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CTW-2023-VF-Corporation

VF Corporation, the owner of Timberland, Vans, and The North Face, has created the world's first regenerative rubber supply chain—the Regenerative Rubber Alliance. In partnership with design firm Terra Genesis and farmer communities in Thailand, the initiative transforms monoculture rubber farms into more diverse, resilient, and productive gardens. RRA gardens are sequestering more carbon, improving soil health, and increasing biodiversity in comparison to the rubber plantations that dominate the industry. Farmers also benefit from increased yields, reduced reliance on chemicals, and higher incomes. The project has already engaged over 300 farmers across 500 rubber plots, covering more than 1,660 acres, and aims to reach 30,000 farmers by 2030.

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CTW.1122.VF Corporation-Vans

“Traceability maps” are catching on in the apparel industry, as more customers and governments seek evidence that brands are sustainable and aren’t using forced labor. VF, parent of several big brands, goes far deeper than its peers. Customers can find, for example, pictures of the Chinese chemical factory that makes rubber for Vans shoes, or the Vietnamese mill that spins cotton into North Face jackets. This year, VF reached its goal of publishing maps for 100 top-selling products; competitors are taking note.

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F500-2021-263-VF

The worldwide apparel and footwear company has its largest stake in the backpack market, with popular brands such as JanSport, North Face, and Timberland. In November 2020, VF announced it was buying Supreme, an incredibly popular brand associated with youth culture, for more than $2 billion.

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The clothing company owns brands including JanSport, The North Face, Smartwool, Timberland, Eastpak, Vans, and others.

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Wal-Mart stayed on top as its sales crept closer to half-a-trillion dollars. Apple moved into the top five. And UnitedHealth Group continued its steady climb. 

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VF designs and sells branded lifestyle apparel, footwear, and accessories for men, women, and children. It operates through three segments: outdoor, active, and work. Its outdoor brands include the North Face, Timberland, and Smartwool. It also offers sports-inspired and streetwear brands including Vans, Kipling, Eastpak, and JanSport, and “work and work-inspired” apparel and footwear under the Dickies and Timberland PRO brands. It reached an agreement to sell the Supreme streetwear brand to EssilorLuxottica in July 2024.

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VF (VFC): Company Profile, Stock Price, News, Rankings

legacy

Ladies and gentlemen, thank you for joining us, and welcome to the VF Corporation fourth quarter and full-year fiscal 2026 earnings call. After today's prepared remarks, we will host a question-and-answer session. If you would like to ask a question, please raise your hand. If you have dialed in to today's call, please press star nine to raise your hand and star six to unmute. I will now hand the conference over to Allegra Perry, Vice President, Investor Relations. Please go ahead.

Hello, everyone. Coming to you live from Vans headquarters in sunny Southern California. Welcome to VF Corporation's fourth quarter fiscal 2026 conference call. On today's call, 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 presentation 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 present the true operational performance and underlying results of our business. We may also refer to reported amounts, which are in accordance with U.S. GAAP.

Reconciliations of GAAP measures to adjusted amounts are found in the supplemental financial tables included in the presentation, where we identify and qualify all excluded items and provide management's view of why this information is useful to investors. Joining me on today's call are VF's President and Chief Executive Officer, Bracken Darrell, EVP and Chief Operating Officer, Abhishek Dalmia, and EVP and Chief Financial Officer, Paul Vogel. Following our prepared remarks, we'll open the call for your questions. I'll now hand over to Bracken.

Allegra, I've got to correct you. It's not sunny here. It's 5:00 in the morning, let's be honest. Although it always feels sunny in California, and we had a pretty sunny quarter. Thanks, Allegra. Everybody, thank you for joining the call. We finished this year strong, exceeded our fourth quarter guide, and took another big step towards transforming VF. We returned to sales growth for the year for the first time in three years. Our portfolio is getting healthier. In fiscal year 2024, taking it back a way, including Dickies, 43% of our business was growing. Now, as we finish fiscal year 2026, 70% of our business is growing. We also expanded operating margins to 7% in fiscal year 2026. To remind you, that's an expansion of 220 basis points over the 4.8% we had in fiscal 2024, including Dickies.

Over the last three years, we've paid off over half of our net debt, excluding lease liabilities. Let me repeat that. Over half of our net debt is paid off, excluding lease liabilities. Net debt has dropped from $5.8 billion to $2.7 billion. As a result, we've dropped our leverage from 5.1x to 2x, a full two turns in two years. A lot of strong progress on growth, on cost, and on the balance sheet. We've strengthened our financial position while we've increased our investment in brand building, product creation, and ultimately in growth, which is what it's all about. Our results demonstrate that our strategy is working and that we're well on track with VF's transformation. I'm very confident in our ability to drive strong performance and shareholder value in the years ahead. Now, let me turn briefly to Q4.

