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VF Corporation Release Q4 Financial Results & Fiscal’24 Outlook
VF CORPORATION REPORTS IN-LINE FOURTH QUARTER REVENUE AND EARNINGS AND ISSUES FISCAL 2024 OUTLOOK
Q4’FY23 Operating Highlight
- Continued broad-based strength in The North Face®, up 12% (up 16% in constant dollars)
- Vans® down 14% (down 12% in constant dollars), illustrating the beginning of growth in APAC in constant dollars while the Americas remained negative
- International business up 2% (up 8% in constant dollars) EMEA region delivered its eighth consecutive quarter of growth in constant dollars Greater China up 3% (up 10% in constant dollars) led further sequential improvement in the APAC region. Americas region down 7%, primarily driven by reductions in the US Wholesale business
- Supply chain performance improving behind better execution, with increased on-time performance and a reduction in inventory of $299 million during Q4’FY23, as anticipated
- The Company recorded a non-cash impairment charge of $313 million related to the Supreme® brand
FY24 Financial Outlook
- Total VF revenue flat to up slightly in constant dollars, including Q1’FY24 revenue down high-single digits in constant dollars reflecting a challenging US Wholesale environment
- Gross margin up at least 100 basis points, benefiting from a lower promotional environment across the marketplace
- Operating margin expansion, driven by the higher gross margins supporting modest increases in SG&A
- Free cash flow of about $900 million
Benno Dorer, Interim President and CEO, said: “We delivered quarterly results in line with our guidance, led by ongoing strength in The North Face® and our International business, with accelerating momentum in Greater China. As a result, we were able to close the fiscal year with 10 out of 12 brands flat or growing revenue, and five up double digits, despite the challenging consumer environment. At the same time, we significantly improved our supply chain performance while the work to turn around Vans® is progressing according to plan, as we navigate the known near-term challenges. Looking ahead to FY24, I am confident that we have the right plan to deliver improved operating performance and financial results, while we thoughtfully invest to deliver strong and consistent shareholder returns over the long term.”
Matt Puckett, CFO, said: “FY24 will be a year of progress as initiatives underway begin to drive results. We will be laser- focused on execution amidst an increasingly difficult near-term environment, particularly in US wholesale. We expect to improve our operating performance and financial results, highlighted by increasing gross margins, EBITDA growth, and strong cash generation, all of which supports our plan to de-lever. I remain confident VF is well positioned to return to sustainable and profitable growth beginning in FY24.”
Fourth Quarter Fiscal 2023 Income Statement Review
Revenue decreased 3% (flat in constant dollars) to $2.7 billion driven by a decline in the Americas region primarily due to a challenging wholesale environment, partially offset by increases in the EMEA and APAC regions. The North Face® revenue $0.9 billion, up 12% (up 16% in constant dollars). Vans® revenue $0.9 billion, down 14% (down 12% in constant dollars)
Gross margin decreased 230 basis points to 49.6%, primarily driven by elevated promotional activity and increased product costs, partially offset by pricing actions. On an adjusted basis, gross margin decreased 260 basis points to 49.6%.
Operating income (loss) on a reported basis was $(161) million. On an adjusted basis, operating income decreased 32% (down 25% in constant dollars) to $152 million. Operating margin on a reported basis was (5.9)%. Adjusted operating margin decreased 230 basis points to 5.6%.
Full Year Fiscal 2023 Income Statement Review
Revenue decreased 2% (up 3% in constant dollars) to $11.6 billion, driven by performance at The North Face® and strength in EMEA, partially offset by declines in Vans® and Dickies®.
Gross margin decreased 200 basis points to 52.5%, primarily driven by elevated promotional activity and increased product costs, partially offset by pricing actions and lower freight. On an adjusted basis, gross margin decreased 220 basis points to 52.6%.
Operating income on a reported basis was $328 million. On an adjusted basis, operating income decreased 27% (down 20% in constant dollars) to $1.1 billion. Operating margin on a reported basis was 2.8%. Adjusted operating margin decreased 330 basis points to 9.8%.
Balance Sheet and Cash Flow Highlights
Inventories were up 62% compared with the same period last year, with on-hand inventories up 46% excluding in-transit inventory which increased approximately $254 million, primarily driven by core and excess replenishment inventory. VF returned approximately $117 million of cash to shareholders through dividends during the quarter and $703 million of cash to shareholders through dividends during the fiscal year.
Adjusted Amounts – Excluding Transaction and Deal Related Activities, Costs Related to Specified Strategic Business Decisions, Noncash Impairment Charges, Pension Settlement Charge and a Tax Item
The adjusted amounts in this release exclude transaction and deal related activities associated with the acquisition of the Supreme® brand. Total transaction and deal related activities include integration costs of approximately $0.3 million in fiscal 2023.
The adjusted amounts in this release exclude costs related to VF’s business model transformation primarily driven by Corporate actions and resulting restructuring costs, and a transformation initiative for our Asia-Pacific regional operations. Total costs were approximately $72 million in fiscal 2023.
The adjusted amounts in this release exclude noncash impairment charges related to the Supreme® reporting unit goodwill and indefinite-lived trademark intangible asset of approximately $313 million in the fourth quarter of fiscal 2023 and $735 million in fiscal 2023. The impairment charges in the second quarter of fiscal 2023 were driven by non-operating factors including higher interest rates and foreign currency fluctuations. The impairment charges in the fourth quarter of fiscal 2023 related to lower financial projections and increased risk of achieving management’s forecasts.
The adjusted amounts in this release exclude a noncash pension settlement charge. The pension settlement charge resulted from the purchase of a group annuity contract, which was an action taken to streamline administration, manage financial risk associated with pension plans, and to transfer a portion of the liability associated with VF’s U.S. pension plan to an insurance company. Total expense was approximately $92 million in fiscal 2023.
The adjusted amounts in this release exclude a discrete tax benefit of approximately $95 million in fiscal 2023 related to a favorable adjustment to VF’s transition tax liability pursuant to the Tax Cuts and Jobs Act based on examinations by the IRS.
Combined, the above items negatively impacted earnings per share by $0.72 during the fourth quarter of fiscal 2023 and $1.79 during fiscal 2023. All adjusted amounts referenced herein exclude the effects of these amounts.
Read the breakdowns from each Quarter below:
