VF Corp (VFC) — Q2 2026 Earnings Call Transcript

Hello, and welcome to V.F. Corporation's Second Quarter Fiscal 2026 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 presentation that was posted on 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 today will be V.F.'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. Thank you, Allegra. We picked a strange day to do a video conference call because many of us were up for 18 straight innings of baseball. And probably the most important event happening today is our conference call in the world; the second most important event will be one of the two Major League Baseball games that's also happening today because it's never happened, I guess, or maybe rarely. You'll hear more later as Paul talks about it. Let me talk you through the financials, but at a really high level. It was a good quarter. We delivered on our commitments, and we made further progress on our turnaround. We delivered this performance despite admittedly a pretty uncertain and unpredictable environment around the world. Total revenue was up 2% in reported dollars and down 1% in constant dollars, a little better than planned and showed an improving trend versus last quarter. Operating income was $330 million, well above our guidance range of $260 million to $290 million. Net debt, excluding lease liabilities, was down $1.5 billion versus last year or down 27%. We're focused on returning the entire company to growth. Last quarter, I highlighted that 60% of our business by revenue was growing, up from just 10% in the prior year. In Q2, so this quarter, that figure expanded to over 65%. If you took out Dickies, that would be almost 70%. Speaking of Dickies, during the quarter, we announced our plans to sell the brand. I'm confident it's a very good move for the company and for our shareholders. As we've said before, we'll always evaluate any offer we receive, reflecting our commitment to shareholder value creation. We had an inbound with a very good price of $600 million. We've done a lot of terrific work behind the scenes on the brand and the product portfolio, and I believe this positions the brand well for growth. This was a unique opportunity. On our end, we'll use the proceeds to pay down debt, consistent with our capital allocation priorities. This allows us to accelerate our path towards our medium-term leverage target of 2.5x or below. We're well on track. Let me now give you some of the highlights from the quarter on our biggest brands. Let's start with the North Face. The brand delivered another quarter of growth with revenue up 4%. All three regions grew versus last year. We grew in wholesale and in Direct to Consumer. In terms of categories, Performance Apparel was up in every region with momentum in core styles. Transitional outerwear was strong and footwear continues to gain traction and grew double digits in every region. Across categories, product innovation, newness and elevation drove growth as we continue to show the extraordinary reach of the North Face from the summit to the street. We also celebrated 25 years of the Summit series, expanding the collection with innovation, adding exciting new colors and designs. This was supported by an athlete-led campaign, featuring our incredible stable of North Face athletes, including the mountaineer Jim Morrison, who recently with Jimmy Chin became the first person ever to climb and ski down the North Face of Mount Everest. Across our marketing strategy, we're driving high consumer engagement and brand experiences and amplifying that through social channels. In addition to Ultra Trail du Mont Blanc or UTMB, this included ClimbFest in San Francisco, community hiking events in APAC and a Beijing 100K Ultra Trail race. As you know, as good as I feel about the North Face, I can't help but express what an enormous opportunity remains to be realized. We have potential in new categories and ability to develop the women's business and to build across all seasons of the year. Timberland revenue was up 4% in Q2 with growth across both wholesale and Direct to Consumer as well. Americas was up double digits, reflecting a strong back-to-school period. In terms of product, demand for the 6-inch premium boot remains very strong. But today, the premium 6-inch icon represents only about 20% of our global revenue. So we have a lot of opportunity for growth. We can continue to grow the 6-inch business through colors, materials, innovations, collaborations and more, while we also pursue the huge opportunity to grow this brand across other footwear and apparel categories. Closer to home, the strategy is already