VF Corp (VFC) — Q2 2025 Earnings Call Transcript

Hello and welcome to VF Corporation's second quarter fiscal 2025 conference 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 constant dollar and continuing operations basis, which we've defined in the press release that was issued this afternoon. And which we use 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. Joining me on the call will be VF's President and Chief Executive Officer, Bracken Darrell; and EVP and Chief Financial Officer, Paul Vogel. Following our prepared remarks, we'll open the call for questions. I'll now hand over to Bracken.

Thank you, Allegra, and thanks all of you for joining us. This is a fun week for us. Today, we'll update you on Q2 and get all the discussions of it and Q3 behind us. Then day after tomorrow, we'll give you a deeper look at what our game plans are ahead. I'm putting in a plug now for the event, which will be broadcast live and you'll get to meet a few more people from our team. Q2 was another quarter of really good progress. We delivered on our expectations, consistent with the guardrails we provided last quarter. And VF transformation continues and within that, we're making strong strides in advancing our priorities. While Q2 revenue was still down as we expected, we had our third straight quarter of sequential improvement in the decline rate with moderating declines at Vans in the Americas and really almost everywhere else too. We expanded gross margins and we did a little better on SG&A relative to our own expectations. Paul will talk you through the financial results later in the call. Moving on to Reinvent. As we pass the one-year anniversary when we introduced you to the program, my confidence and excitement about the transformation taking place at VF only continues to grow. I'll save a lot of the detail and future plans for later this week at the investor event, but today, I'll give you a high-level update on the further progress we made in Q2, on our four stated priorities. The first priority was to lower our cost base. We generated another $65 million in cost savings during Q2. And as guided, we've now fully executed all actions to deliver $300 million of cost savings by the end of this fiscal year. We fully intend to go beyond this initial savings target as we'll discuss Wednesday. We're also continuing to reinvest some of that back into the business, as you know, focused on the key areas of product and brand building. The second priority was to strengthen our balance sheet. We made a significant step forward this quarter. Our work to normalize inventories continues and we delivered a further reduction in the quarter despite building for our upcoming peak season. Inventories were down 13% at the end of the quarter versus last year. Net debt was further reduced by almost $450 million compared to this time last year. And of course, you will see that just after the end of the quarter, we concluded the Supreme divestiture. The net proceeds of almost $1.5 billion were in the bank. And just as fast, we went right back out to pay the $1 billion term loan after the quarter closed. And we're on track to pay the next term loan of $750 million by the end of the year. The third one was that we would fix the U.S. business. Our Americas business improved sequentially with revenue down 9% in Q2 compared to down 13% in Q1. The new fully operational regional platform is starting to deliver tangible results, driven by a greater emphasis on brand elevation and full-price sales. Importantly, we continue to improve our forecasting accuracy and have now delivered 10 consecutive months on our internal plan. And the last one, delivering the Vans turnaround. The Vans overall performance in Q2 was down 11%, a significant improvement relative to last quarter when we were down 21%. This down 11% was as expected. There are further signs that we're making progress, which we'll continue to build under Sun's leadership. From a product standpoint, Knu Skool continues its strong momentum and further strengthened its position as the number two franchise globally. We're seeing some encouraging results from other new product franchises launched over the summer, particularly Upland and Hylane. Our brand elevation is starting to resonate too. Through the OTW premium label and Influencer program, Vans is targeting influencers and early adopters using cities and moments and product collaborations. During New York City Fashion Week a few weeks ago, the brand engaged with fashion influencers and made a significant cultural impact by spotlighting the Satoshi and Paralyzed OTW Classics, which we sold through at 100% levels. I'll be wearing the paralyzed OTW Classics against Brent Hyder, our CHRO's better recommendation because I think you'll love them. The collaboration was sold out in five minutes upon launch in September. And our consumer research interest was trending positive in Q2 in key markets. Now let me give you a short update on the North Face. As we previewed last quarter, revenue was down sequentially in Q2 because of the super strong comparison to the prior year when we were up 17%. But we were right in line with the guardrails we gave last quarter. During the quarter, we saw particularly strong performance from backpack steering back to school. The brand also continued to have strong growth in APAC, driven by Summit Series. We had some big wins in EMEA too, where we delivered our strongest month ever in September and where our athlete, Katie Schide broke a course record and won the famous Ultra Trail du Mont Blanc race in August, wearing head to toe the North Face. The brand launched its first global brand campaign in over three years, generating a strong response on digital media, particularly with women. And we're investing in our stores. Our recently opened North Face store on 6th Street in Williamsburg, Brooklyn, includes our first ever shop-and-shop for the North Face renewed, a program we've had in place to refurbish, recycle and resell North Face products. We're also excited and recently announced our commitment to a new Fifth Avenue location, which will open in the fall of 2025. Finally, we're proud that Time Magazine recently ranked the North Face the world's best brand in the outdoor apparel category. Turning to Timberland. Revenue for the brand continued to improve sequentially to negative 3% in Q2 compared to negative 9% in Q1. The yellow boot continues to perform well globally with ongoing momentum enhanced by the new iconic campaign launched in September, which is driving traffic to our stores and online and also contributing to the growth of the boot. Looking ahead, we feel good about where we're heading in Q3. We expect to drive further sequential improvement that builds on the progress we've made in the last few quarters. Now I'll hand it over to Paul, who will take you through the financials in more detail, and I'll come back at the end to wrap it up.

