VF Corp (VFC) — Q3 2025 Earnings Call Transcript

Hello, and welcome to VF Corporation's third 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 that are 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 presentation that was posted this morning on our Investor Relations website 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 presentation, 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. Hello, everyone, and thank you for joining us today. As I open this call, you can see it was a good Q3. What I'm most excited about is what you really can't see yet. Our transformation is well underway, and Q3 was an excellent quarter of progress across our business inside the company. We're systematically remaking the company for long-term value creation, double-digit operating margins, and strong and sustained growth. We showed you in October nine work streams that will essentially bring us to best-of-breed processes. And you know we have reset the entire leadership team. But you might not be aware that we're now resetting the rest of the organization beneath those leaders. So between the work streams we spoke about in October and the organizational changes I'm explaining here, we're building new structures and processes to be more effective, more efficient, and in the end, more creative. It's not just about saving money. It's about being a reinvented company, better positioned to deliver strong and sustainable returns for investors. If I sound energized by this, it's because I am. This is going to create strong value, great products, elevated brands, and a place to grow and learn for our people. Now enough about what's going on inside the company. Let's talk about what we just reported. Q3 was stronger than we expected. We grew revenue 2%, while we significantly improved profitability. The key point to make here is that the actions we've taken so far are delivering results. Now let me call out some important features of the quarter. Virtually every brand was stronger this quarter than last quarter. The North Face and Timberland both grew. Vans delivered another quarter of sequential improvement in trend. Regionally, the Americas delivered another strong quarter of improvement, going positive for the first time in over two years. Our wholesale channel was positive on a global basis. Direct-to-Consumer (DTC) showed progressive improvement again this quarter globally. Gross margins were up 150 basis points, and operating margins were up 360 basis points to over 11%. Net debt was down nearly $2 billion. None of these were a surprise to us, but it's a quarter of measurable progress across the board. Now to really understand our trend line, you look at our Q3 and Q4 together. While the Q3 results are better than expected, somewhat benefiting from this quarter's outsized wholesale performance, due to stronger reorders, lower cancellations, and orders pulled forward by our retail customers into Q3 from Q4. Regardless, we feel really good about the underlying performance for the second half of the year. Now let me give you an update on Reinvent. As I indicated in our Q2 earnings, Investor Day Part 1, and the start of this call today, we're making strong progress on our transformation program. You'll recall, we have four stated priorities. First, lower our cost base. We're on track to deliver the initial $300 million in gross cost savings, with another $55 million generated during Q3. Remember, this is the $300 million we said would be fully actioned by the end of last quarter, so Q2, and fully reflected in the P&L by the end of this coming quarter, so Q4, by the end of the fiscal year, as we promised. The work is complete. The cost reduction is showing up, and all $300 million will be in the run rate as we exit fiscal '25 as planned. On top of that, you've heard Paul and me say, we have no intention of stopping here. As of our October Investor Day, we said we were, in fact, already working on process and organizational changes that would contribute to unlocking another $500 million to $600 million in operating income expansion, half of that in SG&A. That's part of our approach to delivering our medium-term operating margin target in fiscal year 2028 of at least 10% before any growth. So far, so good. Everything is on track. Let me underline a point that might already be obvious to you by now. While the cost side of these work streams will help us return to sustained double-digit profitability, this work is even more important than the bottom line impact it will deliver. These actions are absolutely instrumental towards enabling growth. They form part of a comprehensive plan to enable the company to be more creative and more powerful in product creation and marketing. These projects enable this creativity through better consumer insight and targeting, as well as the standardization of all the processes to best-in-class levels to enable higher impact from good ideas in both revenue and profitability. We also continue to reinvest some of those savings back into product creation and brand building. You'll hear more about these areas at our upcoming Investor Day, Part 2. The second priority is to strengthen our balance sheet. We made big progress during the quarter with a reduction of net debt of almost $2 billion versus this time last year. Just to reemphasize that, we've reduced the net debt, not including lease obligations, which are required from an accounting standpoint to be included when we call it net debt. So excluding those lease obligations, we've reduced the net debt by almost 40% in the last year alone. We're demonstrating our commitment to move our leverage ratio down in three ways. First, we divested non-strategic assets, planes, buildings, and, of course, Supreme. Second, we reduced our working capital primarily by