showing up with our recent launch of the Timberland 25, a lightweight version of the boot, which is very small now, but it's resonating well in its early weeks in our stores. A step further away from the boot, we're building our growing business around boat shoes. These sales are growing very strongly in all regions as we diversify the product lineup and give the brand more versatility of firepower during the warmer seasons. Timberland's adoption of a social-first marketing strategy has been instrumental in driving brand heat globally. During the quarter, the brand launched its Advice of an Icon campaign with high visibility events in New York, London, Shanghai and Tokyo. Brand interest grew during the summer months with consumer search interest positive in key markets in the U.S. and in EMEA. The opportunity in Timberland is really significant because we can continue to grow the boot, we can grow in other footwear franchises and we can unlock apparel around the world, all at the same time. And in the U.S., especially, this will be supported by expanded and enhanced distribution. We have the game plan to do that now. Altra accelerated further with revenue up over 35% versus last year, the third consecutive quarter of strong double-digit growth for the brand. Key franchises that represent a mix of road running and trail running styles show our broad-based approach to building this brand. The growth opportunity for Altra across both road and trail is significant. We're fueling this growth and driving higher brand awareness with targeted marketing investments, which, as a reminder, our awareness is less than 10% in the U.S. and even lower in other regions. Let me repeat that. Our brand awareness in the U.S. is less than 10%, yet we still have this size business, and it's growing fast. This is helping e-commerce deliver particularly strong growth, driven by higher traffic and stronger conversion. Altra is on track to exceed $250 million in revenue this year, and I'm confident the brand has a long, strong runway for growth for many years to come. Let's turn to Vans. Performance was a little better this quarter with revenue down 11% versus last year. We're really focused on getting the commercial moments right as we upgrade our portfolio of products. I told you that Sun's impact on product to be visible in the back-to-school period, and it is. Product newness across footwear is drawing in new consumers, particularly women, but also youth and kids. In terms of new styles, non-icons are up in the quarter, driven by the Super Lowpro, which continues to perform well. The new skate loafer, which I decided to show you this one because I bet many of you haven't seen it, had a very strong debut and is sold out in most sizes and the Crosspath XC, which has had a very strong launch. Within existing styles and icons, we're also beginning to realize the impact of elevation, innovation and newness. For example, the Authentic is up globally as a franchise, helped by the halo effect of the Valentino collaboration, which drove positive search trends in key markets. Within the Old Skool franchise, newness has driven higher sales of women's styles. And just last week at ComplexCon, the largest event for young shoe dogs in the world, I think, mostly guys, by the way, it's in Las Vegas. At that event, Vans had one of the longest, if not the longest line of people waiting for the Pearlized Old Skool shoe we launched there. This is just the start. More newness is coming as we head into the holiday season and into spring of 2026. In the meantime, our shift in marketing strategy is starting to yield results. Digital traffic trends improved in the Americas and EMEA, particularly during relevant consumer moments like back-to-school, when digital traffic was up in the Americas. And looking ahead, we're excited about the recently announced new partnership with SZA as the brand's first-ever artistic director. It's early days, but in the coming season, she'll add her voice and her touch to product and marketing. To wrap it up on Vans, each quarter, we're making great progress. We took actions to clean up the marketplace and set the stage for a very exciting product pipeline that started to roll in and is delivering early results. I'm as confident as ever in Sun and her team leading us to return to growth at Vans. Looking ahead, we're making progress on the turnaround of V.F., and I'm super confident in our ability to deliver both our near-term and our medium-term targets. Our teams are energized for the upcoming holiday season. I'll now hand it over to Paul, who will dive in deeper into the numbers.

