Prepared remarks
Page 1
VF Corporation Second Quarter Fiscal 2027 Scripted Remarks October 28, 2026 Allegra Perry, Vice President of Investor Relations Hello everyone! Thank you for joining us on VF Corporation’s second quarter fiscal 2027 conference call. On our call today, we will make forward-looking statements. These statements are based on current expectations and are subject to uncertainties that could cause actual results to differ materially. These uncertainties are detailed in documents filed regularly with the SEC. Unless we say otherwise, amounts that are referred to on today’s call are all on an adjusted, constant dollar, continuing operations and excluding Dickies basis, which we’ve defined in the earnings release that was posted this morning on our Investor Relations website. We use those as lead numbers in our discussion as we believe they more accurately represent the true operational performance and underlying results of our business. We may also refer to reported amounts which are in accordance with US GAAP. Reconciliations of GAAP measures to adjusted amounts are found in the supplemental financial tables included in the earnings release where we identify and qualify all excluded items and provide management’s view of why this information is useful to investors. Before we proceed, I want to highlight that scripted remarks have been posted at the start of the earnings call for ease of reference during the call. The scripted remarks will be removed after the earnings transcript is made available on our Investor Relations website. Joining me on today’s call are VF’s President & Chief Executive Officer, Bracken Darrell, and Chief Financial Officer & Chief Operating Officer, Abhishek Dalmia. Following our prepared remarks, we’ll open the call for your questions. Before I hand it over to Bracken – I will leave you with one of the most incredible videos I’ve ever seen from a movie featuring The North Face. Everest: The Other Side opens in IMAX theaters this Friday.
Page 2
Bracken Darrell, President & Chief Executive Officer Every time I see that, I am inspired. Everest: The Other Side, directed by one of our athletes, Jimmy Chin, and featuring two of our other athletes, Jim Morrison and the late Hilaree Nelson. It is a unique, first-of-its-kind documentary about one of the most incredible feats of outdoor challenge ever attempted! I can’t wait to watch it live again in an IMAX theater when it’s released later this week. It’s a prime example of how VF is deeply rooted in exploration and adventure… product and brand-building… and authenticated through remarkable athletes. Our work on design and innovation is being brought to life by our brands and is trusted by the best athletes in the world in the harshest conditions on earth, just as Jim and Jimmy demonstrate in the film. VF’s story is about our amazing brands. And over time, each of these brands will be known more and more for the incredible products we bring to life through design and innovation. I’m going to spend most of this call on product and brand-building. But before I do that, I want to talk about something that’s probably a little underrecognized about VF right now. Great, sustained performance occurs when your revenue outgrows cost. Leverage. The really remarkable turnaround stories are often associated with leverage. Companies compound that leverage, and we all know the law of compounding. By a few years in, the impact is remarkable. None of that is new news to you. What we might not have made clear enough is just how several forms of leverage are working at once. First, you’re starting to see our operating leverage. That’s the one where the operating income line grows faster than the revenue… gross margins expand, the SG&A base is reset. This one you’re seeing now as our revenue has begun to accelerate from down 11% in fiscal 2024, including Dickies, to up 1% in fiscal 2026 to up 2% or better as we are expecting this year in fiscal 2027 and so on ahead. Our gross margins have expanded. We have taken out structural cost from SG&A. And as a result, our operating margin has expanded from 4.8% in fiscal 2024, including Dickies, to 7% in fiscal 2026 to approximately 8% as reflected in our guidance for fiscal 2027, and we expect it to be 10% or more in the full year fiscal 2029. And we are absolutely not stopping at 10%. The second form is leverage from our declining tax rate. Our unique tax structure results in a relatively high tax rate, which will fall steadily from the mid-30s to the low 20s over the next few years.
