John Kernan: Got it….
Matt Puckett: John, I would just add real quickly here. Yes, there is opportunity, and we will drive higher profitability in this business. As we stabilize the business and begin to grow it again. Doing a lot of work on the cost structure. You can imagine within that $300 million Vans’ impacted there, given it’s a really big business, and there are places in that business, where the cost structure is a little bit out of whack given what we’ve seen in the declines store closures, capacity in certain parts of the business, et cetera. So, we’re going to improve, the profitability of that business. As we stabilize it, gross margins will stabilize. There’s still a really high gross margin structure business. And as we begin to grow off of a right-sized cost structure, we’re going to have the ability, to drive a lot of profitability relatively quickly back into that business, because we certainly lost a lot.
John Kernan: Understood, Matt. Maybe one quick follow-up for you just on the capital structure. How should we think about the refinancings in the next couple of years and debt paydown? And obviously, we saw the dividend announcement today that does free up some cash. So, how should we think about your approach to the capital structure?
Matt Puckett: Yes. So actually, I’m glad you asked that question. Deleveraging, we can’t say it enough. It’s paying down debt and deleveraging is our number one financial priority. And our target hasn’t changed. 2.5 times gross leverage is our target. And we’re going to make substantive progress against that over the next couple of years. The actions we’ve announced today, specifically the cost reduction, which will generate cash, also improve EBITDA as well as the benefit of the dividend reduction, which is $325 million. Both of those things put us in a better position to address those things. I would tell you, as we sit here today, our plan and I’ve got a lot of confidence in our ability to do this, also when you factor in the work that we’re doing to sell the PACS [ph] business is to pay-off the next couple of tranches of debt and not refinance those. That’s about $1.750 billion that’s due over the next 18 months, and that’s our expectation.
John Kernan: Excellent. Thank you.
Bracken Darrell: Thanks, John.
Operator: Thank you. Our next question is from Dana Telsey with the Telsey Advisory Group. Please proceed with your question.
Bracken Darrell: Hi, Dana.
Dana Telsey: Hi. Good afternoon. Hello Bracken and hi. As you think about wholesale, which has been one of the challenged parts of the business, in your big picture view, how do you think about what percentage of the business do you want it versus DTC? And does it differ by brand? And then when you’re thinking about fixing the U.S. what are the markers that we should be thinking about watching as we go through the next year or so to say that it’s on track, so to speak? Thank you.
Bracken Darrell: Well, I probably won’t throw out a specific number. I’ll just say I think wholesale is super important in this business. And as much as I love DTC, and we all do, I think the pendulum for a lot of companies in this industry, is long too far over. And there’s a reason why wholesale, is in the marketplace in place with outsized for all of us, because consumers like to buy it that way a lot of this time. So as I’ve met with several of the CEOs of our wholesale partners, in the U.S. and in Europe, I’ve been really impressed by their plans and by their capability. And I fully intend for us to cater to them effectively, which doesn’t mean we won’t be investing in DTC, we will. So, if you read between the lines, that means also it would be a really important part of this business. Your second question was on markers.
Dana Telsey: On the U.S. marker, yes?
Bracken Darrell: Yes, I think, yes – one of the key markers. I mean I think they’re the ones that you expect to see. I think you just – will be looking – like you will, we’re going to be looking very carefully at sales, but on a very short-term basis. So, we’re going to keep an eye on that as we start to execute, I would expect our revenues to get better. And when we really fully operational, it will take us a little while to get that in place, but I expect improvement.
Dana Telsey: Thank you.
Bracken Darrell: Thank you.
Operator: Thank you. Our next question is from Paul Lejuez with Citigroup. Please proceed with your question.
Bracken Darrell: Hi, Paul.
Paul Lejuez: Hi, thanks guys. Hi Bracken. So you talked a bit about how the current VF turnaround is similar and share certain characteristics that, are similar to your prior turnarounds. But I’m also curious, to hear how you view this as different, what’s unique? And what does that mean in terms of how you tackle it? Thanks.
Bracken Darrell: Yes. I think one of the differences is it takes a long – too long to develop products in this business, in this industry, actually, a lot longer than I would have expected, before I started researching it. I obviously knew that before I came here, but I was surprised back during the early stages of kind of trying to work to understand what VF is all about, while I was in the energy process. How long it takes in this industry to develop footwear and even apparel. So, I think that is quite a difference. There’s also – there’s this valuing that happens in this industry that’s new to me, which we call seasons where you sell a season in and somebody’s got to decide they want to buy that season and then you see how it does.
And those are two key differences in this industry, but they’re not major. I mean, they’re significant in times of the way we – our process operates. But they don’t really fundamentally change, the way I think about the business. It’s still the same business, which is create great innovation. Some of it – most of it moderate level of innovation that keeps things fresh and new. Some of it really dramatic and innovative and then make sure that consumers love, what you’re all about, very values-driven. And so, there are a lot more parallels than differences, kind of 5:1 or 6:1 or something.
