V.F. Corporation

Hello, everyone. Thank you for joining us and welcome to the VF Corporation Q2 full year 2026 earnings call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please raise your hand. If you have dialed into today's call, please press star nine to raise your hand and star six to unmute. I will now hand the call over to Allegra Perry, Vice President of Investor Relations. Please go ahead.

Hello and welcome to VF Corporation's second quarter fiscal 2026 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 and continuing operations basis, which we've defined in the presentation that was posted on 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 today 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. Thank you, Allegra. We picked a strange day to do a video conference call because many of us were up for 18 straight innings of baseball. And probably, even though this is the most important event happening today is our conference call in the world, the second most important event will be one of the two Major League Baseball games. It's also happening today because it's never happened, I guess, or maybe rarely. You'll hear more later as Paul talks about it. Let me talk you through the financials, but at a really high level. It was a good quarter. We delivered on our commitments and we made further progress on our turnaround. And we delivered this performance despite, admittedly, a pretty uncertain, unpredictable environment around the world. Total revenue was up 2% in reported dollars and down 1% in constant dollars. A little better than planned and showed an improving trend versus last quarter. Operating income was $330 million, well above our guidance range of $260 to $290. Net debt, excluding lease liabilities, was down $1.5 billion versus last year, or down 27%. We're focused on returning the entire company to growth. Last quarter, I highlighted that 60% of our business by revenue was growing, up from just 10% in the prior year. In Q2, so this quarter, that figure expanded to over 65%. And if you took out Dickies, that would be almost 70%. Speaking of Dickies, during the quarter we announced our plans to sell the brand. I'm confident it's a very good move for the company and for our shareholders. As we've said before, we'll always evaluate any offer we receive reflecting our commitment to shareholder value creation. We had an inbound with a very good price of $600 million. We've done a lot of terrific work behind the scenes on the brand and the product portfolio, and I believe this positions the brand well for growth. This was a unique opportunity. On our end, we'll use the proceeds to pay down debt, consistent with our capital allocation priorities. This allows us to accelerate our path towards our medium-term leverage target of 2.5x or below. We're well on track. Let me now give you some of the highlights from the quarter on our biggest brands. Let's start with the North Face. The brand delivered another quarter of growth with the revenue up 4%. All three regions grew versus last year. We grew in wholesale and in DTC. In terms of categories, performance apparel was up in every region with momentum and core styles. Transitional outerwear was strong, and footwear continues to gain traction and grew double digits in every region. Across categories, product innovation, newness, and elevation drove growth as we continued to show the extraordinary reach of the North Face from the summit to the street. We also celebrated 25 years of the Summit Series, expanding the collection with innovation, adding exciting new colors and designs. This was supported by an athlete-led campaign featuring our incredible stable of North Face athletes, including the mountaineer Jim Morrison, who recently, with Jimmy Chin, became the first person ever to climb and ski down the North Face of Mount Everest. Across our marketing strategy, we're driving high consumer engagement and brand experiences and amplifying that through social channels. In addition to Ultra Trail du Mont Blanc, or UTMB, this included ClimbFest in San Francisco, community hiking events in APAC, and a Beijing 100K Ultra Trail race. As you know, as good as I feel about the North Face, I can't help but express what an enormous opportunity remains to be realized. We have potential in new categories, an ability to develop the women's business, and to build across all seasons of the year. Timberland revenue is up 4% in Q2, with growth across both wholesale and DTC as well. America's is up double digits, reflecting a strong back-to-school period. In terms of product, demand for the six-inch premium boot remains very strong. But today, the premium 6-inch icon represents only about 20% of our global revenue, so we have a lot of opportunity for growth. We can continue to grow the 6-inch business