marketplaces. This is connected to elevating our brand journey through new store designs, which are currently being tested and scaled across the globe. A few select examples of these are the Regent Street store experience, our new store format in Berlin and Singapore, and soon we'll have one in Shanghai. Our key global partners are fully involved in this initiative, too. We'll talk more about the final phase, Accelerate, in the coming quarters, but it's too early to talk about it now. So what can you expect as we move into fiscal 25? While we're not ready to give specific quantitative guidance, I can tell you that you can expect that things will be a little bit better sequentially each quarter, except for the first quarter as we complete our channel inventory resets, and Matt will tell you more about that later. To close my section, I'm more confident than ever about our plans and our executions. we will return the company to long-term profitable and sustainable growth. Now let me hand over to Martino, who will give an update on our go-to-market approach globally.

Thank you, Bracken, and good day, everyone. Nice to speak to you again in my new role of Chief Commercial Officer at VF, where I oversee our newly created global commercial organization and our emerging brands. Today, I'm going to give you some additional details on our key priorities within this new operating model. These details will be primarily focused on the Americas, the region where we see the biggest incremental opportunities and we stand to benefit the most from leveraging processes and tools that have led to commercial success in Europe and Asia. Three key messages I want to leave you with. One, we're driving our integrated marketplace strategy with speed and agility and clear focus on our best wholesale partners. Two, we're elevating our retail execution in D2C, direct-to-consumer, across brick and mortar and digital. Three, we're driving commercial excellence through our operating model, scaling new capabilities and best practices across regions. First, integrated marketplace strategy. Integrated marketplace strategy is a holistic view across the channels to elevate our brand execution and capture consumers' engagement at every touchpoint. We see opportunities to perform better across wholesale and D2C. We're making clear choices, and we're executing intensely against those choices in each region and across brands. As the macro cycle adjusts and inventories return to normalized levels, an impeccable marketplace execution is critical to take back market share and drive growth across portfolio, starting from our Americas region even more than anywhere else. We continue to see a strategic place for wholesale in our model, and we believe we can be much stronger with key strategic partners. As we roll out our regional commercial model and transfer best practice across regions, our immediate focus is on establishing robust marketplace management processes in the Americas, supported by more agility in decision making. These efforts are squarely focused on driving growth in short to medium term. but we expect them to also lead to higher tiers of distribution, a less promotional approach to the marketplace, and in turn, more elevated brand position. You've heard us talk about our global partnerships. We work with some of the best multi-brand retailers and partners in the business. They love our brands. They want us to work with us to bring them to our consumers in a way which drives a deeper connection and builds brand equity in the process. We are intensely focused on making this partnership tighter and more effective, adopting some of the processes that have made our business in Europe and Asia successful, such as cross-brand key account governance execution. Over the last eight months, we have invested significant time in the Americas, meeting our partners to create a strategic long-term frame and optimize our common commercial priorities. It is time to do your results. Second, brand elevation and retail execution. We are moving fast across all areas of our new commercial organizations. In our direct-to-consumer environment, we're definitely under-executed in Americas relative to Europe and Asia in terms of commercial performance as well as retail excellence. As an example, we're adopting a more consistent and dynamic regional approach to our retail fleet optimization, a faster pace of retail innovation through new formats, and rolling out consumer-facing omnichannel capabilities. As we focus on elevating our brands We're bringing retail execution and in-store experiences to the forefront. We need great designs and the right merchandising decisions to show up consistently across retail environments with the right mix of global and local relevance. And we need operational excellence and agile trading capabilities. We're seeing success with some of our new store concepts. For example, the North Face in London, Vance in Shanghai, Timberland in Tokyo. And we're taking a hard look on how e-commerce digital experience connects and expands through the physical expressions of our brains. Third, and finally, excellent commercial execution. As we ignite growth across business models, direct and partners, digital and physical, we are removing silos and barriers that get in the way of effective commercial execution. Through our commercial platforms, we are integrating trade and execution, marketing and demand creation, and planning discipline to drive the business and optimize the use of our inventory across all channels. Analytical capabilities and more power insights will also contribute to our ability to be demand-driven across the whole marketplace. This improves our ability to predict with more accuracy where the business is headed, and in fact, we have now hit our internal forecast in the Americas for five consecutive months. We're seeing cleaner inventory positions at our brands following also the select reset actions. And more importantly, we're driving specific BS-wide growth initiatives with our key accounts in all the regions. Last but not least, we are the proud owners of several emerging brands, delivering substantial total sales and accretive operating margins. There are some real jewels here. And in our new operating model, these are now managed in an even more entrepreneurial, dynamic way to catch market and category opportunities and create the best version into a bigger future plan. So we're making progress at every step, focusing on improving our operations and returning to drive commercial excellence and best brand execution. Thank you for the time. I'll now hand over to Matt.

