VF Corp (VFC) — Q1 2019 Earnings Call Transcript

Good morning, and welcome to V.F. Corporation's first quarter fiscal 2019 earnings call. Participants on today's call 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 otherwise noted, amounts referred to on today's call will be on an adjusted basis, which we define in the Press Release that was issued this morning. We use adjusted amounts as lead numbers in our discussion because we believe they more accurately represent the true operational performance and underlying results of our business. You may also hear us refer to reported amounts which are in accordance with U.S. GAAP. Reconciliations of GAAP measures to adjusted amounts can be found in the supplemental financial tables included in the press release, which identify and quantify all excluded items and provide management's view of why this information is useful to investors. During the first quarter of fiscal '19, the company completed the sale of its Nautica brand business. Accordingly, the company has classified the assets and liabilities of the Nautica brand business as held-for-sale through the date of sale, including the operating results of this business in discontinued operations for all periods presented. During the first quarter of fiscal 2018, the company completed the sale of its Licensed Sports Group or LSG business, in conjunction with the LSG divestiture, VF executed its plan to exit the licensing business, which comprises the LSG and JanSport brand collegiate businesses. Accordingly, the company has removed the assets and liabilities of the licensing business and included the operating results of this business in discontinued operations for all periods presented. Unless otherwise noted, results presented on today's call are based on continuing operations. Joining me on today's call will be VF's Chairman, President and Chief Executive Officer, Steve Rendle; and Chief Financial Officer, Scott Roe. Following our prepared remarks, we'll open the call for questions.

Thank you, Joe. Good morning, everyone, and welcome to our first quarter 2019 earnings call. VF's results for the first quarter were stronger than expected, fueled by the continued broad-based acceleration in our core brands and platforms. Our growth was balanced across geographic regions and channels as consumers globally remain resilient despite increased geopolitical uncertainty. A year and a half into our 2021 plan, I’m pleased with the progress that we've made. We continue to deliver on our commitments and remain sharply focused on the foundation we're setting to position VF for sustainable, long-term growth and value creation. Taking a look at the results for the quarter. Revenue increased 12% on an organic basis as our strategic growth drivers continue to fuel results. Our big three brands grew at a combined rate of 21%, with our Vans brand delivering another exceptional quarter, up 35% with double-digit growth across all regions, channels, and product families. The Vans brand is clearly outperforming the long-term growth targets we laid out at our Investor Day in Boston a little over a year ago. We look forward to updating you on Vans vision for its next chapter growth at the brand's upcoming Investor Day in September. Momentum in the North Face brand continues to build with 8% growth and importantly continued improvement in the quality of our business. The brand delivered strong growth in performance women's and lifestyle products. The brand's She Moves Mountains campaign, which focuses on the next generation of female explorers contributed to the strong performance of our women's business. And with the launch of the renewed program, we're piloting a circular business model that will extend the reach of our brand to new consumers through emerging new purchase models. On an organic basis, international increased 14% led by more than 30% growth in China and 18% growth in Europe. Direct-to-consumer increased 16% with more than 30% growth in digital. Our Work segment increased 8% driven by balanced growth across nearly all brands. And finally, jeans increased 3% as Wrangler delivered another solid quarter of growth. As a result of our strong performance in the quarter and our increased confidence in the full-year, we're raising our revenue and earnings growth outlook. Scott will cover the details in a moment. A few of the highlights from the quarter. In May, we launched our corporate purpose and guiding principles to our 70,000 associates across the globe. And the response has been overwhelming. VF's purpose is to power movements of sustainable and active lifestyles for the betterment of people and our planet. Fueled by the deep commitment of our employees, our purpose will help unlock new opportunities for our company while also empowering us to be a collective force for good. Together, driven by a shared purpose we will positively impact our communities and the evolution of our business. We believe our purpose will help attract and retain the industry's best talent as well as provide clarity to our decisions and actions. Reshaping our portfolio remains our top priority. We're committed to actively managing the shape of our business to align with our purpose and financial aspirations. In early June, we formally welcomed Altra into the VF family and are working to leverage the brand's capabilities to strengthen our technical footwear platform. The integration processes for both Icebreaker and Williamson-Dickie remain on track, and we're excited about the long-term opportunity for these two high-quality growth assets. So one quarter into our fiscal 2019 plan, I remain highly confident in our purpose-led, performance-driven strategy and our ability to execute and deliver on top quartile growth and value creation for our shareholders. And with that, I will pass it to Scott.

