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VF Corporation Release Q3’FY23 Financial Results

Q3’FY23 Financial Highlights

Revenue down 3% (up 3% in constant dollars) to $3.5 billion

Benno Dorer, Interim President and CEO, said: “We are pleased to reaffirm the recently communicated full year 2023 EPS outlook with revenue growth at approximately 3%, after navigating an increasingly challenging fiscal Q3. Spending the last few weeks with VF’s dedicated and we are shifting resource priorities across the Company, including by reducing the dividend, exploring the sale of non-core assets, cutting costs and eliminating non-strategic spend, while enhancing the focus on the consumer through targeted investments.”

Q3’FY23 Operating Highlights

• EMEA region down 2% and up 10% in constant dollars, the seventh consecutive quarter of double-digit growth in constant dollars
• Asia Pacific region down 7% and up 4% in constant dollars, reflecting a sequential improvement across the region and in Greater China, where sales were down 11% and down 1% in constant dollars, and continued strong growth in the rest of Asia
• Standout performance in the outdoor brands, led by The North Face® up 7% and up 13% in constant dollars, with Timberland® flat and up 6% in constant dollars
• Vans® down 13% and down 9% in constant dollars, reflecting positive performances in Europe and Asia outside of Greater China, while the Americas remained negative
• Balanced performance across both Direct to Consumer and Wholesale channels
• Supply chain challenges remained persistent in the quarter and are being addressed, with actions in place to return to full customer service at a normalized cost

FY23 Outlook*

• Total VF revenue up approximately 3% in constant dollars, within the previous outlook range
  Vans® revenue is expected to decline by high single digits % in constant dollars, compared to the previous outlook of down mid-single digits %
• The North Face® is expected to be up by at least 14% in constant dollars, compared to the previous outlook of up at least 12%
• Adjusted gross margin down approximately 200 basis points, compared to the previous outlook of down 100 to 150 basis points
• Adjusted operating margin approximately 9.5%, compared to the previous outlook of approximately 11.0%
• Adjusted cash flow from operations** approximately $0.7 billion, compared to the previous outlook of at least $0.9 billion; Capital expenditures approximately $200 million versus the previous outlook of $230 million
• Inventory is expected to reduce by approximately $300 million during Q4’FY23

FY24 Expectations*

• Total VF revenue up by at least low-single digit % in constant dollars
• Gross and operating margin expansion
• Operating earnings to grow by double-digits
• Operating cash flow to grow faster than earnings

Actions to Accelerate Path to Target Leverage Ratio and Sharpen the Company’s Focus
VF is also evaluating and deploying a series of strategic actions to strengthen the Company’s financial position and sharpen focus on its greatest value creation opportunities, including:

• Rightsizing the dividend payout to accelerate the return to the Company’s target leverage ratio and provide additional financial flexibility, positioning VF to navigate the current macro-economic challenges while continuing to make investments to advance its strategy. As a result, VF’s next quarterly per share payment will reduce to $0.30 from $0.51 per share. The Company expects to grow future dividends in line with earnings
• Continuing to pursue the portfolio optimization agenda. The Company is commencing a review of strategic alternatives for its Global Packs business, consisting of the Kipling®, Eastpak®, and JanSport® brands. While these iconic and profitable businesses are strong contributors of value, VF is committed to ensuring they are optimally positioned to achieve their full potential while enhancing management focus on the Company’s greatest strategic priorities
• Concluding a number of asset sales during H2’FY23, including the sale and leaseback of VF’s European headquarters in Stabio, Switzerland
• Reducing working capital and aligning inventories to optimal levels, without compromising brand equity
• Increasing our efforts to reduce costs in order to point resources toward the Company’s highest value creation opportunities, including completing the previously announced actions which will deliver approximately $225 million in annualized savings once complete in FY24

Q3’FY23 Income Statement Review

• Revenue $3.5 billion, down 3% (up 3% in constant dollars) with the big four brands down 3% (up 2% in constant dollars) and the balance of the portfolio down 2% (up 5% in constant dollars)
• The North Face® revenue $1.3 billion, up 7% (up 13% in constant dollars)
• Vans® revenue $0.9 billion, down 13% (down 9% in constant dollars)
• Gross margin 54.9%, down 120 basis points; Adjusted gross margin 54.9%, down 140 basis points due primarily to increased promotions
• Operating margin 14.6%, down 410 basis points; Adjusted operating margin 14.9%, down 280 basis points

Q3’FY23 Balance Sheet Review

• Inventories declined by $158 million during Q3’FY23 and increased by 101% relative to last year; excluding the increase of in-transit inventory of approximately $415 million, the increase was approximately 75% relative to last year, primarily driven by core and excess replenishment inventory
• VF modified terms with the majority of its suppliers in the first quarter of fiscal 2023 to take ownership of inventory near point of shipment rather than destination
• Accounts payable increased 62%, which was largely driven by the modified terms with the majority of suppliers

COVID-19 Update
VF’s supply chain is currently fully operational. Suppliers are complying with local public health advisories and governmental restrictions. Most final product manufacturing and assembly suppliers are back to normal operating levels, though manufacturing and freight lead times remain elevated. VF is working with its suppliers to minimize disruption and is employing expedited freight strategically as needed. VF’s distribution centers are operational in accordance with local government guidelines.

In North America, no stores were closed during the third quarter. Currently, all stores are open.

In the EMEA region, no stores were closed during the third quarter due to COVID-19. Currently, all stores are open.  In the APAC region, including Mainland China, 4% of stores were closed at the beginning of the third quarter with a peak of 27% of stores (including partner doors) closed and an average of 11% of stores closed throughout the quarter. At the end of the third quarter, 3% of stores were closed and, as of today, no stores are closed.

Read the financial results from each Quarter of fiscal 2023 below:

• Q1’23
• Q2’23
• Q4’23