The operator welcomes participants to the VF Corporation Earnings Call for the Second Quarter Fiscal 2024. Allegra Perry, Vice President of Investor Relations, introduces the call and reminds participants that the conference is being recorded. She also mentions that the company's statements may contain forward-looking information and will be presented in adjusted constant dollar amounts. VF's President and CEO, Bracken Darrell, and EVP and CFO, Matt Puckett, will be speaking on the call. Darrell expresses excitement for his first quarterly call and will be followed by Puckett who will discuss Q2 and other financial aspects.

The author has been with the company for over 100 days and has talked to various stakeholders. They have identified areas of concern, such as declining business, issues in the US and Vans, and a decline in innovation. The author draws parallels between VF and their previous company, which also required a turnaround. They have a sense of urgency to address these issues and have seen success in turning around a brand before.

The author discusses their previous success at Logitech and their familiarity with turnarounds. They acknowledge past mistakes and the potential for growth and value creation at VF. The company has strong brands and talented employees. The author outlines four key areas of focus and mentions immediate actions, such as establishing a global commercial organization.

The company recognizes the need for a global execution model to ensure consistency and success across all regions. They have created a new global commercial organization led by their Chief Commercial Officer, Martino Scabbia Guerrini, to oversee operations in North America, EMEA, and APAC. This change will also allow for a sharper focus on brand presence and creating excitement around their brands, especially Vans, by getting closer to the customer and consistently delivering quality products.

VF Corporation is focused on creating products that people want to wear and building brands that consumers want to be a part of. They are making changes at Vans, including a new Brand President, to address declining trends and improve the brand's performance. The company is also committing to a $300 million cost reduction plan in order to improve efficiency and profitability, while still investing in brand-building and product innovation.

The company's main financial priority is to reduce debt and leverage, and they are taking steps to achieve this, including a reduction in dividends and no acquisitions until debt levels are lowered. The CEO is committed to creating value for shareholders and there are no sacred cows in the company's efforts to improve operations. The company is not providing revenue and profit guidance for the remainder of the year due to the CEO's desire to hit their numbers and the many changes happening within the company. The CEO is confident in their ability to turn the company around and believes they have a strong foundation, world-class brands, and great employees.

The company expects to see progress quickly from the initiatives being implemented, despite the challenging circumstances. The second quarter saw a decrease in revenue, mainly due to weak performance in the US and Vans globally. However, the company has reduced inventory and paid off debt, and is optimistic about the future. The Americas region saw an 11% decline, with wholesale and Vans' underperformance having a significant impact on direct-to-consumer sales.

In the third quarter, America's DTC (direct-to-consumer) revenue was up 5%, with positive performances from all brands except Vans and Timberland. EMEA (Europe, Middle East, and Africa) also returned to growth, achieving its first $1 billion quarter. Wholesale was up 7% and DTC was up 3%, with the North Face leading with a 12% increase. The brand had an outstanding quarter in Greater China, growing by nearly 50%. The North Face's revenue was up 17%, with a high-single-digit increase excluding the change in shipment timing. Vans, on the other hand, had a disappointing quarter with a 23% decrease in revenue. Slow sell-through rates and low traffic affected both wholesale and DTC. The company acknowledges the brand's popularity and plans to take action to increase demand.

In the second quarter, new and innovative products like the Knu Skool, Lowland, UltraRange, and MTE saw strong growth, but were not enough to offset declines in classic products. Timberland saw a 10% decline in revenue due to softness in the American wholesale market and decreased demand for six-inch boots. Dickies also experienced a decline in revenue due to pressure from competitors in the work business. However, Supreme had a successful quarter with double-digit revenue growth and the opening of a new store in Seoul. Gross margin decreased by 20 basis points, but would have been up 30 basis points without additional inventory reserves at Dickies. Positive mix from international growth was offset by challenges at Vans in the DTC sector.

