The speaker welcomes listeners to the VF Corporation Third Quarter 2024 Earnings Call and introduces the host, Allegra Perry. The speaker mentions that the call will include forward-looking statements and refers to adjusted constant dollar and reported amounts. The CEO, Bracken Darrell, and CFO, Matt Puckett, will be joining the call and will open it for questions after their prepared remarks. The speaker also mentions an important development within the leadership team.

VF Corporation's CFO, Matt Puckett, will be stepping down later this year as part of the company's overall transformation efforts. He will stay on until his successor is appointed to ensure a smooth transition. The company's third quarter results were disappointing, with a 17% decrease in total revenue compared to just 4% in the previous quarter. This was due to unseasonably warm weather, a difficult comparison to last year's operational challenges, and continued underperformance in the Americas. The company's CEO expressed gratitude for Puckett's contributions and announced a strategic portfolio review.

The company experienced disappointing results in the last quarter due to various factors such as the lack of an America's regional platform, the impact of a cyber incident, and poor performance in The North Face brand, particularly in the Americas region. However, the company is taking urgent action to improve performance and has implemented changes such as a new commercial organization and product and marketing strategies. The CEO has been heavily involved in reviewing these strategies and believes that a strong brand purpose, product plan, and marketing are essential for a brand turnaround.

The author discusses how the success of a brand is driven by its most influential customers and how Vans lost its way by focusing on trends and neglecting its core youth audience. They mention a package in place to bring Vans back to growth and the emergence of new products in the portfolio, particularly the new school style, which is popular among young girls in the U.S. The author also hints at a potential turnaround for the brand.

VF is expecting to release many new products in the next few years and is pleased with the positive response from their target demographic. They are also making changes to their marketing strategy and have appointed a new brand president for Timberland. Despite challenges with warm weather, their direct-to-consumer business only saw a slight decrease. VF has been recognized for their sustainability efforts and is proud of their commitment to it. They believe that sustainability is not just a good thing to do, but also showcases their capabilities in all aspects of their business.

The company is working to improve its performance and has four key areas of focus: fixing the U.S., turning around Vans, lowering costs, and strengthening the balance sheet. The America's regional platform is improving and changes have been made to bring it up to the standard of other regions. The Vans turnaround will involve resetting the marketplace and integrating products and marketing. The company is on track to deliver $300 million in fixed cost savings and has already begun simplifying and right-sizing its structure and real estate.

In the paragraph, the company discusses their top priorities of reducing debt and strengthening their balance sheet. They have already made progress in reducing debt and plan to continue by selling assets and paying down debt without refinancing. They also announced a strategic review of their brand portfolio to focus on profitable growth and value creation. The company remains committed to achieving their cash flow objective for fiscal 2024 and has implemented additional controls to prevent future cyber incidents. The CEO expresses pride in the team's handling of the recent cyber incident and outlines his vision for the company's future.

VF is working to become leaner, faster, and stronger by leveraging their strengths, world class brands, and great people. They are making progress quickly and focusing on consumer-driven innovation. Matt Puckett will be stepping down in the coming months, but will remain committed to supporting the transformation agenda and leading the finance organization. In the third quarter, VF remained focused on improving their business fundamentals and balance sheet.

In the third quarter, VF Corporation's total revenue decreased by 17%, mainly due to declines in global Vans and Americas results. The company is actively working on its transformation program, Reinvent, and is identifying new opportunities to improve. Wholesale sales were down 28%, while direct-to-consumer sales were down 9%, excluding Vans. The quarter was also impacted by expected shifts in wholesale timing, proactive measures to accelerate the Vans turnaround, and a cyber security incident. These factors had an overall impact of about 2.5 points on total revenue and 5.5% on global wholesale revenue. The estimated impact on EPS was $0.04 to $0.05.

In this paragraph, the speaker thanks and commends their teams for their hard work during the holidays, allowing them to quickly recover and continue serving customers. They then provide a review of the company's performance by region, with Americas down 25%, EMEA down 12%, and APAC up 3%. The North Face, one of their brands, saw an 11% decline in revenue due to challenges in the Americas region and a slow start to the fall/winter season. However, the brand remained strong in international markets.