Thanks, Martino, and good afternoon, everyone. My plan today is to give you a high-level overview of Fiscal 24, a more in-depth review of Q4 results, and highlight some themes for our key areas of focus and some guardrails for fiscal 25. We closed out our fiscal year having made further progress on the initial phase of re-invent. And even though our fiscal year 24 P&L results remain difficult, with revenue down 11% and adjusted earnings per share of 74 cents, we delivered against our near-term balance sheet and cash flow objectives. We exceeded our free cash flow guidance, largely driven by lower working capital, namely inventory, with $804 million generated for the year, which I'll cover in more detail in a minute. Now turning to our fourth quarter results, which were largely in line with our expectations. Throughout Q4, we continued to take proactive measures to improve our operating performance and strengthen our business and balance sheet, while implementing additional actions as part of the re-invent transformation program. We advanced the work against the strategic portfolio review, which is now complete, and are on track with our plans to continue paying down debt and strengthening our balance sheet. While the underlying financial results from Q4 remain challenging, there was a slight sequential improvement relative to last quarter. And importantly, we've seen some encouraging developments stemming from the recent actions we have taken. Now, let's unpack the performance, starting with the areas we guided on, inventory, cash flow, and liquidity, where we delivered stronger results than anticipated. First on inventory, where we made significant progress in the quarter. a direct benefit of our ongoing efforts to clean up the marketplace and operate with a more efficient level of inventories across each of our businesses. Inventory declined by 23% in the quarter versus last year, ahead of our expectations, with double-digit declines across each of the four largest brands. We're also seeing an improvement in the level and health of our inventories with our wholesale partners. Turning to the highlight of our financial results, cash flow. As Bracken mentioned, during the fiscal year, we generated over $1 billion in operating cash flow, and $800 million of free cash flow ahead of our $600 million guidance. This result allowed us to continue making progress against one of our biggest priorities, reducing debt, as we ended fiscal year 24 with net debt of about $5.3 billion, down approximately $540 million versus last year. The free cash flow beat was largely driven by lower working capital, primarily inventory, as we were able to bring those levels down more quickly than projected. Liquidity at the end of the year was approximately $2.65 billion. Now moving on to a review of the Q4 P&L. During the quarter, revenue was down 13%, including a little more than two points of impact from reset actions, and right in line with our expectations, largely driven by the U.S. wholesale performance, which, as expected, weighed on results across our brand portfolio. This compares with Q3 revenue of minus 17%, which also included a similar impact from reset actions. Turning to the performance by region, relative to the Americas, our international business remained more resilient, down 4% for the quarter. As the APAC region continued to grow and as anticipated, the run rate in Europe improved relative to Q3. The Americas region was down 23% in the quarter as anticipated, a similar trend to Q3. As a continued cautious posture from our wholesale partners and our actions to further reduce inventories in the channel, particularly in the U.S., weighed heavily on results. The DTC channel, although delivering a better performance than wholesale, was down low double digits in the quarter, driven by Vance. The North Face direct-to-consumer was slightly positive. Performance in the EMEA region sequentially improved to down 5% in the quarter, driven by growth in the DTC channel across most brands, including growth in the North Face, Vance, and Timberland, led by our brick-and-mortar channel, which overall grew mid-single digits in the region. While wholesale was still negative, there was a significant improvement in run rate relative to last quarter, partly reflecting the normalization of delivery timing, which distorted the year-on-year comparison in Q3. Lastly, the APAC region was up 2%, with all brands we distributed in the market growing, except for Vans and Dickies, reflecting their ongoing turnarounds. Growth was led by continued strong momentum at the North Face and ongoing growth in Timberland. Importantly as well, direct-to-consumer for the region was up high single digits. While Greater China remained strong, up 10%, declines in Southeast Asia and Korea pulled down the performance of the region overall. Looking at the performance by brand, the North Face was down 5% in the quarter, as expected. Starting with the positives, DTC was up 7% globally for the brand, reflecting positive growth across all three regions. And we continue to see outperformance in the APAC region, growing 15%, driven by greater China growth of up almost 30%, and partly offset by the one-time impact of returns in the Australia and New Zealand market to shift our model from a distributor to a direct business. While the cold weather season had a slow start, Ottawa had a good quarter and overall was up mid-single digits for the year, as underlying sales across the business remained solid. The global performance, however, was impacted by the larger wholesale pressure we outlined last quarter, which is primarily contained to the Americas, and which will continue to weigh on results over the next couple of quarters. Bans revenue declined 27% in the quarter, in line with our expectations, and reflecting the impact of the previously contemplated inventory reset action that had a four-point negative impact on the top line, similar to Q3. While both DTC and wholesale were down on a global basis, it's worth noting that DTC in Europe grew in the quarter, reflecting the brand's relatively stronger position in those markets, and the benefits it has been deriving from the regional platform. Timberland was down 14%, including about a six-point negative impact from reset actions in the U.S. wholesale marketplace, with sequential improvement on last quarter, reflecting growth in both Europe and in Asia, where the brand continues to resonate and where the go-to-market execution has been more consistent and effective. The issues largely rest with the business in the Americas, which continues to be challenged, and where the wholesale channel is significantly pressured because of reduced order books and ongoing soft sellout trends. Vickie's was down 15 percent from similar drivers and regional trends the last quarter as we continue to refocus the brand on our core workwear consumer and business. America has continued to see soft sellout trends across the marketplace, and in APAC, we continue to reposition the business and adjust inventory levels with our partners. Supreme delivered another strong quarter with sales up low double digits in Q4, reflecting a good start to the spring season and further validation of the grow-wide strategy with the continued strong performance in Korea as well as the late quarter store opening in Shanghai. Moving down the P&L, adjusted gross margin declined 120 basis points in the quarter to 48.4%. But that's not the full story nor the most important takeaway. The story really is that we were able to more quickly reduce inventories and drive higher free cash flow than anticipated. and as a result saw more significant near-term impact on gross margin than expected. To unpack the details explaining the basis point change versus last year, favorable channel and regional mixed benefits and lower product costs were more than offset by a number of areas, including negative foreign currency transaction impact and several factors directly connected to the intentional reset actions, namely a continued elevated level of promotion and clearance activity as part of our effort to reduce inventory levels and reset the marketplace to a healthier level and mix, as well as higher inventory reserves, most notably at Dickey's. Importantly, excluding impacts from reset actions and the associated inventory reserves, which were more than 200 basis points, gross margin would have been up about 100 basis points versus last year, inclusive of the negative foreign currency impact. SG&A was down slightly, reflecting lower volume-related spending and incremental savings from the reInvent program. which will accelerate as we move into fiscal 25. Partly offset by incentive compensation timing versus last year and modest spend increases in our key investment areas, along with comping prior year benefits in SG&A, primarily associated with gains on asset sales. As a result of the lower revenue, SG&A deleveraged in the quarter by about 650 basis points. Adjusted operating margin decreased 770 basis points to a negative 2.1% and adjusted earnings per share was minus 32 cents. Now I'd like to provide a brief update on the progress we've made on call savings connected to re-invent, where I'll build on some of the updates you heard from Bracken earlier in the call. We delivered about 80 million in gross savings this year versus our target, including about 40 million in fiscal Q4, primarily driven by headcount reductions and supply chain savings. We remain on track to deliver at least 300 million in annualized savings, which we expect to be fully in place on a forward run rate basis by the middle of fiscal year 25. In Q4, we booked an additional $55 million in charges, of which $16 million were non-cash. Including the charges recorded in Q3, the full year total was about $105 million, of which $35 million were non-cash. We now expect the total charges associated with reInvent to be approximately $130 to $150 million. As previously stated, we intend to reinvest a portion of the savings oriented towards our biggest brands and opportunities and specifically focused on the areas of product design and innovation and brand building. To date, the reinvestment has been limited, as expected, and we anticipate this will accelerate as we move into fiscal 25 and beyond. If I sum up fiscal 24, it can be characterized by a significant amount of transformative action that we've proactively implemented to adjust the operating model and rationalize and optimize our call structure, reset the marketplace, and begin improving the health and the trajectory of the business. While we're not issuing P&L guidance now, I wanted to provide some guardrails specific to Q1 and context relative to our cash flow outlook for fiscal 25. First, revenue will remain challenged in the near term, particularly in Q1, where we expect the results to be comparable to Q4 when excluding the impact of reset actions that occurred during that timeframe. Specific to gross margins, which across much of the year should benefit from more fundamental tailwinds than headwinds, In Q1, we expect year-over-year margin erosion as we work through the residual excess inventory resulting from the cleanup actions we've taken over the last two quarters. This will largely be contained to sell out in the clearance channels, including our own outlets. We expect to generate approximately $600 million in cash available for financing activities from free cash flow plus the proceeds from non-core asset sales. It's worth explaining that the lower level of cash generated as compared to fiscal 24 is a result of less working capital benefit, in particular when considering this last year included over $500 million benefit from inventory reductions. We expect to end the year with liquidity of at least $2 billion, which contemplates the payment of the $1 billion term loan due in December. As this was my last earnings call with VF, I wanted to take a minute to close with a thank you. I've truly enjoyed the time I've spent getting to know and work with all of you over the years, and in particular the last three in the role of CFO. and I can tell you that I've learned a great deal from our interactions. While the business is not yet where I know it has the potential to be, and will get to, I'm confident that the priorities we've set and the actions we've implemented, particularly in the last few quarters since Bracken has taken the helm as CEO, will position this great company for a very bright future, and I look forward to watching the continued evolution of the F. With that, I'll hand it over to the operator, and we'll take your questions.