Thanks, Bracken. Good afternoon, everyone. It's been a great first four months and I'm looking forward to unveiling more information about our long-term financial potential at our Investor Day on Wednesday. Moving on to Q2, as Bracken mentioned, we continue to advance transformation and continue to move forward as we made progress in reducing costs, strengthening the balance sheet, fixing the Americas and turning around Vans. Recapping the quarter, Q2 was largely in line with expectations with sequential improvement in revenue and a positive inflection in gross margin. Total Q2 revenue was down 6% year-over-year, which marks an improvement from down 10% in Q1. By brand, Vans was down 11% versus last year, improving from Q1 of down 21%. We are seeing the benefits from the inventory cleanup actions taken over the past few quarters, particularly on profitability as we rightsize the brand's cost structure. The North Face revenue was down 4%, in line with the guardrails we gave you last quarter, given the strong prior year Q2 comp of up 17% from shipping timing normalization. Greater China continued its strong momentum, but this was offset by ongoing Americas pressure. Timberland was down 3% in the quarter versus Q1 down 9% as we saw strong growth in premium boots and rounding out our top four brands, Dickies was down 11% in Q2, an improvement from Q1's decline of 14% and the third sequential quarter of improvement. By region, the Americas was down 9% in Q2 compared to down 13% in Q1. In EMEA, we were down 5% in the quarter, but September marked the biggest month ever for the region. The wholesale trends weighed on performance. The APAC region was up 5% in Q2, led by strength in the North Face and China. By China, we saw sequential improvement in both global DTC and wholesale as DTC improved to down 8% after contracting 13% in Q1 and wholesale is down 5% after being down 7% in Q1. Gross margin was up 120 basis points versus last year to 52.2%, inflecting positively and in line with our expectations and primarily due to product cost tailwinds. SG&A dollars were down 14% versus last year or down 1%. This was better than our expectations of up $25 million to $35 million as we realized higher Reinvent savings in the quarter. In addition, there was a shift of some spending from Q2 into Q3, roughly $10 million to $15 million. We did see SG&A deleverage overall of 180 basis points year-over-year to 40.8% of sales. During the quarter, we realized approximately $65 million of total Reinvent savings, bringing us to a cumulative total of approximately $200 million since we initiated the program. We are on track to deliver $300 million of savings. These savings offset additional investment in marketing and product ahead of the holiday season, more normalized incentive compensation and inflation. This resulted in an operating margin of 11.4%, down 60 basis points versus last year and operating income of $315 million. Diluted earnings per share of $0.60 was down $0.03 versus fiscal '24, aided by a lower tax rate for the quarter. This reflects favorable discrete items within the quarter. Turning to the balance sheet. We continue to make good progress on inventories as we ended Q2 down 13%. And as Bracken mentioned, we completed the sale of Supreme at the beginning of the month and made an important step towards our key financial priority of deleveraging our balance sheet by paying down the $1 billion term loan. Before I move into details of our expectations for Q3, I want to share some thoughts on how we will be issuing guidance. Moving forward, we will provide revenue and profit guidance one quarter out, starting with Q3. Overall, we expect Q3 to show further sequential improvement across the business. For revenue, we expect Q3 to be in the range of $2.7 billion to $2.75 billion, translating to a decline of down 1% to down 3% on a reported basis. We are modeling FX to have approximately a negative 100 basis point impact on our reported growth rates. This trend reflects a continued stabilization of revenue trends driven by wholesale improvements compared to last year when, as a reminder, we took inventory actions, which impacted both Q3 and Q4 of fiscal '24. Moving down the P&L, we expect Q3 operating income to be in the range of $170 million to $200 million with gross margin up year-over-year benefiting from lower product costs and fewer reserves and SG&A is expected to be up modestly year-over-year, mainly a result of the reintroduction of incentive compensation as we have discussed in prior quarters. Additionally, we expect more variability in the tax rate by quarter. For Q3, we're expecting the tax rate to be in the low-20s versus Q2 in the mid-teens. And while we're not providing Q4 guidance at this time, I want to give a little bit of color on expectations for the quarter. For starters, we expect Q4 to show another quarter of sequential improvement in year-on-year revenue trends. We expect gross margin to be up and SG&A to grow at a similar rate to Q3. For the full year, we expect free cash flow of around $425 million with core fundamentals in line with prior guidance. When looking at the $600 million guidance we gave earlier in the year, our updated forecast reflects the $140 million impact from the sale of Supreme and a slightly higher benefit from the sale of non-core physical assets. Additionally, given the success so far of our Reinvent initiatives, we have decided to fund an additional $50 million into cost savings, which should drive additional savings in fiscal '26. So in summary, we continue to make progress on our key financial priorities. I'm looking forward to speaking to you all again in a couple of days and providing further insights to our financial strategy. I'll now turn it back over to the operator for Q&A.