through colors, materials, innovations, collaborations, and more, while we also pursue the huge opportunity to grow this brand across other footwear and apparel categories. Closer to home, the strategy is already showing up with our recent launch of the Timberland 25, a lightweight version of the boot, which is very small now, but it's resonating well in its early weeks in our stores. A step further away from the boot, we're building our growing business around boat shoes. These sales are growing very strongly in all regions as we diversify the product lineup and give the brand more versatility and firepower during the warmer seasons. Timberland's adoption of a social-first marketing strategy has been instrumental in driving brand heat globally. During the quarter, the brand launched its Advice of an Icon campaign with high visibility events in New York, London, Shanghai, and Tokyo. Brand interest grew during the summer months with consumer search interest positive in key markets in the U.S. and in EMEA. The opportunity in Timberland is really significant because we can continue to grow the boot We can grow in other franchises, and we can unlock apparel around the world, all at the same time. And in the U.S. especially, this will be supported by expanded and enhanced distribution. We have the game plan to do that now. Altra accelerated further with revenue up over 35% versus last year, the third consecutive quarter of strong double-digit growth for the brand. Key franchises that represent a mix of road running and trail running styles show our broad-based approach to building this brand. The growth opportunity for Altra across both road and trail is significant. We're fueling this growth and driving higher brand awareness with targeted marketing investments, which as a reminder, Our awareness is less than 10% in the US and even lower in other regions. Let me repeat that. Our brand awareness in the US is less than 10%, yet we still have this size business and it's growing fast. This is helping e-commerce deliver particularly strong growth, driven by higher traffic and stronger conversion. Altra is on track to exceed $250 million in revenue this year, and I'm confident the brand has a long, strong runway for growth for many years to come. Let's turn to Vans. Performance was a little better this quarter with revenue down 11% versus last year. We're really focused on getting the commercial moments right as we upgrade our portfolio of products. I told you that Sun's impact on product would be visible in the back-to-school period, and it is. Product newness across footwear is drawing in new consumers, particularly women, but also youth and kids. In terms of new styles, non-icons are up in the quarter, driven by the Super Low Pro, which continues to perform well. The new Skate Loafer, which I decided to show you this one because many of you haven't seen it, which had a very strong debut and has sold out in most sizes, and the CrossPath XC, which has had a very strong launch. Within existing styles and icons, we're also beginning to realize the impact of elevation, innovation, and newness. For example, the Authentic is up globally as a franchise, helped by the halo effect of the Valentino CoLab, which drove positive search trends in key markets. Within the old school franchise, Nunes has driven higher sales of women's styles. And just last week at ComplexCon, the largest event for young shoe dogs in the world, I think, mostly guys, by the way, it's in Las Vegas. In that event, Vans had one of the longest, if not the longest line of people waiting for the pearlized old school shoe we launched there. This is just the start. More Nunes is coming as we head into holiday and into spring of 2026. In the meantime, our shift in marketing strategy is starting to yield results. Digital traffic trends improved in the Americas and EMEA, particularly during relevant consumer moments like back to school, when digital traffic was up in the Americas. And looking ahead, we're excited about the recently announced new partnership with SZA as the brand's first ever artistic director. It's early days, but in coming seasons, she'll add her voice and her touch to product and marketing. To wrap it up on Vans, each quarter we're making great progress. We took actions to clean up the marketplace and set the stage for a very exciting product pipeline that started to roll in and is delivering early results. I'm as confident as ever in Sun and her team leading us to return to growth at Vans. Looking ahead, we're making progress on the turnaround of VF, and I'm super confident in our ability to deliver both our near-term and our medium-term targets. Our teams are energized for the upcoming holiday season. I'll now hand it over to Paul, who will dive in deeper into the numbers. Paul?

Great. Thanks, Bracken. Let me first by building on Bracken's comments about Dickies. As he mentioned, this is just a great opportunity for the company. While we are big fans of Dickies, we believe this divestiture will help further accelerate the transformation of VF back to being a growth company, while also further enabling us to pay down our debt. We believe this will create increased and faster shareholder value. Dickey's is a great asset, and we know the work we have done to date sets the brand up for return to profitable growth. In fact, it is the work we've put in that has created an environment for others to be interested in the asset. With that in mind, the offer we received of $600 million is incredibly attractive. Based on fiscal 26 estimates, this equates to an EBITDA sales multiple of 1.2 times and an EBITDA EBITDA multiple of over 20 times. Going a little deeper into the transaction, we will incur deal-related expenses as well as the small tax considerations, but we will also save on future planned capital expenditures as well as see a reduction in our net interest expense. After considering all of these moving parts, we expect the overall cash benefit to VF to be greater than $600 million. Importantly, the Dickey sale will help us strengthen the balance sheet and bring us closer towards our medium-term leverage targets. It will also help us focus time, energy, and resources on our brands as we continue to make progress towards a return to growth. Now let's turn to the review of the second quarter. We are pleased with our results in the second quarter. Revenue finished slightly ahead of our guidance while our operating profit outperformed nicely. Back to school was encouraging across our key brands. Q2 revenue is 2.8 billion, up 2% on a reported basis. On a constant dollar basis, revenue is down 1% year over year, a little bit better than our guidance. By brands, the North Face grew 4%, led by growth in both DTC and wholesale. Vans revenue in the quarter was down 11%, a little better than we expected, but still reflecting the impact of channel rationalization actions, which accounted for more than 20% of the reported decline. And finally, Timberland continued to see good momentum, with revenue up 4%, reflecting growth across all channels, in particular DTC. By region, the Americas region was down 1%, the Maya region was flat, and APAC was down 2%. And lastly, by channel, DTC was down 2% while wholesale was flat. Our adjusted gross margin for the quarter was flat versus last year, as the benefit from fewer discounts was offset by FX headwinds. There's minimal impact in our P&L from tariffs in the quarter. Our gross profit dollars were higher than expected on the back of revenue coming in ahead of guidance. SG&A dollars were up 1% year over year, but are down 1% in constant dollars. In the quarter, we increased back to school marketing year on year, which was mostly offset by cost savings across the business. Overall SG&A was a little bit lower than expected. Our adjusted operating margin for the quarter was 11.8%, up 40 basis points year over year. And both interest and tax were up versus last year as per guidance. And finally, our adjusted earnings per share was 52 cents versus 60 cents in Q2 of last year. Now moving on to the balance sheet. Inventories were down 4% or 86 million at the end of the quarter, excluding Dickies from both periods, excluding the impact of FX, inventories were down 5%. Overall levels are down year on year as we continue to improve the quality of our inventories. Free cash flow through Q2 was negative 453 million in line with our expectations for the year. And as a reminder, given the seasonality and working capital needs of our business, we typically start generating cash in Q3. It is also worth highlighting that first half cash flow includes the payments of roughly $60 million of incremental tariffs in addition to the usual seasonal increase in inventory at this time of year. Overall, we are right where we expected to be for free cash flow. Net debt, including lease liabilities, was down $1.5 billion versus last year, or down 21%. Turning to the outlook for the third quarter, now note this excludes Dickies in both this year and last year. We expect Q3 revenue to be down 1% to down 3% on a constant dollar basis. We are well positioned across our brands heading into the peak holiday period. Moving down the P&L, we expect Q3 operating income to be in the range of $275 to $305 million. For reference, last year, Dickey's adjusted operating income was approximately $5 million in Q3. Gross margin will be down versus last year, reflecting the initial impacts from tariffs, which are partially offset from lower discounts. While we have taken some initial pricing actions, the majority of these will be reflected starting in Q4. Reported SG&A dollars are expected to be slightly up versus last year. However, on a constant dollar basis, SG&A is expected to be broadly flat versus last year. Finally, we expect Q3 interest of approximately $40 million and an effective tax expense that is approximately double the prior year. This is in line with my recent comments about the increasing trend in our tax rate over the next one to two years and quarterly fluctuations as a result of the changes in global tax rates and in our geographical mix. As a reminder, this higher tax rate will have minimal impact on cash taxes. Now moving to fiscal 26, we continue to see operating income up versus last year for the year as a whole, inclusive of all known anticipated tariffs. And second on cash flow, we continue to expect operating cash flow and free cash flow, excluding the sale of non-core assets, to be up year on year. This includes all expected tariffs and after the negative impact from the sale of Dickies, which we estimate to be 35 million. As I said last quarter, we are working on a number of initiatives that are expected to improve our free cash flow throughout the year, which gives me confidence we will achieve our guidance. And last, we are progressing towards our medium term targets of 500 to 600 million of operating income expansion in fiscal 28 and a leverage ratio of 2.5 times or below by fiscal 28 that we introduced a year ago. Overall, we've made meaningful progress on simplifying work to unlock creativity, building deep functional capabilities, and resetting the culture across the organization. We are confident we will achieve our targets. So in summary, this quarter marks another quarter of meaningful progress. The year and our turnaround are progressing according to plan. While we acknowledge the greater uncertainty in some of our markets as we head into our peak trading period, we are confident in our strategy and ability to execute in any environment. We remain focused on getting each of our brands back to sustainable and profitable growth and continuing to make progress towards our medium-term goals. I'll now hand it back to the operator to take your questions.