cleaning up our inventory and making it fresh. And finally, and most importantly, we're improving our operating earnings. You now see how effective this triple-threat approach can be to rapidly dropping our leverage levels. There's more to do, but we are squarely on track to continue to deleverage the balance sheet to get to our 2.5 medium-term leverage target. Our third priority was to fix the U.S. As you know, we adopted our global commercial model in the Americas a year or so ago in an effort to bring its performance up toward the other regions' historical performance levels, and it's working. Our Americas business improved again relative to last quarter with revenue up 2% in Q3 versus down 9% in Q2, marking the first quarter of growth in over two years. It's early days, so we may not see growth every quarter as turnarounds often aren't linear, but it's good to see green numbers again. We have a lot, and I do mean a lot, of improvement ahead for our Americas business. Finally, we aim to deliver the Vans turnaround. The brand's overall performance in Q3 was down 8%, a further improvement compared to last quarter, which was down 11%. I feel very good about the steps we're taking, but sustained turnarounds take time. Underneath the numbers, I want to call out a few things, primarily in our key focus areas of product and marketing. New products continue to outperform our big established franchises. Knu Skool remained the number one growth driver and the number two franchise globally and is in line with our strategy to win with youth and women. We won't rely on just one style to build our business in the future, and we have momentum in our newest styles, both Hylane and Upland. In many ways, the Vans brand continues to have enormous potential. It was recently named the number three most authentic brand from the Authenticity 500 Index, which ranks the world's most authentic brands. The message here is that we have a lot of growth potential as we keep improving our execution. Brand elevation is also fertile ground for Vans, as evidenced by exceptionally strong sell-out for our OTW holiday collaborations, including the Satoshi partnership, HommeGirls collaboration, and those two last ones are targeted at women. The new Americas regional platform is also starting to deliver. For the holiday period, our U.S. non-value channel footwear generated strong positive sellout year-over-year for the first time since February of 2022, led by our largest accounts. We are making progress and are more confident than ever about the brand's growth potential. We have a lot of initiatives to advance: product, marketing, distribution, brand elevation, and more, and we're putting each one in place. I couldn't be more excited about the initial work done by Sun at Vans, and you'll hear more about it directly from her in just a few weeks. Now let's turn to the North Face, where revenue in Q3 was up 5% versus last year and positive in each region, with even stronger performance in DTC. We're pushing the boundaries with our marketing and our brand building. Notably, the North Face-SKIMS collaboration set a new bar for global collaborations, execution, and impact, and was one of the fastest selling collections in the history of North Face. We were also thrilled to see our product teams being recognized with multiple awards for design and innovation across footwear and apparel. The North Face's core underlying brand history is oversized relative to the size of this business, in my opinion, and I love that position. It means growth is ahead. You'll hear more about the plans for North Face directly from the brand President, Caroline Brown, at the Investor Day. Finally, I'll say just a few words about Timberland. The brand was also positive for the quarter with revenue up 12% versus last year. Performance was driven by core strength across regions, supported by the iconic campaign launched in September. Nina Flood is our new Timberland brand president, and she'll give you more color on our plans at the next Investor Day. Now looking ahead, the second half of this year is expected to be broadly in line with our expectations. As I said earlier, we did a little better in Q3 driven by the stronger than expected DTC and outsized wholesale performance and expect the Q4 trend to be a little lower relative to Q3. Turnarounds are not linear. For fiscal year '26, the first half of next year could look similar to the second half of this one, as we report more of our game plan in place. Overall, we feel terrific about the progress we're making. Now I want to say a few words about that Investor Day that I've mentioned several times. Now at Part 1 back in October 2024, we unveiled our corporate strategy, showing how we are rebuilding the company from the ground up. You heard about our focus on cost and creating a solid P&L structure; that's only the start of what we're doing to transform VF. The best is yet to come. In fact, we're coming back on March 6, mark that in your calendars, for Part 2 here in New York, which is focused on brand strategy, where you'll get to hear directly from our brand presidents. Of course, they're still relatively new to our business in their roles, but I can't wait for you to meet them. This is the most exciting part of our transformation, and you'll hear about it in our plans for growth. As you've heard me say before, we're all here, and it's all about long-term growth. I'm now going to hand over to Paul, who is sitting in front of me, wearing a Philadelphia Eagles jersey, shoulder pads, helmet, and Vans cleats, which we don't actually sell publicly; he had them made. You may know, Paul is quite an Eagles fan, and they are going to the Super Bowl. He'll take you through the financials in more detail, and I'll come back at the end for closing remarks.