Thank you. We'll now be conducting a question and answer session. As a reminder, we ask you to please ask one question and return to the queue. If you'd like to be placed in the question queue, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. One moment, please, while we poll for questions. Our first question is coming from Michael Benetti from Evercore ISI. Your line is now live.

Hey, guys. Thanks for taking our questions here. Let me ask you. Yeah, Bracken, you spoke to Vans, Europe, DTC turning positive. Can you just help us maybe connect the dots in that market a little bit more? I know you liked that as a leading indicator. You said this is happening with the inventory cleaned up, the DTC turned positive. Is it safe to say that inventories in the wholesale channel there also had to be clean for that to happen and direct the consumer? And if so, are there any signs of improvements in the forward season order books there? from wholesale that we can look to or thoughts that we can – anything we can maybe think about as far as order books stabilizing similar to D2C as the – I guess I'm trying to think, are there reasons to think the rebuild there will be more uneven between the channels, or do you see some evidence that D2C could be a leading indicator on wholesale?

Okay. Yeah, just to start, thank you, Michael, and great to hear from you. Yeah, I do think – I think I mentioned the last call, and I mentioned it in the opening today – I do think that turnarounds start in one channel or one part of the world, and then they start to spread, not virally, but systematically, and I think that's what we're seeing now in Europe. I'm going to let Martino answer the specific question about Europe and DTC versus wholesale, but I think you can generally say that I think we're going to see wholesale come pretty quickly there, but DTC is already positive. Go ahead, Martino.

