VF Corporation CEO Bracken Darrell opened the company’s fiscal third quarter conference call with analysts, telling the call participants that what excites him most is what they, the analysts and investors, can’t see yet.
VF Corporation is the parent company of the Altra, Vans, The North Face, Jansport, Eastpak, Timberland, Dickies, Smartwool, and Icebreaker brands.
“Our transformation is well underway, and Q3 was an excellent quarter of progress across our business inside the company,” Darrell shared. He talked about how VF was systematically remaking the company for long-term value creation, double-digit operating margins and strong and sustained growth.
Darrell referred to the company’s nine work streams shared by the company at October Investor Day, which will essentially bring the company to best-of-breed processes and reset the entire leadership team that was part of the process to turn the business around.
“But you might not be aware that we’re now resetting the rest of the organization beneath those leaders,” Darrell added. “Between the work streams we spoke about in October and the organization changes I’m explaining here, we’re building new structures and processes to be more effective, more efficient, and, in the end, more creative. It’s not just about saving money.”
Darrell continued, “If I sound energized by this, it’s because I am; this is going to create strong value, great products, elevated brands, and a place to grow and learn for our people. Now, enough about what’s going on inside the company.”
Darrell also provided an update on the VF Corp.s’ Reinvent program, designed to turn the business around in the future. The program has four priorities:
- Lower the Cost Base
- Strengthen our Balance Sheet
- Fix the U.S. Business
- Deliver the Vans Turnaround
Lower the Cost Base
Darrell said the company is on track to deliver the initial $300 million in gross cost savings, with another $55 million generated during the third quarter.
“Remember, this is the $300 million we said would be fully actioned by the end of last quarter, so Q2, and fully reflected in the P&L by the end of this coming quarter, so Q4, by the end of the fiscal year, as we promised,”
he said. “The work is complete. The cost reduction is showing up, and all $300 million will be in the run rate as we exit fiscal ’25 as planned.”
However, the CEO reminded the call participants that they were not stopping at hitting those goals. Darrell said VF Corp. is already working on process and organizational changes that will contribute to unlocking another $500 million to $600 million in operating income expansion, with half of that in SG&A alone.
“That’s part of our approach to delivering our medium-term operating margin target in fiscal year 2028 of at least 10 percent before any growth,” Darrell said.
“Let me underline a point that might already be obvious to you by now,” said Darrell. “While the cost side of these work streams will help us return to sustained double-digit profitability, this work is even more important than the bottom line impact it will deliver,” he suggested. “These actions are absolutely instrumental towards enabling growth. They form part of a comprehensive plan to enable the company to be more creative and more powerful in product creation and marketing.”
Darrell said these projects enable creativity through better consumer insight and targeting as well as the standardization of all the processes possible to best-in-class levels to enable higher impact from good ideas in both revenue and profitability.
“We also continue to reinvest some of those savings back into product creation and brand building,” Darrell added.
Strengthen the Balance Sheet
Darrell said VF Corp. made big progress during the quarter with a reduction of net debt of almost $2 billion versus this time last year.
“Just to reemphasize that, we have reduced the net debt, not including lease obligations, which are required from an accounting standpoint to be included when we call it net debt. So, excluding those lease obligations, we’ve reduced the net debt by almost 40 percent in the last year alone,” he emphasized.
Darrell said they were working to move the company’s leverage ratio down in three ways.
“First, we divested non-strategic assets, planes, buildings, and, of course, Supreme,” he summarized. “Second, we reduced our working capital primarily by cleaning up our inventory and making it fresh. And, finally, and most importantly, we’re improving our operating earnings. You now see how effective this triple threat approach can be to rapidly dropping our leverage levels.”
Darrell said there is more to do but also said the company is squarely on track to continue to delever the balance sheet to reach its 2.5 medium-term leverage target.
Fix the U.S. Business
VF Corp. adopted its global commercial model in the Americas over a year ago to bring its performance up toward the other regions’ historical performance levels. Darrell said it is working.
“Our Americas business improved again relative to last quarter with revenue up 2 percent in Q3 versus down 9 percent in Q2; that’s the first quarter of growth in over two years,” he noted. “It’s early days. So, we may not see growth every quarter as turnarounds often aren’t linear, but it’s good to see green numbers again. And we have a lot, and I do mean a lot, of improvement ahead of our Americas business.”
Deliver the Vans Turnaround
The Vans brand’s overall performance in the fiscal third quarter was down 8 percent, said to be a further sequential improvement compared to the second quarter, which was down 11 percent year-over-year.
“I feel very good about the steps we’re taking, but sustained turnarounds take time,” Darrell offered. “Underneath the numbers, I want to call out a few things, primarily in our key focus areas of product and marketing. New products continue to outperform big established franchises. Knu Skool remained the No.1 growth driver and the No. 2 franchise globally and is in line with the strategy to win with youth and women.
“We won’t rely on just one style to build our business in the future, and we have momentum in our newest styles, both Hylane and Upland,” he emphasized. “In many ways, the Vans brand continues to have enormous potential. It was recently named the number three most authentic brand from the Authenticity 500 Index, as the ranking of the world’s most authentic brands. The message here is that we have a lot of growth potential as we keep improving our execution.”
Darrell also said brand elevation is fertile ground for Vans as he called out the “exceptionally strong” sell-through for the brand’s OTW holiday collaborations, including the Satoshi Nakamoto and the HommeGirls collaborations targeted at women. Darrell said the new Americas regional platform is also starting to deliver.
For the holiday period, the U.S. non-value footwear channel reportedly generated strong positive sell-through year-over-year for the first time since February of 2022, led by the brand’s largest accounts.
“We are making progress and are more confident than ever of the brand’s growth potential. We have a lot of pistons to fire on advance, product, marketing, distribution, brand elevation and more, and we’re putting each one in place,” he shared.
Image courtesy Vans/VF Corporation
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See below for more SGB Media coverage on the turnaround efforts at Vans.
https://sgbonline.com/exec-inside-the-improving-vans-performance-and-turnaround-story/