Page 3
And there’s actually a third form of leverage. As we pay off our debt over time, we first reduce our interest expense in coming years, which further increases net income. So our EPS ought to expand faster yet than our operating income. And that’s not all. Paying down the debt benefits the overall enterprise value of the company, which, in turn, raises the market cap as the equity value goes up. This combined form of leverage is really unique. And it sets us up for a remarkable period of value creation over the coming years. Now let me turn to our Q2 performance: • Revenue grew 1%, against our guidance of flat, • Operating income was $364 million, about $50 million above our guidance of $315 million, including gross margin expansion of almost 300 basis points vs. last year to 55.4%, and • EPS was $0.70, up over 40% – more than twice the rate of our operating income growth. While 40% EPS growth on 1% top-line growth is obviously a quarterly jump that isn’t predictive of the year, it is a dramatic illustration of all the leverage at once. Today, we are also reaffirming our full year guidance for fiscal 2027 and our medium-term targets, which Abhishek will speak to in more detail. From a brand perspective, The North Face, Timberland and Altra all continued to grow, and Vans is broadly in line with our expectations, down 9% in the first half. One of the metrics we track is the percentage of our business that is growing. In fiscal 2024, including Dickies, 43% of our business by revenue grew; this quarter we’re now at 75%. I told you a few years ago we would move from that number of around 40% to 80% or better, which is what you should expect long term from a good multi-brand company. Let me go through the brand highlights. Starting with Vans… In case you have not seen all the buzz around Vans, I’m going to give you a summary here. Vans continues to be recognized for the innovation and excitement happening. Some of you might have seen the latest announcement from a highly respected teen survey that Vans was chosen as one of the top brands by our target consumer. The brand enthusiasm is showing up all over. At ComplexCon, one of the biggest sneaker fan fests in the world, the Satoshi collab shoe launch was so strong that we had to briefly
Page 4
shut down our booth. We followed up that event with a small DTC-only drop of Satoshi that sold out in just five minutes. This product was also on the top 10 list for ComplexCon’s Sneaker of the Year 2026. And just last week, AlixPartners named Vans the number two fashion footwear brand in its Consumer Sentiment Index. And you can feel throughout our organization that Vans is getting its mojo back. There’s beginning to be a swagger in Costa Mesa that was missing for some time. Vans was down 9.8% in Q2, a little below what we indicated. Global DTC was positive for the first time in almost five years as our product engine shows up in our channels first. Remember, we started with improved performance in US Ecom a few quarters ago, then in the Americas DTC and now global DTC was up vs. last year. That result reflects continued growth in Americas DTC, improved performance in EMEA DTC and encouraging signs in APAC DTC. Our approach towards the product engine we have built is helping drive these results – we are introducing new ideas first with small batches in Ecom as well as with appropriate partners and cultural platforms, quickly introducing a few of those ideas into limited stores, then scaling a subset of those products into the wider fleet. Only after that, the product flows into Wholesale where sell-in follows 6 to 9 months behind DTC. In fact, Wholesale in Q2 was down slightly more than last quarter. But we have a lot of confidence in the Wholesale channel for Q3 and especially Q4, based on a strong response from our partners to our increasing product newness. And that’s factored into our second half, which Abhishek will talk about later in the call. In fact, this turnaround is primarily being driven by our focus on product. We are refreshing our icons and offering new silhouettes. Icons grew in DTC in the quarter, led by Old Skool, as fresh expressions like Pearlized and Souvenir drove excitement and demand. The Pearlized Old Skool Yacht Club achieved 100% sell-through in the Americas in less than 24 hours. Authentic delivered another standout quarter with strong double-digit growth across channels. Slip-On within DTC returned to growth, while smaller franchises like Half Cab and Era had strong growth off a smaller base. Here are some of those amazing products that are driving that strong DTC performance. We are reinvigorating icons, launching new styles like the Super Lowpro, mules and loafer… and together, these are driving energy into the core styles.
