VF : Transcript Q1 2024

Corrected Transcript

01-Aug-2023

VF Corp. (VFC)

Q1 2024 Earnings Call

	Total Pages: 23
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VF Corp. (VFC)	Corrected Transcript
Q1 2024 Earnings Call	01-Aug-2023

CORPORATE PARTICIPANTS

Allegra Perry	Kevin D. Bailey
Vice President of Investor Relations, VF Corp.	Global President of Vans, VF Corp.
Bracken P. Darrell	Martino Scabbia Guerrini
President, Chief Executive Officer & Director, VF Corp.	Executive Vice President, and President of EMEA, APAC and Emerging
Matthew H. Puckett	Brands, VF Corp.
Nicole Beth Otto
Chief Financial Officer & Executive Vice President, VF Corp.
	Global Brand President of The North Face, The North Face, Inc.

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OTHER PARTICIPANTS

Dana Lauren Telsey	Brooke Roach
Analyst, Telsey Advisory Group LLC	Analyst, Goldman Sachs & Co. LLC
Simeon Siegel	Ike Boruchow
Analyst, BMO Capital Markets Corp.	Analyst, Wells Fargo Securities LLC
Laurent Vasilescu	John Kernan
Analyst, Exane BNP Paribas	Analyst, TD Cowen
Jay Sole	Adrienne Yih
Analyst, UBS Securities LLC	Analyst, Barclays Capital, Inc.
Jonathan R. Komp
Analyst, Robert W. Baird & Co., Inc.

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VF Corp. (VFC)	Corrected Transcript
Q1 2024 Earnings Call	01-Aug-2023

MANAGEMENT DISCUSSION SECTION

Operator: Greetings, and welcome to VF Corporation's First Quarter 2024 Earnings Call. At this time, all participants are in a listen-only mode. The question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

At this time, I would like to hand the call over to Allegra Perry, Vice President of Investor Relations. Thank you. You may begin.

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Allegra Perry

Vice President of Investor Relations, VF Corp.

Good afternoon, and welcome to VF Corporation's first 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 discussions 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 press release, which identify and quantify all excluded items and provide management's view of why this information is useful to investors.

Joining me will be VF's President and Chief Executive Officer, Bracken Darrell; and EVP and Chief Financial Officer, Matt Puckett. Matt will then host the question-and-answer session and will be joined by several VF executives.

I'll now hand over to Bracken.

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Bracken P. Darrell

President, Chief Executive Officer & Director, VF Corp.

Hello, everyone. I'm happy to join my first conference call with VF as the CEO. While my role today will be a little more limited than what I'm used to, given I'm on my twelfth day here, I am super exited to be here.

VF's portfolio of globally powerful and iconic brands, deeply embedded purpose, and impressive talent all give me a lot of confidence. These are the key ingredients needed to unlock the company's significant value potential and return to strong, sustainable, and profitable growth. I joined VF after ten years as CEO of Logitech where I'm proud to have overseen the transformation of the company that grew its value tenfold. We did it by putting the customer at the center of everything we do. I'm passionate about building brands through a design and innovation focus. With unique products and immersive storytelling, consumer experience is elevated, and so is growth.

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VF Corp. (VFC)	Corrected Transcript
Q1 2024 Earnings Call	01-Aug-2023

While I'm just roughly ten days in, I already feel at home here. I've spent time in our offices in Denver meeting with our brands based here and with many, many VF associates. I visited our European teams in Stabio, and I'll be in Costa Mesa at the Vans offices tomorrow morning. I've been in our stores in Denver, San Francisco, New York, London, and more cities. I've been in three of our Supreme stores around the world and many Vans and North Face stores. I talk to customers everywhere I go, and I started to dig into the brand equity data.

My conclusion is that our brands are as strong as I expected. Our team is loaded with talent. Our business is simply not performing at the level equal to those, but it's because of things in our control. I feel a strong sense of urgency with respect to the challenge we face and will collectively work with the team to get VF back on track through disciplined and thoughtful actions.

I'm looking forward to speaking with all of you again at our Q2 earnings results to share my perspectives on my first few months in the role. This company has what it takes, and I'm excited about the future of VF and its ability to return to delivering strong shareholder returns.

I'll now turn it over to Matt to talk you through the quarter.

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Matthew H. Puckett

Chief Financial Officer & Executive Vice President, VF Corp.

Thank you, Bracken, and welcome to VF. Your impressive track record and strong background in innovation and design brings a new dimension to leading VF and reinforces my confidence as we turn the page to our next dynamic chapter.

