VF Corp. sees the fiscal year ahead as a year of transition and progress, positioning the company to accelerate profitable growth in fiscal year 2025 and beyond. The company believes it has an appropriately balanced plan in place for this fiscal year considering its organizational transition, and they expect to show progress in several areas with sensible revenue projections, increased marketing investment, and a sharp focus on margins leading to solid operating profit growth and cash flow generation.
VFC delivered revenue and profit in line with guidance for the fiscal fourth quarter to close the 2023 fiscal year ended March 31. Interim President and CEO Benno Dorer said in a conference call with analysts that the company has made solid progress toward priority areas of focus. He said that, against the backdrop of continued challenging macroeconomic conditions, VFC grew full-year revenue 3 percent in constant-currency terms, with 10 out of the company’s 12 global brands flat or growing revenue for the year – and five of those brands delivering double-digit growth. The company also delivered adjusted earnings per share of $2.10 for the year, which was at the midpoint of company guidance.
The company also reached its target to reduce inventory by about $300 million in the fourth quarter, and while it remains elevated, trends are said to be good. Net inventory was still up 62 percent versus the end of the prior fiscal year, which reflects the continued higher amount of core carryover replenishment inventory, particularly at The North Face and Dickies. Excluding the increase relating to the change in terms to support the supply chain financing program implemented in Q1 of fiscal 2023, inventory was up $620 million, or 46 percent, which was seen as a moderation from the year-over-year increase of 75 percent at the end of the fiscal fourth quarter.
“What is important to us is that we have closed the right way, meaning profitably and sustainably, expanding margins, and generating significant cash flow in fiscal year ‘24,” Dorer expressed. “To do so, while supporting strong investments in the business, we are leaning into the more profitable parts of the portfolio and implementing a strong cost savings plan with a more systematic and ongoing cross-functional approach to eliminate costs that have lower value to consumers.”
Company EVP/CFO Matt Puckett added that while they are seeing progress against near-term priorities, all aspects of the business are still underperforming.
For the fourth quarter, consolidated revenue performed in line with expectations, down 3 percent (flat growth in constant-currency) to $2.74 billion from $2.82 billion in the prior-year quarter. The quarter was led by the International business, which was up 8 percent, and “outstanding performance” in The North Face, which delivered 12 percent growth, or +16 percent in constant-currency terms for the period. The TNF brand reportedly grew by double-digits across all channels and all regions on a global basis in fiscal year ‘23.
Puckett said the outdoor emerging brands portfolio continued to deliver strong performance and Dickies and Supreme had improving results relative to the third quarter. As anticipated, Vans was down 12 percent for the period and Timberland declined 6 percent to close the year.
The overall Wholesale business was down 5 percent (-2 percent constant-currency) to $1.59 billion in fiscal Q4, compared to $1.67 billion in the prior-year comparable period.
The Direct-to-Consumer business dipped 1 percent (+3 percent constant-currency) in the fiscal fourth quarter to $1.15 billion from $1.16 billion in the prior-year quarter.
Adjusted gross margin was down 260 basis points and adjusted operating margins declined by 230 basis points, with adjusted EPS of 17 cents a share, compared to 45 cents a share in Q4 fiscal 2022. The reported loss per share was 55 cents a share in the fourth quarter compared to earnings per share of 21 cents in the prior-year comp quarter.
For the full year:
- Revenue decreased 2 percent (up 3 percent in constant-currency) to $11.6 billion, driven by the performance at The North Face and strength in EMEA, partially offset by declines in Vans and Dickies.
- Gross margin decreased 200 basis points to 52.5 percent of sales, primarily driven by elevated promotional activity and increased product costs, partially offset by pricing actions and lower freight. On an adjusted basis, gross margin decreased 220 basis points to 52.6 percent of sales.
- Operating income on a reported basis was $328 million. On an adjusted basis, operating income decreased 27 percent (down 20 percent in constant-currency) to $1.1 billion. Operating margin on a reported basis was 2.8 percent of sales. Adjusted operating margin decreased 330 basis points to 9.8 percent.
- Earnings per share were 31 cents on a reported basis. On an adjusted basis, earnings per share decreased 34 percent (down 26 percent in constant-currency) to $2.10 a share.
From a regional breakdown in the fourth quarter, results were said to reflect a “mixed performance across geographies.”
The Americas region was said to be soft in fiscal Q4 with revenue down 7 percent during the quarter, in both USD terms and constant-currency terms, to $1.45 billion from $1.56 billion in the prior-year quarter. The Americas results were said to be particularly impacted at wholesale, where regular price distribution was down 17 percent in the quarter.