Thanks, Steve. Before reviewing the highlights of our first quarter, I'd like to quickly cover the change to our segment reported. In light of recent portfolio actions and organizational realignments, we’ve changed our reporting segments. We believe these new segments provide greater transparency into the growth and profitability of our portfolio. Our new segments are Outdoor, Active, Work, and Jeans. We’ve outlined the brands included in each of our segments in the press release and accompanying earnings presentation posted at our website. We’ve also included restated historical information in our press release. Moving now to first quarter results. Revenue was stronger than expected driven by continued broad-based acceleration in our core brands and platforms. On an organic basis, revenue increased 12% with balanced growth across brands, geographic regions and channels. On a combined basis, our big three brands increased 21%, led by 35% growth at Vans and 8% growth in the North Face. The global momentum in our Vans business remains strong and growth is well diversified with double-digit growth in all regions, channels and product families. Likewise, momentum in the North Face is building. As the brand executes on its strategy, the quality of the brand's growth is improving as evidenced by more than 20% growth in first quality wholesale in the Americas. While still early, we're confident that our efforts to elevate and reposition the North Face are beginning to pay off. Rounding out the big three, Timberland delivered modest growth led by strength in Timberland PRO and Europe. In the Americas, the quality of our business is improving and we're beginning to see better results in our core classics. On a regional basis, excluding the impact of acquisitions, growth was balanced, up double-digit both in the U.S and international. Europe remains robust delivering 18% growth, while Asia Pacific increased 14% including more than 30% growth in China. Our organic D2C business increased 16% with 15% comps, more than 30% growth from digital. And lastly, wholesale increased 10% organically led by more than 20% growth from our digital wholesale partners. Gross margin was 15.5%, up 90 basis points over the last year. Organic gross margin increased 170 basis points driven by higher margins in our core growth engines and our continued focus on fundamentals and quality growth. As a percentage of revenue, SG&A was 41.5%, down 110 basis points versus the prior year. On an organic basis, SG&A as a percentage of revenue declined 40 basis points. Investments in our strategic priorities increased at a double-digit rate. However, this was more than offset by strong leverage given the strength of the top line. And for the full-year, this algorithm continues. Strong investment in our strategic priorities offset by leverage elsewhere resulting in an overall decline in our SG&A percentage. Pulling it all together, earnings per share was $0.43, including a $0.04 contribution from acquisition. That’s up 62% versus last year. Given the strength of our first quarter and increased confidence in the trajectory of our business, we are raising our full-year outlook. Our fiscal 2019 outlook now includes the following: revenue is expected to be in the range of about $13.6 billion to $13.7 billion, reflecting growth of 10% to 11%. This includes organic growth of more than 5%. Our updated revenue outlook also includes more than $150 million negative impact from unfavorable FX relative to the prior outlook. For the full-year, we don't expect FX to have a material impact on our growth rate. By segment, Outdoor is expected to increase 6% to 8% or at a low single-digit rate on an organic basis with mid-single-digit growth expected in the second half. Revenue for Active is expected to increase 13% to 14%. Work revenue is expected to increase more than 35% or at a mid-single-digit rate on an organic basis, and revenue for Jeans is expected to be about flat compared to last year. Global Vans revenue is now expected to increase at least 15% with more than 25% growth in the first half. There's no change to our outlook for the North Face or Timberland. International revenue is now expected to increase between 12% and 13% due to the negative FX impact just mentioned. Excluding FX, there's no change to our outlook for the international business. European revenue is expected to increase 12% to 13%, Asia-Pacific revenue is expected to increase 14% to 15%, and revenue in the non-U.S Americas region is expected to increase 9% to 10%. Direct-to-consumer revenue is now expected to increase 11% to 13% with more than 30% growth in digital. Gross margin is still expected to approximate 51% and operating margin is now expected to increase 70 basis points to about 13.4% due to improved SG&A leverage. Adjusted earnings per share is now expected to be in the range of $3.52 to $3.57, reflecting growth of 12% to 14%. Our updated outlook included a $0.06 negative impact from unfavorable FX rates relative to the prior outlook. For the full-year, we don't expect FX to have a material impact on our earnings growth rate. And finally, cash flow from operations is now expected to exceed $1.7 billion with CapEx of $275 million. To conclude, we are pleased with the strong start to the year. Our confidence is high. We are executing well against our strategic growth plan, and momentum continues to build across our core growth engines and platforms. We are focused on transforming VF into a purpose-led, performance-driven organization. We remain deeply committed to reshaping the portfolio and delivering superior returns to shareholders. And with that, I will turn it back to the operator and open the call for your questions.

Great. Congrats on a nice quarter, guys.

Thanks, Matt.

Thank you.

On the expense front, can you speak to drivers of SG&A leverage in the quarter, maybe your confidence in the back half? And then, Scott, any color on the front-end loaded investments that you've made and how best to think about the expense line, maybe over multiple years? I think that would be really helpful.

Sure, Matthew. I guess the bottom line here is, it's really no change from what we've been saying. Steve mentioned in his comments, we did a little better on the top line than expected in the quarter. Given that this is our smallest quarter of the year, a little bit of movement on the top is probably a disproportionate percentage impact on the ratios in the quarter. But really our algorithm and how you should model, I think going forward is the same. We talked about double-digit investment in our strategic priorities. But with that leverage for the full-year and actually that leverage picked up a couple of basis points, I guess, 20 basis points in our implied guidance for the year. So it's really, really no change. You shouldn’t look at this quarter and say something is fundamentally different. We are really maybe just slightly better than what we’ve got, but the big picture remains the same.