We delivered our strongest revenue performance in three years with revenue up 3% versus last year, ahead of our expectations and despite an evolving macro environment. In the Americas, our largest market, we accelerated growth to 10%, including a return to growth for Vans for the first time in almost four years. Our revenue performance helped drive stronger than anticipated operating income of $54 million. We ended the fiscal year with a strong Q4, growing revenue and expanding margins while further strengthening our balance sheet. Now, let me talk just about a few brand highlights for the quarter. We're continuing to see progress across the portfolio, starting with The North Face. The brand grew 7%, driven by broad-based growth across categories and by stellar performance in the Americas, up 16%. Our investments in product creation and innovation are delivering results. Softshells and fleece were key drivers in apparel.

Our investment into footwear is showing strong results, or continues to, and in fact, we have now delivered five consecutive double-digit growth quarters. Finally, we made an exciting announcement last week, which I hope you saw, which further underlines the performance credentials of this brand. We announced a new multi-year strategic partnership for The North Face with the U.S. Ski & Snowboard Team. In other words, we'll be outfitting the U.S. Ski & Snowboard athletes as they compete on the world stage, including at the upcoming Winter Olympic Games. As the exclusive performance apparel sponsor, athletes will wear The North Face across all major events, including the World Cup, all World Cup events, and of course, the Winter Olympic Games and official training camps through at least 2034. Of course, our customers can also buy this apparel, and we're sure they will.

The brand will be front and center on the world stage, further cementing its commitment to elite mountain and adventure sport athletes. This is an exciting time for The North Face, and we're making progress on our path to doubling this business over time. There's so many ways we can grow this brand. Category growth, market share growth, new categories we can expand into, and finally, elevation to more premium versions of the products we already sell at higher price points. We have a lot of pent-up opportunity to drive growth at The North Face. Let's turn now to Timberland, which grew 2% this quarter as expected. Our DTC growth was up 8%, driven in part by full price stores. Wholesale was slightly down versus last year, primarily due to lower distressed sales. The six-inch premium boot continues to be the key engine behind the brand's momentum.

We're also seeing good results from the boat shoe, which is growing across all regions with significant growth potential ahead. We'll continue to both build on the strength of the iconic boot, but also introduce more innovation across the rest of our footwear assortment. Starting this fall, we're resetting our apparel proposition to create a better head-to-toe expression that matches our footwear offering. As part of these efforts, we're also focusing on our women's business, and you'll see more there, too. We're driving the brand's energy and leveraging its cultural relevancy through collaboration, seeding, and partnerships. We're continuing to see positive brand search interest in the U.S. and the U.K. More recently, in April, Timberland was awarded the Fashion Maverick Award of the Year at the American Image Awards.

We also, as you know, are expanding our distribution footprint with 11 full-price stores now open and operating in our home market. The outsized productivity shown by our new stores are early proof points of our new operating model working as planned. We have exciting plans for Timberland in the coming seasons as we continue to set the stage for long-term profitable growth ahead. This brand could become much larger over time, and I'm confident we're taking the right strategic steps to ensure that happens. Let's talk about Altra. Altra had an exceptional Q4 performance. Another fifth consecutive quarter. The fifth consecutive quarter of double-digit growth here too, across all regions and channels. Revenue grew 45%, driven by broad-based growth everywhere and new launches. Growth for the year was over 30%, with revenues surpassing $270 million.

Performance was led by successful franchise launches including the original Lone Peak, now the Lone Peak 9, and the Experience, and strong execution in both DTC and wholesale. We have a really differentiated product in this space, and we're continuing to drive awareness, which remains very low. I talked about investing in product creation and marketing, and Altra is a brand where we've absolutely increased the investment to drive growth. We're excited to see outsized growth in search interest, traffic, and new consumer acquisition. This brand plays in a very large addressable market, and we believe this can be a billion-dollar-plus brand over time. There's so much opportunity here. Now let's talk about Vans. Q4 was down globally by 5% year-over-year. What I'm most excited about by far is our progress in Americas DTC.

DTC is where we are closest to the consumer with our products and our marketing. Americas is more than 50% of our total business, and it's where the trends start for Vans. If you remember, our e-com business in the Americas first turned to growth in Q3 of 2026 with 4% growth. In Q4, Americas total DTC grew 5%. The Americas is the foundation for the brand's energy. This is where we said the recovery would start, and as the Americas DTC continues to grow, its brand heat will start to show up elsewhere. These tangible green shoots are a result of our focus on product and brand energy at Vans. You'll hear Abhishek talk more on the work we're doing on speed to market, which helps us with newness. Newness continues to build across the assortment as we re-energize our core icons, one silhouette at a time.