In the second quarter, the company's rate was down 50 basis points due to increased product cost and negative currency impacts. They also booked a $15 million reserve for distressed inventory, which affected gross margin. Operating margin was down 30 basis points, mainly due to a small decline in gross margin and slight SG&A deleverage. Adjusted earnings per share decreased by $0.10, mainly due to higher interest and tax expenses. The company also received an unfavorable ruling in a tax case, resulting in a noncash increase to reported tax expense. However, this ruling does not affect their cash outlook for the current fiscal year. The process of filing amended tax returns will take time and no cash benefits are expected in the next 18 months.

The company's inventory has decreased by 10% compared to last year, showing improvement in their supply chain and operational metrics. Their use of cash was better than planned, resulting in higher liquidity. They have paid down debt and have announced a transformation program called Reinvent, which aims to address structural challenges and reduce fixed costs by $300 million. This program will also involve streamlining operations, driving down costs, and reinvesting savings into brand building and product innovation.

The company expects to reach its $300 million target by the middle of the next fiscal year, with half of it achieved by the beginning of fiscal '25. The company is retracting revenue and profit guidance for the current fiscal year due to the longer than expected Vans turnaround, weaker North America business, and potential impact from Reinvent initiatives. The company plans to provide more specific guidance in the coming quarters.

The changes in Q2 and Q3, including the impact of Vans, will affect the overall performance of the company. It is important to look at both quarters combined to get a more accurate understanding of the season. The North Face will be negatively impacted in Q3 due to last year's late shipment timing and lower overall order book. The DTC business is expected to continue growing, but the global North Face revenue is expected to decline in Q3. The company is focused on reducing inventory and expects to end the year with a decrease in inventory compared to previous guidance. Free cash flow for fiscal '24 is expected to be lower due to the more muted operating results, and the company's top financial priority is deleveraging the balance sheet.

The company plans to end the year with slightly higher leverage and is focused on addressing both revenue and profit. They have taken steps to reduce costs and strengthen the balance sheet, and are confident in achieving their goals. The company's transformation plan, Reinvent, is directly addressing performance issues and committing to lowering costs. They will update on progress in future quarters and are confident in delivering strong shareholder returns. The call is now open for questions.

During a conference call, Bracken Darrell, CEO of North Face, expressed excitement about the brand's potential despite a slow September due to warmer weather. He believes sales will pick up and recently reviewed products with the brand's business team. CFO Matt Puckett stated that the company is on track to hit its $600 million free cash flow target, with a strong third quarter expected due to a heavy direct-to-consumer business. Darrell also mentioned $300 million in cost savings, but did not specify where they will come from.

The company has made good progress in the second quarter and expects this to continue in the second half of the year. Cash generation will be more focused on the third quarter rather than the fourth quarter. The cost reduction program will touch all areas of fixed cost, but some of the savings will be reinvested into brand building, marketing, and innovation. The company is not ready to declare a specific percentage for this reinvestment yet. A question was asked about The North Face and the response was that direct-to-consumer sales slowed in September and may continue to do so, but it is unclear if this will also impact wholesale channels.

In the paragraph, Matt Puckett and Ike Boruchow discuss the negative impact of wholesale issues and timing on the brand's performance in the quarter. Puckett also mentions the expected growth in DTC and the challenges in the European market due to macroeconomic factors and cautious consumer sentiment. However, he expresses confidence in the company's ability to succeed in any environment. Lorraine Hutchinson from Bank of America asks a question.

Bracken Darrell discusses the initial steps he is taking to stabilize and grow the Vans business. He mentions a turnaround plan already in place and his goal to accelerate and make select changes. He also addresses the change in approach to the Vans business in North America and hints at potential changes in the future. When asked about the qualities he is looking for in a new brand president for Vans, Darrell emphasizes the importance of leadership.

The speaker believes that the most important attributes for a brand or brand President are the ability to lead an innovation process and consistently deliver innovative products. They also prioritize being in growing markets and having leading brands in their portfolio. They mention VF's history of updating and changing their portfolio and look to continue this trend.

In response to a question about the decline in the Americas wholesale business, Bracken Darrell and Matt Puckett of VF Corporation discuss the impact of both company-specific issues and the broader market environment. They acknowledge challenges with Vans, Timberland, and Dickies, but also note the strength of The North Face and other outdoor brands. They emphasize the importance of their new operating model in addressing these issues and improving the U.S. wholesale business.