Great. And then just a follow-up on the gross margin. Any change in the outlook for 40 to 50 basis points annual mix benefit? And I guess with the model approaching the 5-year plan, the 51.5%, just any structural ceiling on gross margin as we think multiyear?

Yes. So, obviously two years in we -- it's better to be ahead than behind. I just made that comment. And yes, we’ve confidence in the gross margin that we laid out, but we haven't changed that algorithm. This year, the way you should think about that is about 50 basis points of mix and when you take in the impact of acquisitions, that’s about a 20 basis point negative. So that gets you to the 30 basis points, that takes you to the 51% that we referenced in the guidance. So that’s kind of right in line with what we’ve said. And listen, I think if we do a little better on gross margin, that is a key focus for our business. We talked about, and it's almost internally, because it comes up in every discussion that we have and that’s our checkbook for investment. And as we see that, those margins, if they do get a little bit better, does that give us a chance to move even a little faster against our strategic priorities? It might. But it doesn't change our commitment to our earnings growth pattern, that 16% long-term operating margin is dead in our sights and could it evolve a little differently, it might. But I think the takeaway here is we are feeling good about the gross margins.

Congrats again. Best of luck.

Thank you.

Thank you.

Great. Thanks. Good morning. I guess, Steve, for you, just bigger picture, in your prepared remarks you talked about the consumer being resilient. Can you just expand upon this comment and how you’re feeling about the health of the consumer as we get into the back half and into 2019? Maybe just starting here with North America.

Sure. I think we all see that the U.S consumer continues to be open to and motivated to interact with powerful brands, brands that they connect with, brands that provide products and experiences that are relevant to who they are. I don’t think we're saying that this is easy and that everywhere we look there are resilient consumers. But what we’re seeing is a clarity of focus on what our brands stand for and that we’re bringing the best products. More importantly, big learnings over the last couple of years is really elevating the brand experience in connecting more emotionally with our consumers. We are able to stay at the forefront of the decisions that they have and where they choose to spend their time and money. We see the same to be true in Europe, and we see the same being very true in Asia. As we focus our attention against those key drivers and platforms within our portfolio, we will continue to see our opportunity to connect and maintain those long-term loyal relationships.

Okay. Thank you. And then just on the North Face, would love to just better understand the North American growth for the quarter. I know it's flat, but it sounds like you’re pretty pleased with the quality. So maybe just expound upon the confidence as you get into the back half and still a little bit more second half weighted? And then if you could speak about the new circular business model you referenced in your prepared remarks. What does that entail for the brand?

That's great. I’m glad you picked up on that, Erinn. Yes, so the North Face for this quarter, as we mentioned, the business was flat, right where we thought it would be. What’s giving us so much confidence is the quality of our sales. First quality wholesale being up a good 20% is validation that the work we've been doing over the last 18 to 24 months is paying off. Inventories are clean. Retailers have inventory that they’re able to commit to us for new programs as the brand continues to evolve and improve the product offer across Mountain Sports, Urban Exploration, and the performance piece specifically with Women's. We are getting the opportunity to put our best products on the floor, and we're seeing really good sell-through that’s giving us confidence as we move into the second half. In the second half, Erinn, the way you should think about the North Face through its Mountain Sports focus on consumer and the Urban Exploration focus, in each case we're -- the work that we're doing on the top end of those product offers in Mountain Sports, the Summit Series and Steve Collections continue to evolve and get stronger, and we're getting really good placement in all of the right dealers, including how we represent within our own stores and online. It's giving us really good confidence about the evolution of Urban Exploration, bringing in some of those European products that we've seen work so well under Arnie's leadership. We're seeing those resonate here in the U.S., continuing strong placement and sell-through in Europe as well as Asia. To your question on the renewed program, we are all aware that consumers are changing the way that they buy footwear and apparel. They are valuing quality over quantity and looking for access potentially over ownership. So, with our desire to connect with our consumers and really stay at the forefront and focused on agile experimentation, we're piloting a number of different circular business model tests. In the case of renewed, that is about refurbishing clothing that has either been worn, damaged, or returned to us. We inspect it, we wash it, and we tune it up to get it back to the quality it was when we sold it the first time around. So you have the same quality, but the big difference is much less impact on the earth. We are piloting these programs. They do not have a significant impact on our results, but they are giving us an understanding of whether our consumers are interested in our brands working in this new way and whether this is a new growth factor that we should be exploring for the future. I think the teams that are working across the brands with our corporate leadership to really explore these new business models, we think there is something very interesting here and very much in line with our journey to transform.

