VF(VFC) - 2025 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Q2 revenue was down 6% year-over-year, an improvement from a 10% decline in Q1 [19] - Gross margin increased by 120 basis points to 52.2% [22] - SG&A expenses decreased by 14% year-over-year, better than expectations [23] - Operating margin was 11.4%, down 60 basis points compared to last year [24] - Diluted earnings per share were $0.60, down$0.03 from fiscal '24 [24] Business Line Data and Key Metrics Changes - Vans revenue was down 11% in Q2, improving from a 21% decline in Q1 [19] - The North Face revenue decreased by 4%, consistent with prior guidance [20] - Timberland revenue improved sequentially to a decline of 3% in Q2 from a 9% decline in Q1 [17] - Dickies revenue was down 11% in Q2, an improvement from a 14% decline in Q1 [20] Market Data and Key Metrics Changes - Americas region revenue was down 9% in Q2, improving from a 13% decline in Q1 [21] - EMEA region revenue decreased by 5%, with September marking the strongest month ever for the region [21] - APAC region revenue increased by 5%, driven by strength in the North Face and China [21] Company Strategy and Development Direction - The company aims to lower its cost base, achieving $65 million in cost savings during Q2, with a target of$300 million by the end of the fiscal year [9] - Strengthening the balance sheet is a priority, with inventories down 13% and net debt reduced by almost $450 million year-over-year [10] - The company is focused on fixing the U.S. business and turning around Vans, with improvements in forecasting accuracy [11][12] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the transformation taking place at the company and the progress made in Q2 [8] - The company anticipates further sequential improvement in Q3, with revenue expected to be in the range of$2.7 billion to $2.75 billion [26] - Management noted that the wholesale business is on the right trajectory, with positive feedback from partners [34] Other Important Information - The company completed the sale of Supreme, with net proceeds of almost$1.5 billion [10] - The company plans to provide quarterly guidance moving forward, reflecting improved visibility into operations [56] Q&A Session Summary Question: What are the drivers of the business that are becoming more predictable? - Management noted improvements in forecasting accuracy across revenue, gross margins, and SG&A, particularly in the Americas [31] Question: What are the incremental investments being contemplated? - Investments will focus on product and marketing as savings from the Reinvent program are reinvested [32] Question: How is the health of the overall wholesale business? - Management feels positive about the wholesale business trajectory, especially in the Americas [34] Question: What are the expectations for free cash flow in the second half? - Management refrained from providing specific quarterly guidance but expressed confidence in overall free cash flow expectations [37] Question: What is the outlook for gross margin moving forward? - Management expects gross margin to improve in Q3 and Q4, benefiting from lower product costs and fewer reserves [49] Question: What is the current state of the North Face in North America? - Management indicated optimism about the North Face's performance, with expectations that it cannot be worse than the previous year [51] Question: What is the status of the Vans turnaround? - Management reported that wholesale is currently outperforming B2C, with positive feedback from wholesale partners [44] Question: What is the status of inventory levels? - Inventory levels are down 13%, and management expects to maintain or reduce these levels as revenue grows [78]