V F CORP Q4 FY2025 earnings call

• The Reinvent program is working well, overperforming on operating income by 400 basis points to $22 million, exceeding guidance.
• At Vans, turnaround initiatives are ongoing, including talent hires (e.g., Head of Merchandising), product focus on footwear with newness rollout, and marketing evolution to drive brand heat.
• The North Face had strong performance in Q4 with DTC growth in all regions and outerwear/footwear being standouts.
• Timberland continued strong performance with revenue growth, lower discounts boosting margins, and momentum in the 6-inch premium boot.
• VF is proactively managing tariffs with an asset-light model, diversified supply chain, and a multi-pronged plan to offset potential impacts.

In the fourth fiscal quarter, VF Corporation's revenue was down 3%, in line with guidance of negative 2% to negative 4%. Excluding Vans, revenue was up 4%. Vans revenue was down 20% in the quarter after being down 8% in the prior quarter. The North Face's revenue was up 4% in Q4, with DTC rising 9%. Timberland's revenue was up 13% in Q4. Gross margin improved 560 basis points due to lower material costs, less distressed sales, less discounting and higher quality inventory. SG&A declined 2%. Net debt was down by over 1/4 versus last year, and leverage was reduced by a full turn at year-end to 4.1 times.

• Expect operating cash flow and free cash flow (excluding non-core asset sales) to be up year-on-year.
• Anticipate operating margin expansion in fiscal 2026.
• Q1 revenue expected to be down 3% to 5% on a constant dollar basis.
• Q1 operating loss range is $110 million to $125 million, gross margin to benefit from fewer discounts and promotions, SG&A flat to slightly down, interest ~$40 million, and effective tax rate in the range of 13% to 14%.

• Macro uncertainty poses risks, including the impact of tariffs on costs and pricing.
• Vans faces challenges with soft traffic in DTC affecting revenue.

Q: Nice job on the gross margin improvement. Any help how you're thinking about gross margin further into the year and then how we should think about how this looks structurally longer-term? And if the $313 million free cash flow includes anything from Supreme?

A: We expect to see continued improvement on the margin side in fiscal '26 and are on track to meet Investor Day goals. Free cash flow of $313 million does not include Supreme. We expect operating cash flow and free cash flow to be up next year, depending on CapEx.

Q: Talk a little bit more about the onetime strategic reset actions that you are taking at Vans that weighed on fourth quarter results and are expected to weigh again on first quarter results. When might be fully through some of those actions?

A: Actions in China reducing channel availability in China will impact Q1-Q2 and fade in Q3-Q4. Value door closures, own store closures, and distressed sales impacts will continue proportionately through Q1-Q2 and fade in Q3-Q4.

Q: Guiding for free cash flow to be higher. Should we assume refinance or pay down the [500 million Euro note] due March 2026? And is the portfolio still right?

A: Expect to pay down the note using free cash flow and revolver access. We're happy with the portfolio and will review annually, exiting anything not belonging if needed.

Q: On the free cash guide, help think about CapEx and working capital. Strategy for Vans back-to-school?

A: CapEx has a plan with flexibility based on need. For Vans back-to-school, Sun is executing with talent hires, product focus on footwear for women and youth, and rolling out new products like Super Low Pro.

Q: Health of the North Face brand. Any changes with direct-to-consumer momentum as we move into spring? Progress on cost actions?

A: North Face has strong DTC sales, footwear business is strong, and moving to four seasons forces better spring/summer products. We've achieved over $300 million from first phase of Reinvent and started seeing benefit from second initiative.

Q: 4 things as non-comp sales headwinds. Is comp progress enough to offset? In-consumer demand? Tariff dollar amount unmitigated if mitigating through pricing?

A: Impacts of reset actions will continue through Q1-Q2 and fade in Q3-Q4. In-consumer demand is being addressed through marketing and product development. We're strategic about pricing to offset tariffs and view it as an opportunity.

Q: Thoughts on the store base from here. Dividend?

A: Store count is down ~8% globally, with heavy lifting mostly done and continued optimization. Dividend is $140 million a year, always on the table if needed to bring leverage down but no immediate plans to change.

Q: How does the buckets of the gross margin relate by channel and by brand and outlook?

A: Gross margin improvements are fundamental and expected to carry forward. Reinvent initiatives benefit all brands, and we're fixated on systematically improving gross margin over time.