V.F. Q1 2025 Earnings Call Transcript

Yes, I'll save a little bit of that for the next quarter or 2. And of course, by the time we get to the end of the year when sun has a chance to speak to it. But I'll give you what you're asking, I think. I expect you'll see more of the same. We just turned on a new marketing campaign for Vans which is tied directly to a cascade of product launches. As I mentioned in the opening -- in my opening remarks, the new franchises are doing well. And we've now got 2 of our new franchises, I think, are in the top 5. So UltraRange and Knu Skool, one's number 2, [Indecipherable] is number 5. I think it just shows you how responsive we are to new products when they're right. And so you're going to see more new products as we come through the year. We will launch several new styles just this month. Of course, they're not incorporated in what we've done so far this year.

On top of that, we've completely revamped our approach to marketing. We just introduced our always pushing campaign which started in Paris when we had that event that we mentioned in June. And it's now moving right down through everything we do. And you'll see more and more of that as time goes on. Our grassroots campaign is well underway, as is our influencer campaign. You may have seen a few celebrities caught wearing Vans just recently. If you Google it, you'll see it. So you're just going to see more and more of that as you go through the year. This is the kind of energy we need from Vans and I'm super excited about it.

Yes. First of all, I apologize to you. It didn't cross our mind that would be spoilers such good news on our side. But if we did spoil it, it's still good news. Yes. So on TNF, the underlying reality is we continue to have good solid DTC growth around the world and China continues to just be super strong which is exciting. Wholesale is relatively weak, both mainly driven by traffic and conservatism, I think, on the retail side, both in the U.S. and to some extent, you're up to. And you can see on the numbers you gig into it.

I think it's probably a function of a couple of things. One is the overall macro environment and also a little bit of skittishness just because of the weather last year when it was so warm during the holiday season. So we're not guiding TNF going forward but I feel really good about the brand. I feel really good about the product initiatives that are coming. And I'd say stay tuned. I think TNF going to be just fine.

Yes. I'm happy to say there aren't any changes. So I'd say, overall, this is a good reflection but I think, are getting a better handle on our on our forecasting. And it's very much the same in terms of the underlying dynamics as it was last quarter. The only real change will be, at some point, we will pull Supreme out, of course which is as you may or may not realize it's pretty back-end loaded. So most of the cash would come into the back end of the year. But other than that, there won't be a big change.

Yes. We released the -- I think we released the P&L and a filing. So last year, it was $520 million and about 20% OI. You can kind of assume that's about what the cash looks like. It's going to be higher than that this year. So think around 600 and 120. And we're not sure when this will close yet but whenever it closes, then the rest of the year, of course, the cash will pull out but we'll reset our guidance for that. But it's probably, let's say, cross half way through the year, it will be more than half of the overall cash.

We don't have anything specific contemplated but I don't think we're ever really done in terms of reviewing our portfolio. So we've certainly finished our portfolio review, at least for now. We'll probably recycle on that on a regular basis but we will recycle on a regular basis. There's no specific plans now. This puts us in a good position to pay off the next 2 tranches of debt as we promised. And from there on, it will be about a good strong cash generation unless we decide to divest something else in the future. And I'd say stay tuned on that. The October Investor Day will give you a good sense for how we expect that debt to come down.

It is not on...

Yes. Thank you for asking that question because nobody else did. I was going to bring it up. It is not a philosophical point. We spent the last four months really scoping additional cost savings. We're not ready to service with anything yet. But we will talk about that in October. We're actually working with an external consultant on that and we feel really good about our program.

So I won't repeat the famous 4 that are probably not famous to you but they feel like -- I feel like I told you so many times those 4 priorities that I think I said in my first full call. So I won't go through those but you referenced kind of a summary of those. From a management team, I feel great. I mean I think we've really got an all-star team and it's all I could have asked for. And everybody is on the floor, everybody is on the team now. We're about half of them are new in the last months, half of them are not. And it's really a terrific team. Now it's my job to make sure that we together work well as a team. So we're really going to be working on that.

In terms of the turn -- the Vans turn and the turn in general on the business, when do I forecast it happening? I'm not going to give you a number today but I will tell you in October, we'll be ready to talk about that. So I feel very good about the progress we're making. It feels very similar to where I was when I was in my last company and I feel like I can see it and I feel good about it. In terms of the debt paydown, we'll certainly talk about that in October when you can expect that leverage to come down.

Let me take the last one first. So Red Sea, I think, are pretty stable there now as much activity and as much challenge is for the humanitarian otherwise challenge there. Our workarounds are well in place. So I think we're okay there. On Bangladesh, we do have some disruption, where about 15% of our production comes out of there. We do have a little bit of risk in our Q2 on that -- on the kind of the back end of our Q2. But I'm not -- it's not big enough that I'd make a big deal out of it. And I'm pretty convinced it will moderate based on the events that have happened in the last 48 hours. But we'll see, I think it will be okay.