Yes, good afternoon. It's great to see the progress. Bracken, you mentioned being able to better predict the business. I'm curious about what specific factors are becoming more predictable, especially those that impact the top line, specifically for Vans followed by TNF. Also, Paul, what additional investments are you considering? Is it in brand building, demand creation, or outside of incentive compensation? Thank you very much.

Thank you, Adrienne. I appreciate your comment. We have achieved 10 consecutive quarters of performance in the Americas, which was previously challenging to forecast. Our attention is now primarily on the profit and loss statement, focusing not only on revenue but also on our gross margins and selling, general and administrative expenses. We have developed a reliable method for predicting these metrics across the board. Specifically regarding revenue, we have a solid understanding of performance expectations in each region. This accuracy has been evident in the Americas, as well as in EMEA and APAC. Overall, I feel confident about our ability to compile a forecast that is quite precise.

Yeah. And on the investment side, it's really two things. It's really on product and marketing. We'll continue to make sure that we can invest in those areas as we reinvest the savings from Reinvent.

Great. Thank you very much.

Thanks, Adrienne.

Hello, good afternoon. Thank you for taking my question, and congratulations to Bracken and Paul on the progress you're making. Bracken, I'm interested in the current state of your wholesale business and what your inventory levels look like as we approach the holidays. Additionally, Paul, regarding the free cash flow guidance, could you provide some clarity around the expected $700 million for the second half? How should we view it in terms of the third and fourth quarters?

