The paragraph is from a transcription of a conference call for VF Corporation's fourth quarter fiscal year 2025 earnings. The operator, Krista, introduces the call and hands it over to Allegra Perry, the Vice President of Investor Relations. Perry mentions that forward-looking statements will be made, which are based on current expectations and subject to uncertainties detailed in SEC filings. The discussion will focus on adjusted amounts in constant dollars and continuing operations, believed to more accurately reflect the company's performance. Reported amounts in accordance with U.S. GAAP will also be mentioned, with reconciliations available in supplemental financial tables. The call will include remarks from VF's President and CEO, Bracken Darrell, and CFO, Paul Vogel, followed by a Q&A session.

In the Q4 fiscal 2025 earnings call, Bracken Darrell reported a revenue decline of 3%, aligning with their guidance. Despite this, the company saw a significant improvement in operating income and gross margin, thanks to the Reinvent program and cost-saving measures. Net debt was reduced by over 25%, and the company is on track for its leverage goals. Excluding the brand Vans, revenue grew by 4%. Darrell acknowledged Vans' struggles, noting a 20% decline in the quarter, but expressed confidence in ongoing turnaround efforts, assuring that improvements, though not yet visible, are progressing methodically.

The paragraph explains that the revenue decline for Vans was largely due to deliberate strategic actions aimed at setting up for future profitable growth. Around 60% of this quarter's decline was intentional, focusing on eliminating unprofitable business, with significant reductions in store fronts and channel inventory, particularly in China. Additional actions included closing unprofitable stores and reducing distressed sales in the U.S., which improved Vans' gross margin year-over-year. In non-value wholesale, the sell-out improved slightly, and key accounts saw double-digit growth. However, direct-to-consumer (DTC) sales suffered due to soft traffic, which is being addressed by reenergizing marketing efforts. Leadership changes and key hires are also being made to better position Vans for long-term success, maintaining confidence in the brand's outlook.

The company is focusing on expanding its footwear line, particularly targeting women and youth, with successful early sales of the super low Pro model. They aim to enhance brand elevation through improved digital and store experiences and reducing lower-value wholesale channels. Significant growth is seen in The North Face, with a 4% revenue increase and strong outerwear and footwear sales, and Timberland, with a 13% revenue rise and increased margins. The company approaches market challenges, like tariffs, with a long-term perspective and a quick response strategy.

The paragraph outlines the strategic actions taken by a company to manage the impact of tariffs and macroeconomic uncertainties. The company emphasizes its asset-light, flexible model and diversified supply chain, having reduced U.S. finished goods sourced from China to under 2%. They have enhanced their ability to adapt quickly by activating teams and processes in response to tariffs, resulting in improved visibility and faster cycle times for business operations. The company is committed to leveraging uncertainties for business improvement and is on track with its transformation towards a multi-brand portfolio. The goal is to enhance agility and decision-making to achieve medium-term objectives and sustainable value creation. The paragraph concludes with a transition to a financial discussion by Paul Vogel.

The paragraph discusses VF's proactive approach to mitigating the impact of newly implemented tariffs on their business. They emphasize that the company's strategy focuses on unlocking value within its control to drive improved performance and a turnaround. They outline their sourcing structure, noting that less than 2% of their U.S. product costs come from China, with most sourcing from Southeast Asia and Central/South America. Vietnam, Bangladesh, Cambodia, and Indonesia are key sourcing countries. The paragraph also outlines that the potential unmitigated cost increase due to a 10% tariff would be about $150 million annually, with 65% of that impact expected in fiscal year 2026.

The company believes it can offset tariff impacts through cost management, strategic sourcing, and pricing strategies, leveraging its strong brand presence and asset-light model for flexibility. In Q4, revenue was $2.1 billion, down 3% year-over-year but aligned with guidance. The North Face brand grew by 4%, while Vans revenue decreased by 20%, and Timberland increased by 13%. The APAC region saw growth, while the Americas and EMEA were down due to reduced promotions. DTC sales decreased by 3% and wholesale by 2%. The gross margin improved significantly by 560 basis points to 53.4% due to cost advantages and better inventory, while SG&A expenses fell by 2% due to cost-saving initiatives, despite inflationary pressures.