Page 5
Our product-led improvement in DTC, in addition to the expected recovery of Wholesale, starting in Q3 and building in Q4, is what gives us confidence to commit to down 2% or better in the second half of fiscal 2027. To summarize, we are three months closer to what we told you would happen in Wholesale, and we’re reconfirming it. Our direction at Vans is clear, and I am confident that we will see acceleration. Next, let’s talk about The North Face, which was up 4% vs. last year. And there is growing excitement about The North Face as well. The same teen survey I mentioned earlier named The North Face a top 10 athletic clothing brand for the first time in three years. Growth was broad-based across categories in the quarter. Apparel growth was driven by bottoms, reflecting our focus on growing this category, as well as transitional jackets, including the Quest and Yumiori Fleece. Footwear was up double digits globally and across all regions, driven by Clyffe, Thermoball and Altamesa. Bags was another strong performer, led by Hot Shot and the Base Camp family. There is so much to be excited about for this brand. The US Ski and Snowboard partnership is live. The first drop lands this quarter, and athletes are already starting to compete in our product and will be through the upcoming World Cup season and at every major event at least between now and 2034, including the next Winter Games in 2030 in France. Last quarter I also teased an innovation that is coming for The North Face, and you can see it’s what Abhishek and I are wearing today: the reversible Nuptse. It’s our biggest style and now you can essentially get two jackets for the price of one. And we are driving our business behind a wide range of Nuptse for the first time in several years, from the Summit Series to lifestyle. And our campaign for this will feature none other than Jim Morrison, the star of the Everest film. Many of you have heard me say there are five ways to grow brands: growing with the category, growing market share within the category, growing into new categories, growing by elevation and entering new markets/channels. All of these are relevant at The North Face. The power of our brand gives me the conviction that we can double The North Face over time. Next, Timberland grew 4% in the quarter and continues to build strong brand heat and relevance with new consumers. We’re seeing that momentum reflected in continued
Page 6
acceleration of search interest in the US and key markets in EMEA, as well as external measures of brand relevance. For the first time ever, Timberland ranked among the top 10 footwear brands in the teen survey we referenced earlier and was also ranked as the number one fashion footwear brand in the Consumer Sentiment Index done by AlixPartners. The Timberland product story is exciting as our diversification strategy begins to take hold: the 6-inch continued to grow, and momentum is building across our footwear portfolio on key franchises, including Field Boot, Stone Street, Euro Hiker and boat shoes, as well as core PRO franchises. Relative to the 6-inch boot, shoes and other boots actually grew at a faster rate, reinforcing that growth is becoming increasingly broad-based across the brand. What’s equally exciting is the growth potential we see beyond our core footwear franchises. Sneakers and apparel represent significant whitespace for Timberland. You won’t see a meaningful contribution in the near-term numbers yet, but there is a lot happening behind the scenes, and we see substantial opportunity as we invest into these categories. We’re also increasing our focus on Timberland PRO, where franchises like Boondock are resonating with the target consumer. Our multi-year NASCAR partnership just went live and is helping us bring PRO to an even broader audience, including last week’s Timberland PRO 200 in Phoenix. We see big potential for PRO over time. Finally, we opened five additional full-price stores in the Americas this quarter, bringing us to 19 in the region. We’ll continue to expand thoughtfully and selectively, focusing on the key cities where we believe Timberland can have the greatest impact. As we look ahead, we feel very good about Timberland’s trajectory. The core is healthy, momentum is broadening across the portfolio, and we have multiple growth opportunities ahead that give us confidence in the brand’s ability to deliver consistent and durable growth. Next, Altra. Altra had another strong quarter, with growth of over 40%, and up in every region and channel. This growth was fueled by the brand’s robust product innovation pipeline, momentum in its core franchises and continued investment in brand awareness, which is reinforcing our brand storytelling, so retailers and consumers understand the power behind the Altra story. Road and trail both grew strongly in the quarter. As a reminder, we already lead in trail, and the market for road running is 10x bigger. The Torin 9 launch was the biggest launch of the
Page 7
season with strong sell-through, and the new Vanish Carbon 3 and Tempo 2 elevated our pinnacle race offering heading into the fall marathon season. Altra is our fastest-growing brand. So, to summarize, we are growing at The North Face, Timberland, Altra and in other brands… in fact 75% of the portfolio is growing. And even at Vans, which will be down 2% or better in the second half… we are on our way. That’s the power of VF as a multi-brand portfolio company. To put it in context, while Altra is still relatively small, in fiscal 2027, we expect its growth in footwear to fully offset the decline in Vans footwear. And just imagine when we are firing on all cylinders. Let’s get into some of the financials. Abhishek?
