VF Corp., which counts a dozen brands in its portfolio, is targeting a five-year compounded annual revenue growth rate in the mid-to high single digits, earnings per share expansion of high single to low double digits and an operating margin of approximately 15 percent by FY27. The parent of Vans, The North Face and Supreme, among others, outlined these objectives at an investor day in Denver yesterday. It also revised its outlook for its current financial year, FY23, reducing its constant-currency growth outlook to 5 to 6 percent and its quarterly adjusted cash flow from operations to approximately $1 billion from $1.2 billion annually.
Catalysts for the new forecast include a mid-single digit decline in annual Vans sales and 50 basis-point decline in adjusted gross margin, an assumed softer recovery in China, weaker back-to-school results for Vans, a more promotional environment and the strength of the U.S. dollar.
VF Corp plans to leverage regional hubs
Despite the short-term reductions, VF senior management told investors that the company has plenty of runway for growth over the half-decade. The effort will include leveraging regional hubs of excellence to expand in markets outside North America and expanding into adjacencies that complement the company’s core strategies.
“Everything we do is grounded in data,” Velia Carboni, VF’s chief digital officer, told the in-person and online audience, vowing the company would continue to modernize its infrastructure as it aims to reach a low double-digit growth rate for its digital business by FY27.
New sourcing hubs and distribution centers
On the supply chain front, VF continues to diversify its broad base through the opening of new sourcing hubs and distribution centers. In recent years, the company has launched five to six new ports of entry for each continent it serves. It currently has 53 ports globally: 13 in the EMEA, 12 in APAC and 28 in the Americas. While it currently works with 722 factories worldwide producing 410 million units, its five primary sourcing centers are Vietnam (26%), China (15%), Cambodia (11%), Bangladesh (10%) and Indonesia (6%). Timberland established footwear production in Portugal in Q1/21 and is poised to produce more than 1.3 million pairs there this FY. Last year Vans began teaming with two footwear producers in Mexico that plan to make 750,000 pairs combined this FY and more than 2.3 million pairs by FY25.
Cameron Bailey, VF’s EVP of global supply chain, said the company is increasing automation in existing distribution centers – by adding robots, for instance – to improve safety levels for associates and mitigate risks with labor. A new 750,000-square-foot distribution center that opened in April 2021 in Barden, England, enables the company to deliver 90 percent of its orders from U.K. customers in two days or less. Meanwhile, a 1.2 million-square-foot distribution center slated to open in Ontario, California, in spring 2023 will be able to process twice the volume of a traditional DC with half the labor.
VF Corp in EMEA: Local relevance and speed-to-market are key
The EMEA specifically currently accounts for approximately 40 percent of VF’s sales volume, with sales of 12 brands to 28 markets. Besides 336 owned and operated stores across the region, there are also more than 930 monobrand partner doors. In FY22, the region experienced 30 percent constant-currency growth to $3.4 billion.
“We can balance the [EMEA] business without reliance on one brand or geography,” commented Martino Scabbia Guerrini, EVP and president of EMEA and emerging brands. The company intends to maximize its growth across the continent through local relevance and speed-to-market, realizing high single- to low double-digit percentage growth on a CAGR basis in FY27. Q1 EMEA sales were 24 percent higher on a constant-currency basis. Timberland apparel uses a design hub in Switzerland.
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VF’s approach in APAC, under its president Winnie Ma, will focus on the region’s emerging outdoor and active markets, leveraging the influence of Japan and Korea into the rest of Southeast Asia, expanding into adjacent product categories, increasing brand penetration, and accelerating digital engagement and commerce. VF, which currently sells seven of its brands in nine APAC markets via 642 owned & operated stores and 3,300 monobrand doors, has plans to introduce its Altra and Supreme brands in China. APAC is forecast to grow by high single- to low double-digits on a CAGR basis in FY27, as the company’s total non-North American business rises to account for half of all annual revenues.
