Q4 2021 VF Corp Earnings Call
With this challenge having successfully navigated the unprecedented disruption over the past year.
Now moving into our fourth quarter highlights.
As you may have seen in this morning's release, our Q4 results benefited from a 50 <unk> week in fiscal 2021.
The impact of this was contemplated in our 2021 outlook share to January.
This benefit was magnified relative to Q4 due to the low base in the prior year and supply chain disruptions, resulting from COVID-19.
Importantly, this dynamic dynamic is reflected in the fiscal 2022 planned growth rates, we will cover shortly.
Do you have delivered 19% growth in Q4 were 12% organic growth despite headwinds from supply chain disruptions and more extended lockdowns throughout Europe.
The strength of our business was broad based with 16% growth from the big 4 brands and acceleration for many of our emerging brands highlighted by 53% growth from Altra.
In its first quarter with VF, the Supreme brand contributed over $140 million of revenue exceeding our expectations.
As expected Vanden inflected positively delivering 10% global growth as strength in the Americas, and APAC regions more than offset larger than expected headwinds from store closures in Europe.
Globally vans as being balanced momentum in performance across heritage and progression footwear.
During Q4 skate high authentic and old school heritage styles, each grew double digits, while the pro skate and MTBE progression lines each grew more than 30%.
Apparel also performed well, including mid teens growth in womens.
<unk> digital growth accelerated to 52%, including a growing contribution from omni channel sales, which represented over 10% of digital revenue in the Americas.
Bank stores also returned to growth globally after sequential quarterly improvement throughout fiscal 2021.
Vance D to C. Consumers returned strongly during March both in stores and online and across both existing and new consumers.
The vans family loyalty program added $1.2 million members in the U S. In the last 4 months and now has nearly $15 million in role globally.
With the reopening advance store fleet, new membership growth has accelerated in March and April.
The north face delivered 23% growth led by 56% growth in digital TNF achieved double digit growth across all regions and channels as outdoor category tailwind remain robust globally.
From a product standpoint, the brand experienced relative strength from several on mountain categories.
Including outerwear led by our future light offering and footwear led by our new vector of line.
We see continued validation of the brand's innovation engine engine recently highlighted in outside magazines 2021 Summer Buyer's Guide, which features 6 products from the north face.
Including gear of the year awards for 2 vector products or the best trail running and heightening shoes of 2021.
Momentum at the North face also extends to the brands off mountain product portfolio with strength from logo wear and iconic franchises such as the NFC, which increased more than 75%.
The brand also wrapped up the Gucci co lab with the largest earned media campaign and the north face its history with more than 17 billion impressions, yielding worldwide, 100% sell through of all collaboration outerwear.
And lastly, due partially to an exceptionally strong first responder program throughout fiscal 2021, the north face with digital business increased 63%, including 49% growth in new paid customers by adding $1.6 million in new loyalty members and the Americas.
Timberland increased 19% with continued momentum behind outdoor footwear apparel, timberland pro and an accelerating classics business.
Digital increased 96% with additional strength from key digital retail partners.
The brand successfully rolled out several new product stories, including Green stride, which has garnered strong early read.
Timberland delivered 54% global digital growth in fiscal 2021 and is entering this year with broad based momentum across the product portfolio.
Finally, dickies increased 19% with continued strength across regions channels and categories.
The brand continued its strong performance in APAC highlighted by more than 120% growth in greater China.
Work inspired lifestyle product increased at a double digit rate across all regions and represented 40% of total revenue.
Despite headwinds from the pandemic the brand delivered 7% growth in fiscal 2021 through strong execution against our strategic pillars of digital China and work inspired product categories.
Fourth quarter adjusted EPS was 2007.
Including a <unk> <unk> contribution from Supreme representing 89% organic growth and a strong start to our earnings recovery.
Our liquidity remains strong as we ended the year with approximately $145 billion in cash and short term investments.
And approximately $2.2 billion remaining undrawn on our revolver.
As Steve referenced earlier, we've entered into a definitive agreement to sell our occupational work business to Redwood capital investments, which is expected to close in late Q1.
This will provide an additional source of liquidity and further reduce our net leverage position.