The speaker discusses the change in free cash flow, which is primarily due to operating results and updates in working capital. They mention that there will be charges related to Reinvent in the next few quarters, but they are not ready to discuss the specifics. The speaker also mentions that the year-end liquidity number has been effectively captured. The speaker then answers a question about the organizational structure and mentions that the establishment of a commercial organization will streamline and make the company more efficient.

In this paragraph, Bracken Darrell and Janine Stichter discuss the timeline for changes at Vans. While the playbook is still in place, there is a sense of urgency to make changes. The lead times for products, especially footwear, are a challenge, but there are plans to execute better and potentially accelerate lead times. There is excitement about the changes and the team at Vans, and this topic will likely be discussed in future quarters.

Bracken Darrell, CEO of Vans, discusses the recent changes in pricing for certain classic styles and the potential impact on the company's performance. He explains that the changes were made to reset the value of the brand and to offer customers more options in terms of pricing. Matt Puckett, Vans' CFO, adds that they have seen a slight increase in sales velocity but it is too early to determine the overall impact. In terms of the Vans turnaround, there will be new leadership brought in and there may be some adjustments to distribution channels and store locations. The focus will be on managing both top line growth and margins.

The CEO of the company, Bracken Darrell, discusses the need for continuous cleaning up and evaluating of the business, especially during a decline period. The company has shut down stores and is constantly evaluating its distribution. The CFO, Matt Puckett, adds that there is opportunity to drive higher profitability in the business as they stabilize and grow it again. They are also working on improving the cost structure and expect to see improvements in gross margins. There will be refinancings and debt paydown in the next few years.

The speaker discusses the company's focus on deleveraging and paying down debt, as well as their plans to sell a business and use the dividend reduction to improve their financial position. They also mention the importance of wholesale in their business and the markers to watch for when evaluating the success of their efforts to fix the U.S. market.

The speaker discusses how the current VF turnaround has similarities to previous turnarounds they have led, but also highlights some key differences. One of the main differences is the length of time it takes to develop products in the fashion industry, which was unexpected for the speaker. They plan to tackle this challenge by investing in both direct-to-consumer and wholesale channels.

The speaker discusses their surprise at the length of time it takes to develop footwear and apparel in the VF industry, as well as the practice of selling by seasons. However, they still see many similarities with their previous business and emphasize the importance of innovation and consumer satisfaction. The speaker also mentions that the company is withdrawing guidance but still expects improved gross margins in the second half of the year. They also mention the possibility of pressure on gross margins and the promotional landscape.

The company expects to see some improvement in gross margins in the back half of the year due to a moderate promotional environment and a cleaner inventory. The business mix and product costs will also contribute to this improvement, but FX is expected to be a major headwind. The company expects to achieve the full run rate of annual cost savings in four quarters and is working on implementing a new commercial organization structure to start seeing tangible benefits from cross-sharing best ideas.

Bracken Darrell, CEO of the company, announced that the organization will be standing up in Q4 and benefits are expected to be seen in Q1 or Q2 of next year. It will take a few quarters to get the organization running smoothly and even longer for it to be fully effective. The company is open to making changes to its performance targets and portfolio, but no specific details were provided.

The speaker answers two questions. The first question is about potential senior management changes and the speaker says they are always evaluating the team's effectiveness. The second question is about inventory concerns, and the speaker says that overall inventories are in a good place, but there are some challenges in certain brands and regions.

The speaker discusses the company's strong talent, including Martino and Nicole's teams, and mentions the upcoming public search for a new Vans leader. They also address the potential impact of PFAS regulations on North Face and assure that the company is actively working to address the issue.

The company has successfully managed to get all of its products out of the line by spring of 2024, and in some cases, it has already been achieved. The CEO sees the upcoming event as a challenge and is confident in the team's proactive efforts to handle it. They are aware of the actions of wholesalers and are working closely with them. The CEO assures that the company is committed to being successful and will share a comprehensive strategy in the future.

This summary was generated with AI and may contain some inaccuracies.