Thank you. We will now begin the question and answer session. If you would like to ask a question, please raise your hand. Now we ask that you limit yourself to one question. If you have dialed into today's call, please press star nine to raise your hand and please ensure you press star six to unmute yourself. Please stand by while we compile the Q and a roster. Your first question comes from the line of J soul with UBS. Please go ahead. A reminder to please press star six to unmute yourself.

Jay's still watching the World Series.

Bracken, can you hear me now?

We can hear you.

All right. All right. Thank you so much. My question is about Vans. You talked about how you had some improvement in sell through in the America's Wholesale Channel in the full price doors. Can you talk about the path back to growth for Vans? You said you have a lot of confidence in what Sun is doing. You talk about the path back to growth and maybe within the second quarter guide, just give us a sense of where you think VANS will be for revenue growth.

Second quarter, go ahead. Yeah, our expectation, it's pretty much the same story we've been giving, which is we're going to increase the amount of newness. You started to see that coming. In fact, this quarter, super low pros. We said last quarter it did really well. It continues to be very, very strong. In fact, I mentioned it in the script in the beginning. We're also starting to see some pickup, even on the old school, with women in particular, with our women's only styles. It grew strong double digits, I think over 20%. So our expectation is as we keep rolling in newer and newer product into the stores, we're going to see more and more performance. And, you know, we're obviously also upgrading our marketing. If you're watching us on Instagram and TikTok, you're seeing it. If you're not, please do. You'll see a shift away from the... Well, skate-only marketing into really that plus a lot more. You'll see surfers, you'll see a lot more product. We've got a lot more product to talk about, especially as we go into Q3 and into Q4 and into Q1 of next year. So we're just going to keep pouring it on. This is a fundamentals business. You got to be in the right places with the right products, with the right story. And we think we're really going to have that as we go forward.

Yeah, and then on the numbers, if you look at Q2, down 11% in constant dollars. We talked about about 20% of that was related to the actions we've talked about around the value channel. So that would imply sort of a... decline of high single digits for the quarter, I would expect Q3 will have kind of similar pace in Q3. Also keep in mind, we mentioned the Q3 will be the last quarter where we really see this impact. So it'll be in the quarter, not entirely, but most of that quarter. And then by Q4, the dynamic around the value channel is moderated mostly.

Yeah, and I'll say, you know, I feel, you know, you can see in our, you know, we mentioned in the script that we had traffic up online during the back school period, which is a good sign. It shows you we're executing better. We're starting to get the message out there. You know, winning in these commercial moments is really key for vans, even more than the other brands. Got it. Thank you so much. Thanks, Jay.

Your next question comes from Jonathan Komp with Baird. Please go ahead.

Yeah, hi, good morning. Paul, I'm hoping maybe you could give a little bit more color on gross margin, some of the puts and takes in Q2, and then if you could quantify either the tariffs or some of the positive offsets from less discounting, just any more of the pieces you see, and then maybe bigger picture around the cost discipline and shifting into phase two of some of the savings. Can you share any updates on progress, either broadly for the organization or even for Vann specifically, as you think about some of the next phase of cost savings?

Yeah, I'll start. So on the gross margin side, there wasn't really that much of note. Little negative impact from FX, a little bit positive impact from lower promotions. That was really most of the puts and takes when you think about the impact on the quarter in terms of gross margin. In terms of, second part of the question was on just the longer term initiatives, the medium term initiatives.

Yeah, that's right. Really shifting to phase two and some of the expectations there.

Yeah, so we're making great progress. We'll hopefully give you guys a more detailed view of how we're doing on all the initiatives at year end. We actually thought about trying to give some. It's tough to give them out exactly in the middle of the year, but everything is on plan. As I said, we reiterated our guidance in terms of what we gave at the investor day a year ago in terms of our ability to hit those targets, whether it's... our debt leverage or our operating margin. So we're on track with all of that. So everything is on pace. Again, on the gross margin side, we've got the markdown management and integrated business planning. On the SG&A side, we've got things like store management and optimization and things on the technology side as well as the overall SG&A side. So we're making progress on everything. So we feel like we're on pace. Like I said, we'll give you more detail as we get to year end, exactly how we're trending at the end of this year and how we're tracking for fiscal 27 and 28.