Moving now to our outlook for fiscal 2022.
We expect total VF revenue to approximate $11.8 billion, representing about 28% growth from fiscal 'twenty, 1 and a low double digit increase relative to our prior peak revenue in fiscal 2020.
This includes approximately $600 million of Supreme revenue.
Excluding the Supreme business, our fiscal 2022 outlook implies growth of about 23% representing high single digit growth relative to fiscal 2020.
By brand, we expect vans to generate between 26% and 28% growth representing a 7% to 9% increase relative to prior peak revenue.
The north face is expected to increase between 25, and 27% representing 14% to 16% growth relative to fiscal 2020, and surpassing 3 billion and global brand revenue.
We expect timberland to increase between 16, and 18%, which implies revenue in line with prior peak levels.
Lastly, we expect continued strength from dickies with growth accelerating to between 10, and 12%, which implies revenue up about 20% from fiscal 2020.
By region, excluding Supreme We expect Europe to increase about 30% representing about 15% growth relative to prior peak revenue.
We expect continued momentum in APAC with close to 20% organic growth.
Led by ongoing strength in China, where we expect growth to exceed 20%.
In the Americas, we expect organic revenue growth of greater than 20%.
By channel.
Again, excluding Supreme we expect our DTC business to increase between 28% to 30%.
Including about 15% growth in digital.
We expect approximately half of total VF revenue to come from D to C. This year and including pure play digital wholesale we expect our total digital penetration in fiscal 2022 to exceed 30%.
Finally, our wholesale business is expected to grow at a high teen rate.
Essentially recovering revenue lost over the past year and returning to prior peak levels.
Moving down the P&L, we expect gross margin in excess of 56% representing organic margins above prior peak levels.
We expect an operating margin of about 12, 8%, which implies high single digit organic growth in our SG&A spend relative to fiscal 2020 levels.
Now, let me take a moment and unpack our expected SG&A growth relative to those prior peak levels.
A large piece of the growth relate to continued investment against our growth focused strategic priorities.
Relative to fiscal 'twenty, our fiscal 'twenty, 2 plan assumes over $150 million of incremental investments in demand creation and our business model transformation to be more consumer minded retail centric and hyper digital which supports the strong growth commitments cover today.
Other large drivers within SG&A are episodic to this year.
A large piece of the growth is simply from foreign currency.
Foreign currency translation represents about 20% of the expected dollar growth in SG&A.
Another episodic piece of our SG&A growth relates to elevated distribution and freight.
We are confident in our ability to mitigate these cost pressures over time. In addition to the strong pricing power our brands enjoy globally.
However, higher costs will be a near term headwind to profitability.
Moving forward, we see a path to SG&A leverage as we exit fiscal 2022.
And given the composition of our portfolio today, we see at minimum a return to our long term earnings algorithm from our 2024 plan with strong gross margin expansion and SG&A leverage supporting investment Optionality.
To wrap up our fiscal 2022, P&L outlook, we expect our tax rate to approximate 15%, which brings us to earnings per share of about $3.5.
Including an expected 25 per share contribution from the Supreme brands.
Finally, we expect to generate over 1 billion in operating cash flow.
Capital expenditures are planned to approximate $350 million. This includes the impact of growth investments as well as deferred capital spending for fiscal 2021 as a result of Covid.
There are no changes to our capital allocation priorities moving forward, our strong balance sheet will continue to be a focus and we expect to end fiscal 2022 with net leverage between 2.5 times and 3 times.
We remain committed to growing our dividend.
And as always we will remain opportunistic with M&A and other capital allocation alternatives, which we will explore as appropriate.
So in summary, we could we could not be more pleased with how VF has navigated fiscal 2021.
We fully executed on our plans in a challenging environment driving digital growth managing free cash flow and investing in our organic business, while evolving our portfolio to best position us for long term value creation.
As a result of the hard work throughout fiscal 'twenty..1 we're exiting this year with broad based momentum across the portfolio and I'm very confident in <unk> ability to drive accelerated growth.
Into fiscal 'twenty, 2 and beyond.
We will now turn the call over to the operator and take your questions.
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To allow for as many questions as possible. This morning, we ask that you. Please keep to 1 question and 1 follow up.