Thank you, Laurent. And on the overall wholesale business, I feel good about it. I think we're really on the right trajectory. We're really on the comeback trail here across the board. And in the Americas, the creation of this Americas region has really had a strong impact, especially with our key accounts there where we're starting to see good strong momentum. In terms of channel inventories, I feel good about our channel inventories around the world. I mean, there are a few puts and takes, I would say. We're a little short in some places where the winter came late last year. So people are probably a little slow to take some of the inventory in for the North Basin things in those parts of the world, but overall, I feel really good about the channel inventory there. And then I'd say we're probably a little high in places like China where it's been honestly, in a turnaround, you've usually got a few places that are slow to turn. I think Vans is one of the slowest to turn there in China, where it's kind of two steps forward and two steps back. But overall, I feel really good about the Vans turnaround. I feel really good about the channel inventory.

Yes. Regarding free cash flow, we are not going to provide guidance for specific quarters due to the inherent variability in free cash flow from quarter to quarter. However, I want to reiterate my earlier comments, which indicate that we are quite optimistic about our free cash flow for the year compared to our initial guidance. In fact, it is in line with expectations and may even be slightly better. The change this quarter, particularly for the full year, is primarily about utilizing that $50 million to reinvest in the business for our benefit in 2026. Overall, we are aligned on the fundamental aspects of free cash flow and are very confident about its trajectory.

Great to hear. Look forward to Wednesday.

Thanks, Laurent.

Thank you.

Look forward to seeing you.

Thanks. Hey, good afternoon, everyone. So I was curious just how to think about your fixed risk variable costs at this point. As you just as you march closer to the revenue and profit improvement, just think about the puts and takes, really great gross margin, you're working your way through cost savings, the adjusted operating margin is narrowing its gap, still down. So just trying to think about how to think about ongoing deleverage impacts, maybe the reinvestment priorities and any other expense pressure points as we walk towards that sales return? Thanks, guys.

Simeon, that's a great question. We will address it on Wednesday. We appreciate it, and we will give you a good overview then.

Fair enough. All right. I look forward to it. Thanks, guys.

Okay. Thank you. But by the way, thank you for the comments on the improvement and we feel the same way. We really do feel like we've got good momentum across the P&L.

Bracken, since we did that, can I throw in and maybe if this is for this well, just curious AUR versus units, maybe the past quarter and which made you more comfortable and then how you're thinking about as you elevate brand? Excuse me, how you're just thinking about that discrepancies?

We typically don’t provide that level of detail, so I won’t do so now, and we don’t plan to on Wednesday either. Overall, I feel positive about the brand elevation program we have internally. I believe we are headed in the right direction, although it will take time to fully develop. I mentioned some aspects regarding OTW and Vans, which represent the forefront of our efforts. I think we are on the right track, and it will take a few years to fully implement the elevation strategy, but that is our goal.

Yeah. I would just add one minor thing, which is we are definitely seeing more full price selling in the last quarter, which is encouraging.

Perfect. Thanks, guys. Appreciate it.

Thank you, Simeon. See you Wednesday.

Hey, everyone. Congratulations on the significant progress. It's great to see it. Since Vans and specifically Vans America is a major focus, could you provide some insight into the channels in America? In the past, you've mentioned that B2C would be where we might see a turnaround for Vans first. I noticed that much of the POS data throughout the quarter was indeed worse than the 9 percent decline you reported. I'm curious if we're approaching positive numbers on the wholesale side and whether that's currently leading B2C. Additionally, could you share any examples of the evolving conversations with some of your wholesale partners now that you're starting to observe some positive developments with the new product?