Page 8
Abhishek Dalmia, Chief Financial Officer & Chief Operating Officer Thank you, Bracken. Good morning, everyone! As you heard Bracken share the high-level Q2 performance, let me dive into some more details. Revenue was up 1% vs. last year, modestly ahead of our guidance of flat or in line with Q1’s growth rate. The North Face and Timberland continued to grow, both up 4% in the quarter vs. last year. At The North Face, we indicated roughly flat in Q2 vs. last year driven by volume moves from Q2 to Q3. We delivered 4% growth in Q2 partially due to earlier demand in Q2 vs. Q3 for Wholesale and the balance of growth driven by stronger execution in Americas DTC. The North Face was up 8% in the Americas, up 3% in EMEA and down 4% in APAC. For Timberland, we came in better than Q1 at up 4% vs. last year. Americas drove the growth again, up 15% in the quarter, partially offset by international softness. EMEA was up 1% and APAC, which is a relatively small part of the global business, declined roughly 20% or approximately $12 million vs. last year. This was in line with our expectations as we continue to work with our partner in the region. For the quarter, Vans revenue was down 9.8%, about $3 to $4 million softer than indicated, driven by the Wholesale softness in Q2 that Bracken mentioned. The expected turn in Wholesale in the second half of the year remains on plan. We are three months from when we gave the initial expectation of the second half, and have better visibility into the confirmation of our orders for Fall Winter 26 and Spring Summer 27. And as mentioned, DTC continues to improve globally. Hence, we are confirming our expectation that revenue will be down 2% or better in the second half. Now triangulating the brand performances back to VF revenue by region, Americas grew 5% driven by a strong performance in DTC across most of our brands. EMEA declined about 1%, and the decline was impacted mainly by Vans performance in the region. APAC declined 7%, with almost half of the decline driven by Timberland, which was expected and is being worked on by our teams. Overall, the current APAC performance is contemplated in our full year expectations and execution across brands remains a key priority. Moving on to operating income… in Q2, we delivered $364 million, almost $50 million ahead of our guidance. Of the additional $50 million, approximately half was driven by better delivery on revenue and gross margins and the other half by a shift of spend from Q2 to Q3.
