VF Corp. has a “realistic” turnaround strategy in place

VF Corp., which has begun a rigorous six- to 12-month process to find a new CEO, says it has a plan in place that will improve its sales and profitability fortunes over the next 12 months. It centers on continued growth for its The North Face (TNF), EMEA, and direct-to-consumer segments, improved supply chain metrics, reduced inventory levels and SKU counts, and the beginning of a turnaround for its Vans business later this year. The group forecasts flat to slightly up revenues for FY24, operating margin expansion, a gross margin improvement of at least 100 basis points and free cash flow approaching $900 million. 

While TNF begins moving into adjacent product categories and aims for significant improvement in the Americas region this fall, VF’s business in the EMEA region is expected to remain “resilient” as it creates additional profits. The group’s Asia Pacific (APAC) business is expected to grow at a double-digit rate, driven by increased brand investments. The Americas region, particularly the USA, will be challenged for at least part of the year as improvements in execution are implemented.

Director and interim CEO Benno Dorer told analysts that Q1, which began April 1, will be VF’s toughest year-over-year period due to wholesalers “right-sizing” their respective inventory levels, but the company will generate “a more consistent performance for the remainder of the fiscal year.”

In Q4, VF reported an operating loss from continuing operations of $214.9 million versus a profit of $80.8 million. The operating loss of $160.9 million was impacted by a $313.1 million goodwill impairment charge related to the group’s Supreme business that will commence geographic distribution expansion and product line extensions this fall. While gross margin improved by 230 basis points to 50.4 percent from 48.1 percent in Q4, total revenues slipped by 3.0 percent to $2.73 billion from $2.82 billion. Wholesale revenues slipped by 5 percent to $1,590.8 million, but DTC sales increased by 3 percent to $1,148.8 million. Year-over-year inventories were reduced by $299 million during the period.

The Outdoor segment generated 7 percent constant-currency growth to $1.32 billion but realized a 13.5 percent drop in operating income to $114.8 million; the Active segment, which includes Vans, suffered a 9 percent decline in constant-currency sales to $1.13 billion as profitability slid by 33 percent to $113.5 million. The Work segment generated a 7 percent constant-currency sales growth to $287.2 million but a 34 percent decline in period operating profit to $28.2 million. TNF sales rose 16 percent in constant currency to $859.5 million; Vans revenues fell 12 percent to $857.0 million. The EMEA region recorded its eighth consecutive quarter of sales growth in constant dollar by 8 percent to $901.3 million. Greater China sales improved by 10 percent in constant currency, 3 percent on a reported basis.

For the full year, revenues decreased by 2 percent on a reported basis but gained 3 percent on a constant currency basis to $11.6 billion. EMEA sales improved by 12 percent on a constant-currency basis to $3.41 billion. APAC annual revenues rose by 1 percent to $1.52 billion and declined by 1 percent in the Americas to $6.68 billion. Annual brand revenues on a constant-currency basis showed a 17 percent increase for the North Face to $3.61 billion; an 8 percent decline at Vans to $3.68 billion; 4 percent sales growth for Timberland to $1.78 billion; and an 11 percent sales drop in the Dickies’ segment to $725.2 million. FY end inventories were up 62 percent year-over-year, with on-hand merchandise up 46 percent due to core and excess replenishment inventory.