V.F. Corporation

press star, then the number one on your telephone keypad. To withdraw your question, press star one again. I would now like to turn the conference over to Allegra Perry, Vice President, Investor Relations. Please go ahead.

Hello and welcome to VF Corporation's third quarter fiscal 2025 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 that are filed regularly with the SEC. Unless otherwise noted, amounts referred to on today's call will be on an adjusted, constant dollar and continuing operations basis, which we've defined in the presentation that was posted this morning on our investor relations website, 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 US GAAP. Reconciliations of GAAP measures to adjusted amounts can be found in the supplemental financial tables included in the presentation 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, Paul Vogel. Following our prepared remarks, we'll open the call for questions. I'll now hand over to Bracken.

Thank you, Allegra. Hello, everyone, and thank you for joining us today. As I open this call... You can see it was a good Q3. What I'm most excited about is what you really can't see yet. Our transformation is well underway, and Q3 was an excellent quarter of progress across our business inside the company. We're systematically remaking the company for long-term value creation, double-digit operating margins, and strong and sustained growth. We showed you in October nine work streams that will essentially bring us to best-of-breed processes – And you know we've reset the entire leadership team. But you might not be aware that we're now resetting the rest of the organization beneath those leaders. So between the work streams we spoke about in October and the organization changes I'm explaining here, we're building new structures and processes to be more effective, more efficient, and in the end, more creative. It's not just about saving money. It's about, in the end, we will be a reinvented company better position to deliver strong and sustainable returns for investors. If I sound energized by this, it's because I am. This is going to create strong value, great products, elevated brands, and a terrific place to grow and learn for our people. Now, enough about what's going on inside the company. Let's talk about what we just reported. Q3 was stronger than we expected. We grew revenue 2% while we significantly improved profitability. The key point to make here is that the actions we've taken so far are delivering results. Now let me call on some important features of the quarter. Virtually every brand was stronger this quarter than last quarter. The North Face and Timberland both grew. Vans delivered another quarter of sequential improvement in trend. Regionally, the Americas delivered another strong quarter of improvement, going positive for the first time in over two years. Our wholesale channel was positive on a global basis. DTC showed progressive improvement again this quarter globally. Gross margins were up 150 basis points and operating margins were up 360 basis points to over 11%. And net debt was down nearly $2 billion. None of these were a surprise to us, but it's a quarter of measurable progress across the board. Now to really understand our trend line, you need to look at our Q3 and Q4 together. While the Q3 results are better than expected, some of what benefited this quarter is outsized wholesale performance due to stronger reorders, lower cancellations, and orders pulled forward by our retail customers into Q3 from Q4. Regardless, we feel really good about the underlying performance for the second half of the year. Now let me give you an update on reInvent. As I indicated at our Q2 Earnings Investor Day Part 1 and the start of this call today, we're making strong progress on our transformation program. You'll recall we have four stated priorities. First, lower our cost base. We're on track to deliver the initial $300 million in gross cost savings with another $55 million generated during Q3. Remember, this is the $300 million we said would be fully actioned by the end of last quarter, so Q2, and fully reflected in the P&L by the end of this coming quarter, so Q4, so by the end of the fiscal year, as we promised. The work is complete. The cost reduction is showing up, and all $300 million will be in the run rate as we exit fiscal 25 as planned. On top of that, you've heard Paul and me say we have no intention of stopping here. As of our October Investor Day, you know why we said that. Because we were, in fact, already working on process and organizational changes that I referenced early in the call that will contribute to unlocking another $500 to $600 million in operating income expansion, half of that in SG&A. That's part of our approach to delivering our medium-term operating margin target in fiscal year 2028 of at least 10% before any growth. So far, so good. Everything's on track. Let me underline a point that might already be obvious to you by now. While the cost side of these work streams will help us return to sustained double-digit profitability, this work is even more important than the bottom-line impact it will deliver. These actions are absolutely instrumental towards enabling growth. They form part of a comprehensive plan to enable the company to be more creative and more powerful in product creation and marketing. These projects enable this creativity through better consumer insight and targeting. as well as the standardization of all the processes we can to best-in-class levels to enable higher impact from good ideas in both revenue and profitability. We also continue to reinvest some of those savings back into product creation and brand building. You'll hear more about these areas at our upcoming Investor Day Part 2. More on that later. The second priority was to strengthen our balance sheet. We made big progress during the quarter with a reduction of net debt of almost $2 billion versus this time last year. Just to reemphasize that, we have reduced the net debt, not including lease obligations, which are required from an accounting standpoint to be included when we call it net debt. So excluding those lease obligations, we've reduced