Thanks, Bracken. Go Eagles! As Bracken mentioned, Q3 was another quarter of progress in achieving our key priorities. Turning to the financials in Q3, the quarter delivered further sequential improvement, with revenue coming in better than our guidance and with strong profitability. We saw better overall performance in Q3 led by a number of factors, some of which may impact Q4. Looking at both Q3 and Q4 together, we are right on track with where we thought we'd be. Previously, we had said that every quarter of the year we expect sequential improvement. However, given the strength in Q3, the balance has changed. The second half of the year is performing in-line with our expectations and will show meaningful improvement over the first half of the year. So while we no longer expect Q4 growth to be higher than Q3, the second half growth and overall trends are improving as planned. What has changed? First, DTC was better than expected in Q3. We had a good holiday season, which was particularly stronger in North Face and Timberland. Second, we saw outsized wholesale performance due to additional reorders, lower cancellations, and a favorable shift to deliveries into Q3 from Q4, a portion of which came from partners taking on inventory sooner than expected ahead of an earlier Lunar New Year. Third, on reported revenue, FX headwinds were less than forecasted. As a reminder, we had anticipated a 100 basis points negative impact in the quarter, which did not occur. And fourth, on costs, we're starting to see the impact from some of our newer initiatives, which positively benefited distribution and IT costs. Now let's go through the P&L. Q3 revenue was up 2% versus last year. This marked the fourth consecutive quarter of sequential improvement in revenue. By brand, the North Face is up 5%. Momentum in Greater China remained strong, while the Americas had a better performance over the holiday period. Vans was down 8%, improving from down 11% in Q2. The actions taken last year to clean up our inventory are continuing to deliver benefits, especially in profitability as we right-size the brand's cost structure. Timberland was up 12%, improving from down 3% in Q2. We saw broad-based growth across regions driven by continued strong momentum in premium boots. Finally, to finish off the top four brands, Dickies was down 10%, a slight improvement from down 11% in Q2. Moving to the regions, all three were positive in the quarter. The Americas was up 2%, EMEA was up 1%, and APAC was up 5%. And turning to channel, we improved sequentially in both DTC and in wholesale. DTC was down 2%, while wholesale was up 8%. On gross margin, as expected, we were up 150 basis points versus last year to 56.3%. This was due to lower product costs and fewer promotions. SG&A dollars were down 3%. We leveraged SG&A by 210 basis points to 44.9% of sales. We are on track to deliver the $300 million run rate of initial gross cost savings with $55 million of savings generated in the quarter. This led to an operating margin of 11.4%, up 360 basis points versus last year. Adjusted operating income was up 49% versus last year to $324 million. Diluted adjusted earnings per share was $0.62 versus $0.45 last year. Turning to the balance sheet, we continue to make good progress on inventories as we ended Q3 down 14% versus last year. As we said at the time of our Q2 earnings, we completed the sale of Supreme at the beginning of October and paid down the $1 billion term loan. As a result, as Bracken mentioned, net debt was down $1.9 billion versus last year, and we are on track towards our medium-term leverage target of 2.5 times that we shared at our most recent Investor Day. Now moving on to guidance for Q4. For revenue, we expect Q4 to be down 4% to 6% on a reported dollar basis. We are modeling FX to have approximately a negative 200 basis point impact on our reported growth rates. So on a constant dollar basis, which is the true underlying trend in the business, we are forecasting a decline of 2% to 4%. If you put Q3 and Q4 together and look at the second half as a whole versus last year, revenue would be flat to down 1% on a constant dollar basis. This represents a progression in trend versus Q1 and Q2 and is right in line with our expectations. Moving down the P&L, we expect Q4 operating income to be in the range of breakeven to a loss of $30 million, with gross margin continuing to benefit from lower product costs and fewer promotions. SG&A dollars are expected to be up slightly versus last year due to increased investment in marketing and product in Q4. For the full year, we are raising our free cash flow guidance to $440 million, with both better underlying fundamentals and higher asset sales contributing to the improvement. So in summary, we continue to make great progress on our key financial priorities and our turnaround plan. I will now turn it back to the operator for Q&A.