The paragraph reports financial progress, highlighting a quarterly adjusted operating margin increase of 400 basis points year-over-year, and an improvement in adjusted loss per share from negative $0.30 to negative $0.13 compared to the previous year. The full year's adjusted operating margin improved by 110 basis points. The company emphasizes advancements toward medium-term goals, with significant strides in inventory reduction (down 4% or $71 million), decreased net debt by $1.8 billion (26%) due to paying off $750 million in senior notes, and a reduction in leverage to 4.1 times. Free cash flow reached $330 million, totaling $401 million, slightly below the $440 million guidance due to timing affecting working capital. Looking ahead, the company expects an increase in operating and free cash flow year-over-year and anticipates operating margin expansion by fiscal 2026 as it progresses with its Reinvent workstreams.

In the paragraph, the company discusses its financial expectations for the first quarter (Q1), noting that it is typically the smallest quarter and heavily influenced by Vans. The company anticipates a revenue decline of 3% to 5% in constant currency, with Q1 Vans performance expected to mirror trends seen in the previous quarter due to strategic actions in stores and wholesale. An operating loss between $110 million to $125 million is expected, with gross margins benefiting from reduced discounts and foreign exchange, while SG&A expenses should remain stable or decrease slightly. Projected interest expense is $40 million, and the effective tax rate is anticipated to be 13% to 14%, higher than the previous year. The company plans to provide ongoing tax guidance due to expected fluctuations in global tax rates, although these changes should minimally affect cash taxes. Despite challenges, the company is confident in its strategy and transformation efforts and then transitions to a Q&A session.

In the discussion, Simeon Siegel commends the company's improvement in gross margin and inquires about the expectations for further margin development throughout the year and structurally in the long term. He also asks if the $313 million free cash flow reported includes contributions from Supreme. Bracken Darrell responds by stating they do not provide full-year guidance but expect continued improvement in margins for fiscal '26, aligning with their Investor Day goals. He confirms that the $313 million free cash flow figure does not include Supreme and clarifies that future free cash flow discussions will exclude asset sales. He asserts that both operating and free cash flow are expected to increase next year, though specific figures depend on variables like CapEx.

In the paragraph, Brooke Roach from Goldman Sachs asks Bracken Darrell about the strategic reset actions being taken at Vans that affected fourth-quarter results and are expected to impact first-quarter results as well. Bracken Darrell explains that these actions include adjusting channel availability in China and reducing the number of stores. The impacts of these measures, such as door closures and managing distressed sales, are expected to peak by the end of the fourth quarter and gradually diminish throughout the first to third quarters of the following year, with a full recovery anticipated by the fourth quarter.

The paragraph features a discussion during an earnings call, where Laurent Vasilescu from BNP Paribas asks Bracken Darrell about the company's financial strategy and portfolio satisfaction. Paul Vogel responds about handling a 500 million Euro note maturing in March 2026, stating that the company plans to pay it down using free cash flow and possibly drawing from a $2 billion revolver. They anticipate improving cash flow and operating margins to manage future debt payments confidently. Bracken Darrell affirms satisfaction with the current portfolio, aligning with the strategy presented in October.

The paragraph is a segment of a Q&A session discussing financial strategies and outlooks. Laurent Vasilescu asks about the company's portfolio review process and exits, to which the response is that there are no significant changes expected. Michael Binetti from Evercore ISI questions Paul Vogel about the company's free cash flow guidance and capital expenditures (CapEx). Vogel explains a strategic shift in paying a liability early to avoid potential interest charges, which impacted their free cash flow figures but was deemed a smart business decision. Additionally, Binetti inquires about the strategy for Vans' back-to-school season, but Bracken Darrell defers the answer to Paul before potentially addressing it.

The paragraph discusses the company's strategic plans and leadership focus. They have a flexible approach to capital expenditure (CapEx) with long-term, intermediate, and short-term plans, allowing adjustments based on current performance. Bracken Darrell emphasizes the importance of strong leadership, highlighting Sun's ability to attract talent and her deep expertise in the industry. Sun is focused on product development, particularly for the Vans brand, prioritizing footwear over apparel. They successfully launched a new product, Super Low Pro, targeting women and youth, which quickly sold out, indicating positive market reception.

The paragraph discusses the strategic focus on embracing a four-season lifestyle approach, especially highlighting activities like surfing despite not having many related products. The company plans to reinforce this strategy by optimizing distribution channels and letting go of unprofitable stores. Bracken Darrell expresses confidence in the progress and indicates that more developments will continue throughout the seasons. Matthew Boss from JPMorgan asks about the health of The North Face (TNF) brand and direct-to-consumer momentum as they move into spring. Bracken responds positively, citing strong direct-to-consumer sales this quarter and expressing excitement for future prospects.

