Laurent Vasilescu: Hi, Bracken. Good afternoon. Thanks so very much for taking my question. Matt, it’s been a pleasure over the years. I wanted to just ask about debt pay down. Bracken, I think you mentioned you’re confident about not refinancing the $1.75 billion that’s come to due, I think December and then spring of 2025. Maybe can you just, for the audience, can you just help us bridge through. How do you get that from a free cash flow perspective? Any update on the PAX [ph] business? And then, I think Matt, you mentioned the non-core physical assets. There’s some corporate aviation program that you might sell off. Are there any assets, physical assets you might sell off? And if that’s the case, could you potentially size that up so we can model the free cash flow over the next few quarters?
Matt Puckett: Yes, Laurent let me jump in and try to take that one and great to speak with you. So I’ll start from the back end. The non-core physical assets, which are largely related to the elimination of corporate aviation program, there’s also a couple of buildings that are involved as well. It’s a meaningful number. I wouldn’t give you the exact number, but kind of north of $50 million and maybe pretty close to $100 million in the end, but so that’s kind of what you’re looking at. And that’ll likely play out over the next two to three quarters. I think we’ll be able to get most of that done. So that’s hopefully helpful there as it relates to the debt pay down. Yes, our objective is to not refinance those two tranches of debt that are due this December and next April.
To do that, we obviously need to sell the PAX business, and we’re continuing to work toward that. We expanded or opened up the aperture from a marketing standpoint last quarter, and that’s been really good. We’ve got a number of parties who are highly interested and engaging through kind of a round of bids and in the middle of pretty substantive due diligence as we speak, so good progress there as it relates to the underlying business. We’re going to generate a reasonable amount of cash flow this year and we’ve kind of confirmed that $600 million. I’d suggest that next year will be a bit stronger than that as we kind of normalize and continue to drive down inventories. We’re going to make a lot of progress reducing inventories this year. But given where the business is from a top line perspective, we’d expect more opportunity next year.
I think I’ve said before that cash flow next year could be kind of in line with where we started this year, and I still think that’s kind of a fair assessment.
Laurent Vasilescu: Very helpful, thanks very much.
Bracken Darrell: Thanks, Laurent.
Operator: Our next question comes from the line of Matthew Boss with Morgan. Please proceed with your question.
Matthew Boss: Thanks.
Bracken Darrell: Hey, Matthew.
Matthew Boss: So, Bracken, could you elaborate on your confidence in VF’s future rising the statement in the release or maybe how best to gauge sequential signs of progress that you may be seeing under the surface relative to the reported results? And then, Matt, I guess may be what’s the best way to think about the right structural gross margin multiyear for the business and what portion of the $300 million cost savings should we anticipate to fall to the bottom line?
Bracken Darrell: Yes, I’ll go quickly on your first question, Matthew. First, I have a lot better transparency on the business today than I did three months ago and certainly six months ago. I have a better sense for where the business is going to land. I feel much more comfortable that I understand where the business is landing in the Americas in a nearer time frame, despite the terrible quarter we just had. I feel like I have better transparency, especially in the last couple of months, than I’ve had since I’ve been know I went through guidance earlier, Matt and I talked through it. We went through guidance because of that lack of transparency, lack of clarity. So that’s number one. The second one is I feel just really, really good about the brands.
The deeper I get into them, the better I feel. I was excited coming in and the more I look into what’s out there, what we’re capable of. And really what the fundamental consumer power of the brands is I’m really excited about them, even the ones that some — they probably won’t be part of VF, I feel really good about. The third one is the team. Since I’ve been here, I think we’ve promoted two very strong people within V.F., and there are a lot more strong people than VF. In fact, we’ll be promoting another one to a big job here shortly, which we haven’t announced yet, so I can’t. But we’ll also be bringing in some from the outside. In fact, internally, we’re announcing one of those today. It would be on my staff. So we’ve got — we’ve just got a lot of really strong people in this team as much as I hate to see mate.
I think the team itself is very strong here, all up and down. So I’m very excited about it. And I guess the last part is the — Matthew, I think you were on our first earnings call, where I said, guess feels a lot like my last company, when I went into it at the beginning, it really does. And I feel about the same and about the same time frame, right? You hate to see numbers like we have right now. I absolutely despise it. But I have — it’s a bellwether and it feels intuitively feels to give me a stronger sense for where we’re going. And I feel you don’t know you’re coming out of it until you balance, and we certainly aren’t bouncing yet, but we will and I feel more confident about that than ever.
Matt Puckett: Hey Matt, in terms of gross margin. So I’m going to be careful here to not guide you to anything. But what I would say is if you kind of step back and look at where we are, and good to see our margins turn positive and that will, that will continue, I think, moving forward as we think about Q4 and beyond. We’re sitting today a couple of hundred basis points, maybe even a little bit more below where we were just a couple of years ago, all attributable to promotional activity and higher inventories and inventory reserves, et cetera. We’re not assuming that, that’s going to snap back overnight, but we also expect that there’s an opportunity there as we manage the business more effectively as we have cleaner inventories.
And as we obviously benefit from a marketplace that presumably over time, will get better. So I think gross margin expansion opportunities are there. Aside from the promotional scenario, which can play out over time. If I just look at the nearer term, right, over the next several quarters, mix will continue to be a good guy. We think about channel mix, we think about geographic mix. Inflation is — which has been pretty significant this year is waning. In fact, we see that waning here even in won’t be as big of an issue next year, notwithstanding the current issue that we’re dealing with relative to the cost of freight and what’s going on in the Suez canal, that could that could dent that a little bit, and that could be not an immaterial number.
But overall, inflation in the near term is a lot more manageable. FX will be less of a headwind. And there’s a little bit of benefit, not significant. Most of the reinvent benefit sits in SG&A, but a little bit of benefit in gross margin. So there’s more, I think, good guys than bad guys in front of us, but the big lever for us and for our businesses over the course of the next several quarters and really the next couple of years is how do we just get healthier and how do we sell more at full price and drive down promotions. I think that will be really critical. As it relates to the second question, I think on Reinvent and we’ve said we plan to reinvest 25% to 35% of the savings across time particularly in product and marketing.
