VF : Transcript Q2 2023

Corrected Transcript

26-Oct-2022

VF Corp. (VFC)

Q2 2023 Earnings Call

	Total Pages: 21
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VF Corp. (VFC)	Corrected Transcript
Q2 2023 Earnings Call	26-Oct-2022

CORPORATE PARTICIPANTS

Allegra Perry	Matt Puckett
Vice President-Investor Relations, VF Corp.	Chief Financial Officer & Executive Vice President, VF Corp.
Steven E. Rendle
Chairman, President and Chief Executive Officer, VF Corp.

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OTHER PARTICIPANTS

Michael Binetti	Laurent Vasilescu
Analyst, Credit Suisse Securities (USA) LLC	Analyst, Exane BNP Paribas
Omar Saad	Matthew R. Boss
Analyst, Evercore Group LLC	Analyst, JPMorgan Securities LLC

Jonathan R. Komp

Analyst, Robert W. Baird & Co., Inc.

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MANAGEMENT DISCUSSION SECTION

Operator: Greetings and welcome to the VF Corporation Second Quarter Fiscal Year 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host Allegra Perry, VP of Investor Relations. Thank you. You may begin.

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Allegra Perry

Vice President-Investor Relations, VF Corp.

Good afternoon and welcome to VF Corporation's Second Quarter Fiscal 2023 Conference Call. Participants on today's call will make forward-looking statements. These statements are based on current expectations and are subject to uncertainties that could cause actual results to differ materially. These uncertainties are detailed in documents filed regularly with the SEC.

Unless otherwise noted, amounts referred to on today's call will be on an adjusted constant dollar basis, which we've defined in the press release that was issued this afternoon and which we use as lead numbers in our discussion because we believe they more accurately represent the true operational performance and underlying results in our business. You may also hear us refer to reported amounts which are in accordance with US GAAP. Reconciliation of GAAP measures to adjusted amounts can be found in the supplemental financial tables included in the press release, which identify and quantify all excluded items and provide management's view of why this information is useful to investors. Unless otherwise noted, results presented on today's call are based on continuing operations.

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VF Corp. (VFC)	Corrected Transcript
Q2 2023 Earnings Call	26-Oct-2022

Joining me on the call with be VF's Chairman, President and Chief Executive Officer, Steven Rendle; EVP and Chief Financial Officer, Matt Puckett. Following our prepared remarks, we'll open the call for questions.

I'll now hand over to Steve.

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Steven E. Rendle

Chairman, President and Chief Executive Officer, VF Corp.

Good afternoon everyone and thank you for joining our Second Quarter Fiscal 2023 Earnings Call. I'll provide an operational update for the quarter and for the year to date and Matt will provide a review of our financial performance.

I'd like to first start with a few words on the macroeconomic environment, which, even since we met for our investor day exactly a month ago, continues to dynamically evolve. While consumer health remains relatively intact across most of our markets, we continue to see global trends result in more choiceful and cautious spending behavior. In North America, we saw a mixed back-to-school result across product categories and today are seeing variable traffic patterns across channels and an elevating promotional environment in most markets.

The situation in China continues to improve although rolling lockdowns have slowed this progress. Despite continued softness in China, we're seeing pockets of growth in this market led by The North Face as the brand's global leadership role in the important outdoor TAM continues to influence this relatively under-penetrated market. Outside of China, we're seeing further improvement across rest of Asia led by Japan and Korea, which remain highly influential on greater China. And we had another quarter of strong growth across our portfolio of brands in Europe, despite a backdrop of deteriorating consumer confidence.

Despite this mixed macroeconomic picture, our portfolio of brands continues to deliver a broad-based performance as consumers continue to prioritize their active lifestyles and lean on our brands to fulfill those needs. And the investments we're driving into our key strategic growth capabilities and platforms continue to support the growth of our brands.

For the quarter, our revenue grew by 2% and our adjusted operating income was approximately $380 million. We returned $194 million in cash to shareholders, bringing the year-to-date total to nearly $390 million.

As you heard at our recent Investor Day, we are committed to building on those things that have always made us uniquely VF and to growing our highly intentional portfolio of brands. So to start with Vans. Our actions to accelerate momentum at the brand are still early. And as anticipated, sales in the second quarter were lower, primarily as a result of a disappointing back-to-school season in the Americas. Q2 sales were down 8%, bringing year-to-date revenue to minus 6% and minus 1% excluding China. As mentioned at Investor Day, we have a deep and broad bench of strong talent at VF and are now strategically deploying this into the Vans business. We recently made two important appointments, adding a new position of chief product and merchandising officer and bringing a key leader from North Face to head up Digital.

In terms of Vans product, innovation in the Progression Footwear line, which today represents 25% of brand sales, continues to drive an uptick in demand with the new UltraRange EXO MTE Hi showing strong initial sell- through. As you heard from Kevin Bailey at the Investor Day, it'll take some time for the product-facing initiatives to be introduced. And when they come, we are confident that they'll have a positive impact on the brand's results.

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VF Corp. (VFC)	Corrected Transcript
Q2 2023 Earnings Call	26-Oct-2022

Traffic to our stores and digital platforms continue to be below historic levels. While the industry leading conversion in-store remains in line with our historic levels, and our test and learn in-store merchandising sprints are showing early indications of improvement in both stores and online.

Our focus in the second half is to prioritize initiatives that drive traffic into our direct channels where we have the opportunity to benefit from our strong conversion rates. I remain confident that we have the right people and the right strategy and will execute to deliver results at Vans.