As an example, the Pearlized drops are having great consumer response and driving improving results within the Old Skool franchise. Another icon, the Authentic, delivered outstanding growth in the quarter, up 80% versus last year. Slip-Ons returned to growth, too. Apparel also returned to growth in Q4. Vans continued to leverage a social-first, culture-led marketing approach, amplifying product stories and driving traffic, particularly into digital channels. During our fourth quarter, we launched our Off The Wall campaign anchored around the Authentic, it resonated with consumers and supported improved search and engagement trends in key markets. Our strategic investments in design, brand energy, and demand creation have been instrumental in driving improved performance for the brand. We are excited about the progress at Vans. Turning to FY 2027. Paul will go deeper in a minute.

I feel very good about our forecasting abilities, and today we're reinstating annual guidance. We're expecting our second consecutive year of growth and strong progress towards our 10% operating margin medium-term goal. I also understand better the seasonality of our business today, based on the wholesale order flows and the mix of our business quarter by quarter. As you'll hear from Paul, we expect Q1 revenue to be down slightly, low single digits. Remember, it's a very small quarter for the year and has no impact on our ability to deliver our guidance for the year. With respect to Vans, first let me say that for the full year, we're going to move from a double-digit decline last year to a mid-single digit decline this year. The more important signal is that we will continue to deliver growth in Americas DTC throughout fiscal year 2027.

Overall, the front half will be weaker than the back half. Wholesale will start weaker and pick up steam as the DTC growth drives order flow. We still have work to do in our wholesale business in the U.S. and around the world. We'll be focusing on continuing to accelerate in DTC and developing a stronger global wholesale growth engine. In the near term, as Abhishek and Paul will also tell you in a minute, we're operating in an unusual macro environment with two wars at least and tariffs in flux. Like others in our sector, we're impacted by the developments in the Middle East. Despite these headwinds, we're on track to deliver our medium-term targets. Important, I'd like to emphasize our confidence in getting to the 10% margins we promised.

Now we've returned to growth in fiscal year 2026, and we'll grow again in 2027, and we're not going back. We're shifting our initial turnaround phase to our growth phase. This next part of our story is all about driving durable, profitable growth for many years to come. Overall, looking ahead through fiscal year 2027, just like looking back on the past two years, you'll see more growth, better margins, lower debt, and better leverage in the coming years. Today, I've asked our Chief Operating Officer, Abhishek Dalmia, to provide an update on our turnaround strategy a year on from our last Investor Day. We've really accomplished a ton over the last year, and all these building blocks are contributing to both near-term success and will contribute a lot more as we move forward. Abhishek, welcome to the earnings call. The floor is yours.

Thank you, Bracken. Good morning, everyone. It's great to be here, and I'm excited to speak directly about the work our teams are doing every day to transform this company. What gives me energy is that transformation is no longer just a plan or a set of initiatives. It shows up in the way we operate, the decisions we make, and the results we are delivering. As you heard, gross margins of 55%+, leverage ratio improvement of two turns, and positive growth for full-year FY 2025. In October 2024, we shared with you our plan to transform VF with a focus on strengthening the balance sheet and creating a more durable foundation for profitable growth. Paul will share more detail around our commitments, but we remain focused on delivering against these medium-term commitments.

Gross margin of at least 55% and exit run rate operating margin of 10% in FY 2028, and leverage ratio of 2.5x or less by FY 2028. We are two years into a four-year journey to our medium-term targets. While macro environment has become more complex, our commitment has not changed. At the start of the turnaround, our primary focus was liquidity and leverage. You heard from Bracken, we have made meaningful progress there, and this matters because it gives us flexibility to reinvest behind our brands to pursue growth. Beyond portfolio moves, our turnaround has been focused on three key areas: expanding gross margin, controlling SG&A, and accelerating top-line growth. All three are progressing in parallel to create fuel for further growth, strong EBITDA, and target operating margin. Let me start with gross margin, where we have made significant progress and have more room to improve.

In FY 2024, VF's full-year gross margin, including Dickies, was 51.6%. In FY 2026, we finished the year at 55.2%, an expansion of approximately 360 basis points. About 100 basis points came from Dickies' divestiture. The remaining 260 basis points came from the work we have done across several work streams across our brands and portfolio. How did we achieve this? We strengthened our product creation engine and inventory planning capabilities that are improving decisions across the business. The work we are doing to strengthen our capabilities has driven gross margin expansion in certain key areas. One, we are driving a stronger mix of higher-margin products. Two, we are taking targeted pricing actions. Three, we are executing sharper markdowns. For example, The North Face and Timberland Americas were the first to deploy our improved markdown capabilities at scale using AI and stronger in-season analytics.