Great. Thanks, Bracken. Let me first build on Bracken's comments about Dickies. As he mentioned, this is just a great opportunity for the company. While we are big fans of Dickies, we believe this divestiture will help further accelerate the transformation of V.F. back to being a growth company while also further enabling us to pay down our debt. We believe this will create increased and faster shareholder value. Dickies is a great asset, and we know the work we have done to date sets the brand up for a return to profitable growth. In fact, it is the work we've put in that has created an environment for others to be interested in the asset. With that in mind, the offer we received of $600 million is incredibly attractive. Based on fiscal '26 estimates, this equates to an EV to sales multiple of 1.2x and an EV-to-EBITDA multiple of over 20x. Going a little deeper into the transaction, we will incur deal-related expenses as well as the small tax considerations, but we will also save on future planned capital expenditures as well as see a reduction in our net interest expense. After considering all of these moving parts, we expect the overall cash benefit to V.F. to be greater than $600 million. Importantly, the Dickies sale will help us strengthen the balance sheet and bring us closer towards our medium-term leverage targets. It will also help us focus time, energy and resources on our brands as we continue to make progress towards a return to growth. Now let's turn to the review of the second quarter. We are pleased with our results in the second quarter. Revenue finished slightly ahead of our guidance, while our operating profit outperformed nicely. Back-to-school was encouraging across our key brands. Q2 revenue was $2.8 billion, up 2% on a reported basis. On a constant dollar basis, revenue was down 1% year-over-year, a little bit better than our guidance. By brand, the North Face grew 4%, led by growth in both Direct to Consumer and wholesale. Vans revenue in the quarter was down 11%, a little better than we expected, but still reflecting the impact of channel rationalization actions, which accounted for more than 20% of the reported decline. And finally, Timberland continued to see good momentum with revenue up 4%, reflecting growth across all channels, in particular, Direct to Consumer. By region, the Americas region was down 1%, EMEA region was flat, and APAC was down 2%. And lastly, by channel, Direct to Consumer was down 2%, while wholesale was flat. Our adjusted gross margin for the quarter was flat versus last year as the benefit from fewer discounts was offset by FX headwinds. There is minimal impact in our P&L from tariffs in the quarter. Our gross profit dollars were higher than expected on the back of revenue coming in ahead of guidance. SG&A dollars were up 1% year-over-year, but are down 1% in constant dollars. In the quarter, we increased back-to-school marketing year-on-year, which was mostly offset by cost savings across the business. Overall, SG&A was a little bit lower than expected. Our adjusted operating margin for the quarter was 11.8%, up 40 basis points year-over-year. Both interest and tax were up versus last year as per guidance. Finally, our adjusted earnings per share was $0.52 versus $0.60 in Q2 of last year. Now moving on to the balance sheet. Inventories were down 4% or $86 million at the end of the quarter, excluding Dickies from both periods. Excluding the impact of FX, inventories were down 5%. Overall levels are down year-on-year as we continue to improve the quality of our inventories. Free cash flow through Q2 was negative $453 million, in line with our expectations for the year. And as a reminder, given the seasonality and working capital needs of our business, we typically start generating cash in Q3. It is also worth highlighting that first half cash flow includes the payments of roughly $60 million of incremental tariffs in addition to the usual seasonal increase in inventory at this time of year. Overall, we are right where we expected to be for free cash flow. Net debt, including lease liabilities, was down $1.5 billion versus last year or down 27%. Turning to the outlook for the third quarter. Now note, this excludes Dickies in both this year and last year. We expect Q3 revenue to be down 1% to down 3% on a constant dollar basis. We are well positioned across our brands heading into the peak holiday period. Moving down the P&L. We expect Q3 operating income to be in the range of $275 million to $305 million. For reference, last year, Dickies adjusted operating income was approximately $5 million in Q3. Gross margin will be down versus last year, reflecting the initial impacts from tariffs, which are partially offset from lower discounts. While we have taken some initial pricing actions, the majority of these will be reflected starting in Q4. Reported SG&A dollars are expected to be slightly up versus last year. However, on a constant dollar basis, SG&A is expected to be broadly flat versus last year. Finally, we expect Q3 interest of approximately $40 million and an effective tax expense that is approximately double the prior year. This is in line with my recent comments about the increasing trend in our tax rate over the next 1 to 2 years and quarterly fluctuations as a result of the changes in global tax rates and in our geographical mix. As a reminder, this higher tax rate will have minimal impact on cash taxes. Now moving to fiscal '26, we continue to see operating income up versus last year for the year as a whole, inclusive of all known anticipated tariffs. And second, on cash flow, we continue to expect operating cash flow and free cash flow, excluding the sale of noncore assets to be up year-on-year. This includes all expected tariffs and after the negative impact from the sale of Dickies, which we estimate to be $35 million. As I said last quarter, we are working on a number of initiatives that are expected to improve our free cash flow throughout the year, which gives me confidence we will achieve our guidance. And last, we are progressing towards our medium-term targets of $500 million to $600 million of operating income expansion in fiscal '28 and a leverage ratio of 2.5x or below by fiscal '28 that we introduced a year ago. Overall, we've made meaningful progress on simplifying work to unlock creativity, building deep functional capabilities and resetting the culture across the organization. We are confident we will achieve our targets. So in summary, this quarter marks another quarter of meaningful progress. The year and our turnaround are progressing according to plan. While we acknowledge the greater uncertainty in some of our markets as we head into our peak trading period, we are confident in our strategy and ability to execute in any environment. We remain focused on getting each of our brands back to sustainable and profitable growth and continuing to make progress towards our medium-term goals. I will now hand it back to the operator to take your questions.

