Admitting its US business “isn’t working well” and its cost structure is too high, VF Corp. reported its Q2 results with a comprehensive plan to turn around its flagging businesses under CEO Bracken Darrell, who joined the group in late July. Key elements of the strategy focus on fixing its US operation and slumping Vans’ business; making $300 million in unspecified cost reductions and re-investing a portion of the savings in brand building, product innovation, and marketing; installing key organizational changes; and strengthening its balance sheet. Approximately half of the cost cuts will be realized this financial year, the remainder in FY25, the company said.
The group is establishing a global commercial organization that will include the creation of an Americas regional platform modeled after successful operations in the EMEA and APAC. Martino Scabbia Guerrini has been promoted to Chief Commercial Officer, a newly created position with responsibility for go-to-market execution globally. Guerrini was praised for his efforts in building an EMEA platform for VF Corp. “that has delivered superior growth in revenue and operating income for many years.”
Meanwhile, Kevin Bailey is leaving his post as Global President of Vans but remaining on the company’s executive team, where he will lead the ”Re-invent” transformation plan. Bailey first joined Vans in 2002 and returned to the helm in early 2022 after serving in other roles at VF. CEO Darrell will take a more active role at Vans, including the implementation of turnaround strategies, while the company searches for a new Vans Brand President.
In acknowledging that the The North Face (TNF) and Supreme parent will not guide on revenues or EPS for the remainder of its fiscal year, Darrell said, “This is a turnaround. We have a strong foundation. This company will be leaner, faster, and stronger.” VF now expects to end its current FY in April with total inventory down by mid- to high-single digits year-over-year, free cash flow of $600 million versus prior guidance of $900 million and liquidity of approximately $2.2 billion.
In the days leading up to the Q2 earnings, VF was targeted by two activist investors, one suggesting it should shed its Timberland unit, which has experienced recent sales weakness from its iconic six-inch boot.
In Q2, strength at TNF and in key international markets was outweighed by declines at Vans and in the Americas. Operating income came in at $362.9 million versus a loss of $90.8 million in the year-ago period, with the operating margin down by 30 basis points to 12.0 percent. Total revenues fell by 4.0 percent to $3.034 billion from $3.08 billion but benefitted from a change in shipment timing, particularly at The North Face. Direct-to-consumer sales declined by 5 percent to $1.11 billion, while Wholesale revenues were off by 1 percent at $1.92 billion. Gross margin was down by 20 basis points year-over-year to 51.3 percent.
Brandwise, TNF and emerging labels were the only segments to post positive results in the period ended Sep. 30. On a constant-currency basis, TNF sales lifted 17 percent higher to $1.13 billion, with revenues from bags and packs reported as strong. The brand’s wholesale business improved by 19 percent, with DTC up 12 percent despite slowing in September. TNF is clearing out inventory with PFAS over the next 15 months. Quarterly sales from the Other brands segment rose by 4 percent to $496.6 million.
At Vans, where no turnaround is expected this year, Q2 sell-throughs were slow, and traffic was challenged as segment sales plummeted by 23 percent to $748.8 million. The business, which must do more to generate more demand, according to Darrell, has been shuttering retail doors while also evaluating its wholesale distribution channel. Sales growth in the EMEA and APAC was offset by a decline in North America at Timberland, where Q2 sales dipped by 10 percent to $488.6 million despite a strong women’s business that was bolstered by sandal sales. Supreme Q2 revenues were said to be up double-digits, aided by a strong start at the brand’s new Seoul, South Korea, store.
Regionally, while both the EMEA and APAC had sales gains in the period, Q2 revenues in the Americas region slipped by 11 percent to $1.57 billion. EMEA sales were 6 percent higher on a constant-currency basis at $1.06 billion and grew 6 percent in APAC to $403.7 million.