We're also quite good at moving production we need to be. So there certainly wouldn't be any kind of long-term impairment if anything happened worse than it is today. And if it were to stay the way it is today, it's not the end of the world. On the -- on Caroline, I'm just super excited about Caroline's background. She started in luxury. She spent her whole career in apparel. She really knows this business, she has a great eye for fashion and just an incredible passion for the North Face. And she's a phenomenal leader. I mean she showed up immediately, as she walked in the door. We've now got Timberland tense all over the lobby and people are having meetings in at least I am. So she is really excited to have her.

I would point out, Laurent, that something that some of you may not have realized, we are moving super-fast here. And a lot of what we're doing, for example, right now, I can't tell you what we're doing but we're doing a lot right now that we're not disclosing. So for example, at this point last quarter, you didn't know about Sun [Phonetic], you didn't know about Caroline, you didn't know about Supreme. And I'm not suggesting we've got people changes, our portfolio changes coming. My point is we just got big activities that are happening all the time now and the pace is not going to let up.

Sure. Look, at the end of the day, I think China, in general, has been a great story for VF. And it is -- the overall market slowed down a little bit, as we all know. But it's still just a fantastic market. I mean Caroline and I were talking this today, it's such a big opportunity for us, not just for the North Face, for all of our major brands. I think the story in China is very much a story of each brand story around the world. So Vans in a turnaround. Vans were really if you think we're changing a lot in Vans globally, you should see what we're doing in China. I mean we're really closing a lot of stores, opening stores. It's an incredible amount of churn, only at China speed can you do what we're doing there. And they're not company-owned stores, they're partner stores but boy, it's happening fast.

The North Face continues to do extremely well there, as you know. You can see in the numbers today. By the way, we're indexing again some very strong numbers in a year ago. So that number today is really, really powerful. And Timberland is a work in process. I think Timberland is an interesting brand in ever. So it's a little different in every part of the world which is one of the challenges to Timberland. But I think there's -- that in that lies the opportunity. I'm excited about Timberland but we're not focused on it for now, at least not for these discussions.

Sure. Dickies is kind of the story of two actions. We moved too fast to try to turn it into a pure fashion brand here in the U.S. And then we really pushed to make it a pure fashion outside of the U.S., it continues to do that outside the U.S., it's doing fine. In the U.S., it's really struggled because we lost our footing in our core work business and we're really refocused completely there now. So I'd say more to come there. I think Dickies is a fantastic brand and a great business, a really good, strong, solid brand and we'll get it back on its footing. It will just take a little time.

Yes. I think the sell-out has continued to be down versus a year ago which nobody likes but the trend is in the right direction overall. And so I guess that's the main thing. And so it's a little too early for us to give you any kind of expectation for back-to-school. You just -- if we had this call just a few weeks later, a month later, we certainly could. But we'll see. I feel good about the progress we're making on Vans. I feel great about the marketing and product initiatives. So I'd just say stay tuned. We said we expect sequential improvement, slight sequential improvement. We do. And that's the kind of progress I want to see on Vans all the way through the year.

Well, first of all, I'll answer your second question first. We are really rightsizing our distribution. So we're doing quite a bit on both wholesale and DTC and wholesale, we are pulling back in the value channel in Europe and the U.S. And that's happening real time. We're not talking a lot about it. So we're not going to make a big deal about it but we are. And in the stores, you heard me talk about closing stores and in the U.S. We're also, as I said, closing stores in China and a little bit of churn in Europe, too. So overall, I'd say there's a lot of activity there.

What's the biggest opportunity in Vans? I mean, Vans is just a fantastic brand. And it just lost the energy, really lost energy. And you can see how it happened. We got so over-rotated on a couple of styles. I know you've heard me say this before but I feel compelled to say it again. We over-rotated on a couple of styles that will always be popular, by the way. But you could overdo them probably almost any point. And we over rotate at the same time that the kind of the culture picked them up and run with them. And that just really drove too far -- too much of a buy now kind of mentality into the marketplace; and I think everybody who needed them got it [Phonetic].

And there was -- there's never been -- boy, I don't like Vans anymore; I'm done with Vans. It's just -- I've got them; in fact, you still see people wearing them. So what are we doing? So we're innovating and we're also putting in franchise management. So, innovating by bringing out new styles. So you've seen -- you're starting to see them come one at a time now, AVE 2.0, the Knu Skool, 3 new styles this quarter. And we'll have more coming and then some really key collaborations to give energy.

And then franchise management, where you're going to see us take the gas out of some of the older styles for a while and then redose them when we first at the very top of the culture chain with key influencers and then flow them down. This is franchise management 101 plus innovation which I think is really the model for growing a footwear brand. On top of that, I do think there is fabulous. I mean we're only 19% of our businesses is in apparel. And that's a big opportunity but it's not the most important near-term opportunity. And I know Sun [Phonetic] feels the same way I do about that. So I think there's lots of opportunity on Vans.