Okay, great. Thank you.

Thanks, Jonathan.

Your next question comes from Brooke Roach with Goldman Sachs. Please go ahead.

Good morning, and thank you for taking our question. I wanted to follow up on John's question to talk a little bit more about promotional recapture, particularly in the Americas business. Paul, can you give us a little bit of a sense of where you are in the promotional recapture journey and the plans for pricing and promos this holiday and the opportunity on a medium term basis?

I think generally speaking, we're well on track. We had another good quarter, I think, of really having improvement versus a year ago on our promotion levels, especially around the world. I think as we go forward, we're going to be aggressive, though. We're going to make sure if we have to give a little bit back in the Americas in particular, we will. But generally speaking, we continue to think we can operate in a lower promotional environment than we have in the past, and that's our game plan.

Yeah, I think we'll continue to see benefit for the rest of the year on the promotional side in terms of the cadence this year versus what we had last year. So that will be part of it. The pricing will kick in in Q4 in terms of the impact for tariffs. And so you'll see some impact on gross margins more from the tariff side, not the promotional side in Q3. So we need to be clear about what we're going to see in Q3 there. But the promotional environment has year over year has gotten better and you'll continue to see that throughout the rest of the year. And as I mentioned, kind of on one of the earlier questions, if you look at the gross margin in the quarter, promotional environment actually was a benefit to gross margin. But that was offset by FX, which impact us negatively on the gross margin side.

I'll add one more comment, Brooke. I think on vans in particular, you know, we're benefiting, we're going to be in a better position from a promotional standpoint, simply because we're not being aggressive and raising price to lower end price points. And so unless we see a requirement to do that, we're going to try to avoid that.

Great. Thanks so much.

Thank you.

Your next question comes from Michael Benetti from Evercore. Please go ahead.

Go, Michael.

A reminder to please press star six to unmute yourself.

Hey, guys, can you hear me okay? Yes, we can. Hey, guys, can you hear me okay? Yes, we can. Sorry. Sorry, I had to go through the process there for a sec. Thanks for all the help here today. I was wondering if you could just dissect Asia a little bit more for us. The first time we've seen a negative number there in total in a little while. I'm wondering if there's any kind of a timing element there, um, or maybe how do you think about that over the next few quarters, just to help us understand what you're seeing in that business. And then on, um, Paul, I wanted to clarify, I think you said, if I take out the 20% van. From the actions you had in the, in the value channel gets you down about high singles and two Q is the underlying run rate. And it should be about the same in the third quarter. Is that an X currency comment? And does that take into effect what I think you mentioned before was that some of those mitigation efforts start to wane a little bit in the third quarter before going away in fourth quarter? Maybe you just kind of help us that we understand kind of exactly what you're thinking reported revenues should look like in the fourth quarter or sorry, in the third quarter.

Yeah, I'll take the first one, Paul. I'll take the second one. You know, I think my experience with APAC in general, and especially China within APAC, is you have these long periods of run-up, and then you kind of stabilize for a while, and then you have the long period start again. I think we're in one of those stabilizing periods. You know, we've had a very long, strong run of growth in China recently. particularly in North Face. I think that's going to stabilize for a little while. The good news is we have so much opportunity in the rest of the world, especially in the Americas. I feel really lucky to be in a company right now where honestly one of our biggest growth opportunities longer-term is the Americas. We're just underdeveloped in many of our brands and in some of our channels. If I take Timberland, for example, we really are terribly under-distributed in the U.S. and yet we're growing very strongly. Got good brand heat. So we're going to address that going forward. And so overall, I feel good about where we're going to be from a global profile. But, you know, I think APAC, it wasn't going to grow that strongly forever. It'll flatten out for a while and then probably come back.

