The VF Corporation Fourth Quarter 2024 Earnings Call has begun, and the operator introduces the speakers. The call will include forward-looking statements and will focus on adjusted constant dollar basis, which is believed to accurately represent the company's performance. The speakers will include VF's CEO, President, and CFO, and after their prepared remarks, the call will be open for questions. The CEO mentions that the company has made a lot of progress in the past 10 months.

The speaker discusses the Reinvent program and how it will lead VF to return to strong growth. They mention the progress made so far and the three phases of the program: reset, ignite, and accelerate. The speaker also emphasizes the importance of having a strong team for a successful turnaround, mentioning the addition of talented individuals, including a new CHRO with experience in a larger company and the retail and apparel industry.

VF has announced new leadership changes, including a new Head of Strategy and Digital, Head of Design, and CFO. They also plan to announce a new Vice President soon and have promoted internal talent. The company is on track to meet its cost savings target and has reduced debt and strengthened its balance sheet. The strategic portfolio review is complete and the Americas Regional Platform is now operational. The company is seeing progress under the new leadership and is taking actions to improve the performance of Vans.

Despite overall financial results not yet improving, the company is starting to see early signs of progress. The brand is beginning to turn around, starting with positive results in DTC Europe. The company is simplifying its product lineup and investing in design and innovation. New products, such as the UltraRange Neo and AVE 2.0, are performing well and more product launches are in the works. The company is also working to make its marketing efforts more effective by simplifying its storytelling and concentrating its investment on a handful of key stories. This has led to improved search trends and the company recognizes the need for both simplification and brand elevation to drive gross margin.

The company is using their new OTW line to drive excitement and connect with cultural trends through a series of global events. They are also focusing on improving in-store execution and testing new strategies for visual merchandising, four-wall formats, and SKU productivity. In terms of The North Face, they are investing in product, design, and merchandising, with a focus on category expansion and elevating the brand through premium performance products. They are also testing and scaling new store designs across the globe, with examples including the Regent Street store experience and new formats in Berlin and Singapore. Their global partners are also involved in this initiative. The final phase, "accelerate," will be discussed in future quarters.

The speaker, Martino Scabbia Guerrini, discusses the key priorities within VF's new operating model, primarily focusing on the Americas. These priorities include driving an integrated marketplace strategy with speed and agility, elevating retail execution in both brick and mortar and digital channels, and driving commercial excellence through their operating model and scaling new capabilities and best practices. The overall goal is to capture consumer engagement at every touch point and improve performance in both wholesale and direct-to-consumer channels.

The company is focusing on improving their marketplace management and partnerships in the Americas region in order to drive growth and elevate their brand positioning. They are also working on improving brand elevation and retail execution in the region, specifically in their direct-to-consumer environment. This includes optimizing common commercial priorities and creating a strategic long-term frame with their partners. These efforts are already starting to yield results.

The company is implementing a regional approach to optimize their retail fleet and increase innovation. They are focusing on elevating their brands through consistent design and merchandising decisions, as well as improving their e-commerce and digital experiences. They are also removing barriers to effective commercial execution and integrating trade, marketing, and planning to drive the business and optimize inventory. The company's emerging brands are also performing well.

In the new operating model, the company is focusing on being more entrepreneurial and seizing market opportunities. They have made progress in improving operations and returning to commercial excellence. In fiscal year 2024, they have made progress on their reinvention plan, although their P&L results remain difficult. In the fourth quarter, they exceeded their free cash flow guidance and took proactive measures to improve their operating performance and strengthen their business and balance sheet. They have completed a strategic portfolio review and are on track with their plan to pay down debt and strengthen their balance sheet. While the financial results from the fourth quarter were challenging, there was a slight improvement and encouraging developments from recent actions taken.

In the quarter, the company saw improvements in inventory, cash flow, and liquidity, surpassing expectations. Inventory decreased by 23%, driven by efforts to clean up the marketplace and operate more efficiently. Cash flow was over $1 billion and free cash flow was $800 million, allowing for progress in reducing debt. Revenue was down 13%, in line with expectations, with the Americas performing worse than international regions.