First of all, we did not indicate that we thought B2C would improve before Vans; we actually mentioned that the situation was the opposite. I had anticipated that wholesale would see improvement first, which aligns with the current trend. Wholesale is currently performing better than B2C, which is not entirely surprising given the traffic challenges we face. Wholesalers still attract significant traffic, while we rely on generating our own. Therefore, it may take a bit longer for us to see similar results. As our products and pipelines enhance, there is a strong selection available in the wholesale channel that customers are discovering. Regarding the second part of your question, wholesalers have provided us with very encouraging feedback about our progress with Vans, and I believe we will continue to experience positive changes. Overall, I feel optimistic about the direction we are headed.

If I could throw in one more, any early examples of how the regional platform is starting to benefit on the day-to-day go-to-market process at the Vans?

I'll reiterate what I mentioned earlier, but there are additional points. In our regional platform, we've historically excelled in EMEA and APAC, under Martino's leadership, by truly understanding our largest accounts and ensuring we provide all possible support for their growth, which in turn helps us grow as well. We're beginning to see similar progress in our top accounts in the Americas, and I believe you will notice more of this trend. While every wholesale account will benefit, the major accounts will see the most significant advantages initially.

Okay. Thanks a lot.

Thank you.

Good afternoon and thank you for taking our question. I was hoping we could dive a bit deeper into your expectations for the puts and takes on gross margin as we go forward, especially given your cleaner wholesale path, the better full-price selling comment that you just gave, but also some of the benefits from product costs. Can you help us understand the magnitude and relative strength of each one of those benefits that we should expect over the course of the next couple of quarters? And what your outlook is for recapturing that gross profit margin? Thank you.

We are not providing too much detail on that, but as I mentioned, we expect gross margin to increase in Q3 and again in Q4. It's important to note that we have some benefits from the actions taken last year in Q3 and Q4, which will contribute to our progress. We have outlined several factors, and we will provide more details on Wednesday. So, while I don't want to repeat myself, we will have additional information to share then.

Wednesday, we'll say Friday, so. Thank you, Brooke. Sorry about that.

Thanks. Good afternoon. I was hoping to get a little more detail on your view on the North Face, North America. Any comments by channel or any reactions you've had from your wholesale partners about how the winter season is progressing?

It's still a bit early to say. I'm more focused on our own perspective rather than feedback from wholesalers or trade partners. It can't be any worse than last year. Winter seemed to arrive late last year, but it feels like it's already here in some areas of the U.S. As I'm here in New York, it's definitely feeling a bit chillier than before. I just returned from Canada where it's also getting cold, though that’s typical. I'm optimistic. Our guidance will remain steady regardless of the weather conditions. We have many internal improvements to make, including our go-to-market strategy, which gives me confidence in our projections, regardless of whether the winter is mild or severe. Let's see how things unfold, but we have enough in our control to deliver on what we've promised.

Thank you.

Thanks, Lorraine.

Great. Thanks. So Bracken maybe just to dig in a bit more on Vans. So maybe just where you stand on some of the reset actions that you had outlined? And then as we think about maybe top priorities over the balance of this year and into next year, how best to measure sequential revenue growth improvements and just the timeline as we think about maybe some of the earlier wins relative to Sun's potential influence on product assortment and multi-year growth?

Yeah. Thank you. Thanks, Matthew. I think overall in terms of the reset actions, we described the reset actions we took in the end of last year, we're coming up to lapping those as Paul mentioned. So they're in the rearview mirror. I mean, that's probably as good a summary as I could give you. In terms of top priorities going forward for Vans, I think if you really laid them out, we've already started a program of introducing new products that obviously came before Sun got here, but she's already touching everything and she'll continue to touch everything, every new product, every marketing campaign, she's in the middle of the action and those of you who know her know she would be. So she definitely is. In terms of the timeline for and a level of improvement, you could expect quarter-over-quarter. We're not really going to provide that, but I'm really excited about it. And I think we're on the right path and you can kind of see it and I mentioned it in the opening, you see some excitement coming in search interest in some of the biggest markets around the world now, that's really a change. And so look, it's early days, but I feel really good about Vans. I'm excited about the brand. I'm excited about Sun and the reset stuff is in the rear view mirror.