My question is about Vans. You talked about how you had some improvement in sell-through in the Americas wholesale channel in the full-price stores. Can you just talk about the path back to growth for Vans? I mean you said you have a lot of confidence in what Sun is doing. Can you talk about the path back to growth and maybe within the second quarter guide? Just give us a sense of where you think Vans will be for revenue growth.

Second quarter guide? Yes. Our expectation is, it's pretty much the same story we've been giving, which is, we're going to increase the amount of newness. You started to see that coming. In fact, this quarter, Super Lowpro, as we said last quarter, it did really well. continues to be very, very strong. In fact, I mentioned it in the script in the beginning, we're also starting to see some pickup even on the Old Skool with women, in particular, with our women's-only styles. It grew strong double digits, I think, over 20%. So our expectation is as we keep rolling in newer and newer product into the stores, we're going to see more and more performance, and yes, we're obviously also upgrading our marketing. If you're watching us on Instagram and TikTok, you're seeing it. If you're not, please do. You'll see a shift away from the skate-only marketing into really that plus a lot more. You'll see surfers, you'll see a lot more product. We've got a lot more product to talk about, especially as we go into Q3 and into Q4 and into Q1 of next year. So we're just going to keep pouring it on. This is a fundamentals business. You've got to be in the right places with the right products with the right story. And we think we're really going to have that as we go forward.

Yes. And then on the numbers, if you look at Q2, down 11% in constant dollars. We talked about 20% of that was related to the actions we've talked about around the value channel. So that would imply sort of a decline of high single digits for the quarter. I would expect Q3 of kind of a similar pace in Q3. Also keep in mind, we mentioned that Q3 will be the last quarter where we really see this impact. So it will be in the quarter, not entirely, but most of that quarter. And then by Q4, the dynamic around the value channel has moderated mostly.

Yes. And I'd also add, I feel you can see in our — we mentioned in the script that we were — we had traffic up in the — online during the back-to-school period, which is a good sign. It shows you we're executing better. We're starting to get the message out there. Winning in these commercial moments is really key for Vans, even more than the other brands.

Paul, I'm hoping maybe you could give a little bit more color on gross margin, some of the puts and takes in Q2. And then if you could quantify either the tariffs or some of the positive offsets from less discounting. Just any more of the pieces you see? And then maybe bigger picture around the cost discipline and shifting into Phase 2 of some of the savings. Can you share any updates on progress either broadly for the organization or even for Vans specifically as you think about some of the next phase of cost savings?

Yes, I'll start. So on the gross margin side, there wasn't really that much of note. There was a little negative impact from FX, a little positive impact from lower promotions. That was really most of the puts and takes when you think about the impact on the quarter in terms of gross margin. In terms of second part of the question was on just the longer-term initiatives, the medium-term initiatives?

Yes, that's right, really shifting to Phase 2 and some of the expectations there.

Yes, we're making significant progress. We plan to provide a more detailed overview of our initiatives at year-end. It is challenging to provide specifics in the middle of the year, but everything is on track. We have reaffirmed our guidance from last year's Investor Day regarding our ability to meet targets, including debt leverage and operating margin. We are progressing well in these areas. On the gross margin front, we are focusing on markdown management and integrated business planning. For SG&A, we are working on store management, optimization, and technological improvements. Overall, we feel we are on schedule. We will offer more details as we approach year-end regarding our performance for this year and our projections for fiscal '27 and '28.

I wanted to follow up on Jonathan's question to talk a little bit more about promotional recapture, particularly in the Americas business. Paul, can you give us a little bit of a sense of where you are in the promotional recapture journey and the plans for pricing and promos this holiday and the opportunity on a medium-term basis?

Do you want to take it?

I can start. I think generally speaking, we're well on track. We had another good quarter, I think, of really having improvement versus a year ago on our promotion levels, especially around the world. I think as we go forward, we're going to be aggressive though. We're going to make sure if we have to give a little bit back in the Americas in particular, we will. But generally speaking, we continue to think we can operate in a lower promotional environment than we have in the past, and that's our game plan.

