VF Corporation Reports Second Quarter Fiscal 2024 Results, Announces Reinvent, A Comprehensive Transformation Program

VF Corporation (NYSE: VFC) has 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.