The company is expanding its footwear business, emphasizing that it is becoming relevant beyond the winter season and highlighting growth in global sales. They are shifting from developing products for two seasons to four annually, which will improve their spring and summer offerings, with more products expected next year. On the cost side, they've achieved over $300 million savings from their initial phase of the 'Reinvent' initiative and have started seeing benefits from a second phase aimed at increasing operating profit by $500 million to $600 million, impacting SG&A and gross margins.

In the paragraph, the discussion revolves around financial performance and strategic actions related to the Vans brand. The speaker, Bracken Darrell, notes that they exceeded expectations in operating income and margin, with revenue aligning with forecasts. They are benefiting earlier than anticipated and seeing progress in different business areas. SG&A costs are expected to be flat or decrease in Q1. Adrienne Yih from Barclays asks about challenges facing the Vans brand, specifically regarding non-comp sales headwinds. Two of the issues—value door closures and inventory reduction—are nearly resolved, while the others persist. Adrienne inquires if progress in non-value segments is sufficient to offset these challenges or if Vans will face declines throughout the year. Lastly, she asks about consumer demand and brand perception in the direct-to-consumer (DTC) segment. Bracken Darrell suggests improvements are being observed.

The paragraph discusses the ongoing impact of four unspecified factors, which will diminish over the course of the year and disappear by Q4. The main issue highlighted is the insufficient consumer traffic in stores and online, attributed to a lack of brand appeal. The company is experimenting with ways to increase traffic and improve consumer demand, focusing on curated assortments and strong marketing strategies. There have been improvements in key accounts, with some areas showing growth. The emphasis is on developing appealing new products and enhancing marketing efforts to drive more consumer interest and traffic.

The paragraph discusses the company's strategy for dealing with increased tariffs through strategic pricing and cost management. While acknowledging the potential need for low to mid-single-digit price increases across different geographies, the company plans to approach pricing strategically and explore cost-saving measures, such as relocating manufacturing operations. The speaker emphasizes viewing the situation as an opportunity rather than just a challenge to be mitigated, drawing from past experiences of successfully navigating similar crises.

The paragraph is a transcript from a discussion involving Bracken Darrell and Paul Vogel, with Adrienne Yih moderating and Ike Boruchow from Wells Fargo asking questions. It touches on the company's strategic plans moving forward into the fiscal year 2026, particularly noting that 65% of the expected impact will be seen in the latter half of that year if things remain unchanged. Adrienne expresses well wishes for Bracken's health, and the discussion shifts as Ike asks about plans for the Vans store base, including potential closures, and inquires about dividend strategies amid business challenges. Bracken responds that he will address the first question regarding Vans' store strategy, while Paul will tackle the second on dividends and cash preservation.

The company has been actively managing its store count, closing less profitable locations and opening new ones where opportunities arise. Store count has decreased by about 8% globally year-on-year as part of a strategy to optimize operations. They are also testing new store remodels, which are being rolled out cautiously, and have allocated capital expenditure (CapEx) to support these changes. The goal is to adapt based on return on investment (ROI) from these remodels. Regarding dividends, they have reduced them twice to $140 million annually, and adjustments may be made if needed to prioritize lowering leverage below 2.5 times.

In the paragraph, during a Q&A session, Bracken Darrell and Paul Vogel discuss improvements in gross margins. Telsey Group's Dana Telsey asks about the impact of product cost tailwinds, reduced promotions, and higher quality inventory on the gross margin by channel and brand. Bracken Darrell explains that the improvements are not temporary but fundamental changes that will continue to enhance gross margins. There is a differentiation in gross margins between wholesale and retail due to differences in SG&A expenses, but overall, they anticipate maintaining strong margins across channels. He expresses optimism, particularly with improvements seen in the Vans brand, and emphasizes a commitment to sustaining these gains. Paul Vogel agrees with the outlook.

The paragraph discusses the positive impact of reinvention initiatives and integrated business planning on the company's brands, emphasizing improvements in gross margins and markdown management. Bracken Darrell highlights the importance of gross margin in financial performance, citing past successes in improving it. Despite different industry challenges, the leadership is committed to enhancing gross margins and is confident in their strategy to transform VF, navigate macro challenges, and strengthen the business. The team is making significant progress and will continue to update stakeholders.

The paragraph concludes a conference call, expressing thanks to the participants for their questions and engagement, and announces that the call has ended. Participants are informed they may now disconnect.

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