Thank you, Bracken. Hi, Michael. Nice to hear from you. I think you can see, you know, direct consumer in Europe has definitely improved and is simply driven by focus and experience, you know, a bit of newness starting to get traction and definitely a better assortment mix, you know, that allows a much stronger conversion from consumers. So that was a little bit of set traffic that may remain challenging, but we really see an improved engagement with the brand. At the same time, We have better inventories in the marketplace, as we discussed, and definitely we see search trends improving, and we see a better opportunity to win with our partners that are really, you know, interested in the brand. They love the brand. They want to engage with the brand, and they want to win again together with us. So we've been, I think, creating the conditions to now work against that opportunity.

Yeah, and if I could just add, I think, you know, it is a good leading indicator because we were never as, as overloaded in the channels in Europe as we were in the Americas, which meant the cleanup in the Americas didn't need to happen in Europe the same way.

Okay, thank you.

Thank you, Michael. Thank you.

Thank you. Next question is coming from Laurent Desalescu from BNP Paribas, your line is now live.

Oh, good afternoon. Thank you very much for taking my question. Bracken, I'd love to ask about the North Face. I know Nicole's not on the call tonight, but In the press release, it says ongoing wholesale weakness in the U.S. Can you maybe just give a little bit of framework around there? How do we think about this? I know you're not guiding by brands or by revenues for the company, but how do we think about North Face overall for this coming year?

Yeah, you know, the overall, the ongoing wholesale weaknesses, is especially true in the U.S. and in the kind of winter apparel products. So I think that's very relevant. I'm going to start to let Martino take a lot of these regional questions, and by brands, I'll let you take this one.

Yeah, I think one comment is about, honestly, our performance overall in the Americas region and specifically in the wholesale channel. I think it's been one of our key challenges. You probably know the numbers that we lost there. But also, this is our... biggest information opportunity and TNF and North Face can definitely lead into that. The brand specifically has now the opportunity to double down on the stronger partnership that we are really focused to reset and actually strategically frame for the future in the Americas, the wholesale market. So I would say it's a bit of a common opportunity or issue so far in the Americas region across brands. and the opportunity for the North Face to really leverage into their strength to have a more relevant and more diversified and a more segmented play into the American distribution, including also higher tiers of the distribution.

Very helpful.

We're not guiding brand, certainly not by brand, by region of the world. But, you know, I continue to be very bullish about the North Face. I think it's a great brand, great position. We have a lot of awesome products out and coming. and we're going to continue to invest at the same kind of rate in both product and brand building.

Very helpful. And then, Matt, if I heard correctly, I think you said you expect you're going to pay down the billion-dollar tranche in December. Should we assume refinancing of the 750 that comes due in April? And if so, how should we think about interest expense for fiscal year 25? I don't know if you can kind of give us some guardrails for the audience on that front.

Yeah, you want me to take that one, Bracken?

Yeah, why don't you go ahead.

Yeah, so, yeah, what I said in the prepared remarks there was that we'll end the year with more than $2 billion in liquidity, which contemplates the paydown of the billion in December, right? So that's going to come from we've got a little bit of excess cash on the balance sheet coming into the year. We're going to generate quite a bit of cash. We kind of talked about what that is. And then, quite honestly, probably a little bit of an increase in short-term borrowings that we would kind of fund with and pay back pretty quickly just from cash from the business. So that's the assumptions there. And I think you're right. I mean, you start to do the math. It gets pretty difficult to see the 750. not needing to be refinanced, barring other actions, which obviously we're aggressively looking at some other things, right? And we talked about the strategic portfolio review is now complete, and obviously ongoing work there associated with that. But I think you got the math right. The other thing on interest, it'll be modestly lower year over year, but not dramatically so.

And if I could just add, and Matt said it, but we don't have, any intention to refinance any of that.

Okay. Wonderful. Thank you very much. Thank you.

The next question today is coming from Simeon Siegel from BMO capital markets. Your line is now live.

Thanks. Hey, good afternoon, everyone. And Matt, just want to, again, wish you best of luck in the next chapter. Um, Bracken, just to follow up on the last one, nice to hear about the positivity around North Face. Just maybe higher level, how do you think about the North Face revenue declines? How do they differ from Vans? Any thoughts on just diagnosing the depth of any potential declines there would probably be helpful. And then, sorry if I missed it, did you give North Face's wholesale sell-in versus sell-through? Just trying to think through what the challenge at U.S. wholesale North Face versus its growth tells you about the brand and how people are seeing it. Thanks, guys.

I'm going to take the first one. I'm going to let Matt handle the second one, but Yeah, I'd say overall, I feel very good about the North Face. I think we're in quite a different position from Vance. You know, the growth in the North Face in general is not concentrated in a few styles. It's really broad-based, and we've got a very strong portfolio. We have strong dynamics across the world in the North Face. We're very strong in China. But, you know, I think in general, we have a lot of share gain opportunity over time. The underlying sellout continues to be strong. It was 7% this quarter. It's been strong, and it's strong around the world, by the way. So I think we're in a really different position. We had that question last quarter, and we said, you know, you'll see DTC continue to be strong, and it has been. Matt, you want to answer that question about sellout versus sell-through in the North Face?