I just like to add on -- yes, Erinn, sorry to add on, just put some numbers around your first part of your question on the North Face confidence. First of all, the demand is really showing through. If you look at D2C growing at plus 12% and digital I think at plus 30% in the quarter, you can see that interest and strength for the brand is there. Also, when our price is down and the quality is up, like Steve said, plus 20% first quality, when we look at the full-year, wholesale is growing for this brand. We’ve visibility to the order book and so all those things together give us confidence in the full-year outlook, just to put some numbers behind that.

Great. Love the numbers. Thank you guys and congrats.

Thanks, Erinn.

Thanks, Erinn.

Thanks, guys. Good morning. I will add my congrats too. Great quarter.

Thanks, Omar.

It's interesting to see you guys raising the full-year guidance after the first quarter. And I’d love to hear you talk about parsing out what the strength you’re seeing in your business is macro versus fundamental. Obviously, those have been above broad-based reacceleration for you guys, now Vans as a key example of that. But you are also using digital technologies and consumer engagement really effectively. Maybe you could help us think about or understand how you think about what's driving your business in terms of broad macro consumer confidence and what you're doing in your brands using digital and creating stronger connections with consumers in greater excitement around the product, etc. Is there a way for you to discern between the two?

Yes. So, I will take the first shot at this, Omar, Scott here. I'd say this is really much more about our brands and less about macro. I mean, the macro from what we’ve seen, macro conditions have not really changed that much over the last 18 months as it relates to our consumer. Now, obviously, there are many things going on at the macro level that we’re keeping an eye on. But as it relates to our consumers, we really haven't seen that much of a change. Now at some of the -- we’re keeping an eye on other things happening geopolitically, but so far it hasn’t baked into our business. Where we haven't really seen either an upside or a downside, I think you’re seeing a multi-year payoff of some of the focus on fundamentals and going back to basics in a sense on our big franchises. What’s happening in Vans has been a long-standing pattern, the TNF we’ve been talking about for a couple of years, we are seeing the payoff. I think it's just a focus on fundamentals that’s paying off more than anything that’s happened on a broader basis.

And, Omar, let me add to that. Last year when we spoke to everybody in Boston, we talked about the work we've done on what we like to call the forces of change. Really diving into the changing consumer mindset and how should we be thinking as a portfolio of brands. It's putting the consumer even further forward in our thinking in every aspect of our company. The integrated strategy that we rolled out in March that we continue to talk about guiding our decisions has narrowed our focus on those things that we see being most important to put our brands at the forefront of the consumer's mind. As we’ve continued to reshape our portfolio, we are focusing on those brands that we can drive and that we’re most connected to the consumer for this long-term journey. So it is an intense focus on a very focused set of choices, building stronger capabilities within our brands, and even more deeply connecting our corporate functions to service and help enable the growth of our brands, you’re starting to see the momentum build based on that focus.

Yes, Omar, just one other factor I think that’s relevant here is the portfolio actions that we’ve taken. Right. In terms of bringing and focusing on new growth factors such as Work, such as our Icebreaker, Altra platforms, moving away from some of the more disruptive parts of the market where we saw a little bit tougher sledding. You’re starting to see that mix and improved mix also shining through as you look at our performance.

Got it. So to that end guys, maybe you could also, as a follow-up, talk a little bit about what you're developing, technologies and capabilities you're developing that are scalable across the portfolio. Historically, I think the company was very focused on keeping the brand separate and having kind of unique functionality, especially in the consumer-facing side of the business. As the business evolves, are you seeing more scalable opportunities in consumer-facing areas that you can leverage across multiple brands in the portfolio? Is that the right way to think about it?

Yes. Omar, I think that is the right way to think about it. I think VF has always been focused on looking for those leverageable capabilities that we could bring to our brands. But through this integrated strategy focus, a couple of examples certainly would be our digital platform and the advancements that we're making there on how to use that technology more productively. How to begin to use the consumer data files that we have to more thoughtfully connect with consumers to drive that one-to-one relationship. That’s so important, and you see that really coming to life in the Vans results. Part of our strategy, we don't talk a lot about, is the vertical work that we're doing in really tearing down our go-to-market processes and product creation with the expectation of improving speed, improving quality through lesser SKUs and more focused merchandising. That work is going on within the North Face and Timberland, and you are starting to see the results come to life there. The capabilities that we're bringing into our portfolio, the Icebreaker acquisition was very intentional. That was a purpose-led acquisition to bring in natural fiber expertise that we can scale beyond just Icebreaker and Smartwool across multiple brands in our portfolio with an even stronger connection with our consumers. The last one is our increased attention on insights and analytics, taking what has been a strong consumer insights capability and now marrying that to an analytics capability for better decision-making not just on the consumer-facing side but on merchandising and supply chain decision-making to improve the quality and efficiency of the work we do.

Thank you.

And I think, Omar, the economics around that are these are the big -- we call them enterprise-wide initiatives that were outlined in our strategy, and those are leverageable across the entire portfolio. So those are -- we are distorting investment in those directions. Then on the rest of the business, that’s where we see leverage and where we drive leverage into the model. So that’s the way that algorithm works.

