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

Now turning to the quarter. Throughout Q3 we remained highly focused on strengthening both our business fundamentals and our balance sheet. At the same time, we are advancing our transformation program Reinvent with a sense of urgency and resolve to execute against and identify new and additional opportunities to reshape and improve VF. Now I’ll start with a review of the quarter, then provide an update on Reinvent and finish off with some thoughts on the year to go period. Total revenue was down 17% for the quarter as both global Vans and the Americas results remained pressured as expected. On a global basis, wholesale led to decline at down 28%, while DTC was down 9%. Excluding Vans, DTC was down 3%. Before going into a review of the regions and brands, I’ll spend a few minutes outlining some items which impacted the quarter.

First, Q3 was impacted by the expected timing related shifts in wholesale, where on-time deliveries this year benefited Q2 while impacting Q3 relative to the prior year period. This had an overall impact of about 2.5 points on total revenue in the quarter and 5.5% across the global wholesale revenue. Second, as Bracken mentioned earlier, we took proactive measures to accelerate the Vans turnaround by introducing several reset actions at the brand in Q3, which impacted total VF revenue about 1.5% in the quarter and may have a further impact into Q4. These actions are largely focused on ensuring we have a clean marketplace with the right level of healthy inventory into which we can more effectively introduce upcoming newness while positioning our partners and Vans for overall better sell-through and profitability, as well as delivering a more compelling brand presentation to consumers.

Finally, results were impacted by the cyber security incident in December, which briefly disrupted our ability to fulfil orders over the preholiday period. We estimate the overall impact to Q3 revenue was less than 2%. From an EPS standpoint, the estimated impact was approximately $0.04 to $0.05 on the quarter. This does not include any potential recovery from cyber insurance. I’d like to take this opportunity to commend and thank our teams, particularly those in digital and technology, who worked tirelessly through the holidays, for the truly amazing effort that allowed us to quickly recover and return to servicing consumers and customers. Moving to the operating review by region, Americas was down 25% in the quarter. As anticipated, we saw the most pressure in wholesale which was down 35%.

DTC, down 16%, reflected softer sell-throughs throughout the holidays, particularly outside of promotional windows in addition to weaker sell-through in cold weather and seasonal products, particularly in the outdoor segment. EMEA was down 12%. Excluding impact from the wholesale shipment timing, the decline would have been about 7%. We are seeing slowing consumer confidence and greater caution continuing in the wholesale channel. DTC was down 1% but up slightly excluding Vans, with The North Face up mid-single-digits. Like the Americas, we also experienced a more challenged sell-through on cold weather seasonal products across Europe. The APAC region continues its growth path and was up 3% and Q3. Aside from Vans and Dickies, all of our brands that operate in the region were growing, led again by strength in The North Face.

Also to note, VF revenue was up 7% in Greater China. Turning to the performance by brand, The North Face revenue was down 11% in the quarter. Excluding the wholesale shipment timing shift, The North Face revenue would have been down mid-single-digits. The Americas region results were challenged and our performance fell short of our expectations. After a slow start to the fall winter season, momentum remained subdued and performance was choppy throughout the quarter. While core bestselling lines continued to deliver strong sell-through, we saw softness in cold weather items and some seasonal product offerings. The brand remained relatively stronger in international markets. In APAC, momentum continued in the quarter with the brand growing 28% in the region and more than 30% in Greater China.

In EMEA, Q3 was down 5%. However, DTC growth continued in the region and was up 6% this quarter. Overall in EMEA, when looking across Q two and Q three combined to neutralize the impact of shipment timing across the quarters, the brand was up high single digits within the region. Vans Q3 revenue was down 29% and down across all three regions, broadly in line with half one when accounting for the intentional reset actions we took in the quarter to clean up the marketplace and reposition our wholesale channel. These negatively impacted global revenue by about 5 points in Q3 three and may have a further impact in Q4 as we complete the work. Timberland was down 22%, driven largely by the Americans region where channel inventory and retailer caution remained a headwind and specific to the brand’s assortment, boots and other seasonal product have been challenged this season.

Internationally, the business performed relatively better, highlighted by low-single-digit growth in APAC. Dickies results continued to be pressured with revenue down 17% in a quarter. America’s again experienced declines with softer sell out trends in a core work business and specifically in the value oriented distribution. International markets were impacted by the results in Europe which were down as a result of wholesale timing shifts into Q2. However, the underlying business continues to be good, and the APAC market continued its reset. Supreme saw its positive momentum from last quarter continue with broad based growth across regions and benefited from entry into Korea with the ongoing strong performance in the new store in this market that opened in August.

Overall, strong sell-through across product categories led to improving profitability. Now moving down the P&L, Q3 gross margin expanded by 40 basis points to 55.3%, as tailwinds from channel and regional mix more than offset the impact of negative foreign currency transaction. Overall promotions were about flat versus last year, reflecting the continued elevated levels of promotional activity across our markets, our ongoing efforts to reduce inventory, in particular leveraging our own outlets, as well as the impact of the Vans marketplace reset actions SG&A was down 5% in constant dollars during the quarter from lower distribution, administrative and marketing costs, offset partly by higher digital and technology spending. However, the larger revenue decline this quarter drove significant SG&A deleverage of 590 basis points.