Our first question comes from the line of Erinn Murphy with Piper Sandler. Please proceed with your question.
Great. Thanks, Good morning to you all and Matt Congrats to your appointment as CFO.
I guess my question.
I guess for Steve on that.
You talked about in your prepared remarks on.
Just some of the context of what gets you back to the long term algo could you share a little bit more about this year, specifically I mean, you've guided 7% to 9% versus fiscal 2020, what are some of the levers that you could see that could drive potential upside towards that long term Alto and then my follow up is just on the digital growth as stores have reopened.
Here in April and into May what have you seen in digital thanks, so much.
Good morning, and thank you.
So vans.
Clearly I hope through our my remarks in my script you all.
Noted just the confidence that we have and the momentum that we see building coming out of March into this year.
We talked a lot about last year at the outsized impact.
The bands.
<unk> incurred from the store closures, but also.
The disruption in inventory early and and the impact on marketing.
Ability to really tell those stories as we think about this year as those stores reopen the upside it could be very significant.
We know that these are a very powerful part of their connection to their consumers.
This is where we really have I think a distinct competitive advantage, we have a higher loyalty member engagement.
We see higher purchase frequency.
And a higher order value.
When our stores are up and running and then that is paying off as we see the acceleration coming out of March and April.
But you can't discount at all.
Kind of a return to some normal usage occasions, and the impact that will have on consumers.
Desire to purchase we see that today.
And then this move to 50 week dropped 52 week drop cadence.
That he was significant about that Erin is it could be less about the products that we're putting out in front of you every week because it could be just a story, but it's an engagement moment for us to reach out to our our current consumers attract new consumers and really engage them.
In the brand's family and drive that long term consumer loyalty.
The digital growth has been very very important clearly in this last year and it will continue to be.
For us as we it will moderate for sure.
We're not sure where that will land.
I think the critical part for US is how we seamlessly connect our stores with our R e-commerce environments and really create.
That engagement method that we're able to connect with you communicate with you wherever you are and however, you choose to engage with us.
We have a new store in Milan, the RPG store.
He is a test environment for us on a <unk> standpoint.
Using greater digital connectivity.
In store.
Opportunities to engage not only with content and how we're able to service the consumer with a single view of inventory, we think that going forward will be.
Big advantage as well as we are able to prove it and then roll it out across our fleet and clearly the answer to your bank.
User of that new new concept.
Hey, Eric This is Matt and thank you for the shout out and happy to be here, obviously, I'll add I'll add 1 thing to Steve's comment about vans.
I think.
We grew probably understands but you think about the opportunity to see the business come back a little more quickly, especially in brick and mortar. We continue to remain disciplined as it relates to how we're how we're supporting the business from an inventory standpoint.
But the good news certainly for vans as we've got the ability to get back into inventory pretty quickly. There. So if we see that begin to move a little faster, especially the recovery of the brick and mortar side of the business. It will be able to support that we are as important to us some level of upside there given given the capabilities that we have relative to lead times in some of the quick turn things that we.
And the advantage. So I think we're really confident in the plan we've laid out but also if that looks good.
A little bit more momentum than maybe what we've initially called in.
We'll have the opportunity to get after that as well.
Great. Thank you both.
Thank you. Thank you. Our next question comes from the line of Michael Binetti with Credit Suisse. Please proceed with your question.
Hey, guys.
I just wanted to ask you a quick 1 on the gross margin.
I guess in the in the quarter just looking at your slides here 170 basis points of a headwind from rate with 70 coming from FX. So I think so I think the math there is about 100 basis points from some markdowns in the quarter.
And again that your inventories are clean and we've seen pretty good full price selling in the market. So maybe you could just help us Orient to where if that's right where you were seeing the markdowns in the quarter, which the brands are.
Maybe how to think through that and then just.
As we look ahead to get a little bit of sense of the confidence you have in the gross margin that you guided to for 2002.
Maybe you could just give us a couple of thoughts on on on the components that build to it.
Geography channel, which I think will be headwinds.
And then just a quick 1 on the SG&A you said there is opportunity for leverage as you get back on your algorithm I think September 19 planned embedded no SG&A leverage that did sound like a bit of a change to me. If so maybe just any thoughts on what changed there.
