VF : Transcript FY 2023

Corrected Transcript

23-May-2023

VF Corp. (VFC)

Q4 2023 Earnings Call

	Total Pages: 21
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VF Corp. (VFC)	Corrected Transcript
Q4 2023 Earnings Call	23-May-2023

CORPORATE PARTICIPANTS

Allegra Perry	Matt Puckett
Vice President-Investor Relations, VF Corp.	Chief Financial Officer & Executive Vice President, VF Corp.
Benno O. Dorer
Interim President, Chief Executive Officer & Director, VF Corp.

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OTHER PARTICIPANTS

Abbie Zvejnieks	Robert Drbul
Analyst, Piper Sandler & Co.	Analyst, Guggenheim Securities LLC
Brooke Roach	Adrienne Yih
Analyst, Goldman Sachs & Co. LLC	Analyst, Barclays Capital, Inc.
Paul Lejuez	Gabriella Carbone
Analyst, Citigroup Global Markets, Inc.	Analyst, Deutsche Bank Securities, Inc.
Laurent Vasilescu	James Duffy
Analyst, BNP Paribas Exane	Analyst, Stifel, Nicolaus & Co., Inc.

Janine Stichter

Analyst, BTIG LLC

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MANAGEMENT DISCUSSION SECTION

Operator: Greetings. Welcome to the Fourth Quarter 2023 VF Corporation Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note, this conference is being recorded.

I will now turn the conference over to your host, Allegra Perry, you may begin.

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Allegra Perry

Vice President-Investor Relations, VF Corp.

Good afternoon, and welcome to VF Corporation's fourth quarter fiscal 2023 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.

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VF Corp. (VFC)	Corrected Transcript
Q4 2023 Earnings Call	23-May-2023

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 on why this information is useful to investors. Unless otherwise noted, results presented on today's call are based on continuing operations.

Joining me on the call will be VF's Interim President and Chief Executive Officer, Benno Dorer, 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 Benno.

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Benno O. Dorer

Interim President, Chief Executive Officer & Director, VF Corp.

Hello, everyone. It's been nearly six months into my interim role as CEO of VF. I'm proud to be part of this beautiful company of the products that we create for our consumers, the difference we make to so many people's lives, to witness so many highly-skilled and committed people create engaging styles and shopping experiences for our consumers, and how people know, wear and love our brands on streets, trails and mountains around the world.

Having an even deeper appreciation of VF's possibilities now, I'm incredibly optimistic about the company's future. I'm pleased to report that VF is stable, delivering against our commitments with strong discipline, and making solid progress against our executional priorities.

Today, I will build on themes introduced in February and highlight progress to sharpen our focus on the biggest consumer opportunities within our brand portfolio and on enhanced operational performance. I will cover three areas: first, an overview of VF's performance in Q4 fiscal year 2023 and an update on work underway in pursuit of our near-term priorities; second, an outline of the primary objectives for fiscal year 2024, which will be a year of transition and progress; and third, why I believe even more today in VF's unique value proposition and our plan to return to strong growth and long-term shareholder value creation.

First, we delivered revenue and profit in line with guidance for Q4 to close out fiscal year 2023, and we've made solid progress towards our priority areas of focus. Against the backdrop of continued challenging macroeconomic conditions, we grew full year revenue by 3% in constant dollars, with 10 out of our 12 global brands flat or growing revenue, five of them double-digits, and delivered earnings per share of $2.10 at the midpoint of our guidance. Revenue in Q4 was flat in constant dollars.

Some highlights from our quarter performance to close out the fiscal year. Outdoor saw ongoing strength led by continued stellar performance at The North Face. Vans was down in Q4 as expected, but we saw encouraging green shoots from new product launches and our increased focus on maximizing existing product platforms.

We delivered sequential improvement in both Dickies and Supreme, which stabilized in Q4 behind very strong growth in our key markets, Japan. EMEA continue to execute well with its eighth consecutive quarter of strong growth, and Greater China's emerging momentum coming out of Q3 accelerated with Q4 revenue returning to positive growth.

The North Face continues to execute strongly with engaging marketing and a steady stream of innovative styles. Our core snow sports category was a standout in Q4, while the iconic Nuptse jacket continued its strong momentum.

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VF Corp. (VFC)	Corrected Transcript
Q4 2023 Earnings Call	23-May-2023

We saw further growth in trail running footwear, particularly behind our proprietary active technology, underlying the brand's significant opportunity in footwear. The North Face continues to resonate with a growing consumer base with the XPLR Pass adding over one million new members to surpass 18.5 million global members at the end of Q4.

Shifting to the near-term priorities outlined in February. Importantly, our company's supply chain performance improved significantly and our work to turn around Vans is on track. We are on or ahead of plan on our work to restore excellence in the area of supply chain. In Q4, we reached our target to reduce inventory by about $300 million, and while it remains elevated, trends are good.