Congratulations on the Eagles, Paul! It's great to hear your enthusiasm. I have a quick question regarding what we're seeing as we transition from the fourth quarter to the third. When we analyze the revenues, how significant is this shift? Can you share some high-level insights on where we might notice a slowdown—specific regions, channels, or brands? Additionally, looking at the longer term, with Vans being a key factor in stabilizing our revenue and margin growth, what can we expect as we approach milestones like your team's first line? It appears that back-to-school will be when things start to align. As you move from a defensive strategy in your cleanup efforts to a more offensive approach, what have you already shared with your retail partners? What kind of positive or negative feedback have you received as you work to reposition Vans for long-term growth?

Paul will take the first one, then I will...

Okay. Yeah. So on the Q3, Q4, I would say a couple of things. One, if you think about the outperformance in Q3, it was split between wholesale and DTC wholesale is probably a little bit bigger portion than DTC, so on the wholesale side, it was a mix. I'd say probably part of it, maybe half of it was related to some of the pull forward I mentioned with respect to Lunar New Year and some of our partners taking deliveries earlier, and some of it was just reorders based on the stronger performance in the holiday season. So that was the wholesale side. So some of that will affect the wholesale in Q4, and then DTC just performed stronger, and right now, we're not necessarily anticipating that similar strength in Q4. It did outperform. So we don't have that same level of outperformance in Q4 that we saw on the DTC side in Q3.

I want to highlight a few points regarding Vans specifically. While this isn't focused on Q3 or Q4, it's important to set the stage for your question. There are many changes happening with Vans in the marketplace. We have reduced about 9% of our total doors globally in our direct-to-consumer channel and approximately 14% of our own stores. In the U.S., we have also closed around 9% of wholesale stores. Additionally, we have opened new stores, so that's the net figure. There are several factors at play as we work to realign our business commercially and prepare for new product introductions. You inquired about when we will begin to see results from what Sun is developing. She will provide a sneak peek at a few initiatives during Investor Day. I've communicated to her, and I'm sharing with you, that I intend to manage expectations for Vans for the time being to allow her ample space to operate effectively. She is very capable and heavily involved in the details. You may notice some of her contributions during the back-to-school season, more during the holiday season, and further into next year. However, this process will require time. The product development cycles in this industry tend to be longer than ideal, and while we are addressing this, we won't see immediate changes. Stay tuned, and I feel very optimistic about our direction with Vans. Next question. Thank you, Michael.

Great. Thanks. Hey. So maybe a two-part question.

Sure.

On the top line, could you speak to recent wins at Timberland progress you're seeing at North Face maybe relative to some of the softer trends at Dickies. And then just on the overall progression, if we took a step back, maybe could you just elaborate on comments I think you made around the front half of '26 looking similar to the back half of '25?