Great job. Thank you.

Thanks, Omar.

Good morning and thanks for taking my question. Congrats on really solid results. I wanted to follow up on the Vans guide of 25% for 1H '19 and then the full-year guide of at least 15% growth for the year. That would suggest high single to the low double-digit growth for 2H '19, is that the right way to think about it? And then from last year's Investor Day, I think you guys guided for Vans longer-term to grow 8% to 10% with wholesale guided to be low single-digit, but then D2C to a high single. How do we think about those numbers, especially in the context of the channel mix going forward?

Yes, on the first part of your question, Laurent, you had it right. I mean, kind of high single digits is where the second half is. And again, I think as I’ve consistently said, the hardest thing to predict in terms of the pace of this business, honestly we really haven't seen it slow down. We know we’re comping really big numbers. A lot of this is digital and D2C, essentially half of the business go-to-market is in the D2C area. So we know it will moderate at some point and that’s we’re at this point, although frankly, we haven't seen that. We haven't seen that occur yet.

I would -- and Omar -- I mean, Laurent, I’m sorry, what I would say is, what you see going on right now is in our opinion, Vans is seeking its natural level as a top provider of active lifestyle footwear. So this growth, though exceptional, this brand has been growing in the teams since we’ve acquired it in 2004. They’re focused on franchise management, bringing new product offers. We are seeing really good results with items like the Altra range, some of the new apparel offers as the brand expands and offers more choices to the consumers that have been with the brand for a very long time and the new consumers that are coming. We are looking forward to our September meeting in Costa Mesa, where you all can meet Doug and his team more personally and hear from them on what is driving this growth and what we believe to be that resettable long-term strategy that is very well-founded in a strong understanding of their consumer and a very disciplined approach to managing that brand.

Okay. Very helpful. And as a follow-up, Greater China, that was a key message of the Investor Day last year, it was up 45% and then I think 31% on an organic basis. I think you guys originally guided for Greater China to grow in the high teens for the fiscal year. Is that still the case? Anything changing within the Greater China market that we should consider with regards to this momentum?

Well, I guess what’s changed is we’re running a little ahead of our long-range guidance. But at this point we are not updating that. We are really encouraged by the strength that we’re seeing in China. We know that that is one of our declared strategic priorities, and so it's nice to see that performance. I wouldn’t isolate it to one quarter though. So, yes, it's encouraging, but at this point we haven't updated that long-range outlook.

And Laurent, just one additional point. As we focus on becoming more retail centric and how we think not just for our stores and web platforms but for how we work with our wholesalers, that mentality with our new leadership in Kevin Bailey, who is the leader of our Asia platform, you’re seeing greater attention to thinking and acting like a retailer. Focusing on sell-through and getting our very best products on the floor at the beginning of the season, working dynamically to ensure those products are selling through and just keep the offer fresh, balanced with better and better marketing. I think you’re seeing proof of what is -- just early steps in a longer-term journey.

Thank you very much and best of luck.

Thanks, Laurent.

Hi, guys. Let me add my congrats here this morning and Scott, thanks for the opportunity to work on a model again. It's very helpful.

We got pretty deep into the call with quite a bit of information.

So I do have just a couple of questions really quickly on the models and housekeeping, two moving parts. It seems like D2C digital is driving more of the revenue growth than you expected for the year, and really strong gross margins in the first quarter that may be above the run rate you're expecting when you gave us the initial guide for the first half. Is there any new take on gross margin here that keeps the annual at 51?

No, other than it's early and this is—yes, everything you said is right, although it's a relatively low retail quarter and we got 90% of our earnings out of it. So early days, is it encouraging? Yes, but again, it's pretty small in the scheme of -- there's a lot of real estate ahead of us.

Okay. Would you mind reorienting us with the first half guidance you gave last time, given mostly the metrics are above what we were thinking for the first quarter? I think you said gross is up 20 in the first half and SG&A leveraging about -- sorry, I think it was 70, right, for the first half?

Yes. Well, I guess the bottom line is we really didn't reorient the -- or we didn’t give new first half, second half guidance at this point. So, what you have is the first quarter actuals and what we said about the year, in general, the shape of the year is unchanged, right, with the acceleration in the back half. Overall, you’re going to see more leverage and margin expansion, but beyond that we really haven't given any more detail on that, Michael.

Okay. Fair enough. And then I guess, the more fun question is, as we think about the line of sight on Vans, and I’m sure you guys spent a lot of your time answering this questions, but obviously as we look across our coverage, it seems like we’re in a bit of a fashion cycle that would very naturally include brands like Vans. But as we do look across the coverage, I’d say there's some brands that have been through a little less durable than Vans over the long haul, and maybe we would be worried about how they’re going to comp as they get into tougher compares. Can you help us think about how you look at managing one of your big brands that go through a period of very strong growth like this? We hear things from the channel that you guys are managing allocations into the channel pretty well. Is there a toolkit that you can tell us about that spoke to your confidence? You mentioned a little bit earlier about achieving its natural level of growth here. What can you say about how you’re playing good defense and this isn't just overcooked in a retro logo, a cycle, or things like that that give you confidence that these are the right growth rates and those aren’t retro cycle driven growth rates that pose risks to those numbers as we get into the tough compares?