The result has been meaningful uplift in gross margin dollars. We have reengineered our processes, built new capabilities, and upskilled our talent. As we scale them across our brands and regions, we expect to drive further improvement in gross margin rate and dollars. Let me talk about SG&A now. Since FY 2024, excluding Dickies, we have taken out more than $225 million of sustained savings, now fully in the run rate. These structural savings, not temporary actions. We have taken significant actions to simplify the organization, to drive efficiencies in DTC and distribution, and to optimize our digital and technology expenses. For example, in distribution, we consolidated some of our footprint and balanced it more between our owned and 3PL DCs. In digital and technology as an example, we deployed faster, more cost-optimized commerce platform, which allowed us to elevate our consumer experience at a much lower structural cost.

Now, while we have made good initial progress, we continue to streamline our cost base. As you can see, when we commit to something, we deliver. SG&A savings have been partially offset by Forex impacts and inflation, and we have deliberately made some incremental investments in product development and marketing. Marketing is an investment engine for VF, and we are shifting it toward more working media spend, which means more of our dollars are reaching consumers directly and supporting brand momentum and demand creation. The work we have done on gross margin and SG&A sets the foundation to drive growth, and hence I'm talking about it now. That is why we are here. Now let me get into a little bit more details there. As Bracken mentioned, we delivered full-year FY 2026 revenue growth of 1%, our first year of growth in three years.

Deeper understanding of our consumers and building back consumer love for our iconic brands is central to driving this growth. We started the work by segmenting consumer demand to make clear choices about where each brand will compete and win. This commitment continues to shape what products we design and how we curate relevant experiences for our consumers. Ultimately, we need to get the right products for our consumers at the right time. This is where our product go-to-market process matters. As you all know, in our industry, go-to-market cycles are long. Speed is and will continue to be a critical enabler to accelerate this growth, and we have done a lot of work there. Let me share a few examples from Vans.

In fall 2025, Vans pulled forward products originally planned for season fall 2026 and delivered them in less than six months, roughly 1/3 of the time a standard cycle would take. We did that by working more closely with our vendors, being more precise in our product briefs, and making sharper decisions with creative confidence in design. That speed mattered. It allowed the team to test new silhouettes on smaller scale, read consumer responses, and make better decisions about what to scale, what to refine, or what to discontinue. Some styles were dropped from fall 2026 line, while others were refined with those insights. This kind of speed enables improved Vans performance in Americas DTC, as you heard from Bracken. At the same time, Vans has been rebuilding brand energy through a more social-first content-led model.

Targeted product and content drops with artists including Curtis, SZA, Hayley Williams, Travis Barker, are helping reconnect the brand with culture and drive consumer engagement. These efforts are becoming visible in the marketplace. It is early, and we are clear about the work ahead at Vans. This combination of speed, product newness, and sharper marketing will be the building blocks we continue to execute into the next year and beyond. That's the growth engine we are building across VF brands. Looking ahead, let me reiterate our priorities. Keep expanding gross margin, maintain cost discipline, and accelerate growth across our brands. We are encouraged by the momentum we see in the business. We have made significant gross margin progress, which gives us fuel to drive growth, and we continue to realize additional margin expansion opportunities. We have mitigated outsized external challenges while continuing to invest in accelerated growth.

While we manage our cost discipline, we have two near-term cost challenges: oil price fluctuations and potential tariffs. On oil price fluctuations, there are two areas of impact: freight and product cost. Freight, we are leveraging scale with our carriers and partners and driving cost discipline across the supply chain. On product cost, we are consolidating materials across brands and leveraging our VF materials library to drive pricing scale while also reviewing our pricing strategies. On service levels, we are adjusting sourcing flows, monitoring logistics, and working closely with our regional teams. We have contingency plans in place and are operating with extreme flexibility. On tariffs, we are closely watching a potential step-up to take effect mid-July following the conclusion of the Section 301 investigations.

Over the past year, we have been actively mitigating, rebalancing our sourcing footprint, reducing exposure to higher tariff routes, and working with partners to share cost burden. Putting this all together, we continue our work across several initiatives and remain extremely confident in our ability to achieve our margin targets in FY 2028. We have many opportunities ahead, including the ones that I can highlight in particular. First, our faster go-to-market enables us to drive outsized growth in DTC channel, which in turn generates a higher level of profitability and fixed cost leverage for us. Second, our return to top-line growth and a more efficient marketing approach that we are deploying results in further leverage on marketing spend. Finally, AI is creating incremental optimization opportunities across our brands and corporate functions. We are leveraging AI where we see clear value, scaling what works, and embedding it into how we operate.