Yeah. And then just a couple of things. So one, just as I guess a blanket statement, all the numbers I quote are they're almost always in constant dollars. So if it's if it's not that I will let you know. But it's yeah. So it is constant dollars. Yet on the advanced side, you know, down 11 in constant dollars. So and what I said was about 20 percent of the decline is related to the actions we've been talking about around the value channel. So that gets you to and as well as store closures that gets you to sort of a negative high single digit for the quarter in terms of an actual run rate. The run rate, we believe, will be kind of similar in Q3 as well. What I also said was the impact from the value channel changes and the door closures will also impact us in Q3, not quite as much as it did in Q1 and Q2, because we start to annualize our anniversary in Q3. And then by Q4, these impacts we've been talking about, for the most part, go away. So it won't be entirely, but mostly a true underlying trend by the time we get to Q4. And hopefully we'll get away from having to back anything out for you guys. Great. Thanks a lot, guys. Appreciate it.

Your next question comes from the line of Ike Borachow with Wells Fargo Securities. Please go ahead.

Hey guys, thanks for taking the question. Just curious on, you know, I know it's early in holiday, but any initial signs from how retailers are behaving with orders or order books? Is there any difference by channel or region? Just kind of curious how your partners are kind of, you know, looking at the initial holiday season from an orders perspective and a demand perspective.

You know, it's a little too early for us to say, you know, it's a, we also have a lot of direct consumer too. So it's just a little too early to say. This is always the period when it's really, really exciting in this business because things start to ramp up. It starts to get cold. There's a lot of good things that happen between now and Thanksgiving. It's a little too early for us to say, but we're really excited about it. We feel like we've got a good plan. We've got good products. We're optimistic, but it's too early to say how it's going to play out. As you said, there is uncertainty out there about the overall macro environment. There's the shutdown, etc., but I think I said in a conference a couple of months ago, the consumer's been stubbornly positive, and I'm hoping that will happen again.

Your next question comes from the line of Adrian Yee with Barclays. Please go ahead. A reminder to please press star six to unmute yourself, or if you are joined digitally to unmute your line via Zoom. Can you hear me now?

Yes, we can.

Oh, goodness. Thank you. I'm not great at this stuff.

You're loud and clear.

Thank you so much. Okay. So Bracken and Paul, you know, the three-year long-range plan was sort of anchored to FY24. um and so you know we've had four quarters consecutive quarters of op margin expansion and this fifth quarter because of tariffs we now have kind of a reversal of that trend so you know historically you've always kind of talked us to look at half years and i guess a couple of questions you talked about back to school being strong just wondering what you're seeing kind of on the exit of that you talked about the consumer being still resilient And then last quarter, you had mentioned sort of like how you think about philosophically demand elasticity. We're going to start to see price increases, Paul, in the mid single digit range, low single digit range, if you can help us out with that. And what are you thinking about with respect to kind of how the volume plays into that? Thank you very much.

I think your first question was, what do we see coming? It's a little hard to answer. Maybe I'll go back to Timberland since it's an interesting one to talk about. I think Timberland, we probably have more growth potential than we're going to get. You saw this quarter, 4% growth. I think for the rest of the year, you can expect low single-digit growth. That's not because the brand heat's not out there. It's out there. We're just going to really control our expansion, and we're going to make sure that we're very deliberate about executing. Right now, we have only, for example, only six full-price stores in the United States where there is very strong demand. We could go out and expand aggressively into new wholesale, et cetera, but we're really not going to do that. We're going to very deliberately open new stores. It's going to start... later in Q3 and into Q4, although they won't really kick in and be high performing until next year. So we're really trying to think in terms of driving growth longer term, not just what are we going to do this holiday and in Q4. So that's our mindset on this whole business is really how do we, you know, I hope you're starting to get a feel for that. We're going to execute in the key commercial moments, but our real game plan is longer term than that. We're going to systematically put these building blocks in place. They're going to deliver for years and years to come.

Yeah, and on the gross margins, I think I had the question, right? Yeah, so on the gross margin side, so as you get to the next couple of quarters, so obviously we've had some good gross margin expansion. We've lapped a lot of the work we've done to reset our inventories, get inventories in a better position. We've talked about a better promotional environment for us in terms of discounting. So that's all been productive. You get in the Q3, you do have some impact, as I said, from the tariffs, which we won't really start to mitigate tariffs until Q4 from a pricing perspective. So you will have that. You also are lapping all of the work we've done over the past year or so. So you've got you're starting to get tougher, quote unquote, comps in terms of the gross margin improvement. We still think there's more there, obviously. And we've talked about getting to 55 percent or better. in our longer-term targets. But we did make a lot of progress over the last year and a lot of the reset actions and cleanup we've done. So that will impact us in the next couple of quarters. And then there was one other part to that question. Elasticity.