So, Michael, let me take a stab at that. As I mentioned earlier, Vans has been growing at a mid-teen rate since VF acquired it in 2004. This brand has been on a very strong, solid growth trajectory. Each year throughout its growth, it has become more disciplined in how it manages its business, both financially and operationally through everything they’ve taken from our Vans or from our VF ownership. The strength and understanding of the consumer, that the team has gained through our consumer insights and brand building focus has just gotten stronger and stronger, more focused on who they are and more importantly, who they are not. We are in an exceptional moment where we're seeing distorted growth. Some of that could very much be driven by some trends. But honestly, the way we look at it, we are resetting the rightful level of penetration that this brand has with the consumer and within the wholesale channel. As we do our channel checks, you can see the brand has just taken a larger footprint both on the footwear wall, the tables in the footwear section, but we're also now starting to place really relevant assortments of apparel. The better this brand begins to understand its consumer, the more thoughtful we can be on placing the right products at the right time. The disciplined franchise management, channel management segmentation just get stronger and stronger, and it really is a discipline of how that team operates. You will see that when we host you in September. This isn't an exceptional moment of time that likely has a downward cycle in the back that this is just a reset of its rightful position as one of the top footwear brands in that active lifestyle component of the consumer's choice.

I really appreciate the help taking us through that. Congrats again on the quarter.

Thanks.

Thanks, guys. And I will add my congrats too and a fantastic start to the fiscal year. If we think about the big three brands kind of stack together in the progression that we're seeing in all of them. So Vans acceleration began last year. It seems the North Face is starting to be on an accelerating path this year. Is it fair to think about Timberland beginning to show its acceleration next year? And if so, what are the clues and hints you're seeing now that would suggest that, that is in fact the case? How do we think about that piece of the puzzle unfolding over the next 18 to 24 months?

Yes, Camilo, I think it's a really good way to characterize where we are in this journey. This is our diversified portfolio really showing itself and the strength behind what we have. Today our Vans business is doing exceptionally well. Our North Face brand, we've been working on it for the last 24 months intensely on all the things that we talked about from channel clean up, better focus around core product categories, stronger leadership in all the key areas to just bring that discipline back to one of our most powerful brands, it's accelerating. Timberland is in the same journey and as we line this up over time, we just see a continued improvement brand by brand across each of these regions. I guess, that would leave you just imagine what this portfolio will look like when all of these brands are functioning at their optimum level at the same time.

Great. Is there a way to maybe quantify how to think about the Timberland mix acceleration into next year that you would be willing to speak to you right now?

Well, I think we gave you the long-term growth algorithm, which is 4 to 6 mid-single digits and we talked about acceleration. So beyond that, Timberland we really haven't given that. You can expect sequential improvement as we go into next year. Beyond that we haven't really shaped it.

Okay. That’s fair. And then just, I'd be remiss if I didn’t ask about the tariff discussion, your manufacturing exposure to China, your ability to defer product to other countries. Where does this lie in kind of the rank order of concerns in your business? If it's not one of them, what would is the chief concern that you are contemplating?

Yes, Scott here. I will start. We wouldn’t be asleep if we weren't concerned about it. We are watching this very carefully. Again, as for us, so far is in all of the guidance and insight that we’ve seen so far these are the minimums. I mean, there are some relatively extraneous categories, felt some other accessories type things that had a very small impact. We have a very diverse supply chain, and once we know what the rules are, sometimes the hardest part is figuring out what the rules are. But once it's communicated, we can adapt pretty quickly. That’s the beauty of the diverse -- diversification of the supply chain, and frankly the competency of our supply chain. We are really good at this stuff, these men and women are awesome at optimizing around total landed cost once they know the rules. As it goes to the broader picture, I think it's anybody's guess. Of course, we’re watching it. It's an area of concern. It could become an issue for us in the future. It just depends on where the rhetoric is versus what actually gets implemented.

Got it. Thanks a lot guys and best of luck going forward.

Thanks, Camilo.

Good morning, everyone and congratulations on a terrific performance. Can you talk a little bit about what you’re seeing on Amazon given some of the tests that you’ve put on there and how the brands you have on there? How they’re performing and what you’re seeing? Can you give us an update on wholesale? What are you seeing both overseas and in the Americas? And just any feeling on the Jeans business, how Wrangler and Lee are performing? What you're seeing in this new fashion cycle? Thank you.