You will see us communicate progress in terms of operational outcomes, margin dollars, inventory quality, speed, and productivity, not just AI investment dollars. The work is not finished, but VF is operating with more discipline, more speed, and more focus than it did a few years ago. The conversation inside this company has shifted from turnaround to growth, and that is what gives us extreme confidence in the next phase. With that, I will hand it over to Paul.

Great. Thank you, Abhishek. Welcome to the call. As Bracken and Abhishek illustrated earlier, we made important strides in fiscal 2026. We returned to top-line growth, expanded our gross margin to 55%, and achieved an operating margin of 7%. I want to underscore what Abhishek just said. Leverage is down a full turn compared with fiscal 2025 and down two full turns versus two years ago. Let's turn to the financial review of the fourth quarter. We closed out the year with another quarter of revenue growth. Q4 revenue was $2.2 billion, up 3% versus last year and above our guidance of flat to up 2%. Wholesale demand in the quarter drove our better-than-forecast results, led by The North Face. By brand, The North Face grew 7%, led by the Americas region, which had another quarter of double-digit growth.

Vans was down 5%, as expected, including about 2% benefit from earlier orders from wholesalers. Lastly, Timberland grew 2%, its sixth consecutive quarter of growth. By region, the Americas grew 10% in the quarter and up 3% for the full year, reflecting the continued progress in our largest region. EMEA was down 5% as we're navigating the macro headwinds in the region, and APAC was up 1%, driven by demand across The North Face and Timberland. Lastly, we grew across both channels. DTC delivered another quarter of growth at up 2%, and wholesale was up 3%, aided by higher than expected demand. Before I review the rest of the P&L, I want to address a few items that impacted comparability in the quarter. Following the Supreme Court's ruling in February related to certain tariff refunds, we recognized a net benefit to our gross margin during Q4.

We also elected to accelerate select restructuring costs in the quarter, which drove a higher SG&A rate and partially offset the gross margin benefit. On a normalized basis, excluding these items, operating income would have come in at the midpoint of our guidance range. Gross margin for the quarter was up 240 basis points versus last year to 56.4%, helped by a roughly $50 million net benefit from the tariff receivable and offsetting charges. Normalized gross margin was roughly flat versus last year, driven by the benefits from targeted price actions offset by mix and FX. SG&A as a percentage of revenue was up 70 basis points versus last year or down slightly excluding the accelerated restructuring costs. Our operating margin for the quarter was 2.5%, up 170 basis points versus last year.

In Q4, net interest expense was $27 million, while tax expense was $25 million, reflecting a full-year adjusted rate of 36%. This should be the peak year in tax rate, with the expectation that a reported rate should be in the low 30s in fiscal 2027 and back in the 20s beyond that. Q4 adjusted earnings per share was $0 versus a loss of $0.14 in Q4 of last year. I'll turn to the balance sheet. Inventories declined 11% in constant currency, and inventory days were down year-over-year, reflecting improved inventory discipline across the organization. Net debt was down approximately $800 million versus last year or down 16% following the repayment of the €500 million maturity made earlier this year. As noted, year-end leverage improved to 3.1x, down one full turn versus last year.

Our free cash for the year was $505 million, including a $100 million cash benefit from the net impact of the pension termination. Normalizing for this activity, free cash flow of $405 million was approximately $90 million above last year. On to our outlook. As Bracken mentioned, we are reinstating annual guidance effective fiscal 2027. For the full year, we expect another year of growth and operating margin expansion as we advance towards our medium-term targets. We expect revenue to be up 1%-2% in constant dollars. By brand, we expect continued growth at The North Face, Timberland, and Altra, driven by our ongoing focus on investing in product and marketing. We expect Vans to deliver moderating declines for the year as a whole, with improving trends in H2 relative to H1. We recognize that 1%-2% is a somewhat specific range.

Incorporated into this guidance is our belief that we will grow in fiscal 2027, but that there are real headwinds related to the Middle East conflict and that we expect about 0.5 point benefit from the 53rd week. To date, we've had some impacts to our operations in the Middle East, in particular on the wholesale side. We are anticipating the conflict in the Middle East to negatively impact revenue by about 100 basis points. While we have full confidence on where we will land for the year, we expect slower top-line trends across the first half of the year.