Page 9
Let me break down the operating income into gross margin and SG&A. Gross margin expanded 290 basis points to 55.4%. Approximately 180 basis points was structural – lower product costs, integrated business planning and surgical price increases. The balance of 110 basis points was an FX tailwind. If you recall, on FX, in Q1 we had a 140 basis point FX headwind and still expect the full year impact to be about flat. Most of these FX moves are driven by transactional hedges and thereby within our expectations. Hence, Q2, Q3 and Q4 carry a slight tailwind from FX and we see the majority of that flow through in Q2. Also, there was minimal net impact from tariffs in Q2 as we lap similar rates year over year and see the benefits of vendor negotiations, as part of our overall tariff mitigation plans. I’d also like to take a second to break down the tariff refund accounting as I know there are a lot of moving parts there. As you recollect, in Q4 of fiscal 2026, we booked the entire refund amount as a receivable and the entire COGS on the inventory was reversed against 1) the COGS for the goods already sold in 2026 and 2) we took an inventory reserve on the inventory on hand. Hence, any inventory from that refunded amount is an adjustment to the reserve and not to the COGS. Tariff refunds therefore have no net impact on gross margins in fiscal 2027. SG&A dollars were up about 4% vs. last year and, as I already mentioned, we rebalanced some of our Q2 investments into Q3. This investment in SG&A is already contemplated in our full year guidance of approximately 8% operating margin. The growth in SG&A dollars is driven by investment in three areas: 1) DTC, where we are investing in the consumer experience and selected fleet expansion, 2) marketing, where we are putting more dollars behind both brand-building and demand-generation activities and 3) product design and innovation. These investments are propelling the brand heat and growth across our brands. The structural cost savings we have taken out remain in the run rate, and we continue our work to find additional efficiencies across VF. Earnings per share was $0.70, up over 40% vs. $0.49 last year, primarily benefiting from operating income growth. In addition, net interest expense was $24 million, slightly lower than the approximately $30 million that we previously indicated. Our effective tax rate came in at approximately 18%. For the full year, our effective tax rate is expected to come in at about the high 20s vs. our original expectation of the low 30s. This is primarily driven by the resolution of historical tax matters. That bottom-line performance also reflects the balance sheet work of the past three years – lower debt, lower interest expense and a more durable financial foundation. You’re starting to see the leverage that Bracken talked about.
Page 10
Turning to the balance sheet. Net inventory ended the quarter up 7% vs. last year. This is the deliberate investment we are making to support the business in the back half of the year and as we told you, inventory will be up for the year fiscal 2027 vs. last year. We have an opportunity in managing overall inventory levels, which will be a key priority in fiscal 2028 and beyond. Free cash flow through Q2 was negative $323 million, which includes the tariff refunds received year to date. Normalized for tariff refunds, first-half free cash flow is roughly in line with last year and is accounted for within our full year guidance. Let’s now turn to guidance, starting with our affirmation for the full year fiscal 2027. On revenue, we continue to expect growth of 2% or better. For The North Face and Timberland, we are tightening the range and now expect the full year growth for each to be up mid-single digits vs. last year. For Vans, we delivered on our first-half expectation and are confirming our second-half expectation of down 2% or better, which results in down mid-single digits for the full year. On operating margin, we continue to expect approximately 8%, reflecting gross margin expansion and disciplined SG&A management. As just mentioned, we now expect our full year effective tax rate to be in the high 20s range. On free cash flow, we are on track to deliver our full year guidance of flat to up vs. last year on a normalized basis of $405 million. But our actual free cash flow for the year will be approximately $515 million or better. Let me unpack that for you. If you recall, in fiscal 2026 there was a net approximately $100 million benefit from the termination of our pension plan. Adjusting for that, our normalized fiscal 2026 free cash flow base was $405 million, which is the baseline for our fiscal 2027 guide. In fiscal 2027, we have also received almost all of the tariff refunds, which translates to net cash of approximately $110 million. Hence, our total free cash flow for the full year will be approximately $515 million or better, including the net tariff refund. And finally, we continue to expect our year-end leverage ratio to be between 2.6 and 2.9x. Our capital allocation priorities remain unchanged. As part of that, paying down debt remains our first priority, and we expect to prepay the April 2027 maturity in March. Turning to our outlook for the third quarter…
Page 11
We expect revenue growth of approximately 3% or better. Our operating income is expected to be approximately $390 million or better, which translates to about $50 million or more above last year. This OI guidance includes about $25 million of the SG&A dollars shifting from Q2 to Q3 that I talked about before. By brand, we expect The North Face and Timberland to each be up 4% or better vs. last year, and Vans to be down 4% or better vs. last year. Looking a little farther out, we remain on track to achieve our previously defined medium-term targets. First, a leverage ratio of 2.5x or better by fiscal 2028. Second, an operating margin of 10% or better for the full year fiscal 2029. We continue to focus on our execution, specifically around building amazing products and great brands, and are excited about the future of VF. And with that, I will hand it back to the operator for your questions. Thank you.