There is definitely a lot of excitement around Timberland. We've implemented several innovative brand-building activities since I joined, including the anniversary of the iconic yellow boot, which aligned with hip-hop culture. We engaged in various collaborations and even created a movie that garnered attention from key influencers, fueling momentum throughout the year. Our recent collaborations with Louis Vuitton and Bottega Veneta have further strengthened this momentum. Our strategy is to maximize the potential of the yellow boot franchise while also diversifying into other lines. Contrary to popular belief, the yellow boot doesn't make up 70% of our business, and its share is expected to decrease as we expand. Nina will provide more details on this, but I'm genuinely enthusiastic about Timberland's direction and the opportunities ahead. Regarding The North Face, the situation remains relatively unchanged. We have a strong team led by Caroline, who has been doing an exceptional job. We communicate frequently, and I'm excited about their efforts. You'll be hearing more from her soon, so I won’t take away her spotlight, except to say that I’m really encouraged by what she and the brand leaders are accomplishing. Now, on to Dickies, which is undergoing a significant turnaround. Although it may be our smallest revenue generator, it has substantial potential compared to its size. However, this transformation will take time, so patience is required as we navigate this. I feel confident in the leadership we've appointed there, and we've decided to relocate the business to California, which will present challenges but also offers strategic advantages. We're establishing a campus for that business, which I believe is a positive step. When it comes to my earlier comment about the first half of next year possibly mirroring the second half of this year, I meant to convey that we are not positioning ourselves for strong growth projections at this point, as it’s still early in the process. We will provide guidance in Q4. What we can say is to focus on profitability, which we are committed to improving systematically as we rebuild various aspects of the company for long-term growth. As for when that growth will emerge, we aren't in a position to specify just yet, so we're aiming to manage expectations appropriately.

Great. Best of luck.

Great to hear from you guys, really great results from the North Face and Timberland. I'm curious if you have the inventory to participate in some of the demand you might be seeing here in January. And then, also hoping you can share some perspective on what those results might mean for forward orders as we look to fall holiday 2025? Thanks.

That's a clever way to ask that question. In our case, I think we've done a good job bringing our inventory levels down, and our inventory is pretty fresh. You never have exactly what you need everywhere, so we don't, but our supply chain is working pretty effectively. It can improve a lot over time. But I'd say so far, so good. Would you like to add anything to that, Paul?

No. I think a lot of the initiatives we talked about during Investor Day can help us ensure inventory is in the right place moving forward, so we're getting there.

Is there anything you guys can share on discussions with wholesale customers and what that looks like for the order book into fall next year?

I don't think we have too much to say about going into fall next year. But I would say the spring order book was light. We knew that beforehand, and it's a reflection of the past and the general sentiment, especially in the U.S. But I'm not worried about that at all. I really feel good about the product portfolio we're bringing out – the cool thing for those of you who've been in our business for a long time, you get to look at three seasons out all the time. So I really feel good about the products we have coming out season by season across our brands. You'll see that as we get together. We'll give a little glimpse of this during the Investor Day, but you'll see more of it as it starts to unfold. But yeah, so far, everything is really on track from a product development standpoint as we move forward, and you’ll see us continue to ramp that and marketing.

Thanks. Good morning, everybody. Good morning. Bracken, you talked about Vans U.S. non-value channel sell-out positive. I was just curious what's the mix of the value channel for Vans? How important is that in your go-forward plan? And then can you talk about the health of the inventory in the channel across value and non-value?

Yeah. The health of the inventory looks good. Vans will always have a value channel component. So I don't want you to step off this call thinking that value channel is only for selling-off product that didn't sell in our non-value channels. It's about a third of our business. It will stay about there. The health of the inventory looks really good. We brought that down from over half of our business at one point.

And you think a third is the kind of the go-forward ratio that you would expect?

I believe that could decrease over time, but I'm not concerned about the value channel. It's often viewed merely as a discount option, but it can be quite profitable. We are focused on serving that segment. What’s exciting about Vans is its diverse consumer base, and we aim to be where our customers choose to shop, with the value channel being an integral part of that. I anticipate that the non-value channel will outpace the value channel in growth over the next few years. Looking ahead two or three years, the non-value channel may appear larger. We have added locations in the non-value channel while closing some in the value channel, which has altered our overall mix. I could elaborate further on this.

Good morning. Hi, Bracken. How are you? Congrats on the results here.

Thank you.

I wanted to ask you, Bracken, regarding your comment about the second half. I know it's preliminary, but it’s encouraging to hear that the trajectory is similar for the second half of the fiscal year. Is that comment based on a constant currency basis or...?

Yes.

Okay. Just..