Now to The North Face, which continues to deliver strong and broad-based performance and prove its undisputed leadership in the outdoor category with revenue up 14% versus last year, reflecting double-digit growth across all regions and channels and leading to our biggest second quarter ever for the brand, bringing the year-to-date growth to 21%.

As you heard from Nicole Otto at the Investor Day, product innovation remains at the forefront of the brand's continued momentum. With a good start to the season in outerwear, we showed strength in soft shells, fleece and lightweight insulated jackets as consumers prepared for the coming fall/winter conditions. In addition to the good performance of outerwear, the continued focus on 365-day apparel in the Americas led to a double-digit growth in D2C for this region.

Bags and luggage saw global success with recovering summer travel in a strong back-to-school season driving energy for the brand. And finally, The North Face and Gucci Chapter 3 collab launched and drove meaningful brand heat. The brand continues to push boundaries with its technical innovation and was recently recognized by Outside's 2023 Winter Gear Guide, which featured eight - that's right, I said eight - products from The North Face, as season must-haves.

In addition, I'm extremely proud that The North Face VECTIV Fastpack insulated FUTURELIGHT boot received the editor's choice award and a feature-length review alongside its inclusion in the best winter hiking boots of 2023. I encourage you to check this out.

The North Face continues to deploy innovative tactics in order to deepen its understanding and connection with consumers and to enhance engagement. XPLR Pass membership added more than 800,000 new members in Q2, surpassing 15 million members in total. Overall, the brand has strong and balanced momentum and is well- positioned to continue to generate long-term sustainable growth.

Onto Timberland. Q2 sales growth was up 3% versus last year, impacted slightly by shipment timing. Sales for the first half are up 7% versus last year, running slightly ahead of its long-term plans as the brand continues to perform well.

You heard recently from Global Brand President, Susie Mulder, about Timberland's sharpened focus, and it's paying off. Our new integrated brand and product campaign Built for the Bold taps into our cultural relevance and work and outdoor heritage, with progressive products like the GreenStride Turbo Hiker, the number-one new fall 2022 style across all regions and channels, and the new Trailquest Hiker driving growth during launch week. As part of our marketplace strategy, the campaign launched in New York City and London, driving sales, traffic and strong growth across digital platforms. Overall, the campaign has topped an impressive 1 billion impressions.

We continue to see momentum in EMEA with growth over 50% in our community membership month over month and with the business being up nearly 20% in the quarter. We also continue to drive brand heat and attract new

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VF Corp. (VFC)	Corrected Transcript
Q2 2023 Earnings Call	26-Oct-2022

consumers with collaborations like Veneda Carter with more than 70% of purchasers in EMEA being new to the brand.

And finally, our PRO business returned to growth this quarter, fueled by strong performance in brick-and-mortar and a new campaign focused on bringing new consumers into the skilled trades. In all, a solid quarter for Timberland with momentum as we head into Q3.

Finally, to round out the big four, Dickies, global revenue was down 15% in Q2 and 14% in the half. In the quarter, we saw strong growth in EMEA driven by work lifestyle as the brand continues to gain traction in this region. These results were outweighed by further impacts in the Americas relating to our largest wholesale customer, which continues to tightly manage inventory levels. This performance impacted global results by about 10% in the quarter.

Outside the value consumer, the brand is healthy, as you recently heard from new Global Brand President, Lance Meller, at our Investor Day. The Icons business was up mid-single digits in the Americas with women's being a significant contributor. While overall Asia-Pac continues to feel the impacts from COVID-related disruption, we continue to make progress in key markets beyond greater China, experiencing significant growth with partners in Japan and successful expansion in South Korea.

On the marketing front, the Made in Dickies campaign, celebrating the brand's 100-year anniversary, continues to support brand awareness with a meaningful growth in impressions driving organic pickup on prominent social media platforms. Dickies continues to expand its appeal with new consumers in all regions, while maintaining strong brand momentum, giving us confidence in our long-range plans for the brand.

Turning to the rest of the portfolio in Q2. I'll start with Supreme, where the brand grew revenue by 7%. The fall- winter season has had a good opening. We've dropped the new Yohji Yamamoto collection as well as the Nike ACG release and launched the André 3000 poster campaign. Stores continue to see strong foot traffic in all regions, with Japan showing particularly good trends leading into the reopening of tourism. We also renovated our Harajuku store with the opening event featuring performances by Bladee and Yung Lean.

Our outdoor emerging brands in aggregate grew by 14%, driven by continued outstanding growth at Altra which achieved a strong double-digit growth rate in both road running and trail running and was up mid-teens in the Americas and triple digits in EMEA. The brand's performance has been fueled by continued success of the Lone Peak as well as launches of key styles like Torin 6, Olympus 5, Outroad and the Mont Blanc BOA. Smartwool revenue grew in Q2 grew by low-double digits driven by apparel up in the mid-20% range. We saw continued momentum in base layer and the launch of Intraknit Mid Layer collection.

Icebreaker was up mid-single digits led by strong brick-and-mortar performance and the launch of Shell+, a 100% natural outer layer which has already won multiple innovation awards. Icebreaker launched their fourth transparency report, celebrating 95% plastic-free materials and pioneering the journey towards regenerative wool practices.

Momentum in our Packs business continued in Q2 with high-teens growth for the quarter, driven by strong back- to-school performance and continued recovery in global travel trends. Across the majority of our business, we're delivering strong revenue growth, as the investments behind our strategic growth platforms are yielding positive results.

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