In the Americas region, there was a 23% decrease in sales due to cautious wholesale partners and inventory reduction efforts. The DTC channel also saw a decline, with Vans being the main contributor. However, the EMEA region saw a 5% decrease in sales, with growth in the DTC channel and brick and mortar stores. The APAC region had a 2% increase, with all brands except Vans and Dickies showing growth. The North Face was down 5% globally, but had positive growth in DTC and strong performance in the APAC region. However, there was a decline in Southeast Asia and Korea.

The cold weather season had a slow start, but overall outerwear sales were up mid-single digits for the year. However, the larger wholesale pressure in the Americas will continue to impact results in the next few quarters. Vans revenue declined as expected due to inventory reset actions, but DTC in Europe saw growth. Timberland was also down due to reset actions in the U.S. wholesale market, but showed improvement in Europe and Asia. Dickies also saw a decline in sales due to regional trends and a refocus on their core workwear consumer. Soft sellout trends were seen in the Americas and adjustments are being made in APAC.

Supreme had a strong quarter with sales up low double digits, driven by a good start to the spring season and a strong performance in Korea. Adjusted gross margin declined due to intentional reset actions to reduce inventory levels, but excluding these impacts, gross margin would have been up. SG&A was down slightly due to lower volume related spending and incremental savings from the reinvent program. However, the lower revenue led to SG&A deleveraging in the quarter.

In the fourth quarter, the company saw a decrease in operating margin and earnings per share due to cost savings connected to their Reinvent initiative. They have achieved $80 million in gross savings and are on track to reach their target of $300 million in annualized savings by fiscal year '25. The company has also booked additional charges of $55 million in Q4 and expects the total charges associated with Reinvent to be around $130 million to $150 million. They plan to reinvest a portion of the savings towards their biggest brands and opportunities. The company expects revenue to remain challenged in the near-term, particularly in Q1, but is not issuing P&L guidance at this time.

In the first quarter, VF Corp expects a decrease in gross margins due to excess inventory and clearance sales. They anticipate generating $600 million in cash, but this is lower than the previous year due to less working capital benefit. The CFO, who is leaving the company, thanks everyone and expresses confidence in the company's future under the new CEO. In response to a question, the CEO explains that Vans Europe DTC has turned positive, which is seen as a positive indicator for the company.

During the call, Michael asked if the improvement in direct-to-consumer (DTC) sales in Europe was a sign of improvement in the wholesale channel as well. Bracken stated that turnarounds usually start in one channel and then spread systematically. Martino added that the DTC sales in Europe have improved due to focus, experience, and a better assortment mix, and there are signs of improved engagement with the brand. They also have better inventory and see improved search trends, which could lead to stronger partnerships with wholesale partners.

The company is creating conditions to work against the opportunity of engaging with and winning with their brand. The North Face is experiencing ongoing wholesale weakness in the US, particularly in winter apparel products. This is a key challenge for the company, but also an opportunity for The North Face to strengthen partnerships and strategically frame their future in the Americas wholesale market.

The speaker discusses a common issue facing brands in the Americas region and the opportunity for The North Face to expand into different distribution channels. They express confidence in the aerospace brand and plan to continue investing in its products and branding. The speaker also mentions plans to pay down a $1 billion tranche in December and potentially refinance a $750 million tranche in April, with the expectation of ending the year with over $2 billion in liquidity.

Bracken Darrell, CEO of VF Corporation, discusses the company's financial outlook and the potential for refinancing $750 million. He also mentions that The North Face brand is in a different position from Vans, with broad-based growth and strong dynamics globally, including in China. The underlying sell out for The North Face was 7% this quarter.

The North Face has been performing well globally and the company expects this trend to continue. Sellout has been strong, particularly in outerwear, and there are no major inventory resets planned. The company is also working to rebuild credibility with timely deliveries and improving sell-through. Additionally, the company's new operating model in the Americas is expected to bring significant improvements in the future.

Brooke Roach asks Bracken Darrell about the progress of inventory and marketplace cleanup actions, which are expected to be completed by the end of the first quarter. Matt Puckett adds that the actions are largely done, but there will be a residual impact in the first quarter as excess inventory is sold through clearance channels. Looking ahead, there will be less mix benefits in fiscal '25 compared to fiscal '24, but product costs are not expected to be an issue.