Great. Best of luck.

Thank you, Matthew.

Great. Thank you so much. Bracken, I just want to make sure I understand the message of introducing guidance here because I think when the guidance was removed, the message is we're not going to give guidance until we know we can give you guidance that we know we can deliver. I think the expectation at the time would be full-year guidance. This is quarterly guidance. So are you saying that like the we're sort of at the bottom here, we're inflection like big picture like from here, it's an upward kind of like it happened at Logitech, or is it more like, look, we're giving you a little bit of taste because we have our visibility into quarters, but there's still more work to do. I'm just sort of curious like why this quarterly guide, not the full-year guidance sort of explain how you're thinking through when to introduce the full-year guide?

I'm glad you asked that question. When we decided to remove guidance, I mentioned that it's difficult to provide guidance without real confidence in the internal numbers. I have that confidence now. You're wondering why we're only guiding for one quarter instead of a full year. This is something Paul and I discussed after he joined, and he had a significant impact on my thinking. It doesn't seem sensible to guide for an entire year when a year is merely four quarters. We could potentially provide guidance for five, seven, or nine quarters, or even none at all. Ultimately, our priority is to ensure we deliver results consistently from quarter to quarter, which is exactly what we plan to do. We'll discuss this further on Wednesday.

Got it. Okay. Bracken, thank you so much. Looking forward to Wednesday.

Thanks. It's Tracy Kogan filling in for Paul. I know you guys have mentioned that you expected additional savings beyond the $300 million. And I was wondering if maybe you could frame the magnitude of the savings you see and where these efficiencies might be? And then will you be reinvesting a similar proportion like you did with the first round? Thanks.

Tracy, I hate to say this, but we're going to have to wait until Wednesday to answer that question. What I can say is that I'm really excited about the first round of savings we achieved. I think we did a good job of establishing a baseline and eliminating some of the major inefficiencies while addressing some of the easier opportunities. Anything we do moving forward will be more focused on deeper reengineering efforts to drive additional growth. We'll discuss this further on Wednesday.

Got it. Can I just sneak one in about the North Face in North America? I was wondering if you saw anything kind of by month as the quarter progressed that might indicate why you saw the pressure, whether it was weather or something else?

No, I wouldn't really say that. I think this is my second year here and it's Paul's first, so we haven't analyzed anything on a monthly basis to identify any trends. Overall, things seem to be in line with our expectations, and we'll see how it goes. Right now, we're in New York and it feels a bit cold, so I ended up buying a jacket from the North Face yesterday.

Yeah, I would just add, we said on last quarter that given the tough comp on North Face from last year that we expected to be just slightly down sequentially from where it was in Q2 and that's exactly where we came in. So not getting into specifics of regions, but just holistically, the North Face came in right in line with expected and basically what we had previewed in the guardrails after last quarter.

Got it. Thanks very much, guys.

Thank you. Thanks, Tracy.

Hey, guys, let me add my congrats. Two questions, which I don't know if you'll answer, but I'm going to try. On the non-core asset sales, I know it was never a specific number, but I feel like $50 million to $100 million was kind of the thought before. Is there just to kind of round out that the $425, any way you can kind of just give us the number to help us get there? And then I guess, Bracken, the second one is for you, just on the portfolio review that you've talked about at length since you started, are we officially done with that review? Should we no longer be asking about asset divestitures or anything? And are we just running the business or is there still potential for something to happen in the foreseeable future? Thanks.

Yeah, I'll answer the last one real quickly and I'll let Paul answer the first one. We're officially done for now. How is that? Because I think you're never really done. So we'll always be reexamining the portfolio and deciding if things fit or not based on their not only their strategic fit but their performance and expected performance. So I'd say, yeah, we're done for now, but we'll keep looking at it. Paul?

