DENVER, February 07, 2023--(BUSINESS WIRE)--VF Corporation (NYSE: VFC) today announced financial results for its third quarter (Q3'FY23) ended December 31, 2022 and a series of actions to accelerate the path to its target leverage ratio and sharpen its focus, including declaring a quarterly per share dividend of $0.30, reflecting a 41% decrease over the previous quarter’s dividend.

Q3'FY23 Financial Highlights

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

• Earnings per share (EPS) down 1% to $1.31; Adjusted EPS down 17% to $1.12

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 talented teams around the world has reinforced my belief in the tremendous opportunity ahead for our company. We are committed to improving execution through a sharpened focus on the biggest consumer opportunities and enhanced operational performance. Consistent with this objective, 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. We are confident these actions will enable a return to profitable and sustainable growth and, with that, strong shareholder value creation."

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 EPS $2.05 to $2.15, within the previous outlook of $2.00 to $2.20

• 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

The Company's capital deployment priorities in the near to medium term are focused on optimizing and driving the performance of the portfolio, reducing leverage and returning capital to shareholders. 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

Matt Puckett, CFO, said: "As we close FY23 and move into FY24, we have clear plans in place to address the ongoing challenging macro-economic environment in the near term. I am confident the actions we are taking will lead to improved operating performance and will strengthen the Company's financial position, enabling VF to deliver long-term, sustainable and profitable growth."

* FY23 outlook and FY24 expectations assume no additional significant COVID-19 related lockdowns in any key commercial or production regions and no significant worsening in global inflation rates and consumer sentiment
** Excludes the impact of an $876 million payment VF made on October 19, 2022 to the U.S. Treasury for the dispute regarding the timing of income inclusion associated with VF's acquisition of Timberland in 2011, as previously disclosed

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

• Earnings per share (EPS) $1.31, down 1%; Adjusted EPS $1.12, down 17%

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

Q3’FY23 Shareholder Returns

• Return of $198 million to shareholders through cash dividends

• VF’s Board of Directors declared a quarterly dividend of $0.30 per share, reflecting a 41% decrease from the previous quarter’s dividend. This dividend will be payable on March 21, 2023, to shareholders of record at the close of business on March 10, 2023. Subject to approval by its Board of Directors, VF intends to continue to pay quarterly dividends

COVID-19 Update

To help mitigate the spread of COVID-19 and in response to public health advisories and governmental actions and regulations, VF has modified its business practices in certain locations, including the temporary closing of offices and retail stores, instituting travel bans and restrictions and implementing health and safety measures including social distancing and quarantines.

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.

VF is continuing to monitor the evolution of COVID-19 globally and will comply with guidance from government entities and public health authorities to prioritize the health and well-being of its employees, customers, trade partners and consumers.

Webcast Information

VF will host its third quarter fiscal 2023 conference call beginning at 4:30 p.m. Eastern Time today. The conference call will be broadcast live via the Internet, accessible at ir.vfc.com. For those unable to listen to the live broadcast, an archived version will be available at the same location.

Presentation

A presentation on third quarter fiscal 2023 results will be available at ir.vfc.com today before the conference call and will be archived at the same location.

About VF

Founded in 1899, VF Corporation is one of the world’s largest apparel, footwear and accessories companies connecting people to the lifestyles, activities and experiences they cherish most through a family of iconic outdoor, active and workwear brands including Vans^®, The North Face^®, Timberland^® and Dickies^®. Our purpose is to power movements of sustainable and active lifestyles for the betterment of people and our planet. We connect this purpose with a relentless drive to succeed to create value for all stakeholders and use our company as a force for good. For more information, please visit vfc.com.

Financial Presentation Disclosure

All per share amounts are presented on a diluted basis. This release refers to "reported" and "constant dollar" amounts, terms that are described under the heading below "Constant Currency - Excluding the Impact of Foreign Currency." Unless otherwise noted, "reported" and "constant dollar" amounts are the same. This release also refers to "continuing" and "discontinued" operations amounts, which are concepts described under the heading below "Discontinued Operations - Occupational Workwear Business." Unless otherwise noted, results presented are based on continuing operations. This release also refers to "adjusted" amounts, a term that is described under the heading below "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." Unless otherwise noted, "reported" and "adjusted" amounts are the same.

Constant Currency - Excluding the Impact of Foreign Currency

This release refers to "reported" amounts in accordance with U.S. generally accepted accounting principles ("GAAP"), which include translation and transactional impacts from foreign currency exchange rates. This release also refers to "constant dollar" amounts, which exclude the impact of translating foreign currencies into U.S. dollars. Reconciliations of GAAP measures to constant currency amounts are presented in the supplemental financial information included with this release, which identifies and quantifies all excluded items, and provides management’s view of why this information is useful to investors.

Discontinued Operations - Occupational Workwear Business

On June 28, 2021, VF completed the sale of its Occupational Workwear business. The Occupational Workwear business was comprised primarily of the following brands and businesses: Red Kap^®, VF Solutions^®, Bulwark^®, Workrite^®, Walls^®, Terra^®, Kodiak^®, Work Authority^® and Horace Small^®. The business also included a license for certain Dickies^® occupational workwear products that were historically sold through the business-to-business channel. Accordingly, the company has reported the operating results and cash flows of the business in discontinued operations for all periods through the date of sale.