This is reflective of the slowdown in the Middle East and Europe due to the war and company-specific trends, including wholesale timing shift, which can have a disproportionate effect given the relatively small size of Q1 in particular, as such, we expect Q1 to be down low single digits. For Q1 operating income, partly driven by some investments we are making in the quarter and particularly around investments in Altra and DTC, both of which Bracken highlighted earlier, we do expect a $100 million loss for the quarter, about $40 million more than last year. This is all contemplated in our annual guidance. For Vans, we feel very good about the direction of the business and the underlying momentum. Execution is translating into tangible improvements, particularly in the Americas, where DTC continues to lead the recovery. Let me reiterate what Bracken said earlier.

For the full year, we expect Vans to be down mid-single digits compared to -11% in 2026 and down 15% in fiscal 2025. Americas is our most important region, and DTC Americas is approximately 40% of our global business, and the DTC Americas business has turned. The progress here is a clear harbinger of where we are headed for Vans. For Q1 on a reported basis, we do expect a softer performance relative to Q4 2026, mainly related to the wholesale timing I mentioned previously. On a normalized basis, the growth across the two quarters is roughly the same. Moving down the consolidated P&L, we expect fiscal 2027 operating margin of approximately 8%, supported by gross margin expansion at a lower SG&A rate relative to last year.

Full-year operating cash flow will be up versus last year, and free cash flow will be flat to up versus last year when you exclude the $100 million net impact of the pension termination from both years. On the working capital side, we're making additional investments in inventory to support top-line growth and expect inventory to be up year-on-year. This is an intentional decision to invest behind a few of our brands, and we still see our overall inventory in the long term heading lower and expect our inventory days to be flat this year and lowering moving forward beyond that. We also expect a step-up in CapEx this year, about $100 million year-over-year increase, with new full-year store openings of Timberland as one key driver.

We continue to focus on strengthening the balance sheet, and we expect to exit the fiscal year with leverage between 2.6x and 2.9x, driven by both the further reduction in net debt as well as improved operating performance. Our plans for fiscal 2027 represent another step towards our medium-term goals, namely an exit run rate of 10% operating margin in 2028 and lowering our leverage below 2.5x by fiscal 2028. As we continue to progress towards our operating margin targets, we are seeing gross margin come in even better than planned, with our SG&A percentage slightly higher. Much of this can be attributed to the elimination of Dickies in our portfolio, where that brand had structurally lower gross margins and lower SG&A. While the makeup of our 10% margin target may be slightly different, the goal is still the same and we are on track to achieve it.

To close, fiscal 2026 represented meaningful progress for VF, we remain on track to achieve our medium-term financial targets. With that, I'll hand it back to the operator for your questions.

Thank you. We will now begin the question-and-answer session. Kindly limit yourself to one question per person. If you would like to ask a question, please raise your hand using the raise hand function at the bottom of your screen. If you have dialed in to today's call, please press star nine to raise your hand and star six to unmute. Please stand by while we compile the Q&A roster. Your first question comes from the line of Michael Binetti with Evercore. Your line is open. Please go ahead.

Hey, guys. Thanks for taking our question here, and thanks for all the detail. Just a couple. On Vans, the DTC improvement, maybe you can just help us understand what you're seeing, if you're seeing the same level of improvement at sell-through at wholesale as you're seeing at DTC. We're trying to parse together how you're looking at it in total, but I know you're managing sell-in to some extent on wholesale. I'm curious what you're seeing at sell-through at wholesale, how similar it is to DTC, and what you think is the difference between the two today, to just help us understand how you're looking at it for the year. Any comment on how you think we should model Vans for first quarter would be helpful.

I'll take the first one, and I'll give Paul the second one. Yeah, on sell-through, it wouldn't be as strong as our DTC, because the DTC has a different mix, and also DTC includes e-commerce, where we're able to really drive a lot of traffic to our own websites. We don't normally drive it everywhere else. I would say the sell-out in wholesale is not as strong as in our DTC in the Americas. Our DTC is a good harbinger of what's going to come, because the products that we have in our DTC, are coming. One by one, they'll come into the wholesale network, both online and offline. You'll see a stronger and stronger set of products in the portfolio. I think we view that as a really clear harbinger of what's to come.

What's the timeframe on that? We're being a little cagey on that intentionally, because we're going to wait and see how it plays out. We feel very strong about the trend line on DTC, and then how it's going to play out in wholesale over time.

On Vans. I think for Q1, the reported number will be slightly lower than what we experienced in Q4 of this year. Again, keep in mind, we did have some demand that pulled forward some orders into Q4. Given the size of Q1, it does impact that. On a normalized basis, Q4 and Q1 are roughly the same.

On a reported basis, Q1 will be slightly worse than Q4, and then we expect it to improve throughout the year.