Yeah, I think what I would say is sellout's generally been pretty good, right? You know, I said in my comments that Outerwear overall across the year was good and growing, and that was across channels, right? You know, another factor here is we've talked a lot about reset. There's really no real reset actions happening in the north face because inventories at wholesale are in a pretty good place. And we sold in less this year, right? The fall order books were down. We said that from the very beginning of the year. Some of that is the continued residual kind of challenges we had from disappointing the marketplace, you know, a couple seasons ago, right? And so we need to build back credibility in terms of on-time deliveries and sell through, et cetera. That is happening. And obviously, as we look forward into future seasons, we'll start to see the benefit of some of those things.

If I could just add one more thing. It's just hard not to bring up the Americas operating model of the past in the context of any of our brands. And that's certainly true in the North Face. We underperformed the Americas in general for several years, many years. So as we bring that operating model in, I'm really bullish on that too. I think over time it's really going to take hold and we're going to see a pretty dramatic improvement in the North Face and the Americas. Don't expect that this quarter or next quarter it's going to come.

That's great. Thanks a lot, guys. Best of luck to our staff. Thank you. Thank you so much.

Thank you. Next question is coming from Brooke Roach from Goldman Sachs. Her line is now live.

Good afternoon, and thank you for taking our question. I wanted to follow up on the inventory and marketplace cleanup actions that you've taken, including SKU count reductions in both BTC and wholesale. Will that initiative be complete at the end of the first quarter? And As a result, how are you thinking about the puts and takes to gross margin between promotion, pricing, and mix relative to other items that might be driving your gross margin for the year? Thank you.

Thank you, Brooke, and great to hear from you. I'm going to make a high-level comment to tell them and hand it off to Matt. Yes, generally speaking, those actions are going to be complete by the end of the first quarter, but we may or may not be fully complete on selling through the rest of that inventory that we brought back, which is what – which is what Matt referenced in his opening remarks. Matt, do you want to finish that?

Yeah, for sure. So I'll just be pretty definitive. We're largely done, Brooke, with the actual reset actions, meaning getting the marketplace, the full-price marketplace, clean. So getting inventory out of the system, obviously selling through and clearing through excesses through the season as well. So that's in a pretty good place. We will have a residual impact, you know, at a minimum through the first quarter, you know, fairly meaningfully as we sail through some of that inventory that we pulled out of the full price channels, right? We're going to sail through that, you know, in clearance channels, largely in our own outlets, right? And so that's kind of the story there. But looking beyond that, and you think about kind of the puts and takes of margin in the fiscal 25 and kind of through the year, There's several things to consider. I mean, mixed benefits will continue. They'll be less than they were in fiscal 24 would be the expectation as wholesale in the Americas generally improves a bit across time. Product costs are not going to be an issue. If anything, they could be slightly down on a full year basis in fiscal 25. Foreign currency, which has been a meaningful headwind, will be less so. It'll still be a bit of a headwind, but not to the degree that it has been. And then, of course, you've got the impact of the actions themselves. We're going to be cleaner from an inventory standpoint. Marketplace appears to be cleaner. Hard to know exactly what the marketplace will do and what consumers will do across the year, but certainly we're coming into the year cleaner. So those are the key things, I think, to pay attention to.

Great. Thank you.

If I could just add one last comment. I think the way to think about it is this chapter, as Matt said, this chapter on reset, resetting the marketplace for vans is largely done We've just got the residual effects of selling through what we brought back through our own outlets.

Thank you. Next question is coming from Matthew Blossom, JP Morgan, your line is now live.

Great, thanks. Bracken, I wanted to pick up maybe where you just left off. So on VANs, what actions do remain as part of the reset phase, or where do you see us today versus the potential bottom at VANs? How do you feel about inventory on hand? And just what's the timeline to scale some of the new product innovation that you cited in your remarks?

I'm really excited about the new product innovation that's happening. Going back to my opening remarks, we launched a new school very early in my tenure at the company. And through really strong marketing and a great product, it's now the number two style, which I think shows that we can launch a new style and turn it into a strong franchise. almost out of the gate. We just recently launched AVE 2.0, which is the best skate shoe that's ever been made, I believe. Certainly our best skate shoe ever, and it's done very, very well out of the gate. It's a niche product that's really focused on skaters, but stay tuned because we're going to have news on that for everybody soon. So I feel good about the steps we're taking, but there's so much more ahead of us and so much more we can do. You asked, do I feel like we're at the bottom? I feel like we're either at the bottom or super close. I really do believe we're going to – I can see the turn ahead, you know, through the tunnel. I'm not going to sit here and predict a quarter for you, but I can see it coming. I love the fact that we – you know, the DTC went positive in Europe this quarter. That's a great sign. Google search trends, much better now than they were the last three months versus the last 12 months. Again, you know, things can wobble when you're looking at external data, but that feels good. So I think there's some real green shoots here.

Great. And then maybe just to follow up, across the organization, what holes currently remain in terms of different leadership positions still to fill?

You know, I think we're, you know, we talked about my leadership team in the opening, and I'm super excited about that. You know, I have to say I'm really proud and excited that we've been able to attract, you know, somebody like Brent Hyder who came from Salesforce. He was CHRO there, you know, The company's 25 times larger than ours. He's a unicorn. He has such a strong background in the retail industry that preceded his time at Salesforce. And then we've attracted Abhishek Dalmia, who came from, he's sitting across from me, I'm looking at him, who came from BCG, but spent time at Lululemon and really has an extremely strong background in this industry. His primary focus was the apparel and footwear industry at BCG for seven or eight years. So, you know, and I could go on and on. So I'm really excited about the people we've brought in here. We've got – there are several jobs that we're filling right now. So the America's President role, for example, will be an internal promotion, and we're really excited about him, and he's going in there. We announced today that we'll have new Vance presidents come in. So, you know, you're never completely finished when it comes to people because there's always, you know, some people coming in and some people going out. But I feel really good about where we are.