I also wanted to extend our gratitude to Benno who has been instrumental in laying a solid foundation for VF's return to strong, sustainable, and profitable growth by refocusing our efforts towards the consumer, and by taking aggressive action to strengthen the business operationally and financially, and personally a great partner to me. We are fortunate to have him continuing as a valued member of the VF board.

I'm more confident than ever that with Bracken as our new leader, VF has everything it takes to succeed in the future.

Before I get into the business and financial results, let me give you an update on our two most important near- term priorities that we've been highlighting in recent quarters: the supply chain and Vans.

First, in the supply chain, where we saw further progress during the quarter as industry conditions continued to improve and our own actions to address execution yielded results. Lead times into the quarter are at normalized levels while our on-time performance and in-stock percentages were both back in line with our targets. We are appreciative of the quick and aggressive actions taken by the supply chain and brand teams to position us to now consistently meet our customers' expectations and maximize on the opportunities that present themselves in season.

Next, Vans, which was down 22% in the quarter and was disproportionately impacted by the brand wholesale business in the Americas which was down 40%, as anticipated. This includes intentional actions we've taken to rightsize inventories in advance of the important back-to-school season. We were encouraged by the results in China and in the digital business, which have both meaningfully improved relative to the prior quarter's trend versus last year. While the brand's overall performance was largely anticipated, it's not where we should be, and we remain intently focused on the actions to turn around the brand.

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VF Corp. (VFC)	Corrected Transcript
Q1 2024 Earnings Call	01-Aug-2023
Now, an update on the key focus areas of product, consumer, and go to market.

First and foremost, product. We're increasing our level of investments to create new relevant products that excites consumers while developing existing franchises that are working well. UltraRange and MTE silhouettes continue to outperform, growing 13% and 39% in the quarter, respectively, with newer lines including Knu Skool and [ph] Lowland (00:06:25) all generating strong sell-throughs. The soft launch of the Pinnacle range OTW during Paris Fashion Week in June created excitement and energy, laying the groundwork for the full launch in early 2024.

Another key focus area we've shared previously is an opportunity to better understand and integrate the consumer into our decision-making. Our significant global segmentation refresh is on track, and in the meantime our Vans Family membership keeps growing, now approaching 29 million members, adding 1 million members in Q1 and more than doubling in two years.

We continue to improve the Vans go-to-market activities. Our initiatives to sharpen our focus around fewer key products and stories are well underway and are benefiting the quality and productivity of our store assortment. With our in-store SKU reduction actions expected to be fully completed in August, we also be launching our redesigned Vans.com platform in time for the holiday season. Vans is a great brand, and we're confident in its enduring strength and importantly the energy and intensity that this leadership team is bringing to the effort every day.

Now, turning to a review of the quarter. Q1, our smallest quarter and facing the toughest prior-year compare, came in line with our expectation both on the top and bottom lines. That said, overall our performance was not up to the standard we expect to achieve. Revenue was down 8%, in line with guidance, as wholesale particularly pressured the top line in the US. On a two-year basis, revenue was about flat.

Let me first unpack the performance by region.

Revenue in the Americas region was down 15% in the quarter, primarily due to the wholesale channel pressures we outlined in May. These had an impact across most of the portfolio and in particular at Vans and Dickies. The quarter's results were impacted by the rightsizing of inventories across the channel and the implications of our poor customer service from last fall.

Our business in EMEA which, as you know, has grown consistently and strongly also saw softer trends in the quarter with revenue in the region down 3% in Q1 driven by high-single digit decline in wholesale as retailers grew more cautious.

Our direct-to-consumer business was up mid-single digits in the quarter, a sign of resilient consumer demand for our brands and evidence of our continued strong execution of integrated go-to-market strategies.

Last, we continue to see growing momentum in the APAC region with revenue up 18%. All channels grew by double digits in the region with DTC fueled by brick-and-mortar traffic growth. Greater China saw further acceleration of 31% and benefited from the comparison to the prior-year lockdown impacts. The North Face continues to be the key driver of our performance and was up more than 50% in Greater China, benefiting from outdoor market tailwinds and recovering domestic travel.

Now, let me complete the picture of the brand's performance, starting with The North Face where revenue was up 12% in the quarter against a tough prior-year compare of plus 37% and driven by broad-based growth across products, channels, and regions. Globally, high demand for our icons, as an example, the Base Camp duffel, as

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