Elasticity, yeah. Single-digit, how much are we raising?

Yeah, we don't really get into the exact amount of pricing. You can think about it a couple of ways. One is there's always going to be a part of this between working with our vendors, work with our wholesale partners and then pricing. So it's going to be a combination of all three of those things, which is probably not a surprise to any of you. will also be targeted and thoughtful by brand right so it's not going to be a uniform price increase across the board each brand is going to take it you know differently in terms of product in terms of how they do in terms of where they do it and will give them the flexibility to do that and in some areas as Bracken mentioned excuse me you've got places where vans where maybe it's not so much on the pricing side but we've been much better on the discounting side so that can have the effect of of better pricing year over year just based on lower discounting.

Great. Thank you very much. Very helpful.

Best of luck. Yeah, if you wanted one headline on that, I'd say surgical. You know, we're still assuming pretty normal elasticity, but we're very surgical in the pricing.

And it's U.S. only, correct? Or am I incorrect?

Yeah, generally speaking. I mean, there's always some kind of pricing happening around the world, but it's generally U.S.

Okay. Thank you.

Thank you.

Your next question comes from Anna Andreeva from Piper Sandler. Please go ahead. Anna, a reminder to unmute yourself in the Zoom.

Apologies. Great. Thank you so much for taking our question. Good morning. We had a question on where are we with the number of doors. So you guys have closed all doors globally and also exited a number of wholesale doors in the US. but also added some doors. So are we now in a stable kind of a number of doors environment, both in wholesale and DTC? Do you think there's an opportunity to further rein in own doors, especially at Vance, where I think you still have 600 doors or so globally? And then we had a follow up. Did you quantify the earlier wholesale demand in 2Q? Thanks so much.

I'll let Paul take the second one. On the number of doors, I think we're pretty stable going in. We're going to increase the number of doors, especially in Timberland, but also in the North Face some. And there will continue to be churn on vans, as I've said before, but the biggest reduction is kind of in the past now. And that will start to dissipate, especially in Q4. Our total number of doors, I think we're in the U.S., We're at about 580 globally, I think about 480 in the U.S., which is consistent with what we said before, about 90 in EMEA and not too many in APAC, although we have partner stores in APAC, so most of that looks like our door, even if it isn't technically.

Yeah, and then I think just overall in the store, so I think we're down about 5%, but it's a majority of that is Vans. We're actually growing in North Face and other areas. And then the second question was the question on the wholesale in Q2, how much that impacted the increased demand. Was that the question?

Yeah, if you want to hide that impact.

Yeah, so it was probably about 50, 60 basis points on the revenue side. So if you look at the revenue number and the outperformance relative to our guidance, there are really two main factors. Call it half of it or so was that we had some orders where the demand came to ship in September versus October. And the other was just some better DTC, particularly around back to school, did a little bit better. Those are the two big factors.

Terrific. Thanks so much.

Thank you.

Your next question comes from the line of Matthew Boss with JP Morgan. Matthew, a reminder to press star six to unmute. Please go ahead.

Great. Thanks. Maybe two questions. Bracken, could you speak to health of the North Face brand and market share opportunity you see across the outdoor channel? And then just to circle back on vans, underlying revenues down high singles, excluding the reset actions. I mean, what do you see still constraining the brand despite the product improvements that you've cited?

Yeah, so on TNF, I think the brand is very healthy. The key now is we just have to keep playing out the initiatives we've been talking about, which is not just playing in the winter quarters, but really playing year-round, making sure we're really getting to women, taking full advantage of these categories we're performing in, like footwear, for example, where we had strong double-digit growth in this quarter around the world. So really, we've just got opportunity. We've just got to execute right through everything. So TNF, I feel I'm excited about. In terms of vans, I think it really does come back to, you asked me to talk about something more than product, but I'll go back to product. It really is. This is a product business. We've got to have great product. And, you know, I'm excited about the Super Low Pro. I think the Skate Low Pro is going to do well. We'll see. You know, I see more and more. You know, it's funny when you think you've got something original, you realize you were actually right on a trend. And you see it from especially the luxury segment. And we're seeing loafers come in across the luxury segment. I remember when we were working on this, I thought, well, this is really original. And I kind of scratched my head and looked at Sun and said, are you sure you want to do this? She said, oh, yeah, it's going to work. And it did really well in very small quantities in the beginning, and we'll see how it does as we go through the holiday season and on into next year. So, it's about product, product, product, and then making sure our marketing is relevant and powerful. And I think our marketing is getting stronger and we'll get stronger and stronger as we go through. We're more and more socially centered. I think SZA, both on the product side and the marketing side, will be helpful. But, you know, getting the right product out there for guys and women and kids is the game at Vans, and we're going to keep pouring it on. Great. Best of luck. Thank you.

