VF Corporation (NYSE: VFC) today reported financial results for its second quarter (Q2'FY24) ended September 30, 2023, and announced a transformation program and quarterly per share dividend of $0.09, a 70% decrease from the previous quarter’s dividend. As the company implements the initiatives associated with Project Reinvent, it is withdrawing its FY24 revenue and earnings outlook and updating its FY24 free cash flow guidance.

Q2'FY24 Financial Highlights

• Revenue down 2% (down 4% in constant dollars) to $3.0 billion
• Loss per share $(1.16) versus Q2'FY23 loss per share $(0.31), impacted by the additional tax expense booked as a result of the Timberland tax case ruling; adjusted earnings per share $0.63 versus Q2'FY23 adjusted earnings per share $0.73

Bracken Darrell, President and CEO, said: "In my first 100 days, as I have spent time with our brands, teams, and customers around the world, I have developed even stronger conviction in the company's significant potential, which is far greater than what we are delivering today. Our transformation plan, Reinvent, will improve our brand-building and execution while addressing with urgency our top priorities of improving North America, accelerating the Vans turnaround, significantly reducing our fixed costs and reducing leverage. We are excited about the long term, starting with these first major steps toward improving our near-term performance, positioning us to return to growth and generate shareholder value.”

Q2'FY24 Operating Highlights

• The North Face^® delivered another quarter of double-digit revenue growth, up 19% (up 17% in constant dollars), benefiting from on-time deliveries, which negatively impacted the prior year period due to supply chain disruption
• Vans^® down 21% (down 23% in constant dollars)
• Wholesale down 1% (down 3% in constant dollars), primarily driven by the Americas, down 11%
• Direct-to-Consumer (DTC) down 3% (down 5% in constant dollars) and up 10% excluding Vans^® (up 9% in constant dollars)
• Americas down 11% and down 3% excluding Vans^®
• International business up 10% (up 5% in constant dollars)
  • Greater China up 8% (up 14% in constant dollars), with the APAC region up 2% (up 6% in constant dollars)
  • EMEA revenue up 14% (up 6% in constant dollars), reflecting growth across all channels

Reinvent

The company introduces Reinvent, a transformation program to enhance focus on brand-building and to improve operating performance and to allow us to achieve our full potential. Our first announced steps in this transformation cover four key priorities: Improve North America results, Deliver the Vans turnaround, Reduce costs, Strengthen the balance sheet.

• Establish global commercial organization, inclusive of an Americas region: Change the operating model with the establishment of a global commercial structure. This includes the creation of an Americas regional platform, modeled on the company's successful operations in EMEA and APAC. With this change, Martino Scabbia Guerrini has been promoted to the newly created role of Chief Commercial Officer, with responsibility for go-to-market execution globally.
• Sharpen brand presidents' focus on sustainable growth: A direct consequence and intent of the operating model change, which is particularly critical at this stage for the Vans brand, enables brand presidents to direct greater focus and attention to long-term brand-building, product innovation and growth strategies.
• Appoint new Vans president: Kevin Bailey will be stepping down from the position of Global Brand President, Vans. Kevin will remain on the Executive Leadership Team reporting to Bracken Darrell, and will transition to lead Reinvent, the company's business transformation plan, and the project teams driving the work. An external search is underway for a new brand president for Vans and in the interim, Bracken Darrell will take a more active role in leading the brand and delivering its turnaround strategies.
• Optimize cost structure to improve operating efficiency and profitability: Implement a large-scale cost reduction program, which we expect to deliver $300 million in fixed cost savings, by removing spend in non-strategic areas of the business, and simplifying and right-sizing our structure.
• Reduce debt and leverage: In addition to improving operating performance, VF is committed to deleveraging the balance sheet. The reduction in dividend announced today is one of the steps towards this objective.

FY24 Outlook

• The company withdraws its previous FY24 revenue and earnings guidance and updates its free cash flow projection:
  • Free cash flow for FY24 is expected to be approximately $600 million compared to the previous guidance of approximately $900 million
• The following factors are now assumed to significantly impact revenue and profit negatively in 2H'FY24
  • Vans' performance is not anticipated to improve in 2H'FY24
  • A more difficult US wholesale environment
• Reinvent will likely result in charges including cash and non-cash items

Matt Puckett, CFO, said: “Despite pockets of continued strong performance throughout the first half and solid profit margins in the second quarter, it's not enough and we are not making sufficient progress at Vans or in the US. Our transformation plan, Reinvent, directly addresses these areas in particular and importantly, commits to lowering our cost structure by $300 million. Through this effort and our ongoing evaluation of all aspects of our business, we remain laser-focused on cash generation and debt reduction, with the intent to return to growth, drive higher ROIC and reduce leverage."