Yes, I believe we will continue to benefit from promotions for the remainder of the year compared to last year. Pricing effects from tariffs will begin to take effect in the fourth quarter, impacting gross margins primarily due to tariffs rather than promotions in the third quarter. It's important to clarify what to expect in Q3. The promotional environment has improved year-over-year, and this trend will persist. In this quarter, the promotional environment positively impacted gross margins, although it was somewhat offset by negative effects from foreign exchange on gross margins.

I'll add one more comment, Brooke. I think regarding Vans, we're in a favorable position from a promotional standpoint because we're not aggressively raising prices on lower-end price points. Unless there's a need to do so, we plan to avoid it.

Could you provide more details on the Asia market? We've noticed a negative trend there for the first time in a while. Is there a timing factor involved, or how do you anticipate this will develop in the next few quarters? Additionally, Paul, I want to clarify your previous statement. If we exclude the 20% Vans impact from the actions in the value channel, are you suggesting that the underlying run rate would be in the high single digits for the second quarter and similar for the third quarter? Is that comment excluding currency effects? Also, does it account for the fact that some of the mitigation efforts you mentioned might start to fade in the third quarter before completely disappearing in the fourth quarter? It would be helpful to understand your thoughts on how reported revenues will appear in the third quarter.

Yes, I'll answer the first question, and Paul will handle the second one. My experience with the Asia-Pacific region, especially China, suggests that we go through extended periods of growth followed by stabilization phases. Currently, I believe we are in one of those stabilization phases. We've experienced significant growth in China, particularly with the North Face brand, but I expect that growth to stabilize for a while. The positive aspect is that there are numerous opportunities elsewhere in the world, particularly in the Americas. I feel fortunate to be at a company where one of our most significant long-term growth prospects is in the Americas, where we are still underdeveloped in several brands and channels. For instance, Timberland is quite underrepresented in the U.S., yet it continues to grow strongly, benefiting from good brand recognition. We will tackle that moving forward. Overall, I am optimistic about our global positioning, but I anticipate that growth in the Asia-Pacific region won't remain strong indefinitely; it will plateau for a while before potentially picking up again.

Yes. Just to clarify, all the numbers I mention are generally in constant dollars, unless I specify otherwise. For Vans, we experienced an 11% decline in constant dollars. About 20% of this decline is due to the actions we've discussed regarding the value channel, resulting in a negative high single digit for the quarter in terms of actual run rate. We anticipate that the run rate will be similar in Q3 as well. The effects from the value channel changes and store closures will also affect us in Q3, but not as significantly as in Q1 and Q2, as we start to annualize it. By Q4, most of these impacts should subside, leading to a clearer underlying trend by that time. Hopefully, we can move away from adjusting figures for you.

I'm wondering, although it's early in the holiday season, if there are any initial indicators of how retailers are managing their orders or order books. Is there any variation based on channel or region? I'm interested in understanding how your partners are approaching the start of the holiday season in terms of orders and demand.

It's a bit too early for us to provide a clear outlook. We also have a significant direct-to-consumer presence, so it's still premature to make a definitive statement. This time of year is always exciting in our industry as things begin to ramp up with colder weather approaching. Many positive developments typically occur between now and Thanksgiving. While we are really enthusiastic about what lies ahead, we feel confident in our plan and products. Therefore, we remain optimistic, but it’s too soon to determine exactly how things will unfold. There is a level of uncertainty in the broader macro environment, including the shutdown and other factors. However, I mentioned at a conference a few months ago that consumers have been surprisingly positive, and I hope that trend continues.

Okay. So Bracken and Paul, the three-year long-range plan was based on fiscal year 2024. We have experienced four consecutive quarters of operating margin expansion. However, in this fifth quarter, due to tariffs, we are seeing a reversal of that trend. Historically, you've advised us to consider half years for perspective. I have a couple of questions. You mentioned that back-to-school sales have been strong. I'm curious about what you're observing as we exit that season. You also mentioned the consumer remains resilient. Last quarter, you discussed your perspective on demand elasticity. Can you provide insight on the expected price increases, Paul, in the mid-single-digit to low single-digit range? Additionally, how do you perceive the relationship between volume and pricing?