I know normal practice for VF has been to take a conservative approach to DTC as you get further out on the calendar. Is the confidence in the improving growth rate in Vans through the year related to something you could tell us about with the order books on wholesale?

We normally don't talk about order books. Our confidence is really built on everything we can see internally, especially the DTC sell-out. Just looks really, really strong.

The new product performance, in particular, is really strong. Of course, we also get to look at what you can't see at all, which is the new products that are coming. We're sitting in a room that's about 400 ft from where we look at one and two and three seasons out. We just feel really good about what's coming.

By the way, the sun's coming up, if you were wondering. This is now sunny California, almost.

Your next question comes from the line of Janine Stichter with BTIG. Your line is open. Please go ahead.

A kind reminder, if you've dialed in, you will need to unmute your line by pressing star six.

Thanks for taking our question. On Vans, you mentioned that there's still some work to do in U.S. wholesale. Can you help us understand exactly what that means? Is that a reference to need to clean up more distribution, or is that a reference to need to build back the order books? Maybe give us some thoughts on how you're thinking about the U.S. wholesale distribution currently. Thank you.

It's mostly just really building back the order flow into the business. The distribution looks pretty good. We're going to continue to edit that. You'll remember we took down the value channel pretty significantly over the last year. We've done some editing. We may have over-corrected there a little bit, so we're going a little bit back into that, but not dramatically. Overall, though, I think our distribution looks about right in wholesale. It's really more about just continuing to follow the DTC performance, make sure that our wholesale partners really get to see that, and they have, and then have the orders that come behind it. It's really much more of a follow the leader mode now, rather than add on to the number of players in the market.

Great. Just on DTC, it sounds like a lot of that improvement is coming from online. Can you elaborate a little bit more on what's going on with stores in terms of both traffic and conversion? Thank you.

Yeah. Certainly, traffic's gotten a little better, and conversion's gotten a lot better. I think our execution at retail has really improved. We had a new leader go in two quarters ago, and he has really re-energized the team, gotten focused on execution, and that performance has really improved on retail and e-commerce. Bricks and mortar and e-commerce, he's now taken over the rest of the world, as you know, and we're bringing some of that magic into the rest of the world over this year. That's another reason we feel so strongly about our ability to deliver kind of the performance we're seeing in DTC in the U.S. into the rest of the world and into the wholesale in the U.S. over time. We're excited about it.

Your next question comes from the line of Laurent Vasilescu with BNP.

A kind reminder to press star six to unmute.

Good morning. Thank you very much for taking my question. Hi, Bracken. How are you?

I've got a quick question as the sun comes up here in California. It's a question about, I think you mentioned, Paul, that the gross margin for Q4 would've been flat, if I understood correctly, on the tariff, ex-tariff benefit. If that's the case, how do we think about Q1 gross margin? Obviously, there's no precedence with this tariff refund, but how do we think about the tariff benefit for the fiscal year 2027 guide relative to the gross margin and the free cash flow guide? Thank you so much.

For Q4, yeah, if you back out the receivable gross margin, it'll be roughly flat for Q4. Q1 gross margin will be up. SG&A is also going to be up, as we mentioned, some of the investments we're making. Q1 in particular is a smaller quarter. We're starting the year with some investments we think are really going to help throughout the full year. That's why you're seeing that dynamic in Q1 with the better gross margin, but the higher SG&A, which is why the OI is down year-on-year in Q1. That's all part of our plan for the fiscal year 2027. You see our expanding operating margin to 8% for the full year on the better gross margins and leverage of SG&A.

You'll see, again, higher gross margins in Q1, higher SG&A for the full year. You'll see higher gross margins leverage on SG&A. You'll see us get to the 8%. That's how it works out. On the tariff side, we're assuming that the tariffs are back in place at the end of July. We expect to have sort of a full year impact of tariffs, of an incremental $70 million-$80 million for the year. Again, we'll see how it goes. Obviously, it's very fluid. Could be better, could be worse, but we're assuming they're going to be back in place, and we're assuming it's going to be, call it roughly $70 million-$80 million impact, negative impact, on our gross margin.

Paul, that's super helpful. I think you mentioned to Michael there were some timing shifts between 1Q and 4Q on revs due to the timing shifts on wholesale. Maybe could you quantify that number? I think you said they would've been roughly equal. It seems like a pretty big delta. Are you assuming that there's some timing shift from 2Q to 1Q? I know you're not ready to guide for 2Q, but should we at least assume that there's probably 2Q be flat for the year on top line? Thank you so much.