North America reportedly remained challenging for Vans, which declined 18 percent in Q4 in the region. Timberland was described as “muted” in the quarter, down 6 percent, while Dickies showed sequential improvement, declining 4 percent in the region for the period. The North Face was up 4 percent in the Americas in the fourth quarter.
EMEA continued to deliver strong results, with revenues up 8 percent in constant-currency terms (+2 percent USD terms) to $901.3 million in Q4, reflecting “growth from most brands in the quarter and from all brands on a full-year basis.” This was reportedly the 8th consecutive quarter of strong growth for the region.
“While we are starting to see some impact from macro pressures on consumer spending, most countries saw continued revenue growth in the fourth quarter and all grew for the fiscal year,” Puckett shared.
The North Face increased revenues 24 percent in the EMEA region in the fourth quarter and Dickies posted a 33 percent increase for the period. Vans slipped 2 percent in the EMEA region while Timberland was off 1 percent. for the quarter.
EMEA’s revenue was up 12 percent for the year while delivering strong profitability.
The APAC region continued to strengthen further and show sequential progress in Q4 with revenue up 10 percent in constant-currency terms (+3 percent USD terms) to $388.7 million, driven by a return to positive growth in Greater China in the quarter, which was also up 10 percent.
“In particular, The North Face delivered a standout performance in Greater China, up nearly 40 percent as the brand continues to fuel demand with the local consumer and achieve high sales productivity amidst the recovering marketplace environment,” Dorer said. Across the rest of the region, VF saw broad-based growth in major markets during the quarter.
Vans was up 2 percent in constant-currency terms in the APAC region in Q4, while The NOrht Face sureged 35 percent. On the down side, Timberland was down 18 percent for the quarter in the region and Dickies saw business decline 16 percent in the period.
“We have significant growth opportunities in APAC and particularly in Greater China, where we have strong category tailwinds and tremendous brand penetration upside,” said Dorer. “VF’s enterprise capabilities and supply chain, digital and technology, and international go-to-market platforms give us a competitive advantage, which we will fuel with strong investments in our brands and consumer capabilities.”
The total International business was up 2 percent (+8 percent constant-currency) to $1.44 billion in the fourth quarter, compared to $1.41 billion in the prior-year quarter.
The Outdoor segment, which includes The North Face, Timberland, Icebreaker, Smartwool and Altra, reportedly saw ongoing strength in the fourth quarter, increasing 3.6 percent (+7 percent constant-currency) to $1.32 billion in the quarter. Operating profits were down 13.5 percent to $114.8 million from $132.8 million in the prior-year comp quarter.
The segment was led by continued strong performance at The North Face, which contributed $859.5 million to total revenues in the 2023 Q4 period, compared to $769.5 million in the year-ago period.
Dorer said The North Face continues to execute strongly with engaging marketing and a steady stream of innovative styles. “Our core snow sports category was a standout in Q4, while the iconic Nuptse jacket continued its strong momentum,” he shared.
“We saw further growth in trail running footwear particularly behind our proprietary active technology underlying the brand’s significant opportunity in footwear,” Dorer said. “The North Face continues to resonate with a growing consumer base with the XPLR Pass adding over 1 million new members to surpass 18.5 global members at the end of Q4.”
VF is increasing product and marketing investments to support consumer acquisition, innovation and marketplace sell-through and the expansion of the brand into new adjacent categories based on clear permission from consumers to do so, according to Dorer.
“Regionally, our focus is to improve execution in the Americas,” Dorer admitted. “The first quarter will be difficult here as we work to regain the confidence of an already cautious set of U.S. wholesale customers in our ability to deliver full customer service after a difficult 2022 in that respect, but we should see significant improvements starting this fall.”
Dorer pointed to the recent appointment of Jen McLaren to the newly created role to lead the company’s U.S. Key account management as part of that stronger focus as they work with customers to capitalize on “the many available partnership opportunities that exist.” He said they expect EMEA to be resilient and generate profitable revenue growth in fiscal year 2024 behind its “hallmark execution strength,” and APAC is anticipated to grow double-digits this fiscal year, which he said they will fuel with increased brand investments.
Timberland was down 9 percent (- 6 percent constant-currency) for the quarter to $395.6 million from $434.9 million in the prior-year Q4.
Outdoor segment full-year revenues increased 6 percent (+12 percent constant-currency) to $5.65 billion from $5.33 billion in the prior year. Segment operating profit was $785.4 million in fiscal 2023, compared to $795.5 in fiscal 2022.
