V.F. Corporation (NYSE:VFC) Q3 2024 Earnings Call Transcript

V.F. Corporation (NYSE:VFC) Q3 2024 Earnings Call Transcript February 6, 2024

V.F. Corporation isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Greetings, and welcome to the VF Corporation Third Quarter 2024 Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Allegra Perry, Vice President of Investor Relations. Thank you. You may begin.

Allegra Perry: Good afternoon, and welcome to VF Corporation’s third quarter fiscal 2024 conference call. Participants on today’s call will make forward-looking statements. These statements are based on current expectations and are subject to uncertainties that could cause actual results to differ materially. These uncertainties are detailed in documents filed regularly with the SEC. Unless otherwise noted, amounts referred to on today’s call will be on an adjusted constant dollar basis which we’ve defined in the press release that was issued this afternoon, and which we use as lead numbers in our discussion, because we believe they more accurately represent the true operational performance and underlying results of our business.

You may also hear us refer to reported amounts, which are in accordance with U.S. GAAP. Reconciliations of GAAP measures to adjusted amounts can be found in the supplemental financial tables included in the press release, which identify and quantify all excluded items and provide management’s view of why this information is useful to investors. Joining me on the call will be VF’s President and Chief Executive Officer, Bracken Darrell; and EVP and Chief Financial Officer, Matt Puckett. Following our prepared remarks, we’ll open the call for questions. I’ll now hand over to Bracken.

Bracken Darrell: Hello, everyone. Thanks for joining us. It’s nice to be here with you for my second earnings call with VF six months in. Before I get started, I’d like to let you know about an important development within my leadership team. Matt Puckett, who’s sitting right next to me, will be stepping down as our CFO later this year. He and I have agreed that it’s time to make a change as part of the overall transformation efforts we’re introducing across the company. Matt will stay on until we appoint his successor to help ensure a smooth transition. I want to thank Matt. His tenure at VF spans almost 23 years with roles across the organization and around the world. Since my arrival last July, Matt has been a valuable member of the team and an important player in helping to advance our transformation agenda.

I really appreciate his contributions and his continued service to VF during the transition. He’s also just a great person and we’ll miss him, but not just yet. He’ll be here for a while. Moving back to the quarter or back to today’s order of business, first I’ll review the quarter, then I’ll update you on our four near-term priorities we described in last quarter’s call, which we call Reinvent. I’ll then talk briefly about our newly announced strategic portfolio review, and then I’ll hand it over to Matt to cover the financials a little more deeply. Q3 was a particularly disappointing quarter with total revenue down 17% compared to down just 4% last quarter, where the results did benefit from timing shift in deliveries. Results were challenged across our brands, including The North Face and the rest of the outdoor brands.

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Q&A Session

The big Delta came down to five things. Number one, unseasonably warm weather most of the quarter. The average temperature was 3 to 4 degrees higher than average in the northern hemisphere. Number two, a difficult compare given the operational challenges we faced last year. As a reminder, last year we were late with deliveries leading to revenues that would have been recorded in the second quarter coming in the third quarter. We corrected these operational issues this year, which led to a tougher compare. Number three, continued America’s underperformance. This was the last quarter operating without an America’s regional platform and we expect these changes to result in improved America’s results over time. Number four, we also made our results this quarter a little worse by cleaning up Vans as we reset our channels.

And finally number five, there was some impact in the cyber incident as we closed the quarter. These are disappointing numbers across the board and we’re acting with urgency to improve performance so that we do not report another quarter like this. We expected a weaker quarter for The North Face, but results were worse than our expectations, impacted largely by the Americas region, while international performance remained strong. Of course, the weather was a factor as temperatures were substantially warmer than normal throughout the quarter. Of note, in January, the weather got cold and The North Face returned to growth across all three regions. We believe our performance is strongly held back by the operating model that we’re now transitioning away from.

Let’s talk a little bit about the Americas. We now have our new commercial organization in Americas platform in place and are confident this will translate to improved results for the brand and across the rest of our brands. At Vans the decline looked like it did last quarter by the numbers, but underneath there’s a lot changing. I’ve been spending more than half of my time with our team reviewing strategies, new products and marketing plans. Product and marketing are obviously every brand’s foundation. Brand turnarounds have certain features. Three of them are a clear brand purpose, a product plan that will eventually result in growth and marketing that weaves them together. If you look at the history of every great brand, a founder creates a trademark and launches its products under it.

As truly strong brands move through time, ownership evolves and almost becomes shared. The best brands learn to share and pay respect to their most important customers, those who are the most influential. While customers don’t create products and marketing campaigns usually, they are the ones who drive the success through their ownership and advocacy. During the period from 2015 to 2020, the brand really took off. It got energized and accepted by new groups thanks to cultural trend makers. More celebrities started to wear them. Moms bought them for their kids, and we actually took our eye off the core youth audience that had been the lifeblood of Vans. The brand had to evolve. But rather than continue to respect and serve the youth audience that had built the brand, we only fed the trend that grew it rapidly.

We largely withdrew marketing to the core youth and instead focused on everyone else. We extended our line-up to lower price points and value stores, and we offered more and more color waves of the same old things to pour more fuel into a fire built on a trend. The trend fuel burned out 18 months ago. The trend moved on. When a brand loses its way, the answer starts at its foundation, its purpose and target audience. So now I’ll wet your appetite with my opinion about where we are. We have created a package of a deeply rooted brand purpose, clear segmentation, 18-month marketing plan, and a solid product roadmap. This package is in place. We have a map back to growth for Vans. I’m not ready yet to commit to when the brand will return to growth, but it will.

In the meantime, let me talk about a few dynamics we’re starting to see emerge. First, we continue to see a strong performance from newer things in the Vans product portfolio, which are becoming a larger share of our business. The new school, for example, is still small, but it’s growing well, especially among young girls in the U.S. I’m not pointing that style to suggest it’s the turnaround shoe. There won’t be a single one as you will see. We will have a cascade of new products over the next several years, but I am encouraged by how this style is resonating with the very cohort we’ve lost over recent years. We’re resetting the marketplace in Q3 and Q4, changing our marketing and beginning to launch relevant new products in the coming seasons.

I’m energized by the progress of Vans, including with the search for a new brand president. There’s more to come. Timberland also sagged under the weight of the warm, high season weather and underperformed in the Americas. Importantly, our global DTC business was only down mid-single-digits in the quarter despite the weather. The important news this quarter was my announcement of Nina Flood as the new Global Brand President. She is the second strong internal VF leader I’ve promoted within my leadership team, the first being Martino, who runs the Global Commercial Organization. Nina brings extensive experience across general management, brand marketing and strategy with a 20-year career at VF spanning multiple leadership positions. I’ve been impressed by Nina since the first time I met her six months ago in Stabio [ph].