Yes. Your first question was about our outlook. It's somewhat challenging to provide a definitive answer. Let me focus on Timberland, which is an interesting topic. Timberland has more growth potential than we are likely to realize. As you saw this quarter, we experienced 4% growth. For the remainder of the year, you can anticipate low single-digit growth. This is not due to a lack of brand interest; there is strong interest. We are simply going to manage our expansion carefully and execute our plans thoughtfully. Currently, we have only six full-price stores in the United States in areas with significant demand. While we could expand aggressively into new wholesale opportunities, we have decided to proceed more cautiously with opening new stores. This will begin later in Q3 and continue into Q4, although these stores won’t start performing at a high level until next year. Our focus is on driving long-term growth rather than just what we can achieve this holiday season or in Q4. We want you to understand that we will execute during key commercial moments, but our overall strategy is oriented toward the long term. We'll be systematically implementing foundational elements that will yield results for many years ahead.

Yes. And on the gross margins, I think I had the question.

Elasticity in gross margin.

Yes. Regarding gross margins, as we look ahead to the next few quarters, we have experienced notable gross margin expansion. We have addressed much of our inventory challenges and improved our inventory position. Additionally, we are seeing a more favorable promotional environment in terms of discounting, which has been beneficial. In Q3, however, we will face some challenges from tariffs, and we won't begin to alleviate their impact until Q4 from a pricing standpoint. We are also comparing against the improvements we've made over the past year, which will create tougher comparisons for gross margin growth. While we believe there is still potential for further improvement, and we've set a longer-term target of achieving 55% or better, we have made significant strides over the last year with our reset actions and cleanup efforts. This will have an effect on our results in the coming quarters. There was also another aspect to that question.

Elasticity.

Yes. We don't really get into the exact amount of pricing. But you can think about it a couple of ways. One is there's always going to be a part of this between working with our vendors, working with our wholesale partners and then pricing. So it's going to be a combination of all three of those things, which is probably not a surprise to any of you. We'll also be targeted and thoughtful by brand, right? So it's not going to be a uniform price increase across the board. Each brand is going to take it differently in terms of product, how they do it, where they do it, and we'll give them the flexibility to do that. And in some areas, as Bracken mentioned, excuse me, you've got places where Vans might not be so much on the pricing side, but we've been much better on the discounting side, so that can have an effect of better pricing year-over-year just based on lower discounting.

All right, thank you very much, very helpful.

Yes, if you wanted one headline on that, I'd say surgical. We're still assuming pretty normal elasticity, but we're very surgical in the pricing.

And it's U.S. only, correct? Or am I incorrect?

Yes, generally speaking. I mean, there's always some kind of pricing happening around the world, but certainly U.S.

We had a question on where are we with the number of doors. So you guys have closed own doors globally and also exited a number of wholesale doors in the U.S., but also added some doors. So are we now in a stable kind of a number of doors environment, both in wholesale and Direct to Consumer? Do you think there's an opportunity to further rein in own doors, especially at Vans, where I think you still have 600 doors or so globally? And then we had a follow-up. Did you quantify the earlier wholesale demand in 2Q?

I'll let Paul take the second question. Regarding the number of doors, I believe we are fairly stable at this point. We plan to increase the number of doors, particularly in Timberland and North Face, while there will still be some turnover with Vans. However, as I have mentioned previously, the largest reductions are mostly behind us. We expect this trend to begin to ease, especially in Q4. Currently, we have approximately 580 doors globally, with around 480 in the U.S., which aligns with our earlier statements, about 90 in EMEA, and a limited number in APAC, although we do have partner stores in that region. So, for the most part, that reflects our footprint even if it isn't officially counted as such.

Yes. And then I think just overall in the stores, so I think we're down about 5%, but it's the majority of that is Vans. We're actually growing in North Face and other areas. And then the second question was the question on the wholesale in Q2, how much that impacted the increased demand? Was that the question?

Yes, if you can quantify that impact.

Yes. It was approximately 50 to 60 basis points on the revenue side. When considering the revenue figure and the outperformance compared to our guidance, there are really two main factors. About half of it was due to some orders that were scheduled to ship in September instead of October. The other factor was stronger direct-to-consumer performance, particularly around back-to-school, which performed better than expected. Those are the two significant factors.