Thank you for your question, Laurent. Paul and I discussed yesterday how to focus on constant currency reporting, which is something we regularly debate before reports. We haven't finalized our approach yet, but constant currency is crucial, especially given the fluctuating currency environment we've experienced recently. We will aim to emphasize constant currency more in the future.

Okay. Thank you very much.

Not on profit. By the way, profit will always be reported.

Okay, I understand. Bracken, Paul, I'm trying to grasp the slides regarding the SG&A dollars expected to increase slightly for the fourth quarter. I assume this is on an adjusted basis? If that is the case, I might be modeling this incorrectly, but it suggests that fourth quarter gross margins will be significantly higher than what was reported in the third quarter, by around 300 to 400 basis points. Is that the correct way to think about it, Paul? If so, should we initially expect strong gross margins in the second half of the calendar year? I believe Bracken mentioned that profitability will keep improving into the next fiscal year.

I will address both the SG&A and gross margin topics. Regarding gross margin, we anticipate an increase. There are a couple of reasons for this. First, the measures we implemented last year continue to provide us with year-over-year benefits. Additionally, we are seeing advantages from lower product costs and a reduction in promotions. Overall, gross margins are improving, especially when we consider the benefits carried over from last year. Concerning SG&A, we expect a slight increase. The main contributors to this are elevated marketing expenses in the fourth quarter and an additional quarter of bonus accruals this year, which did not affect us last year.

Very clear, Paul. Thank you very much. Best of luck.

Thanks, Laurent.

Great. Thank you very much. Hey, congratulations. Great quarter. Nice to see it. So Bracken, my question is going to focus on Vans, that was the only brand that missed sales relative to consensus expectations.

Okay.

You're giving it time, what customer feedback are you getting from the core Vans customer. You're broadening it out to more board and action sports. So just how are you targeting kind of a broader audience? And then when is the right time to put some demand creation investment behind that? And then Paul, I have a quick one for you, which is really, you're taking measures throughout the entire infrastructure of the company. I'm assuming that supply chain is going to be one of them. Can you remind us kind of where your sourcing base in Vietnam and China is exposed, and what measures you're taking to speed up and make that supply chain more efficient? Thanks.

I'm going to dodge your question, not because I don't have an answer, but I want to let Sun answer that. The feedback from customers as we think about who we're targeting and also the demand creation investment. Suffice to say, we're in deep learning mode and action mode. You'll see us keep adjusting our approach with Vans from a marketing perspective and the target audience piece, I will absolutely refer and let Sun talk in March, but I feel very, very good about the decisions she's made. We are going broader into action sports and beyond.

Yeah. So on supply chain, we'll continue to look to become as efficient and best-in-class in everything we do. With respect to kind of the regions, we have very minimal exposure to things coming out of China, Mexico, and Canada, so the impact for us is very small.

And then just one clarifying question to the GM. So just to make sure we don't get ahead of skis for first half of next year, the last year, the reset actions were about 200 bps for the organic, would be anything above 200, that said gross margin expansion for the fourth quarter?

Yes.

Okay. Thank you very much and really great quarter, great progress.

Thank you very much.

Good morning and thank you for taking our question.

Thank you, Brooke.

We've seen some outperformance for a couple of quarters on the SG&A line. Can you talk a little more about where you're outperforming your own expectations on Reinvent cost savings? And as you bridge from the fourth quarter of this year to your mid-term targets, how are you thinking about the opportunity to flow additional savings to the bottom line near-term versus additional reinvestments in the brands through marketing or other talent investments that you might think are necessary to drive long-term health of the business? I would say, over the last couple of quarters, a lot of it, honestly, is just in execution. So we've had plans in place against Reinvent. You're not always expected to hit the full 100% of everything you think you're going to get in the quarter. The last couple of quarters, we've done really well in terms of hitting all the targets. It's a testament to the team and how hard they're working to put all the Reinvent actions in place. It's nothing more than that, other than just really great execution from the team. All of those first $300 million will be fully actionable, and we'll have the full run rate by the end of this fiscal year, which will all flow into next year. We're seeing the very early beginnings of the additional benefits we talked about at the Investor Day. So we talked about $500 million to $600 million of incremental operating income benefit. That's spread across the P&L, not just SG&A, but I assume half that’s SG&A. We’ve started to see a little bit of that. I wouldn’t expect too much of that in Q4, but we’re starting to see a little bit of that benefit roll through as well.

