VF Corporation cited The North Face and its international business as bright spots during its second quarter earnings call Monday afternoon.
However, declines at Vans and in the America region outweighed the positives, and VF posted an overall revenue drop. It is also withdrawing its guidance and earnings outlook for the year as well as working to right-size the business.
The North Face Q2 Results
The North Face had another “outstanding quarter,” said Matt Puckett VF CFO in an earnings call with investment analysts. He pointed out that the brand was up nearly 50% in China.
For the three months ended Sept. 30, The North Face posted revenue of $1.12 billion, up 17% in constant currency compared to the same quarter last year.
Wholesale was up 19% for the quarter, and DTC increased by 12% for the same period for the brand.
Puckett said The North Face saw strong performance in bags and packs during the back-to-school season.
However, a warm September led to a late start for the fall season, particularly for insulated outerwear.
Despite the strength in the brand, VF expects global The North Face revenue to decline in the third quarter largely on wholesale softness.
“It’s a wholesale issue in the (third) quarter,” Puckett said. “It’s tiny, but it’s also the order book itself. We expect DTC to grow in the quarter.”
VF FYQ2 Results
Overall, VF revenue was $3 billion, down 4% in constant currency compared to the prior-year period.
Gross margin was 51.3%, down 10 basis points.
Net loss was $450 million for the quarter compared to a $118 million loss in the same period last year.
Companywide wholesale revenue was down 3% in constant currency, primarily driven by the Americas region, which was down 11%.
Direct-to-consumer sales were down 5% in constant currency. Excluding Vans, VF’s DTC sales rose 9% in constant currency.
The company cited the slow turnaround at Vans as a major factor in its poorer-than-desired financial performance.
Vans revenue was $748 million, down 23% in constant currency compared to the prior-year quarter.
“Despite pockets of continued strong performance throughout the first half and solid profit margins in the second quarter (at VF), it’s not enough and we are not making sufficient progress at Vans or in the U.S.,” Puckett said.
‘A New Future’
New VF Corp. CEO Bracken Darrell said in his first 100 days on the job that he’s heard from employees, customers, wholesalers, and investment analysts that there’s a universal desire for VF to be successful again.
“We have a strong foundation, world class brands, great people, and we’re taking aggressive action,” Darrell said on the call. “This will lead the way to a new future for VF in which the company will be leaner, faster, and stronger.”
Darrell cited his experience leading turnarounds at other companies, including Logitech and Old Spice.
“I’ve been here before and I feel quite at home,” Darrell said. “It’s clear that we got here through our own doing. It’s also clear that getting out of it is in our control.”
Under the company’s branded Reinvent initiative, Darrell listed VF’s strategic priorities in righting the ship: fixing their business in the United States market, delivering a turnaround for the Vans brand, lowering VF’s cost base, and strengthening its balance sheet.
Fixing the U.S.
For example, The North Face’s revenue by region showed growth across all territories, but was only up 3% in the Americas, while it gained 38% in the Europe, Middle East, and Africa region, and increased 37% in the Asia Pacific region.
To improve VF’s U.S. business, Darrell said VF is establishing a global commercial organization inclusive of the Americas region with a new leader.
“From an execution standpoint, having an engine with fast transference of best practices and ensuring as things work, they get transferred throughout the company and throughout the different parts of the world, in my view, is absolutely critical,” Darrell said. “We don’t have that in North America and our results show it.”
However, according to Darrell, the company does have that model in the EMEA and APAC regions, and it’s “operating well.” The next step is to incorporate this in the Americas region.
With this change, Martino Scabbia Guerrini has been promoted to the newly created role of chief commercial officer, with responsibility for go-to-market execution globally.
Other Actions Under Reinvent Initiative, Including “Right-Sizing”
Darrell called out the turnaround of the Vans brand as a key part of the Reinvent initiative, which is intended to enable brand presidents to direct greater focus and attention to brand-building, innovation, and growth. Vans’ current brand president, Kevin Bailey, is stepping down, and an external search is underway for his replacement.
For the third step, VF is implementing a large-scale cost reduction program, which it expects to deliver $300 million in fixed cost savings, by removing spend in non-strategic areas of the business and simplifying and right-sizing the company’s structure.
Finally, in addition to improving operating performance, VF is working to deleverage its balance sheet. That includes cutting its dividend by 70% for the quarter.
Bart Schaneman can be reached at email@example.com.