Great. Best of luck.

Thank you.

Thank you. Next question is coming from Dana Telsey from Telsey Advisory Group. Your line is now live.

Hi. Good afternoon. Bracken, as you think about the portfolio restructuring and how, I think as you mentioned, you know, turning over nothing's a sacred cow, so to speak, where are you in that process? What does it look like, and when do you think we'll have an update on any particular changes? Thank you.

Yeah, thanks for the question. I was hoping I'd get this one. First of all, I just have to say I feel so lucky that we're sitting here with such an incredibly rich assortment of brands to deal with, which gives us great optionality. The portfolio review is complete, and so we're acting. We made a decision not to share what we're acting on or what we might be doing publicly, but you can believe completely that we are acting. And we have optionality there, so we have multiple directions to go. I can't give you a timeframe when you'll see those actions come out, but obviously we're going to announce them when they do. But I feel very good about where we are and very good about the review.

Thank you. And just following up on that, when you think about the channels of distribution, wholesale, digital, and your own physical store base, in digital and your physical store base, what are you seeing there and is the store base going to stay at the same levels What's your view in the capital allocation to it? Thank you.

First, they're all three super critical, and I would not prioritize one over the other. They each play a different role, and I think the mistake that could be made and probably hasn't been made in our industry is to swing the pendulum in one direction or another. I think, you know, boy, you don't know if you're winning if you're not in wholesale because you might just be winning in a private room. And if you're only in wholesale, you're not taking advantage of the amazing brand strength you have. We're lucky because we have a very balanced distribution model between our own bricks and mortar and online DTC and, of course, wholesale. We have not done as good a job in wholesale. We have not done as good a job in our own retail, especially in the Americas, as we could have. And we are ending stores. We've We're probably down about 115 stores over the last two years of bans. We'll probably drop another 40 this year. So we're aggressively, and that's a 20% reduction to the fleet, if I've got that right, Matt. So we're pretty aggressively managing the store count there. but I think they're really smart decisions. And you want to add anything, Martino?

I think what is important is the integrated marketplace view. How realistically we're going to look at the channels and the consumer journey, and how we're going to try to be a better version of ourselves anywhere. I think I spoke about a fully integrated approach to wholesale, a stronger partnership with the winners globally, And I think a more dynamic elevation in our scores with new formats, new concepts, testing, adopting, and then scale across regions. So when I speak about testing in Shanghai and then adopting maybe into Europe or elevating our flagships first in Europe and adopting them in the future in the U.S., that I think the agility and the opportunity that we have more than ever. Black Hat's point, we have two legs in the way we're going to walk and hopefully run, and it's really half and half. It's wholesale and direct-to-consumer and in all the best ways that we can innovate within.

Thank you.

Thank you so much.

Thank you. Our next question today is coming from Lorraine Hutchinson from Bank of America. Your line is now live.

Thank you. Good afternoon. I wanted to follow up on the $600 million of the cash flow target. What exactly is included in that? Is that the Jets sale, the PAX business, anything else? Just wondering what non-core assets you had planned when you put that $600 million together.

Hey, Lorraine. The $600 million is free cash flow plus a little bit of benefit from non-core asset sales. It's not brand sales at all. So these are physical assets. We said we were eliminating our aviation program. A little bit of that got done in fiscal 24. Most of that will occur in 25 in terms of the sell-off of those assets. A couple of smaller things, a building is part of that. But most of the 600, you know, in the probably 90% range is kind of free cash flow. And there's a little bit coming from sales of assets.

If I could double down, I'll take a comment, Tony. We have been extremely aggressive about consolidating space, about, as Matt said, exiting the expensive aircraft program that we had and should not have in the context of a turnaround like this. So you can bet we're going to be out of those planes and that hangar pretty quickly now as we enter the new fiscal year. Even where we couldn't release space, we have pulled our space together. So, for example, we've dropped two floors in our Denver office to really bring people together. We'll probably release that and get some benefit from that, but the real focus is to get the culture moving in a fast, intense, urgent way where people are in the office and running into each other so creativity can happen and a sense of urgency can be felt across the company. And we're doing that across all of our sites. We're moving from two buildings to one building here in Denver. in Costa Mesa where I am today at Vans. So it's a generalized practice, and you can feel the energy returning.

Great. And then, Bracken, I think you mentioned that you don't have any intention of refinancing the debt. Would that imply brand sales would come ahead of the $750 million maturity?

Yes.

Okay. Thank you.

Thank you. Thank you. Next question today is coming from Bob Durbel from Guggenheim. Your line is now live.

Hi. Good afternoon. Bracken, I was wondering if you could just talk a little bit more about your decision to bring in Paul Vogel, you know, sort of what attracted you to him as a candidate. And then I guess the other thing is, can you just give us an update on what you're seeing with Supreme and sort of, you know, the outlook there that you might be willing to share? Thanks.