So maybe two questions. Bracken, could you speak to health of the North Face brand and market share opportunity you see across the outdoor channel? And then just to circle back on Vans, underlying revenue is down high singles, excluding the reset actions. I mean, what do you see still constraining the brand despite the product improvements that you've cited?

Yes. The North Face brand is very strong. The key now is to continue executing the initiatives we've discussed, which involve not only focusing on the winter months but ensuring year-round engagement, especially with women, and fully leveraging our successful categories, like footwear, where we experienced significant double-digit growth globally this quarter. We have great opportunities and must execute effectively across the board. I'm excited about the prospects for TNF. Regarding Vans, while I know you want to discuss aspects beyond just product, I have to emphasize that this is fundamentally a product business. We need outstanding products. I'm particularly excited about the Super Lowpro, and I believe the skate loafers will perform well. It's interesting how you can think you're being innovative, only to find out you're tapping into a broader trend, especially in the luxury segment, as we're seeing loafers gaining popularity there. When we were developing this, I wondered if it would resonate, but Sun assured me it would, and it performed well in limited quantities initially. We’ll see how it does during the holiday season and moving into next year. It's all about product quality and ensuring our marketing is impactful and relevant. I believe our marketing is getting stronger and will continue to improve. We're becoming more socially engaged. I think SZA will support both our product and marketing efforts. Ultimately, providing the right products for men, women, and kids is critical for Vans, and we intend to keep pushing forward.

A question for Paul, just back on tariffs. I think you had talked about mitigating about 50% of the gross impact this year. Now that you've been going through some of the initial pricing actions. Just any updated thoughts on that? And then I think you had spoken to offsetting tariffs in their entirety at some point in fiscal '27. Just if you could put a finer point on that in terms of timing.

Yes. We haven't really raised prices yet. There's very little in Q2 and very little in Q3. The pricing impact will mainly occur in Q4. Therefore, I don't have much to comment on regarding the pricing effect at this time. We'll observe it as it develops. However, the most significant impact from tariffs will occur in Q3, as we do not have the revenue offset yet. The offset will come in Q4. We believe we will be able to counteract the tariffs within fiscal '27, but we haven't provided more specifics as we approach the end of '26. As we analyze the elasticity aspects and review our pricing towards the year's end, we expect to have more clarity. Nothing has changed from our previous comments regarding tariffs, our ability to mitigate them, and the timing of impacts.

All right. We will move on to John Kernan from TD Cowen.

All right. I want to ask about the ongoing debt deleveraging on the balance sheet. And you've now sold a couple of brands and you've divested some noncore assets. Is it now just a function of fundamental improvement and growing the EBITDA? Or is there kind of anything else you can do from a kind of non-EBITDA perspective to bring the debt leverage down?

Let me quickly address this before Paul provides more details. We are optimistic about our ability to reduce our leverage to 2.5 times. Paul and I have both expressed a desire to go below that level because we are generally not fond of debt. However, 2.5 times seems like a reasonable target, and we are on track to reach it by 2028, provided we execute our plan. Do you have anything to add?

Yes. No, I think a couple of things to be clear. One, we firmly believe we will be able to get to our targets with or without the sale of Dickies. So the sale of Dickies will help speed that up, will help us get there faster. But we 100% believe we would have gotten there on the fundamentals either way. So that's number one. Number two is, yes, I mean, a lot of it moving forward will be continued improvements in EBIT and EBITDA. We will also continue to work on improvements in working capital, better inventory management, things that we can bring down. I think we can bring our inventory days down further. I think we can probably improve our overall working capital management as well. So it will be mostly on the pure fundamentals of growing the business. But also, I think there's other things we can do that will help free up cash moving forward.

Okay. I guess that was our last question after a couple of extra innings there. Well, look, to close, it was a really good quarter, and we delivered on our commitments again as we try to always do. We made further progress on the entire turnaround plan. And looking ahead, we're going to continue to focus on generating value across our brands and returning the company to sustainable and profitable growth. So we're excited about the future. Looking forward to talking to many of you in meetings throughout the rest of this month and next month here and in Europe and then again next quarter. Thanks again.

Thank you.