Yes, Michael Good morning in terms of in terms of gross margin I think first of all first of all I'll take you back to where we started this year.
We went into the year and we said we were going to be really aggressive.
To end the year in a clean position and in the year in a position to strengthen and we've done that.
We've executed on our plan really really well in that regard what we saw play out in the fourth quarter from a rate perspective, as well honestly as we've seen play out through the year has been right in line with our expectation you have to remember some of some of the choices that we made even last summer.
To emerge clean.
Are impacting what you saw play out in the fourth quarter and we certainly expected that so no no no 1 brand no 1 channel on driving that but certainly the aggressive approach that we took to ending the year. Please.
This is anticipated element of that the piece that has been more difficult for us to call through the year honestly has been the mix.
We did end the year with our sort of normal kind of.
<unk> 50 basis point impact on a full year basis up from mix, but we've seen some some puts and takes there across the year. Because this has been obviously a really unique year in terms of trying to project and predict the mix of the business in particular, the brick and mortar component of our business as we've seen that.
Being continually disrupted by store closures throughout the year, So I think.
I think what you can what you can take away from that as we executed on our plan just as we intended to and certainly there's been some variability because of the mid size, but in the yen. We ended the year with inventories really clean both with our own inventories, but also with our retail partners back down about 20% organically inventory for us and Thats really the <unk>.
That gives us the most confidence about about gross margins next year. When we look at the mix of the business next year.
Returning back to a more typical and normal type of mix a little more consistency in the business in terms of in terms of how that will play out sort of quarter over quarter through the year. We're confident in the mix benefits that we've seen historically will be there it will be there more consistently as we move through the year and instead of what youre going to see is a real.
Nice snap back in terms of the right side of the right side of the equation as we are as we're really going to be really really clean and really really lean in terms of managing the business really starting right out of the gate here in the first quarter, we do expect actually our gross margin expansion in Q1, and as we said in our prepared.
Comments, we expect gross margins on a full year basis organically to be slightly above prior peak levels.
In terms of in terms of SG&A I think what we wanted to indicate there with the forward look is that yes, we have the ability to see some leverage coming out fiscal 'twenty..2 you may remember at Beaver Creek, we talked a lot about optionality and Thats really still a point.
We will have that leverage will give us the optionality to continue to invest.
To support our biggest growth opportunities whether it be demand creation of continue driving our transformation.
So I think I think that's really the I know this is really the difference is just sort of maybe a nuance in terms of how you think about leverage opportunity in parts of the SG&A model and creating optionality to invest if we see opportunity to do so.
Thanks, a lot.
Thank you. Our next question comes from the line of Adrienne <unk> with Barclays. Please proceed with your question.
Yes. Good morning. Thank you for all the details as always it's nice to see the vans inflection and my congrats Matt as well.
I guess.
1 of my question is in terms of wholesale bookings and what Youre seeing for the fall holiday shipments given where the inventory is how are you how does it how does it how does the bookings look first of all are you building in some cushion in weeks of supply what's the strategy unchanged given that everything we are hearing.
It seems like the supply chain is likely to remain tight through year end and then I'll have a follow up thank you very much.
Hi, Andrew.
Thank you and good morning in terms of in terms of our order books I think.
Yes first of all maybe just yes.
Stepping back a little bit.
The environment I think is becoming more typical and certainly the retailers are buying to support a recovery.
In our view the approach has been prudent we think the assumptions are realistic and logical and we're buying we're buying right in line with that revised to support the order books, certainly there'll be there'll be some opportunity to do a little bit more business. There if the business a little bit stronger we continue to remain disciplined in our and our and our posture.
As we talked to you last year, we talked about looking at order books, and then and then and then cutting that a little bit in terms of our <unk>. That's not what we're doing now we're back to a more typical approach disciplined as you would expect is designed to support the overall business.
There will be some supply chain disruption.
Certainly in the near term there are some headwinds there.
However.
Got it.
Comforted by the fact that we've got the best supply chain in the industry and they are working incredibly hard to mitigate and navigate some of the challenges as they have been honestly for the last 12 months.
It's been really.