Yeah, I'll start with Supreme. You know, Supreme continues to be a strong performer. We don't report those numbers transparently publicly, but you can bet they look good. We feel really good about them. The team is executing very well. I'm really proud of their performance. This quarter, we got a little piece of Shanghai in the period and a quarter of Seoul. It's a very low store count, very high sales per store. and it's just performing very well. And I have to say, I've learned a lot from the Supreme team on things we can do throughout the rest of the year. Paul, we went through a very broad and deep slate of candidates across multiple industries and multiple parts of the world to really get to Paul Vogel, and I feel very good about him. I think the best CFOs have a strong backbone. They're tough. but they also have the EQ, and that's super important in the context of a transformation in culture like we're going through here. So I especially like Paul because he does have that. He started in finance. He went through IR. He then spent a good solid length of time in a lot of transition and change at Spotify and worked under one of the top and most respected CFOs in Silicon Valley at Netflix and then at Spotify, Barry McCarthy, and He had a stint at Peloton after that, but he really is a super CFO by every account, and he really trained Paul. So the combination of all those things and then just Paul's interpersonal skills really took him straight to the top.

Thank you. Good luck.

Thank you.

Your next question today is coming from Paul Lujus from Citigroup. Your line is now live.

Hey, thanks, guys. You didn't have free cash flow guidance. Can you talk about how you plan to manage inventory and working capital, whether you're assuming a benefit from inventory this year or you're just too low at this point? Also, not sure if I missed it, but did you say what your CapEx was and if you could give that number and just how it breaks down on spend? Thanks.

Yeah, so we didn't say anything specific about about inventory. We made a lot of progress in fiscal 24. Actually, we got further than we thought we would get in terms of bringing those levels down, which is a tribute to, you know, across the organization, both on the kind of the supply side as well as kind of getting it sold through and managed in the marketplace. So kudos to the team. So we end the year in a much better place than when we began the year and probably a little better than we thought we would be. I'd be remiss, though, if I said we still didn't have some opportunity and we expect to continue to bring it down. But it'll be pretty modest next year, at least in our assumptions. So I'd say, you know, kind of low to mid-single digit decline in inventory is what we're thinking about. So a much more modest impact next year from an overall working capital relative to inventory. CapEx we didn't say, but it won't be so different from where we've been

How about the breakdown on that, CapEx, new stores, new stores, maintenance, anything you can share?

Yeah, so I'm not going to give you numbers, but I will say percentage-wise, it is a little bit more focused toward consumer-facing, right, in terms of stores and both new stores as well as refreshment and remodeling of the current store base.

Great. Thank you. Good luck. Thank you so much.

Thank you. Next question is coming from Adrian E. from Barclays.

Your line is now live. Great. Thank you very much. Matt, thanks for all your help over the years and best of luck. So my first question, Bracken, is for you on inventory. Oftentimes when you take a kind of big cut at inventory, you kind of take a broad brush approach. Obviously, TNF was cleaner. How much in style or skew reduction has been done, and how did you strategically kind of go through the different categories? And then, Matt, any notion in the forecast for the end of FY25, a leverage ratio, or how should we think about net debt? I guess excluding asset sales. Thank you.

Thank you very much, Adrienne. I'll start with the inventory count. You know, I would say it was pretty surgical. Our inventory reduction really focused, especially when you talk about the inventory in the channels. Our real focus here was to clear out the channel of some of the older icons so we have room for progressive products to flow in or newer products to flow in like New School. And so I think that's going to serve us super well over the next coming quarters. Matt, do you want to answer the second part of that question?

Yeah, nothing on leverage. We haven't given a number there and aren't prepared to do that. But, you know, you could probably do the math yourself relative to the net debt. But, you know, it's going to be down a few hundred million based on, I'll call it the base plan, which doesn't include any brand asset sales. But as Bracken indicated, ultimately that's not our plan. Our plan is to ensure that we're positioned to pay off that $750, which is due in April and obviously could be paid in March with no penalty as well.

Fantastic. Thanks so much.

Thank you.

Thank you. Next question is coming from Jonathan Komp from Baird. Your line is now live.

Yeah. Hi. Good afternoon. Thank you. If I could just follow up on the $600 million cash outlook for the year. I know you talked about embedding sequential improvement in the top line. Could I ask if that outlook implies getting back to growth at some point for total revenue? during the year at some point. And then just separately, one follow-up, Bracken, I don't know if you and Paul have talked or have a view, given the discussion about the improving predictability and forecasting ability, is there a point in the near future you're thinking about as the right timing to reinstill broader financial targets? Thanks again.

Yeah. Okay, let me answer this first. You know, I'm going to effectively dodge your question about it. I'm just having to go positive. We did say sequential improvements. I hope they're sequential and that they're consistent across the year. I think, generally speaking, when you look across the year, you're going to see us get better and better. I will not answer your question about whether we're going to show a positive number by the end of the year, but we'll come back to that. I'm pretty optimistic about the business in general. You can feel it. I hope you can feel it. In terms of reinstating guidance, Paul and I have talked about a lot of things, not that one. We talked about that in his early interviews. I think We all like the idea of reinstating guidance. We've now got five consecutive months of predictability relative to where we were in the past. I mean, really, it's a big change. I also feel good about steps we're taking across the business to really improve the overall performance and make future improvement on top of this predictability a reality. So stay tuned. I don't think we're too far away, but we're not ready to do that. Great, thanks again. Thank you. Thank you.

Thank you. Next question is coming from from Wells Fargo. Your line is now live.