In the third quarter, the brand saw growth in APAC and Greater China, while EMEA was down. DTC growth continued in EMEA, but overall the region was up high single digits when looking at Q2 and Q3 combined. Vans revenue was down 29%, largely due to intentional reset actions. Timberland was down 22%, mainly in the Americas due to inventory and retailer caution. Dickies revenue was down 17%, with declines in the Americas and Europe, but positive momentum continued for Supreme with broad-based growth and improved profitability.

In the third quarter, the company's gross margin expanded due to favorable channel and regional mix, but was offset by negative foreign currency impact. Promotions remained flat, and SG&A decreased by 5% due to lower distribution, administrative, and marketing costs. However, the decline in revenue led to a significant SG&A deleverage, resulting in a 560 basis point contraction in operating margin. Diluted earnings per share were $0.57, reflecting lower volume and operating margin, but were partially offset by a lower tax rate. The company made progress in reducing debt and leverage, with a $640 million reduction in net debt compared to last year. This was largely due to lower working capital and strong execution in maximizing free cash flow. Inventories also saw a significant decrease, reflecting improved supply chain agility, sales and operations planning, and collaboration across the business.

In the third quarter, the company's liquidity and net debt improved, and they initiated a strategic review of their brand assets. Progress was made in executing cost-saving measures and restructuring efforts at Vans. There were charges of $50 million, but they were excluded from adjusted earnings. The company is also working to reduce debt and leverage by reducing inventories and monetizing noncore assets. The closure of the corporate aviation program and potential divestment of brands could support this objective.

The progress on Reinvent is encouraging and will have a visible impact in the coming quarters. The outlook for free cash flow in fiscal 2024 is unchanged at $600 million, supported by efforts to reduce inventories. Liquidity is expected to be $2.3 billion at year end and second half gross margin is expected to be higher than last year. However, there are potential challenges in the near future, such as the Vans turnaround, caution from wholesalers, and a challenging macro environment. Savings from Reinvent are expected to reach at least $60 million in fiscal 2024, with the majority in SG&A. The goal of $300 million in annualized gross savings is on track to be achieved by the middle of next fiscal year, but there may be headwinds in fiscal 2025 from increased incentive compensation and inflation.

The speaker discusses the financial results of Q3 and the actions being taken as part of the Reinvent program. They mention that the cash costs will be offset by proceeds from selling noncore assets and reiterate their fiscal 2024 cash flow guidance. They also mention a strategic review of the portfolio and express confidence in their actions to reset the business and create shareholder value. The speaker then takes a question about the filters being used to determine which brands will remain in the portfolio and the factors affecting gross margins.

The speaker discusses the company's performance in the quarter and mentions that promos were in line with last year. They attribute the positive grosses to being in a good market and being a leader within that market. The speaker also mentions that they will have more updates in the future. The primary drivers of the margin line were mix, freight, and price, with the biggest drag being FX. There were also higher inventory reserves and modestly higher product costs, but promotions were about flat. The company has made progress in reducing inventories over the past year.

The company is aggressively working to improve its business and has seen some success in its own channels. However, there is still a lot of promotional activity in the wholesale market, particularly in the Americas. The DTC full price channels, including Vans, have shown improvement, but the north face brand is facing challenges in the US wholesale market due to macro and weather factors. The company remains optimistic about the brand's long-term growth potential.

The speaker, Matt Puckett, is addressing a question about wholesale performance and the challenges they have faced. He mentions that the order books were down due to their own issues and bad weather. He also acknowledges the competitive and promotional nature of the outdoor segment in the market. However, he remains optimistic about the strength of the brand and the underlying drivers of the business. He also mentions that the D2C business is doing well. The speaker expects the wholesale channel to continue to be difficult in the near future. The next question is about marketplace cleanup.

The speaker is asked about the shift in the company's performance in the second and fourth quarters, and how much of it is due to market actions such as reducing stores and exiting channels. The speaker also mentions a larger marketplace change in Europe and the US, and hints at interesting plans for the Olympics. The speaker is then asked about debt pay down and the company's plans for refinancing.

The speaker mentions that the company plans to sell non-core physical assets, including corporate aviation programs and buildings, which could generate between $50-100 million over the next two to three quarters. This will help with debt pay down and the company is currently in the process of selling its PAX business to further reduce debt and generate cash flow. The speaker also mentions that the company expects to see improved cash flow next year due to inventory reduction and a stabilized business.