Great. Thanks so much. I’ll pass it on.

Thank you, Brooke.

Great. Thank you so much. So two questions for me. Number one, can you just talk us through what you're seeing in China? I think you said sales were up 4%. I think it was up 5% year-to-date. And then on the balance sheet, given the progress you made in the quarter reducing debt. What's the outlook from here? How much of a priority is it now? Is it the same level of priority that it's been, or do you feel like maybe free cash can be used for some different purposes going forward? Thank you.

I'll let Paul answer the second one on China. I think we're pricing the same things as everybody else is. The economy itself is pretty soft relative to the past. The good news is we've got a very strong business, especially in Northeast China, continuing to grow double-digits. Really good performance there. I have, as most people here probably do, uncertainty about what will happen near-term, but I am really optimistic about the long-term in China. We'll keep the pedal to the metal and keep investing and building business there. You want to answer that first?

Yeah. On free cash flow, our focus will continue to be to pay down debt. That's our primary focus in terms of cash flow. Brack and I have talked about our target of 2.5 times or better, which we put out there. You can assume, unless we were to say otherwise, that our real focus is getting there as fast as we can, and then we'll think about other uses of free cash flow.

Yeah, exactly. We won’t be doing any acquisitions anytime soon. We’ve got so many opportunities to improve this business without that and get growth. We don’t need to worry about acquisitions for now.

Hi. Good morning. Just a couple of questions. The first one is on the wholesale pull forward. Can you quantify the dollar number, the shift from Q4 into Q3?

You want to take that one, Paul?

Yeah. I'm not going to quantify it, but I will say that it was more of the outperformance in wholesale than DTC; both outperformed. I'd say probably about half of it was pulled forward, the other half was just better reorders given the strength we saw in Q3.

I’ll add a little more color. Paul is quite nervous to give more color because he and I haven't agreed on how much we’re going to say. It's always a bit tricky to ensure you have your facts clear. We had reorders, better reorders, lower cancellations, and some orders pulled forward into this quarter. Cold weather also drove our DTC business stronger. So we just can't count on all those things into Q4. I think we've judged this as about right.

Got it. And then, Bracken, on Vans, when you look at the regional breakdowns, Vans down 31% in APAC. Can you just comment a bit on that result and sort of what drove that and how you're seeing the business there?

I would say Vans got hit a little bit later and then pretty hard. If you look at our Vans business in APAC, I think at its peak, it was $600 million. So think about how much potential there is there. We're not chasing anything short-term in Vans right now; it should be obvious. The potential is so big here. Our run rate right now is $250 or something. We're down that much in APAC and China, especially. Part of that is really our store footprint there. It's a lot of partner stores, they’re not our stores. A lot of work is going on there. I would say just like the rest of the world. But you're right, Vans in APAC is a special case that I'm excited about. It will take time to get back to $600 million, but once we get things right, growth comes fast. So we don't have things right there yet, but we will. So like that was the last call, boy, that went fast. I think Paul's just in a hurry to get the Super Bowl pre-party started. But thanks to all of you. I just want to close out by saying this was a quarter of really strong progress and we're on track with the turnaround. We're on track with this transformation. We're not doing anything short-term here; we aim to really create a new kind of company that can drive strong long-term sustainable growth and profitability and top line returns. We continue to advance all those things we talked about in October; nothing has changed. You can imagine we're now three months further down the road with aggressive progress and there are other things we haven't revealed to you yet. As I mentioned, we’re going to be back in March. You're going to hear from these brand presidents; each session will be really valuable. So, you won’t get a deep strategy from each of them but you’ll get a good feel for what we’re doing. Most importantly, you’ll feel that energy. I’m excited about this business; it’s nice to have a good, strong quarter behind us, but we’re already deeply into the future here. So thanks, everyone. I look forward to talking to you in person during the meetings in between or on the next call a quarter from now.