Active segment, which includes Vans, Supreme, Eastpak, Jansport, Kipling, Napapijri, sales were down 11.3 percent to $1.13 billion from $1.28 billion in the prior-year quarter. Sales were down 9 percent on a currency-neutral basis. Operating profits declined 33.2 percent to $113.5 million from $170 million in fiscal Q4 2022.
Vans was down in Q4, as management expected, declining 14 percent (-12 percent constant-currency) to $857.0 million from $991.2 million in the prior-year Q4, but Dorer said they saw “encouraging green shoots from new product launches” and “increased focus on maximizing existing product platforms.”
Dorer said the two emerging product lines of focus, UltraRange and MTE, were up 51 percent and 34 percent, respectively.
“We are just scratching the surface on these,” he suggested. “We also demonstrated that we can energize Vans’ fan base when we have meaningful product news. In Q4, we had a highly successful start of our retro-inspired new school platform. This new shoe shows the potential to grow into a meaningful growth driver for Vans over time. A global Vans family membership grew to 28 million members by end of Q4 nearly twice the number from two years ago. Clearly, there’s much work ahead of us, but there are encouraging signs for us to build on.”
VF expects Vans to return to growth during the course of the second half of the current fiscal year.
“Importantly, Vans will return to profit growth for the full fiscal year and even ahead of its return to revenue growth aided by cost savings and SKU simplification,” Dorer shared. “The Vans team is operating with a great sense of urgency and projects are on track. We continue to strengthen our team. Our new brand campaign launched in April. We are sharpening our go-to-market process with a focus on digital.”
Dorer continued, “We will increase our product development investment in fiscal year ‘24, tease our new pinnacle premium line at the Paris Fashion Show next month and aggressively drive UltraRange, MTE and new school while seeding the Style 93 women’s felt Sandal launch now for a full launch this fall. More innovation will follow. Our consumer understanding work is in progress sharpening our focus later this calendar year and we are improving our shopping experience with a significantly reduced SKU count throughout 2023.”
On Supreme, which was acquired by VF in 2020, the company recorded an impairment charge of $313 million in the quarter.
“The business performance was clearly uneven in fiscal ‘23,” said Puckett. “We are now planning more modest growth in fiscal ‘24 before accelerating in fiscal ‘25, benefiting from geographic expansion, the pace of which will begin to quicken starting this fall. We remain confident in the brand’s long-term growth potential, which will benefit from increased access to the brand through both geographic expansion and further penetration in current markets, along with product category extension opportunities with current consumers.”
Active segment full-year revenues fell 9 percent (-5 percent constant-currency) to $4.90 billion from $5.38 billion in the prior year. Segment operating profit was $654.7 million in fiscal 2023, compared to $979.7 million in fiscal 2022.
Work segment (Timberland Pro and Dickies) sales were $287.2 million against $274.2 million, up 4.7 percent on a reported basis and 7 percent on a constant-currency basis. Operating profits declined 34.3 percent to $28.2 million from $42.8 million in the prior-year comp quarter.
Dickies declined 3 percent for the quarter, flat in constant-currency terms, to $191.5 million, from $197.0 million in the prior-year quarter.
Work segment full-year revenues declined 4 percent (-4 percent constant-currency) to $1.06 billion from $1.13 billion in the prior year. Segment operating profit was $121.2 million in fiscal 2023, compared to $193.5 million in fiscal 2022.
VF said they “delivered sequential improvement” in both the Dickies and Supreme, which stabilized in Q4 behind very strong growth in key market Japan.
Other Brands, which include brands other than TNF, Vans, Timberland, and Dickies, inched up 1 percent (+5 percent constant-currency) for the period to $436.0 million from $432.1 million in the prior-year comp period.
Looking ahead to the current fiscal 2024 year, VF sees total revenue flat to up slightly in constant dollars for the year, including Q1 revenue down in high-single-digits in constant-currency, reflecting a challenging U.S. Wholesale environment.
Gross margin is forecast to be up at least 100 basis points for the year, benefiting from a lower promotional environment across the marketplace. Operating margin expansion, driven by the higher gross margins supporting modest increases in SG&A.
Resulting EPS is estimated at a range of $2.05 to $2.25 a share in fiscal 2024, including more than 30 cents negative impact from the adverse effect of higher interest, unfavorable foreign currency, assumed normalized incentive compensation and a higher tax rate.
Free cash flow isa expect at approximately $900 million.
Photo courtesyTNF