Yeah. And I think what we had said was we expected about $60 million or so on the asset sales and we did better than that by about $50 million.

Got it. Thanks.

Thank you.

Yeah, hi, thanks. Good afternoon. Bracken, I just want to ask, as you think about third quarter and fourth quarter, any more detail on sort of the continued sequential improvement or lessening of the declines? And then as you look at the business broadly, are there parts that are running ahead of what you hoped or does anything come to mind when you think about areas that might be outperforming what you had expected? Thanks.

Thank you. Thanks for the question, Jonathan. I don't really have anything meaningful to say to you except that I think there's always things are a little bit better, a little bit worse. But overall, things have kind of gone along surprisingly consistent with what we expected. And so I think it's very, very consistent. And while we're not going to dimensionalize kind of what the rate of improvement as we go forward, I'm excited about the path we're on and I think it's going to continue.

Great. Looking forward to Wednesday. Thanks.

Thanks. Me too. Thanks, Jonathan.

Thanks. Good afternoon. Perhaps an area that deserves more attention. Timberland, it sounds like some enthusiasm around the premium boots. I'm curious, is that global commentary? And does that go beyond your collaborations? Are you seeing good elevated interest in the yellow boot franchise?

Yeah, thanks for the question. I just bought yet another pair of yellow boots. Maybe that was showing up in the numbers. I keep buying more and more probably will show up again in Q3. But yeah, the yellow boots doing well. I mean we had this Louis Vuitton collaboration, which was great about a quarter and a half ago now and we continue to see good solid strength and it is around the world. So far, so good, but we'll stay tuned. It's still down, right? So less down is better than more down, but it's still not up. So let's keep watching this and see where it goes from here.

Okay. And then another brand where there wasn't a lot of discussion, Dickies. Just your thoughts there on where you are with respect to stabilization of that business? Thanks.

I really love Dickies. I appreciate all our brands, but Dickies holds a special place for me. It has a unique and rich history, and it's impressive to see 16-year-olds wearing them for surfing right off the beach. I believe we are currently in the process of stabilizing the brand. We've reset our strategy and are focused on ensuring we're successful at work, with plans to expand further in the future. I'm excited about the changes we've made. I temporarily took on leadership there like I did at Vans before Sun joined, but I have now stepped back as Chris Gobel has come over from Gap. He excelled as General Manager at Gap in North America and played a key role in their turnaround. I'm confident he will lead a similar turnaround for Dickies. It's still early in the process, and while we are stabilizing Dickies, returning it to growth will be led by Chris.

Very good. Look forward to hearing more Wednesday. Thanks.

Thank you. You won't hear much about Dickies on Wednesday because we will focus on brand-related matters later in the year. So this presentation will be very much concentrated on different topics.

Understood. I had a lot of questions I figured you wouldn't answer till Wednesday anyway, so.

Okay. Okay. Well, you can feel free to wear it. If you wear Dickies, it may answer more questions.

Hi, Bracken. Hey, Paul. I have two questions. The first is, can you provide more detail on what you're observing by brand in China, specifically regarding last quarter and current trends? The second question is about inventory, which is down 13% compared to the expected decline of 1% to 3%. Should we anticipate this as your plan for inventory levels moving forward, or do you foresee a need for higher inventory as you work towards revenue growth? Thanks.

Let me address your second question first and then I'll get to the one about China. In the last call, I mentioned that we had around 155 days of inventory. I believe we have the potential to reduce that number over time, though it’s not a bad figure. We will need to adjust our operations to achieve lower inventory levels, which will require some internal changes. I don’t anticipate any sudden increases in inventory; I expect it will trend downwards. Regarding China, I think we’re aligned in our understanding of the situation there. The macroeconomic environment in China is a bit softer than it has been, but I’m not overly concerned since it's not entirely within our control. The North Face is performing exceptionally well and remains our largest business in China, which is encouraging. Other brands, like Vans, are in a turnaround phase, and the rest are experiencing varied levels of performance, so my focus would be on the North Face for now until we have more updates to share about the other brands.

