Operator:
Bennett:
Michael Bennett: Thanks for taking our question and I just want to Matt wish you well on your next adventure. It’s been a pleasure talking with you over the years here. I guess Bracken and Matt, I get the big question on our mind here is what, maybe you could walk us through some of the filters you’re looking at as you focus on which of the brands make sense in this portfolio in the strategic review. And then I guess I’m curious, Matt, maybe you could walk us just a little bit more through the puts and takes on gross margins. If there’s any numbers you could offer with, especially the comment that promos were in line to last year, just looking at the revenues and the commentary on brands in particular, you guys seem to be really pushing hard to get through a lot of the inventory. It wasn’t intuitive to us. The grosses would be positive in the quarter. So maybe just a little help understand the puts and takes there?
Bracken Darrell: Okay, I’ll go really quickly, Michael. So first of all, the number one thing is being in a good market I think. So first I think I said this on the last call. I love businesses that sit in growing markets. I also love businesses that are leaders within their markets. And then the third filter would be really, do we add value to the business within that market? So I think those are the three primary filters we’ll put on this and are putting on this and we’ll have a lot more to update over time.
Matt Puckett: Hey Michael, thank you. Great to speak with you today. You know, I’m not going to give exact numbers, but I’ll tell you the primary drivers on the margin line. So positives were mix and it is a bit larger than what we would normally see considering the mix of the business, particularly associated with the big decline that we saw in wholesale and the relative strength in the international markets and primarily in the APAC region. So mix is a bit bigger number. Freight continues to be a real favorable number for us and a really modest benefit from price. Big offset is FX. FX is almost offsetting that mix benefit. So that’s probably the single biggest drag is FX. This will be the worst quarter for us from an FX transaction standpoint that we’ll see.
A bit higher inventory reserves, modestly higher product costs. Promotions about flat, really. Part of your question was there. I think there’s a couple of things to remember there. We’ve made a lot of progress across the last twelve months in reducing inventories. We continue to be aggressive about doing that, but we’re in a better place than we have been. So while we continue to see a lot of promotional activity in the marketplace, particularly with our wholesale accounts, to some degree, particularly in the Americas, we’re a little cleaner in our D2C channels. We’re moving a lot of inventory through our outlets. But if you kind of pull up and look at our margins this quarter, our DTC full price channels, really across the board, including in Vans, were a bit better full price stores and our online business.
And so that’s where we’re seeing the business start to get healthier more quickly is in our own channels.
Michael Bennett: Okay, thanks for all the help.
Bracken Darrell: Thanks, Michael.
Operator: Our next question comes from the line of Brooke Roach with Goldman Sachs. Please proceed with your question.
Bracken Darrell: Hi Brooke.
Brooke Roach: Hi, good afternoon. Thank you so much for taking our question. And Matt, thank you as well. I was hoping you could expand on the north face and the results that you saw in the quarter as well as your outlook for TNF wholesale in the U.S. to remain challenged. Can you talk to your view of maybe the impacts from underlying macro and weather that we’ve seen this quarter and what we might see in U.S. wholesale for the next couple of quarters versus the underlying growth opportunity of that brand in calendar 2024 and longer term?
Bracken Darrell: Yes, I think Matt and I will split this. I’ll give you a view of the underlying growth opportunity. I continue to be super excited about the north face. I think the brand is very strong. All indications are that, the brand strength continues to be in place and the activations that we’re doing, the various marketplace activities we’re doing are working. But underneath it, as you said, we’ve got a pretty tough marketplace, both on wholesale, and the weather was obviously really tough. You want to answer that last part of the question on wholesale, Matt?
Matt Puckett: Yes, I think Brooklyn wholesale. I mean, what we’re seeing is we knew coming into the season it was going to be a little more difficult. Order books were down. We’ve said that all along and part of that is our own issue from the last year where we didn’t really service the business. So we kind of behind the eight ball coming in and then weather didn’t help. The marketplace remains pretty dynamic and pretty promotional, particularly in the outdoor segment. I think that’s kind of what you see and what we see and understand across the market. And I think we’re going to see that play out over the next couple of seasons as wholesale partners continue to plan very cautiously. We’re seeing that, and that’s how we’re thinking about planning our business.
All that said, the strength of the brand remains really good. All the metrics that we look at from a consumer standpoint continue to be good. Our D2C business generally is good when the weather’s gotten better here in January. Our D2C business is up in all three regions. In fact, the brand is up in all three regions, but particularly in D2C. So I think the underlying drivers of opportunity and the underlying drivers of the business are really strong. The wholesale channel, particularly here in the U.S., is difficult in the near term, and we expect it to continue to be.
Brooke Roach: Great. Thanks so much.
Bracken Darrell: Thanks, Brooke.
Operator: Our next question comes from the line of Adrienne Yih Barclays. Please proceed with your question.
Bracken Darrell: Hi, Adrienne
Adrienne Yih: Great. Thanks so much. Hi, Bracken. Matt, thanks for all your help in the partnership over the years. It’s been fantastic. So thanks. Just want to put that out.
Matt Puckett: Thanks, Adrienne.
Adrienne Yih: You’re welcome. My question is going to be on the marketplace cleanup. How much of it was the shift into 2Q and how much of it is going to be an overhang as we go into fourth quarter, and I’m going to split it. So, Bracken for you on that same question. We’ve seen sort of marketplace actions. Is it to get out of particular channels, to reduce stores in accounts? We’ve seen sometimes where they go pretty deep and the brand visibility kind of goes away, et cetera. So I’m just wondering where the push point is on that. And my last really quick one is how are you going to be taking advantage of the Escape moment at the Olympics.
Matt Puckett: Thank you. On the Q2, Q3, I would say Q3, Q4. The reset is kind of equally distributed across both quarters, and most of it is not exiting channels. That’s not the reset we’re talking about. It’s really pulling inventory, unproductive inventory, out of those channels so that the productive inventory can move the faster movers. There is a larger marketplace change that will happen in Europe and to some extent in the U.S., but that’s going to happen more gradually in terms of what we’ll be doing at the Olympics, we’re obviously not talking too much about it yet. We keep that close to our best. But we do have some pretty interesting plans.
Adrienne Yih: Fantastic. Best of luck.
Matt Puckett: Thank you.
Operator: Thank you. Our next question comes from the line of Laurent Vasilescu with BNP Paribas. Please proceed with your question.
Bracken Darrell: Hi, Laurent.