Q2'FY24 Income Statement Review

• Revenue $3.0 billion, down 2% (down 4% in constant currency) with the big four brands down 3% (down 5% in constant currency) and the balance of the portfolio up 6% (up 4% in constant currency)
  • The North Face^® revenue $1.1 billion, up 19% (up 17% in constant currency)
  • Vans^® revenue $0.7 billion, down 21% (down 23% in constant currency)
• Gross margin 51.3%, down 10 basis points; Adjusted gross margin 51.3%, down 20 basis points due primarily to unfavorable rate
  • Adjusted gross margin headwinds of 50 basis points of unfavorable rate impact, partially offset by tailwinds of 20 basis points from favorable mix and 10 basis points of foreign currency exchange rate benefits
• Operating margin 12.0%, up 1,490 basis points; adjusted operating margin 12.0%, down 30 basis points
  • Adjusted operating margin contraction driven by 30 basis points of unfavorable constant currency gross margin impact and 30 basis points of deleverage, partially offset by 30 basis points of foreign currency exchange rate benefits
• Loss per share $(1.16) versus Q2'FY23 loss per share $(0.31), impacted by the additional tax expense booked as a result of the Timberland tax case ruling; adjusted earnings per share $0.63 versus Q2'FY23 adjusted earnings per share $0.73

Balance Sheet Highlights

• Inventories decreased by $269 million during Q2’FY24, down 10% relative to last year; inventory composition remains mostly core and excess replenishment inventory

Shareholder Returns

• Return of $117 million to shareholders through cash dividends in Q2'FY24
• VF’s Board of Directors declared a quarterly dividend of $0.09 per share, reflecting a 70% decrease from the previous quarter's dividend. This dividend will be payable on December 20, 2023, to shareholders of record at the close of business on December 11, 2023. Subject to approval by its Board of Directors, VF intends to continue to pay quarterly dividends.

Webcast Information

VF will host its second quarter fiscal 2024 conference call beginning at 4:30 p.m. Eastern Time today. The conference call will be broadcast live via the Internet, accessible at ir.vfc.com. For those unable to listen to the live broadcast, an archived version will be available at the same location.

About VF

Founded in 1899, VF Corporation is one of the world’s largest apparel, footwear and accessories companies connecting people to the lifestyles, activities and experiences they cherish most through a family of iconic outdoor, active and workwear brands including Vans^®, The North Face^®, Timberland^® and Dickies^®. Our purpose is to power movements of sustainable and active lifestyles for the betterment of people and our planet. We connect this purpose with a relentless drive to succeed to create value for all stakeholders and use our company as a force for good. For more information, please visit vfc.com.

Financial Presentation Disclosure

All per share amounts are presented on a diluted basis. This release refers to “reported” and “constant dollar” amounts, terms that are described under the heading below “Constant Currency - Excluding the Impact of Foreign Currency.” Unless otherwise noted, “reported” and “constant dollar” amounts are the same. This release also refers to “adjusted” amounts, a term that is described under the heading below “Adjusted Amounts - Excluding Transaction and Deal Related Activities and Tax Items.” Unless otherwise noted, “reported” and “adjusted” amounts are the same.

Constant Currency - Excluding the Impact of Foreign Currency

This release refers to “reported” amounts in accordance with U.S. generally accepted accounting principles (“GAAP”), which include translation and transactional impacts from foreign currency exchange rates. This release also refers to “constant dollar” amounts, which exclude the impact of translating foreign currencies into U.S. dollars. Reconciliations of GAAP measures to constant currency amounts are presented in the supplemental financial information included with this release, which identifies and quantifies all excluded items, and provides management’s view of why this information is useful to investors.

Adjusted Amounts - Excluding Transaction and Deal Related Activities and Tax Items

The adjusted amounts in this release exclude transaction and deal related activities associated with the review of strategic alternatives for the Global Packs business, consisting of the Kipling^®, Eastpak^® and JanSport^® brands. Total transaction and deal related activities include costs of approximately $1 million in the first six months of fiscal 2024.

The adjusted amounts in this release exclude the impact to tax expense resulting from the decision by the U.S. Court of Appeals for the First Circuit on September 8, 2023 that upheld the U.S. Tax Court’s decision in favor of the Internal Revenue Service regarding the timing of income inclusion associated with VF’s acquisition of The Timberland Company in September 2011. The adjusted amounts also exclude the impact to tax expense resulting from the decision by the General Court on September 20, 2023 that confirmed the decision of the European Union that Belgium’s excess profit tax regime amounted to illegal State aid. The net impact to tax expense was an increase of approximately $696 million, excluding the reversal of accrued interest income, in the second quarter and first six months of fiscal 2024, as a result of these two rulings.