Yes. I'll answer the gross margin comment first. I do -- we do expect gross margin to improve through the year. We had a pretty big promotion headwind from gross margins over the last couple of years. And it should start to come off as you said, as we go into the back half of the year, especially. And if all things hold, that's our expectation. So I'm optimistic. To me, gross margin will always be the most important number in the P&L and I'm an absolute -- I'm looking at Paul right now across the table and he's smiling too. We both are real zelig for this. So we're going to really be fixated on gross margin.

I can't promise you every quarter exactly what's going to happen but I expect it to improve over time. And consistent with that, when we talk about our guidance, our lack of guidance when we get to October, we'll come up with a formula for how we're going to do this. I don't want to spoil the fun now. We kind of have a game plan. But we will give you more than we've given in the past and we'll certainly give you something more in the intermediate term, something that you can look to and see where we're really trying to head to. So without saying any more because Allegra will elbow me right in the neck because she's that close; I'll stop there.

You're a little quiet.

Yes, we can. Yes.

That's like asking me to pick which channel is my favorite. I'm going to entirely dodge your question and say, I think I see opportunities across all of them. The nice thing is this quarter; the trend line is pretty consistent across the mall. It's slightly sequentially improved. And that's the kind of trend I'd like to see. I can't guarantee you so but I'd like to see going forward every quarter. I think you'll see it in our biggest brands and I hope you'll see it in all of them. But yes, I don't know how I would rank those except -- so I feel good about the -- I feel very, very good about the work going on in Vans and the North Face and Timberland. And I think Dickies while we have a long way to go. I think there's also a lot of activity going into that. I think we'll get there.

Probably it's probably just me but I had trouble hearing part of that. So maybe if you could repeat it all again, that would be helpful.

Yes. I wouldn't be able to give you all the answers to that. What I would say is I think from a mix standpoint, that's a relatively small mix change. I think we expect the mix to be kind of probably be a tailwind for the year but not in a big way, much like you're seeing here. So I think you'll see some mix help but we'll see. It could go the other way.

We've got -- the other issue we have is wholesale in general, it depends on our wholesale versus DTC growth. So obviously, if DTC grows faster, it's a mixed health, the growth slower, it's a mix hurt. And I think it will be a good wholesale year. So I'm a little mixed on mix. I think it could be a little bit up but we'll see. On the ASP versus units, I don't think there's a big story here. Hopefully, we'll -- as we go through the year and as our promotion starts to fade, we'll have a little bit better story.

No, I think we're in pretty good shape across the brands. I'm happy to say I feel very good about inventory across everything right now. Where you mean in the channel? Or in our own inventory. I'd say I was speaking mainly in the channel.

No, there's not much story there. I mean it's all good solid improvement across the board. I mean, every single brand were down.

I'll answer the second one first. The answer is no. It's really not been an area we really try to focus on here in the beginning. I do think the overall lead time, we certainly can't put pressure on move things a little faster but I do think lead times in general and time to market is a big opportunity. But as I think I said in an earlier call, I'm parking that one for a little while until we get the fundamental business in place and then we'll worry about that aspect of the business model. But I do think there's upside there. On segmentation of retailers, yes, I think the thing we've talked about is, I think the key is we just got over distributed into value channels. And so we've pulled back in Europe, we're pulling back in the U.S. and I think that's going to pay dividends.

Retail versus digital. Yes, I think the footfall in retail continues to be weak. I'd say just generally in the -- all over the western world you had worse traffic than I think people expected, whether it's in malls or out of malls, it's not just exclusive to us, a little bit better on e-tail. On the wholesale business by brand, I'm not sure I'd get into two and break that down too much. I think the I guess -- yes, I probably wouldn't say there's too much difference across the board. I mean there's some variation but probably not notable enough to make a big deal out of.

Thank you. Sorry, it wasn't more helpful Dana.

Yes. I mean I don't have too much to say about it except that wholesale is -- was stronger than DTC, as we said earlier. And I think that's because we really have a lot of opportunity in wholesale. Wholesale is bigger relatively speaking, in Europe than it is in the Americas, of course. So I'm kind of optimistic in general but I'm also optimistic about EMEA, as you said, turning first. We'll see at what point that happens. But I have been -- I think I might have at least implied in an earlier call it. If you ask me what region might turn first. I'm more optimistic that -- I'm somewhat optimistic that it will be EMEA first and partly because of the wholesale component.

Thank you so much. I guess I'll just -- I think that's the last question, wasn't? Great. Well, thank you all. It's been a really exciting quarter for us with a lot of changes. As I said, I don't expect that to let up. Can't wait to see here or both all of you in October and Paul will get to say more than just his name and birthday. So he's excited, too. And I'll have a few more people on with us. So, I think this is going to be a really exciting meeting and can't wait to see you all. And now we'll get back to finish the second quarter. So, thanks a lot.