Hey, guys, thanks a lot. Matt, just a couple quick ones. Just like CapEx, I think you said kind of similar as historical or something like that. Is it kind of the same response for DNA as well?

DNA will be a little bit lower. because there were some one-time write-offs in fiscal 24 that probably won't repeat to the same degree. But it will be closer to where we were if you look back to fiscal 23, I would suggest.

Got it. Okay. And then I know you're not going to give an exact number, but maybe just looking at Q4's gross margin decline as kind of giving us context. The way you're kind of talking about the clearance activity needed in the first quarter, it sounds like it's gonna be a larger erosion sequentially versus 4Q. Is there anybody to put context on how much impact we should expect? However you'd like to answer that. And then my question just to follow that one up is after the first quarter, like are you quote unquote clean? Like do you think the gross margins can start to flatten out or is there more work to be done even after the first quarter?

See Matt, before you answer that, maybe I'm gonna add another question. Because I want to get this out and make sure this discussion is clear about Q1. Why don't you give a general overview of Q1, Matt, since we set up those guardrails in the opening, but let's close on it.

Yeah, so the two things we talked about, right, revenue and margins. Let me just give you a little bit more color there. I think that will be helpful for everybody. We said top line similar to Q1. to Q4 excluding the reset, right? So we reported down 13, reset a couple of points. So that'll give you a sense there. I think I would say a couple things to remember as you think about that. It's the smallest quarter of the year, has a little bit more outsized exposure to the Americas region from the penetration standpoint. Americas is kind of 55% of the business in the first quarter and a little less than 50 even in the most recent quarter, right? So there's that. Remember the spring? 24 wholesale order books, which impacted fiscal 24 Q4, will kind of comparably impact Q1. You know, order books are written across the season, right? So the implications from Q4 extending to Q1, we'd have a little bit of a different expectation as we look into later parts of the year and future seasons. And then we're copying a really big growth number in the APAC region last year, which was nearly 20% as kind of post-COVID reopenings were there was some pent-up demand in the marketplace. We're planning a little more conservatively, and the two-year stack for the region will still be double digits, but much more modest in terms of our expectations in the short term. So a little bit of color there to help you, I think, understand why we think the thing, why we think overall it looks the same on the surface for Q1, but there's some factors. Gross margin, I'll just tell you, It'll be down relatively similar to what it was in Q4 from a year-over-year point of view. I think that's the simplest way to think about it and probably gives you everything you need.

Awesome. Thanks, Matt. Thanks, Reagan. Thank you, Ike.

Thank you. Our final question today is coming from Sam Poser from William Trading. Your line is now live.

Thank you. Thank you for taking my question. I think we've covered almost everything. I guess the you've chosen, it sounds to me, one, you've chosen the brands you want to potentially sell. The PAC issue has been going on for a while. So is there any update there? And two, as far as thinking about how the expenses fall away in, you know, the year over year expenses in the first quarter, just to complete the whole picture there, can you, Matt, maybe help us with that, and I'm sorry to see you go.

Let me start with the PACs, then I'll hand it back to Matt on the expenses. On PACs, what I would say about the update I give you on PACs is, wow, PACs is really a good business. It continues to perform very well at the top and bottom line, and we have made our decisions in the portfolio review, and PACs is for sale. We have optionality in our review, so that's all I would really say. Matt, you want to answer that question?

Yeah. So for SG&A, we're starting to see reductions, right? And we saw a little bit in Q4. Actually, fiscal 24 spend was down about 3% on a constant dollar basis. So we're seeing reductions. The benefits of the actions we're taking around cost savings, we've gotten some things. That's coming in terms of, I'd say, an acceleration of that as we move in and through fiscal 25. Um, so I think that's one thing, but remember some of that is going to hit gross margin, you know, not, uh, so not all of it's SG&A, probably more, more like 85, 90% of it will hit SG&A. Um, and we're going to reinvest. Uh, we've talked about, um, you know, a quarter to a third or maybe even a little bit higher than that, depending on our, you know, uh, circumstance and our, and our confidence in the, uh, the places that we're looking to reinvest. So we're going to start seeing that be more meaningful as we look forward and get kind of more certain in terms of those directions. We've got incentive compensation that is a headwind and other inflationary factors, whether it's compensation, merit, things like that, certainly inflationary factors in our stores and our distribution centers. So there's There's several puts and takes, but the underlying cost savings program will accelerate, and we're really focused on right-sizing and driving the SG&A down, the underlying SG&A down to an appropriate level given where we are from a business standpoint, and at the same time looking to reinvest. And I think that's the intent of the program as we started it, and that remains exactly where we are.

Thank you. We've reached the end of our question and answer session. I'd like to turn the floor back over to Bracken for any further or closing comments.

Thank you. Thank you, Sam. You know, I just want to say three things or four things. You know, I am super excited about the team here. I'm even more excited about the actions because they've already happened and they're ongoing. And it's great to see green shoes start to come through in some of these areas we've been talking about. So I think those are a good indication of what's to come I do want to just close on that. This is, as we said, this is last earnings call. Paul will be in the next one. And I would really like to take the opportunity to thank you for your really terrific contributions over 23 years of service to VF. We will always be grateful for all the years you've worked here and how dedicated you've been, the positive impact you've had from start to finish. And that will be felt way beyond your tenure, Matt, so thank you. And thanks to all of you for joining the call.

Thank you. That does conclude today's teleconference. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.