Combined, the above items negatively impacted earnings per share by $1.79 during the second quarter and first six months of fiscal 2024. All adjusted amounts referenced herein exclude the effects of these amounts.

Reconciliations of measures calculated in accordance with GAAP to adjusted amounts are presented in the supplemental financial information included with this release, which identifies and quantifies all excluded items, and provides management’s view of why this information is useful to investors. The company also provides guidance on a non-GAAP basis as we cannot predict certain elements which are included in reported GAAP results.

Forward-looking Statements

Certain statements included in this release are "forward-looking statements" within the meaning of the federal securities laws. Forward-looking statements are made based on our expectations and beliefs concerning future events impacting VF and therefore involve several risks and uncertainties. You can identify these statements by the fact that they use words such as “will,” “anticipate,” “estimate,” “expect,” “should,” and “may” and other words and terms of similar meaning or use of future dates, however, the absence of these words or similar expressions does not mean that a statement is not forward-looking. All statements regarding VF’s plans, objectives, projections and expectations relating to VF’s operations or financial performance, and assumptions related thereto are forward-looking statements. We caution that forward-looking statements are not guarantees and that actual results could differ materially from those expressed or implied in the forward-looking statements. VF undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. Potential risks and uncertainties that could cause the actual results of operations or financial condition of VF to differ materially from those expressed or implied by forward-looking statements include, but are not limited to: the level of consumer demand for apparel and footwear; disruption to VF’s distribution system; changes in global economic conditions and the financial strength of VF’s customers, including as a result of current inflationary pressures; fluctuations in the price, availability and quality of raw materials and finished products; disruption and volatility in the global capital and credit markets; VF’s response to changing fashion trends, evolving consumer preferences and changing patterns of consumer behavior; VF's ability to maintain the image, health and equity of its brands; intense competition from online retailers and other direct-to-consumer business risks; third-party manufacturing and product innovation; increasing pressure on margins; VF’s ability to grow its international, direct-to-consumer and digital businesses; VF’s ability to find and amplify consumer tailwinds, build brands on multiple growth horizons and leverage platforms for speed to scale and efficiency; retail industry changes and challenges; VF’s ability to execute its transformation and other business strategies, including cost reduction and productivity initiatives and the update and maintenance of an agile and efficient operating model and organizational structure; VF’s and its vendors’ ability to maintain the strength and security of information technology systems; the risk that VF’s facilities and systems and those of our third-party service providers may be vulnerable to and unable to anticipate or detect data or information security breaches and data or financial loss; VF’s ability to properly collect, use, manage and secure business, consumer and employee data and comply with privacy and security regulations; foreign currency fluctuations; stability of VF’s vendors’ manufacturing facilities and VF’s ability to establish and maintain effective supply chain capabilities; continued use by VF’s suppliers of ethical business practices; VF’s ability to accurately forecast demand for products; actions of activist and other shareholders; VF’s ability to recruit, develop or retain key executive or employee talent or successfully transition executives; continuity of members of VF’s management; changes in the availability and cost of labor; VF’s ability to protect trademarks and other intellectual property rights; possible goodwill and other asset impairment such as the impairment charges related to the Supreme^® reporting unit goodwill and indefinite-lived trademark intangible asset; maintenance by VF’s licensees and distributors of the value of VF’s brands; VF’s ability to execute acquisitions and dispositions, integrate acquisitions and manage its brand portfolio; business resiliency in response to natural or man-made economic, public health, political or environmental disruptions; changes in tax laws and additional tax liabilities, including for the timing of income inclusion associated with our acquisition of the Timberland^® brand in 2011; legal, regulatory, political, economic, and geopolitical risks, including those related to the current conflicts in Ukraine and the Middle East; changes to laws and regulations; adverse or unexpected weather conditions, including any potential effects from climate change; VF's indebtedness and its ability to obtain financing on favorable terms, if needed, could prevent VF from fulfilling its financial obligations; VF's ability to pay and declare dividends or repurchase its stock in the future; climate change and increased focus on environmental, social and governance issues; VF's ability to execute on its sustainability strategy and achieve its sustainability related goals and targets; risks arising from the widespread outbreak of an illness or any other communicable disease, or any other public health crisis, including the coronavirus (COVID-19) global pandemic; and tax risks associated with the spin-off of our Jeanswear business completed in 2019. More information on potential factors that could affect VF’s financial results is included from time to time in VF’s public reports filed with the SEC, including VF’s Annual Report on Form 10-K, and Quarterly Reports on Form 10-Q, and Forms 8-K filed or furnished with the SEC.

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