Bracken Darrell, CEO of the company, discusses the impact of foreign currency and inventory on the company's fiscal year in 2025. He also mentions the successful launch of new products in the Vans brand, such as the New School and AVE 2.0, and hints at future product releases. He believes that the company has largely completed the reset phase for Vans and is optimistic about the brand's future.

The speaker expresses optimism about the steps being taken and believes they are either at the bottom or close to it. They can see a turn ahead and are not able to predict the quarter, but have positive signs such as DTC going positive in Europe and improved Google search trends. The speaker is proud of their leadership team, including new additions from Salesforce and BCG, and mentions several jobs being filled. They also mention a new Vans president being announced.

The speaker discusses the ongoing portfolio restructuring and the importance of having a diverse range of brands. They mention that the review is complete and they are currently taking action, but they will not disclose any details publicly. The speaker also emphasizes the significance of all three channels of distribution (wholesale, digital, and physical stores) and mentions that they are all critical and should not be prioritized over each other. They also mention the potential mistake of swinging the pendulum too far in one direction and the importance of being present in all channels.

The company is aiming for a balanced distribution model between brick and mortar, online DTC, and wholesale. They have not done as good a job in wholesale and are aggressively managing store count. They plan to have a full integrated approach to wholesale and stronger partnerships with winners globally. The $600 million cash flow target includes the sale of the APAC business and potentially other initiatives.

The company plans to use the $600 million in free cash flow and some proceeds from noncore asset sales to improve their financial position. They have already started consolidating space and exiting expensive programs to reduce costs. The CEO also mentioned that they do not plan on refinancing their debt and may consider brand sales to meet their $750 million maturity. An analyst asked about their noncore asset plans and the CEO confirmed that most of the $600 million will come from free cash flow and asset sales.

Bob Drbul asks Bracken Darrell about his decision to bring in Paul Vogel as the new CFO and the performance of Supreme. Darrell says that Supreme is a strong performer and they are constantly improving. He also talks about the process of finding Vogel and why he was chosen, mentioning his experience in finance and working under respected CFOs. The combination of his skills and interpersonal skills made him the top candidate. The next question comes from Paul Lejuez about the outlook for the company.

The speaker asks about the company's plans for managing inventory and working capital in the upcoming year. The speaker also asks about the company's capital expenditures and how they will be allocated. The company's representative responds by saying that they have made progress in reducing inventory levels, but there is still room for improvement. They expect a modest decline in inventory next year and their capital expenditures will be focused on consumer-facing initiatives.

The company has strategically reduced inventory in order to make room for newer products. They are not disclosing their leverage ratio, but it is expected to decrease by a few hundred million dollars. The cash outlook for the year includes an expectation of sequential improvement in top line growth. The company is also focused on improving their forecasting ability.

Bracken Darrell was asked about the timing of when the company will reach its financial targets and when they will reinstate guidance. He mentioned that they expect sequential improvements and are optimistic about the business. They are not ready to reinstate guidance yet, but it may happen in the near future. The company's CapEx and D&A will be similar to historical levels, with D&A being slightly lower. The gross margin decline in Q4 may provide context for future performance.

In response to a question about the expected impact on gross margins in the first quarter, Bracken Darrell asks Matt Puckett to provide more context on the revenue and margin outlook for the quarter. Puckett clarifies that the top line is expected to be similar to the previous quarter, excluding the impact of a reset. He also notes that the first quarter is the smallest of the year and has a larger exposure to the Americas region. Additionally, the impact of the wholesale order books from the previous quarter will extend into the first quarter, but expectations are different for future seasons. Puckett also mentions that the growth in the APAC region last year was significant, making for a challenging comparison.

The company's two-year stack for the region is expected to be double digits, but more modest in the short-term. Gross margin will be down similar to Q4 from a year-over-year perspective. The tax issue is ongoing and the company has made decisions in its portfolio review. PACs is for sale and the company is starting to see reductions in SG&A expenses.

The company is taking actions to reduce costs and improve efficiency. This will lead to an increase in gross margin, but some of the savings will be reinvested. The company is also dealing with inflationary factors, but remains focused on reducing SG&A and reinvesting in the business. The CEO is confident in the team and excited about the progress that has already been made.

The speaker thanks Paul for his 23 years of service at VF and acknowledges his positive impact on the company. They also thank everyone for joining the call and end the teleconference.

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