Thank you.

Thank you.

Hi, good afternoon, Bracken and Paul. As you think about the free cash flow guidance that was provided, any expansion in terms of what's changed within the guidance either by brand, channel or geography? And then with the improvement that you've seen in the brand's performance, how much of it do you think was specific product that helped drive that? How much of it was the easy comparisons or what you're seeing in any of the industry segments? Thank you.

I'll start with the last question and let Paul handle the first, as it's a tricky one. Regarding the various brands and their positions, it's a mix of factors. We are continually improving our product offerings, and this will continue to enhance over time. In some instances, the comparisons will be easier, especially as we enter the third and fourth quarters in certain areas like Vans. Overall, it’s a comprehensive situation. We have made channel adjustments, reducing the value-focused channels. For instance, in Vans, we had some setbacks a few quarters ago. Each part of the business has undergone changes in marketing, and these adjustments will progressively influence the entire operation over the next year or two. I apologize to those focused on short-term impacts and how to assess each of these changes on a quarterly basis. However, when these elements are synchronized, they tend to have a greater impact. We are increasingly aligning our brands with concrete growth or transformation plans. We will provide more insights on this Wednesday, but I feel optimistic about our overall direction, even though I can't specify how much each element contributes to our current results.

I think, Bracken, we wouldn't go into that level of detail on free cash flow, but I can share that when these elements are synchronized, they have a greater impact. We're increasingly aligning our brands with a solid growth or transformation plan, and we'll provide more details on that on Wednesday. Overall, I feel optimistic about the direction we're heading, although I can't precisely define the contribution of each element to the current figures.

Thank you.

Thank you so much. Thank you, Dana.

Hey, you've got Ethan Saghi on for Janine. Thanks for taking my question. I was just wondering what are you seeing in terms of the promotional environment at both Vans and the North Face as well in the overall industry just heading into the holiday season? Thanks.

I don't have much to add, but it appears to be an improvement compared to last year, which is encouraging. We had a significant amount of inventory last year, and this year we're holding less, which is positive. Our retail and wholesale partners are experiencing similar trends. Aside from that, I don't have much else to share. As Paul mentioned, we're focusing more on full price selling, which is a good thing. While we are still running promotions, the situation is better.

Got it. Thank you.

Thank you.

All right. Thanks for squeezing me in.

John, this is so important.

Bracken, how would you characterize Vans internationally versus domestic, obviously? Business for VF is now larger and it's comfortably larger than the domestic business as a consolidated company. I'm just curious when you look at Vans, how Vans is trending in certain geographies versus the United States?

I believe Vans has significant untapped potential internationally. I've felt this way since before I joined the company, and my perspective has only strengthened since being here. However, while it's easy to identify this potential, there's a greater challenge in realizing it. This represents a substantial opportunity for our company. The question remains: how can we achieve strong growth on a global scale? Additionally, I wouldn't overlook the considerable potential we have in the U.S. market, which could be our greatest opportunity right now. If we can position ourselves effectively in the Americas, there is considerable growth to be had. We have opportunities on both international fronts and particularly within the U.S. market, and I find this extremely encouraging. It’s one of the aspects about the company that excites me. Thank you for your insightful question, John.

Looking forward to more color on that.

Okay, good. Well, I will bring this to a close because it does sound like we're kind of at the end of our program. I want to thank all of you for attending this call, but I especially want to thank you in advance for listening to the next one or attending the next one. This will be the first Investor Day that Paul and I have had together and actually all of our leadership teams had together and we're excited to share with you kind of what our game plan is. And I think our transformation is on track. We've made a lot of progress against the stated priorities we've had and we'll have some new info for you on Wednesday too. So don't miss it.