Your next question comes from Janine Stickter with BTIG. Please go ahead.

Good morning. A question for Paul, just back on tariffs. I think you had talked about mitigating about 50% of the gross impact this year. Now that you've been going through some of the initial pricing action, just any updated thoughts on that? And then I think you had spoken to offsetting tariffs in their entirety at some point in fiscal 27. Just if you could put a finer point on that in terms of timing. Thank you.

Yeah, we haven't really raised prices yet. There's very little. There's really nothing in Q2, very little in Q3. The pricing really comes in Q4. So I really don't have any, not much I can comment on in terms of the impact of pricing. We'll see it as it comes through. But like I said, we're going to have the impact of tariffs hit us the most in Q3, just from the standpoint of not having the offset of revenue. The offset will come in Q4. And then yeah, we think we'll be able to offset tariffs within fiscal 27. We haven't been more specific of that as we get to the end of 26. Again, as we see some of the less sissy stuff, so the pricing and see where we end of the year, we'll have probably more clarification at year end. But again, nothing's changed at all from the comments we made last quarter about the impact of tariffs, our ability to mitigate and the timing of when all this comes through.

Thanks a lot.

Thank you.

Your final question comes from Trevor Tompkins with Bank of America. Trevor, please go ahead. A reminder to press star six to unmute your line.

Oh.

All right, we will move on to John Kernan from TD Cowen, please go ahead.

All right, John, you got to slip one in because of Trevor.

John, a reminder to press star six to unmute.

Over two.

All right, we will move on to Tom Nickick with Needham.

We're in extra innings.

Please go ahead.

Hey, can you guys hear me? Yes, we can. All right. I'm glad I got to set my question.

We are too. We're so happy we can hear you.

All right. I want to ask about the ongoing debt deleveraging on the balance sheet. And you've now sold a couple of brands and you've divested some non core assets. Is it now just a function of fundamental improvement and growing the EBITDA or is there anything else you can do from a non-EBITDA perspective to bring the debt leverage down?

Well, let me make a quick comment, and then I'll let Paul answer in a little more detail. Overall, we feel good about our ability to deliver down to two and a half times. Now, Paul and I have said we'd like to be below two and a half times because neither one of us is a particular big fan of debt in general. But two and a half times seems like a reasonable leverage ratio. And we're on the path where in 28 we will be there. As you said, just executing our play. You want to add anything to that?

Yeah, no, I think a couple things to be clear. One, we firmly believe we were able to get to our targets with or without the sale of Dickey's. will help speed that up, will help us get there faster. But we 100% believe we would have gotten there on the fundamentals either way. So that's number one. Number two is, yeah, I mean, a lot of it moving forward will be continued improvements in EBITDA. We will also continue to work on improvements in working capital. better inventory management things that we can bring down. I think we can bring our inventory days down further. I think we can probably improve our overall working capital management as well. So it'll be, you know, mostly on the pure fundamentals of growing the business. But also I think there's other things we can do that will help free up cash moving forward.

All right. Thanks very much.

Okay, I guess that was our last question after a couple of extra innings. Well, look, to close, it was a really good quarter, and we delivered on our commitments again, as we try to always do. We made further progress on the entire turnaround plan. Looking ahead, we're going to continue to focus on – generating value across our brands and returning the company to sustainable and profitable growth. So we're excited about the future. Looking forward to talking to many of you in meetings throughout the rest of this month and next month here and in Europe. And then again, next quarter. Thanks again. Thank you.

This concludes today's call. Thank you for attending. You may now disconnect.