The speaker, Bracken Darrell, states that he is confident in VF's future due to increased transparency in the business, a better understanding of where the business is headed, and a positive outlook on the brands and team. He also mentions that cash flow next year could be in line with this year and that they have a goal of $300 million in cost savings.

The speaker discusses recent promotions within the company and mentions that more will be announced soon. They also mention that they are bringing in new talent from outside the company. The speaker expresses confidence in the team and compares their current situation to their previous company. They also mention that the company's gross margin has turned positive and they expect it to continue to improve in the future.

The speaker mentions that the marketplace will improve over time, leading to gross margin expansion opportunities. In the near term, mix, inflation, and FX will be less of a headwind, and there will be some benefit in gross margin. The main focus for the company is to sell more at full price and reduce promotions. They plan to reinvest a portion of their savings in product and marketing. The speaker is then asked about Vans and their 18-month plan, but they do not provide any additional information.

The speaker, Bracken Darrell, addresses two questions about the company's inventories. He mentions that he is not ready to be specific about any concerns regarding brand or geographic pockets, as there is a new brand president coming in who may make changes. He also mentions that they have a strong plan to integrate marketing insights and new products, and that they do not plan to bring back the work tour. The other speaker, Matt Puckett, adds that Vans is down 30% in inventory and is in a good place, while Dickies is on the higher side of reduction.

The North Face and Supreme have higher inventories, while Timberland and other brands have lower inventories. The company is pleased with their overall inventory levels, but is looking into potential excess inventory in the outdoor and Timberland segments. Sell-out performance is stronger than sell-in performance, and the company is conducting a strategic review with the help of internal teams and the Board.

Matt Puckett discusses the strength of the sell-out market in Europe and the potential for continued improvement. Bracken Darrell mentions that Supreme sell-out remains strong. Matt Puckett also mentions that inventories in Europe and Asia are in a good place, with some pockets in the US being higher than desired. Jim Duffy asks about the portfolio review and if any banks have been appointed to shop unstrategic brands. Bracken Darrell had previously mentioned that no brands were off limits in the review.

The company has been working on a portfolio review for a while and is well along the way, but they haven't hired bankers yet. They are currently in discussions about what to do with their portfolio. The Vans realignment involves pulling back unsold inventory and opening up an open to buy for the products that are selling. There was an impact on inventory when returns were brought back, which affected sales in the last quarter.

The company is working to aggressively sell excess inventory and has been conservative in their planning. They have promoted two people in their recent teams and are still working on filling the rest of the team before focusing on execution. The free cash flow guidance may be impacted by lower net income and potential asset sales.

In response to a question about the company's free cash flow guidance, CEO Bracken Darrell explains that the company has already made significant changes and is aggressively moving forward with its operating model. He believes that the organization is well-positioned for a successful turnaround in the near future. CFO Matt Puckett adds that the company's third quarter results were a bit tougher than expected, but they are still on track to meet their $600 million free cash flow target. He also mentions that the biggest levers for improving free cash flow are on the balance sheet, such as inventory and accounts receivable. Finally, Darrell emphasizes the speed at which the company is evolving its organization.

The speaker discusses the changes and promotions within the company's leadership team. They also mention the strength of their direct-to-consumer channel and the varying levels of success for each brand in both digital and physical retail. Vans has a particularly strong DTC presence in the US.

The speaker believes that e-commerce will continue to grow while brick-and-mortar stores may shrink. They expect wholesale to also grow, particularly in Europe. The North Face and Timberland have a strong DTC business in Europe but less in the US. There are no plans to change this, but all businesses will have a larger e-commerce presence. There are no significant changes to the company's CapEx plans, with most of it going towards supporting DTC expansion and refreshing stores.

The final question comes from Ike Boruchow with Wells Fargo. He asks about North Face's trajectory and if all brands are part of the strategic portfolio review. Bracken Darrell and Matt Puckett do not address the question about the brands, but they do say that D2C is expected to grow and that wholesale may be difficult in the next few quarters. They also mention that North Face saw a bounce back in January due to weather. Bracken Darrell reiterates that all brands are being objectively evaluated.

Bracken Darrell, CEO of VF, is disappointed with the company's recent results but remains optimistic about the future. He believes that the steps being taken to turn things around are happening quickly internally, even though they may not be reflected in the numbers yet. He also acknowledges the company's world-class brands and talented employees, and looks forward to discussing progress in the next quarter and fiscal year. The call concludes with thanks from Bracken and the operator.

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