VF (NYSE:VFC) held its fourth-quarter earnings conference call on Wednesday. Below is the complete transcript from the call.
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Access the full call at https://events.q4inc.com/attendee/546809840
Summary
VF Corp reported normalized growth trends with Q1 seeing specific impacts due to timing shifts, but overall positive demand for brands like North Face.
Mitigating strategies are in place to handle potential product cost increases due to oil prices, with minimal impact expected for fiscal 27.
The company is aiming for a 10% operating margin run rate by the end of fiscal 28, with ongoing efforts to improve efficiency and reduce leverage.
Vans is showing signs of recovery in the Americas, with strategic product launches and marketing shifts contributing to growth.
Timberland wholesale declined due to reduced distressed sales, but overall inventory health is improving, with continued marketing investments planned.
Full Transcript
Laurent
Super helpful. Thank you very much. Very clear. Best of luck.
OPERATOR
Thanks, Laurent. Your next question comes from the line of Brooke Roach with Goldman Sachs. Your line is open. Please go ahead.
Brooke Roach (Equity Analyst)
Good morning and thank you for taking our question. In the prepared remarks you talked a little bit about some of the drivers of product costs as a result of some of these higher oil prices that will be flowing through the P&L. You mentioned several mitigating factors including pricing. Can you unpack for us a little bit more what the annualized headwind will be when it gets fully into your inventory cost and how much pricing actions you are contemplating both this year and into next year as a result of these inflationary factors, whether it is oil costs or tariffs or other factors in the environment. Thank you. Great. And then just a follow up. Can you unpack the trends that you are seeing in EMEA? What assumptions are you embedding for Western Europe beyond the 100basis points related to the Middle East? Are you seeing any change in demand in that region for any of your brands? Great. Thanks so much. Best of luck.
OPERATOR
Your next question comes from the line of Ike Burechow with Wells Fargo. Your line is open. Please go ahead.
Ike Burechow (Equity Analyst)
Hey guys, can you, can you hear me? Perfectly. Excellent.
Bracken
Hey, Bracken.
Paul
Clarification and a question I think for Paul. The, the refund benefit you saw in the first quarter, should we basically be modeling that as a negative impact? 50 million in the fourth quarter of next year. I’m assuming we should. I just want to kind of make sure that that’s the case. It’s not really a bad guy. So if you really, if you think about it, so the, the, so the full, if you think about the full year at the full year basically assumes that we didn’t have to pay the tariffs. We, we took a receivable to account for that which all hit in Q4. So we tried to normalize for Q4. So just as a level set like this, the, the operating margin, the 7% operating margin in fiscal 26 is a good clean margin. I wouldn’t think about the benefit. Is it a benefit in Q4? I think more a function of if the tariffs are put back in place at the end of July and if we’re back in an environment where, where we’re having to overcome the tariffs, it will impact the back half of the year. That was the 70 to 80 million or so that I mentioned earlier in terms of the, the incremental impact we would see in the back half of the year. So it’s not really, oh, we had a benefit. We didn’t because it’s not really a ‘benefit’. It’s just we had been assuming we’re going to have to pay something. We didn’t. So there’s no impact really at all. We have a clean 7% margin in 26. But next year we will potentially have to face increasing tariffs. If the, if the July announcement goes through and then we have higher top tariffs, it will make Q4 tougher. Compare. But it’s not really like for, like, it’s more that we will potentially have, you know, tariffs back in the mix for Q4 of next year. I’m sorry.
Ike Burechow (Equity Analyst)
Got it. Okay, that’s helpful. And then as a follow up on. On the fiscal 28 margins, I know what the analysts say. I believe you’re. I believe you guys said you were committed to achieving a margin of at least 10% in fiscal 28. I think now you’re saying it’s a run rate. I know there’s noise, tariffs, and other factors, so that’s understandable. But can you just elaborate what ‘run rate’ means? You know, that could mean a lot of things. Is there any more clarity you could kind of give us into what your expectation is for the annual margin in 28?
Bracken
Yeah, let me be crystal clear. So when we gave that, we said in fiscal 28, we would deliver 10%, what we meant was a run rate. And we then got a lot of feedback. Very understandable. Like, so you mean for the full year? And we said, no, we didn’t mean for the full year. We never intended that to be the full year. The idea was that during the year of fiscal 28, we’d reached that. That point where we’d be a 10% margin business. So we described that a couple of quarters ago. We tried to reiterate that to everybody, that it’s. So we use the term exit rate so you can count on as an exit rate fiscal year. As we exit fiscal year 28, we’ve got a 10% operating margin run rate. So the other way we could have said it, maybe we should have said it is full fiscal 29, you can count on 10% or better. So during fiscal 28, we’ll hit 10% sometime during that year, and we have now committed to a 10% exit rate. Is that clear enough?
Ike Burechow (Equity Analyst)
Yeah. I appreciate it. Thanks, Bragan.
Bracken
Great. Thank you. Thank you.
OPERATOR
Thanks for asking that. We were hoping we’d get that. If you hadn’t, Abhishek was gonna ask Paul.
Abhishek
My pleasure.
OPERATOR
Okay. And a kind reminder. If you would like to ask a question, please raise your hand using the raise hand function at the bottom of your screen. And if you have dialed into today’s call. Please press Star 9 to raise your hand. Your next question comes from the line of JSOL with ubs. Your line is open. Please go ahead. A kind reminder to mute yourself, unmute yourself locally.
Jay
Got it. Can everybody hear me now?
OPERATOR
We can hear you perfectly.
Jay
Super braggin. Thank you so much. I just want to ask about the free cash flow guidance for the year. You know, maybe can you elaborate on what ‘flat to up’ means and then what are you comparing it to? Because it looks like in the slide deck you’re comparing it to 405 million for this year. How do we think about the pension expense and the pension termination cash benefits from this year? Are you excluding those from that number? If you could maybe just define the fiscal 26 number, what’s in there and then tell us how you think about free cash flow in 27 in a little bit more detail, that’d be great. Thank you.
Bob
Yeah, sure. So yes, so the pension benefit was when we terminate the pension there was a cash benefit of about $100 million. So our free cash flow including that is 505 on a normalized basis we obviously don’t expect that that was a one time thing. We won’t get that every year. It’s real cash in the door. But so on a normalized basis it’s, you know, 405 million is our free cash flow now that’s up 90 million versus last year. And so again we had said all along that that we would have free cash flow in fiscal 26 that would be flat to up versus you know, last year and we obviously delivered 90 million more than …
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