the net debt by almost 40% in the last year alone. So we're demonstrating our commitment to move our leverage ratio down to three ways. First, we divested non-strategic assets. planes, buildings, and of course, Supreme. Second, we reduced our working capital primarily by cleaning up our inventory and making it fresh. And finally, and most importantly, we're improving our operating earnings. You now see how effective this triple threat approach can be to rapidly dropping our leverage levels. There's more to do, but we are squarely on track to continue to deliver the balance sheet to get to our two and a half medium term leverage target. Our third priority was to fix the U.S. As you know, we adopted our global commercial model in the Americas a year or so ago to try to bring its performance up toward the other region's historical performance levels. And it's working. Our America's business improved again relative to last quarter with revenue up 2% in Q3 versus down 9% in Q2. That's the first quarter of growth in over two years. It's early days, so we may not see growth every quarter as turnarounds often aren't linear, but it's good to see green numbers again. And we have a lot, and I do mean a lot, of improvement ahead of our America's business. Finally, deliver the van's turnaround. The brand's overall performance in Q3 was down 8%, a further improvement compared to last quarter, down 11%. I feel very good about the steps we're taking, but sustained turnarounds take time. Underneath the numbers, I want to call out a few things, primarily in our key focus areas of product and marketing. New products continue to outperform our big established franchises. New School remained the number one growth driver and the number two franchise globally, and is in line with our strategy to win with youth and women. We won't rely on just one style to build our business in the future, and we have momentum in our newest styles, both Highland and Upland. Highland and Upland. In many ways, the Vans brand continues to have enormous potential. It was recently named the number three most authentic brand from the Authenticity 500 Index as the ranking of the world's most authentic brands. The message here is that we have a lot of growth potential as we keep improving our execution. Brand elevation is also fertile ground for Vans, as evidenced by exceptionally strong sellout for our OTW holiday collaborations, including the Satoshi partnership, Homegirls collaboration, and Beatrice DuMont. And those two last ones are targeted at women. The New America's regional platform is also starting to deliver. For the holiday period, our U.S. non- Excuse me. For the holiday period, our U.S. non-value channel footwear generated strong, positive sellout year over year for the first time since February of 2022, led by our largest accounts. We're making progress and are more confident than ever of the brand's growth potential. We have a lot of pistons to fire on at Vance. Product, marketing, distribution, brand elevation, and more. And we're putting each one in place. I couldn't be more excited about the initial work done by Sun at Vance, and you'll hear more about it directly from her in just a few weeks. Now let's turn to the North Face, where revenue in Q3 was up 5% versus last year and positive in each region, with even stronger performance in DTC. We're pushing the boundaries with our marketing and our brand building. Notably, the North Face Skims collaboration set a new bar for global collaborations, execution, and impact, and was one of the fastest-selling collections in the history of North Face. We were also thrilled to see our product teams being recognized with multiple awards for design and innovation across footwear and apparel. The North Face core underlying brand history is oversized relative to the size of this business, in my opinion, and I love that position. It means growth is ahead. You'll hear more about the plans for North Face directly from the brand president, Carolyn Brown, at that investor day. Finally, I'll say just a few words about Timberland. The brand was also positive for the quarter, with revenue up 12% versus last year. Performance was driven by core strength across regions, supported by the iconic campaign launched in September. Nina Flood is our new Timberland brand president there, and she'll give you more color on our plans for the next Investor Day. Now looking ahead. The second half of this year is expected to be broadly in line with our expectations. As I said earlier, we did a little better in Q3 driven by the stronger than expected DTC and outsized wholesale performance and expect the Q4 trend to be a little lower relative to Q3. Turnarounds are not linear. For fiscal year 26, the first half of next year could look similar to the second half of this one as we put more of our game plan in place. And overall, we feel terrific about the progress we're making. Now, I want to say a few words about that investor day that I've mentioned several times. Now, at part one, back in October 2024, we unveiled our corporate strategy, showing you how we were rebuilding the company from the ground up. You heard about our focus on cost and creating a solid P&L structure. That's only the start of what we're doing to transform VF. The best is yet to come. And in fact, we're coming back on March 6th, mark that in your calendars, with part two here in New York, which is focused on brand strategy, where you'll get to hear directly from our brand presidents. Of course, they're still relatively new to our business and their roles, but I can't wait for you to meet them. This really is the most exciting part of our transformation, and you'll hear about it in our plans for growth. As you've heard me say before, we're all here, and it's all about growth in the long term. I'm now going to hand over to Paul, who is sitting in front of me wearing a Philadelphia Eagles jersey, shoulder pads, and a helmet, and Vans cleats, which we don't actually sell publicly, but he had them made. You may know Paul is quite an Eagles fan, and they are going to the Super Bowl. And he'll take you through the financials in more detail. And I'll come back at the end for closing remarks.