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 the first nine months of 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 $11 million in the third quarter of fiscal 2023 and $72 million in the first nine months of 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 $422 million in the first nine months of fiscal 2023. The impairment charges were driven by non-operating factors including higher interest rates and foreign currency fluctuations.

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 the first nine months of fiscal 2023.

The adjusted amounts in this release exclude a discrete tax benefit of approximately $95 million in the third quarter and first nine months of 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 positively impacted earnings per share by $0.19 during the third quarter of fiscal 2023 and negatively impacted earnings per share by $1.07 during the first nine months of fiscal 2023. All adjusted amounts referenced herein exclude the effects of these amounts.

Reconciliations of measures calculated in accordance with GAAP to adjusted amounts are presented in the supplemental financial information included with this release, which identifies and quantifies all excluded items, and provides management’s view of why this information is useful to investors. The company also provides guidance on a non-GAAP basis as we cannot predict certain elements which are included in reported GAAP results. Additionally, the impact of the payment of taxes and interest related to the dispute with the IRS regarding the Timberland acquisition in 2011 has been excluded from fiscal 2023 adjusted cash flow from operations.

Forward-looking Statements

Certain statements included in this release are "forward-looking statements" within the meaning of the federal securities laws. Forward-looking statements are made based on our expectations and beliefs concerning future events impacting VF and therefore involve several risks and uncertainties. You can identify these statements by the fact that they use words such as "will," "anticipate," "estimate," "expect," "should," and "may" and other words and terms of similar meaning or use of future dates, however, the absence of these words or similar expressions does not mean that a statement is not forward-looking. All statements regarding VF’s plans, objectives, projections and expectations relating to VF’s operations or financial performance, and assumptions related thereto are forward-looking statements. We caution that forward-looking statements are not guarantees and that actual results could differ materially from those expressed or implied in the forward-looking statements. VF undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. Potential risks and uncertainties that could cause the actual results of operations or financial condition of VF to differ materially from those expressed or implied by forward-looking statements include, but are not limited to: risks arising from the widespread outbreak of an illness or any other communicable disease, or any other public health crisis, including the coronavirus (COVID-19) global pandemic; the level of consumer demand for apparel, footwear and accessories; disruption to VF’s distribution system; changes in global economic conditions and the financial strength of VF’s customers, including as a result of current inflationary pressures; fluctuations in the price, availability and quality of raw materials and contracted products; disruption and volatility in the global capital and credit markets; VF’s response to changing fashion trends, evolving consumer preferences and changing patterns of consumer behavior; intense competition from online retailers and other direct-to-consumer business risks; third-party manufacturing and product innovation; increasing pressure on margins; VF’s ability to implement its business strategy; VF’s ability to grow its international, direct-to-consumer and digital businesses; VF’s ability to transform its model to be more consumer-minded, retail-centric and hyper-digital; retail industry changes and challenges; VF’s ability to create and maintain an agile and efficient operating model and organizational structure; VF’s and its vendors’ ability to maintain the strength and security of information technology systems; the risk that VF’s facilities and systems and those of our third-party service providers may be vulnerable to and unable to anticipate or detect data or information security breaches and data or financial loss; VF’s ability to properly collect, use, manage and secure business, consumer and employee data and comply with privacy and security regulations; foreign currency fluctuations; stability of VF’s vendors’ manufacturing facilities and VF’s ability to establish and maintain effective supply chain capabilities; continued use by VF’s suppliers of ethical business practices; VF’s ability to accurately forecast demand for products; continuity of members of VF’s management; VF’s ability to recruit, develop or retain qualified employees; VF’s ability to protect trademarks and other intellectual property rights; possible goodwill and other asset impairment such as the recent impairment charges related to the Supreme^® reporting unit goodwill and indefinite-lived trademark intangible asset; maintenance by VF’s licensees and distributors of the value of VF’s brands; VF’s ability to execute acquisitions and dispositions and integrate acquisitions; business resiliency in response to natural or man-made economic, political or environmental disruptions; changes in tax laws and additional tax liabilities, including for the timing of income inclusion associated with our acquisition of the Timberland^® brand in 2011; legal, regulatory, political, economic, and geopolitical risks, including those related to the current conflict in Ukraine; changes to laws and regulations; adverse or unexpected weather conditions; VF's indebtedness and its ability to obtain financing on favorable terms, if needed, could prevent VF from fulfilling its financial obligations; VF's ability to pay and declare dividends or repurchase its stock in the future; climate change and increased focus on environmental, social and governance issues; and tax risks associated with the spin-off of our Jeanswear business completed in 2019. More information on potential factors that could affect VF’s financial results is included from time to time in VF’s public reports filed with the SEC, including VF’s Annual Report on Form 10-K, and Quarterly Reports on Form 10-Q, and Forms 8-K filed or furnished with the SEC.