The North Face was a bright spot for VF Corporation during its first quarter of fiscal 2024.
Despite an 8% revenue drop across VF, the company saw 12% revenue growth at The North Face.
North Face was the top performing large brand at the company. Vans revenue fell 22%, Timberland declined 6%, and Dickies dropped 19%.
VF also updated analysts on its ongoing plan to sell its packs business during a conference call today.
North Face a Star
The North Face delivered its 10th consecutive quarter of double-digit revenue growth for the Denver-based corporation, up 12% in constant currency to $538.2 million for the three months ended July 1.
The brand grew across all regions globally — 9% in the Americas region, 2% in Europe, and 57% in Asia in constant currency.
“The North Face continues to be a key driver of performance and was up more than 50% in Greater China, benefiting from outdoor market tailwinds and recovering domestic travel,” said Matt Puckett, CFO of VF, in a conference call with investors.
Travel and China Opportunities for North Face
The company sees “significant growth opportunities” in China, Puckett added, saying that The North Face is the No. 1 outdoor brand in the country.
“The North Face is maintaining strong momentum and we expect this to continue with investments to further fuel this growth,” Puckett said.
Puckett pointed out that the 12% increase for The North Face was against a prior-year quarter that was up 37%.
The Base Camp Voyager and the Base Camp Duffel were among several products that drove revenue, aided by summer travel.
North Face’s lifestyle products, its urban exploration line, and its rain gear also sold well, according to Puckett.
Growth was led by direct-to-consumer sales, driven by digital, he added.
Timberland Down 6%
Timberland revenue was down 6% in constant currency to $253.8 million for the quarter. Sales dropped 21% in the Americas region, rose 4% in Europe, and increased 26% in Asia, in constant currency.
VF’s other outdoor brands, which include Altra, Smartwool, and Icebreaker, grew 7% to $420.2 million in the quarter.
Puckett mentioned “some timing issues” with outdoor brands. The company was late delivering fall shipments, he said. He expects this coming autumn to be more normal.
“If you look at the outdoor segment, generally I think you’re going to see better results across the board. That’s certainly the case in the wholesale business,” Puckett said.
Packs Business
The company was asked about its ongoing plans to sell its packs business, including the Kipling, Eastpak, and JanSport brands, which it announced earlier this year.
The packs business continues to perform well, according to Puckett.
“If anything, it’s a little better in Q1 than we anticipated,” he said. “It’s set up for a really good back-to-school. These brands continue to have momentum and benefit from consumer trends.”
Puckett added that the process to sell the business is continuing and takes time.
“There’s a lot of interest,” he added. “We’re progressing in discussions with a number of parties, and we’ll be disciplined in the deal-making. Especially in light of where the business is. The results are good. We’re generating good growth, strengthening EBITDA. We’re just not going to accept a valuation we’re not comfortable with. Until we find the right buyer for these brands, at a valuation we’re happy with, we’ll continue to be very discerning.”
Overall Business, Challenges at Vans
VF Corporation reported company-wide revenue dropped 8% to $2.1 billion for the first quarter ended July 1.
The company posted a net loss of $57.4 million for the quarter.
Gross margin was 52.8% of sales in the first quarter, down 110 basis points versus the prior-year quarter.
Revenue is expected to be “modestly down to flat for the year, reflecting ongoing weakness in our wholesale business and a longer than anticipated turnaround for Vans,” the company said in a release.
Bracken Darrell, the new president and CEO of VF who started 10 days prior to the call, said as he has reviewed the company, the brands are as strong as he expected, and the team is loaded with talent. “Our business is simply not performing at a level equal to those,” he added.
Company-wide wholesale was down 12% for the quarter, including an 18% decline in the Americas region. VF expects the wholesale business across the company to drop by mid- to high-single digits for the year. Most of the pressure is coming in the Americas and to a lesser extent in Europe, according to Puckett.
However, VF is bullish on its DTC business, which declined 2% in constant dollars during the quarter. If Vans was excluded, DTC would have been up 7%.
Inventory increased by $446 million during the quarter, up 19% relative to last year, primarily driven by core and excess replenishment inventory.
Looking Ahead
The company reiterated its full-year earnings guidance range of $2.05 to $2.25. Free cash flow is expected to be in line with previous guidance of approximately $900 million.
Puckett said VF is revising its full-year revenue expectations to be modestly down and is taking a more conservative posture on the balance of the year.
The company expects inventory levels to be near to normal levels by the end of the calendar year and down at least 10% year-over-year at the end of the fiscal year, he added.
As for the macroeconomic climate, Puckett said VF is focused on its own mission and what it can control.
“We recognize that many consumers are feeling impact to their disposable income and are continuing to deal with inflation, facing higher interest rates, and, in the U.S., the upcoming end to the student loan pause,” Puckett said.