Dana, this is Steve. So on the Amazon question we're working closely now with Amazon as a strategic partner for us both here and in Europe. We talked in the past about dedicating a key account team that we are now placing people in Seattle, just getting deeper knowledge and understanding of how the Amazon platform works and how and where does it fit into our integrated marketplace decisions, what are the right assortments, how do we work with them on managing the marketplace to ensure we have the very best representation of our brands within their environment. The tests that we’re working on are going well. We are pleased with the results. Our jeans businesses, Wrangler and Lee are some of the best-performing brands within the Amazon platform and are really helping us understand a broad spectrum of how brands work within that platform. Your question on wholesale, is that more broadly just how do we see wholesale, not only here but in all the regions?

Yes.

I think what we see here in the U.S., in the domestic wholesale market is a channel that’s much cleaner and more focused on putting stronger merchandising assortments in front of consumers. Working more effectively with us on how to drive demand and sell-through. I think the one channel that we talked most about is the outdoor specialty channel, it's much cleaner than it has been. Our inventories are much, much more in check to the point where really it's our outlets that we are using to move our excesses. That just gives us so much more opportunity to place new fresh seasonal products in a more thoughtful flow to keep consumers interested. So I think it's really in all aspects we see each one of the sectors, each one of the business units working better within the wholesale standpoint. On Jeans, I think you see an improving quarter by quarter result. I think this was Wrangler's fourth consecutive quarter of showing improvement. Is there a jean cycle going on out there? Maybe. I think what we see is fundamentally our bottoms business is working very well in our Wrangler brand, and as we expand in some new categories, our Outdoor category is doing extremely well. This brand really begins to think about itself as more of a global lifestyle brand evolving all the appropriate new products to round out that head-to-toe offer, we are starting to see really good results. Just slowly, but surely the brands continue to show strength -- improving strength here domestically, but more importantly in Europe where we've seen really good growth from our Lee business in Asia for sure.

Yes. And just perspective on that, we are coming off, if you go back a year or so, you think about destocking and some of the things that were going on more in the channel, do this for us as we now see stabilization of the business and even we’re seeing some modest growth. So that just gives us confidence that we're coming through the end of that period and are really on a solid foundation as we look forward.

Thank you.

Great. Thanks so much. Could you talk about just the Williamson-Dickie integration? Where you are in that process? Have you realized the SG&A synergies? And just if you could identify maybe some of the core sales drivers, whether it’s Work or some of the expansion into international lifestyle, that would be helpful. Thank you.

Yes, I will start at the end because you just nailed it. International lifestyle are some of the key areas of growth that we see and frankly, probably even underestimated at the time of the acquisition that we are excited about some of the opportunities that we’re seeing in Asia and internationally on the lifestyle pieces, as the former management team have done a nice job of setting up that business. When you put it in our model and our in-country know-how, we see this as a real interesting potential opportunity going forward. First part of your question, Jay was around the integration. The short answer is it's going really well from all -- financially, we’re running slightly ahead of what we see at and talk to the bottom line. We -- culturally, it's been a great fit. We can't say enough about the quality of the WD organization. It's just been a really positive experience. We’ve been really impressed by their associates and we are feeling really good about where we’re at on the Dickie's integration at this point. No, it's not done, but it's going well. You mentioned SG&A synergies and there are some SG&A synergies, but the majority -- just to remind you the majority of the synergies that we saw in this deal are on the margin side. As we get the scale and purchasing power and integration into some of the manufacturing and supply chain side of our business. That’s where we saw -- I think we said a bulk of the benefit when it comes on the margin side, gross margin.

Got it. And then -- so would you say, Scott, on those gross margin benefits, are those sort of being -- are those sort of being implied in the guidance for the rest of the year that you’ve already been able to make those changes and improvements, or is that something more, so working on maybe for a next year type of situation?

Yes, some are -- let me put it in another way. The guidance we have reflects what we see. But we also said because a lot of these are in manufacturing supply chain, they sometimes take a while to get out. We said you would see these over a couple of year period. Some of which you're seeing implied in the guidance right now, and then you'll see some continuing as we move forward, as we’ve -- in rough number, as we said we could double the margins of this business over a period of time. But the majority of that coming in the first year.

Got it. Great. Thank you so much.

Yes.

Hi. Good morning, everyone. Let me add my congrats to a great quarter. I guess, first question probably for Scott. Going back to the Jeanswear business, can you maybe just bigger picture talk about the U.S wholesale business and the mass business specifically to how you're feeling there with visibility, maybe relative to the prior 6 to 12 months?

Yes. So I think I mentioned in a previous comment relative to one of the largest players there that has just gone through a destocking at least in our categories. There may be others that are affected, but as it relates to us, we appear to be through the back end of that and we are really in favor of that. We think that was a good move and good for the consumer, good for the productivity, and the inventory. We work with them and applaud them on that move. We think that sets that business and that experience positively as you look forward on a positive base. There are obviously various winners and losers that are in that space. I think we are winning with the winning consumers, and if you look at our -- sorry, customers and if you look at our forward guidance, we've not been -- we've been fairly, I think, realistic and somewhat conservative as we look forward knowing that there will continue to be consolidations and store closures in some areas and we're maximizing our relationship and our growth with those that are doing relatively better. We are also cautiously working with some that are not doing as well.