Yeah, the biggest impact was Q4 and Q1. We just had some stronger demand and orders just came in earlier for the season, which is obviously a positive sign. We knew that, so again, with the Vans number, the guidance, it was in there in the guide. We knew the demand was going to be there. It was about two points in each quarter. That's why I say if you normalize it out, the growth about the same. If you look at the trends relative to kind of the normalized trends in Q2 and Q3 and Q4 and Q1 are, again, slightly better from a kind of normalized trend, in terms of the declines Vans.

Super helpful. Thank you very much and best of luck.

One other thing I should add also because it also impacted The North Face as well. North Face also has had some really strong demand as well. It was a benefit to them in Q4. Given the size of Q1, it actually has The negative benefit on the actual growth rate is higher in Q1 just because it's a smaller quarter. One of the other things that's impacting, again, growth just for Q1 but not for the full year is, again, some of that timing shift for The North Face as well. Again, the demand was there, which is great. Fell in Q4 versus Q1. That has a disproportionate impact on North Face in Q1 in particular. Again, we still expect good growth in North Face for the full year again.

There's a lot of things going on that just kind of specifically impact Q1 but don't really impact what we think will be a stronger FY 2027.

Your next question comes from the line of Brooke Roach with Goldman Sachs. Your line is open. Please go ahead.

Good morning. Thank you for taking our question. In the prepared remarks, you talked a little bit about some of the drivers of product costs as a result of some of these higher oil prices that will be flowing through the P&L. You mentioned several mitigating factors, including pricing. Can you unpack for us a little bit more what that annualized headwind is going to be when it gets fully into your inventory cost and how much pricing actions you're contemplating both this year and into next year as a result of these inflationary factors, whether it is oil costs or tariffs or other factors in the environment? Thank you.

Want to start, or you want me to start, Paul?

Sorry. The impact on fiscal 2027 is pretty minimal. We are obviously looking at oil prices in general, in terms of product costs and how that could impact fiscal 2028. I think it's kind of a wait and see where oil prices sort of net out between $80 million-$90 million at the low end, $100 million-$110 million, maybe even more at the high end. We have it out there. Again, it's really not going to impact the product costs all that much in fiscal 2027, if anything. We'll give you more guidance as we get towards the back half of the year, what that may or may not do from a headwind for fiscal 2028. From a pricing standpoint, we're just being strategic across the brands.

There's nothing really incremental new to call out on pricing, just sort of strategically going through the portfolio and changing prices where appropriate.

Great. Just a follow-up. Can you unpack the trends that you're seeing in EMEA? What assumptions are you embedding for Western Europe beyond the 100 basis points related to the Middle East? Are you seeing any change in demand in that region for any of your brands?

I'd say generally speaking, no. I think it's been weaker. Europe has been weaker for us. In general, I think the whole macro environment's kind of swirled Europe, that traffic's been down across the board, across the whole industry, and it's certainly affected us. It has been weaker for us. Looking forward, we're not expecting magic there. The good news is our DTC is stronger than our wholesale there, that feels good. Kind of echoes the same story we told about the Vans in the U.S. in general. I think as we go forward, we certainly expect it will get back to good growth over time. We're taking a new approach there. We've learned so much as we brought Just to take you back a few years, even, we brought this European platform for our commercial engine into the U.S.

It was a very successful multi-brand platform. We weren't doing that in the U.S. We put it into the U.S. It certainly has driven improvement in the U.S. We've upgraded that even further by getting focused on our DTC in the U.S. and really improving our execution engine. Now we're bringing that execution over into Europe. It's kind of an illustration of this whole value of having multi-brand, multi-category, multi-region business like we have, where we're going to keep learning in different parts of the world as we tap into a new vein of understanding and insight that improves our business. We're going to bring it to the rest of the world and the rest of our brands. That's exactly what's happening now. You'll see that happen. It's already happening in the U.S. That's why you saw such a strong quarter.

I think you'll see it in the quarters and certainly years ahead around the world.

Your next question comes from the line of Ike Boruchow with Wells Fargo. Your line is open. Please go ahead.

Paul, clarification on a question, I think for Paul. The refund benefit you saw in the first quarter, should we basically be modeling that as a bad guy, $50 million in the fourth quarter of next year? I'm assuming we should. I just want to kind of make sure that that's the case.

It's not really a bad guy. If you think about it, if you think about the full year, the full year just basically assumes that we didn't have to pay the tariffs. We took a receivable to account for that, which all hit in Q4. We tried to normalize out for Q4. Just as a level set, the operating margin, the 7% operating margin in fiscal 2026 is a good, clean margin. I wouldn't think about is it a benefit in Q4. I think more a function of if the tariffs are put back in place at the end of July, and if we're back in an environment where we're having to overcome the tariffs, it will impact the back half of the year.

VF (VFC) Q4 2026 Earnings Call Transcript

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