We talked about our unsatisfactory customer service in Q3. I am pleased that our on-term performance has generally returned to target levels of full two quarters ahead of plan. And finally, while our costs remain elevated in Q4, our cost focus and planning discipline are starting to bear fruit, and we are on track to see lower costs in fiscal year 2024.

On Vans, there are some positive developments. Our two emerging product lines of focus, UltraRange and MTE were up 51% and 34%, respectively. We are just scratching the surface on these.

We also demonstrated that we can energize Vans' fan-base when we have meaningful product news. In Q4, we had a highly successful start of our retro-inspired new school platform. This new shoe shows the potential to grow into a meaningful growth driver for Vans over time.

Our global Vans Family membership grew to 28 million members by end of Q4, nearly twice the number from two years ago. Clearly, there is much work ahead of us, but there are encouraging signs for us to build on.

My second message is that fiscal year 2024 will be a year of transition and progress, positioning us to accelerate profitable growth in fiscal year 2025 and beyond. We have an appropriately balanced plan in place for this fiscal year, considering our organizational transition.

We will show progress in several areas with sensible revenue projections, increased marketing investment and a sharp focus on margin, leading to solid operating profit growth and cash flow generation.

Here are some highlights from our two biggest brands. On Vans, we continue to expect the brand to return to growth during the course of the second half of the fiscal year. Importantly, Vans will return to profit growth for the full fiscal year and even ahead of its return to revenue growth, aided by cost savings and SKU simplification.

The Vans team is operating with a great sense of urgency and projects are on track. We continue to strengthen our team. Our new brand campaign launched in April, we are sharpening our go-to-market process with a focus on digital. We will increase our product development investment in fiscal year 2024, [ph] Tees (00:08:12) our new Pinnacle premium line at the Paris Fashion Show next month and aggressively drive UltraRange, MTE and new school, while seeding the Style 93 women's sandal launch now for a full launch this fall. More innovation will follow.

Our consumer understanding work is in progress, sharpening our focus later this calendar year, and we are improving our shopping experience with a significantly reduced SKU count, throughout 2023.

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VF Corp. (VFC)	Corrected Transcript
Q4 2023 Earnings Call	23-May-2023

Moving on to The North Face, we are increasing product and marketing investments to support consumer acquisition, innovation and marketplace sell-through and the expansion of the brand into new adjacent categories, based on a clear permission from consumers to do so.

Regionally, our focus is to improve execution in the Americas. The first quarter will be difficult here as we work to regain the confidence of an already cautious set of US wholesale customers in our ability to deliver full customer service after a difficult 2022 in that respect, but we should see significant improvements starting this fall.

The recent appointment of Jen McLaren to a newly-created role to lead our US key account management will bring stronger focus, as we work with customers to capitalize on the many available partnership opportunities that exist.

We expect EMEA to be resilient and generate profitable revenue growth in fiscal year 2024 behind its hallmark execution strength. And APAC is anticipated to grow double-digits this fiscal year, which we will fuel with increased brand investments. What is important to us is that VF grows the right way, meaning profitably and sustainably expanding margins and generating significant cash flow in fiscal year 2024.

To do so, while supporting strong investments in the business, we are leaning into the more profitable parts of the portfolio and implementing a strong cost savings plan with a more systematic and ongoing cross-functional approach to eliminate costs that have lower value to consumers.

VF's fiscal year 2024 will be about progress and focus on what we can control in a difficult macroeconomic environment. Steadily, methodically and with discipline, we will set the stage for an acceleration of value creation in fiscal year 2025 and beyond.

Finally, I'm more confident than I was even six months ago in VF's value proposition and our plan to return to strong growth and long-term shareholder value creation. VF's distinctive business model unites a portfolio of iconic and deeply loved brands in profitable, large and growing spaces with strong enterprise capabilities for speed, consistency and scale efficiencies.

We have significant growth opportunities in APAC and particularly in Greater China, where we have strong category tailwinds and tremendous brand penetration upside. VF's enterprise capabilities in supply chain, digital and technology and international go-to-market platforms give us a competitive advantage, which we will fuel with strong investments in our brands and consumer capabilities.

We are disciplined and dynamic capital allocators with a history of long-term value creation. Near-term, we will invest in organic growth to maximize the potential of our unique portfolio, while returning to disciplined M&A midterm to further strengthen our roster of brands. And we will continue to generate strong cash flow to reduce debt to target levels midterm and to return cash to shareholders through a competitive dividend.

We believe that, this is a solid long-term investment thesis, especially when combined with our clear plan to accelerate a return to profitable growth with strong operational discipline, an increase in product and marketing investments, and an expansion in margins through cost savings and more differential portfolio management.

Lastly, we remain strongly committed to our company's purpose, not just because it is the right thing to do, but also because it drives value for shareholders. In summary, I'm confident VF is well positioned to return to strong long-term shareholder value creation.

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