Got it. And then to switch gears to the North Face, just kind of curious, it all makes total sense and for the brand, the quality, the sale initiatives, and improving the quality of sell-through. I guess my question is the U.S. wholesale in totality has been negative for a little while. Should that inflect at some point this year? Should we see the U.S. wholesale channel for North Face stabilize at some point? And what’s kind of embedded maybe in the 6 to 8 for the year from a U.S. wholesale perspective? Just trying to understand when we, from a modeling perspective, should expect that channel to get back to positive territory?

Yes, you will see growth this year in wholesale. And again, it's really even -- what you will see reported is it's going to be even better when you consider the quality of that growth. Another way to say that as you reduce stock price and obviously that puts pressure on the overall growth rate, but the underlying quality of that growth rate is better. So when we grow low single digits, we have visibility to that from a wholesale standpoint given the order book we have. So that would be an inflection point of what we’ve seen over the last several quarters. Remember our overall algorithm too, if you think about North America and this would be true with North Face as well as we're actually expecting overall big picture wholesale in the U.S to be down from a brick-and-mortar standpoint. We are growing with our digital wholesale partners, those like Amazon and others as well as they click through the digital component of our retail customers. Again, we have a realistic view of the marketplace as you look forward. We are not ignoring the trends that we see out there, but it's important to distinguish and remember they’re not all created equal. As we see some very driving solid customers, they are great partners to us and we are working really well with them as we will grow our business with them over this period of time.

And, Ike, I would add the focus on at wholesale specifically for the North Face, it's deeper focus on the key accounts that where we’re able to really have strong in-store presentations. We're focusing on those specialty retailers that have particularly strong positions in specific communities. There continue to be ups and downs and if we've found the right partners, we know the right partners, and this is where we feel so confident about being able to place better assortments on a more frequent basis based on the lower excess inventory across those channels. The digital wholesale piece is very, very important. On a global basis, partners like Zalando in Europe, Asos. We talk a lot about Amazon as an up-and-coming integrated marketplace option for our brands, but you’ve got key players like Dick's Sporting Goods in Nordstrom, you got the Moose Jaws that we focus on. You also have a new strategic key account for us in Europe coming to the United States in JD Sports. We are excited to partner with them and find the right level of assortment to add value for our brand here in the U.S marketplace. Understanding who those key accounts are and what the right assortments are is really the basis of that comment around just the improved product merchandising decision-making and how that flows into an integrated marketplace set of decisions.

Really helpful. Thanks so much.

Yes, hi. Thank you. I want to first just kind of big picture on the guidance if I could. The organic revenue growth for the year looks to be in the mid-single digits. And I know if I look to the past few quarters you were trending close to high single digits, and then in the first quarter accelerated to 10% organic growth. So outside of Vans, is there any more color on what you’re embedding in the guidance for the year from an organic growth perspective?

Well, I think we laid out all of our growth rates in the top brands. So you can see what our assumptions are. Obviously, in the first half our guidance implies relatively slower growth with acceleration in the second half. First quarter as Steve said at the very beginning we did a little bit better albeit on a small quarter. So should we do a little better? We might. But at this point, one quarter in and a small quarter is where we’re at. The take-away is our organic guidance -- our organic top line is greater than 5%. So we said mid-single digits top and the mid-single digits.

Okay, great. And then maybe a broader question around the segment reclassification or regrouping. I want to ask kind of big picture how much is based on backward-looking actions that you've already taken and how much might be based on kind of the forward vision for any additional portfolio reshaping, especially since when I look at the Active segment, there are seven brands included, but Vans dominates that category, that segment today. Maybe there's a lack of traditional more kind of Active or Athletic brands within that grouping. So any color on kind of the motivations forward-looking versus backward-looking what you’ve done?

Yes, I would caution you not to prognosticate too much based on our segments. The rules are pretty clear in the guidance and you could even argue whether they’re always logical or not, but they’re what they are. The justification for the new segments I think is pretty straightforward. Our Outdoor Action Sports business has become so large that we felt it was good for you, the readers, to have one click down one more level of visibility rather than having it one giant segment, especially given some of the different financial characteristics of the two as you can see. Right. Really that's the driver in the guidance is companies with like characteristics are grouped together and it's really no more or less than that.

Understood. Thank you.

Great. Thank you everybody for joining us. We are very proud of the quarter we just put up. Our growth is broad-based. We are seeing acceleration across core brands and platforms. But I would just remind us all that this is just yet another quarter in a 5-year journey and we’re very, very happy and proud of where we are in that journey. We are confident with where we're going against our long-term vision to be a purpose-led, performance-driven enterprise that delivers top quartile value to our shareholders. We look forward to talking to you in the not-too-distant future. Thanks.