An interesting time in the supply chain as we all understand.
But we've got a lot of confidence in what we're doing right now as we sit here today not without some challenges for sure and some headwinds and even some either some cost pressures as I mentioned.
But our ability to support back to school and ultimately the holiday selling season, we're really confident in what we're doing and we feel that we'll be well positioned there from a marketplace perspective.
Okay.
It's great to hear and then my follow up.
On the fiscal 'twenty to the 50% DTC target what will be the retail to digital mixed on that and how much of the op margin comes from that sort of structural shift from wholesale to DTC. Thank you very much.
You said the first part of that question again.
If I if I if I got the numbers correctly I thought fiscal 2002 was going to be penetration of 50% DTC.
Does that and so.
The question was what would be the mix of brick and mortar to the digital aspect of DTC.
Within that yes, okay.
Yes, So we said yes.
I got you so the total D to C business roughly roughly half.
And digital overall will be.
Right around I think our total owned dot com will be in the low twenties.
And when you look at our total digital business, including our wholesale partners. Our total digital business will be a little over 30%.
Yes.
Okay. Thank you very much and best of luck.
Thank you. Our next question comes from the line of Laurent <unk> with Exane BNP Paribas. Please proceed with your question.
Good morning, and thanks for having me on the call.
And congrats Matt.
With your new responsibilities.
I wanted to ask about Supreme.
Supreme up to $600 million can you, maybe parse out how you're expecting that to grow on a year over year basis or a 2 year stack basis, how do we think about seasonality for that $600 million.
A number because I think the brand goes dark twice a year and Steve any key learnings that you want to share as you have the name under your fold for the last few months.
Hey, Taylor on for Matt I'll start with a couple of things here.
The numbers side and thank you by the way.
Yes, I would say first of all we're really happy with.
The early performance.
The frame, we mentioned the strong number in them.
In our fiscal fourth quarter, which was which was a little bit ahead of expectations and.
We're not going to disclose the pro forma growth rate a supreme but what I'll tell you the $600 million is a little bit ahead of our expectations.
And again, we're really confident in what we're seeing in the early days both both both on the top line, but also really through the P&L as well.
And then last real quick this is Steve on what we've learned.
And clearly we're just a little over 100 days into the integration, which is going quite well.
I think what we knew going in and it's just been reaffirmed as we get to know the team better and better is just the rigor that they apply to managing this seems the Supreme brand.
The ability.
And.
Just the approach they take.
2 connecting with their consumers the weekly drop model.
How the mix of the different products.
Just the rigor and deep deep experience behind the management of the brand in a coordinated effort across the globe.
Which is what gives us confidence as they begin to understand the VF.
Model and the <unk> capabilities that international component that they will now be able to to reach into and leverage.
Against their international growth strategies.
We recently opened in the last store and just great great response from consumers despite.
Limited tourist traffic, they're meeting the normal unexpected volumes on a weekly basis.
It's everything that we thought it would be and what we learned through diligence and we could continue to be very confident in the long term value creation opportunity that supreme brings to VF and our shareholders.
That's great to hear and as a follow up timberland I know, it's guided to be comparable to FY 'twenty understand the brand has been undergoing a transition, but very recently brought into the molder to lead the brand can you talk about her vision and strategy for the brand.
Are you seeing a boot trend emerging around the fall season is that a fair assessment and timberland benefit.
Yes, so Susan I think Dave 33 or 34.
And just hit the ground running.
Despite having to do that to resume environment, it's interesting to watch new leaders join.
Teams and wrap their arms around the business, but she is coming up to speed very very quickly.
And I would tell you we don't anticipate any meaningful change to the direction.
The strategic reset in the marketplace actions.
Are largely behind us and I think what Youll see is she will put her mark.
Im on how she looks to engage the team and drive the strategy.
But I think we're really positioned.
With her leadership for the next phase of growth.
The boot trend I think there is a boot trend for sure, but I think more importantly, there is an outdoor trend and we're seeing that represented in our sell through.
But the nice thing <unk> as our growth has been very balanced and we are not planning to see our classics business have outsized growth and I think in fact between fiscal 'twenty and fiscal 'twenty 2 we're planning it to be about flat.
But what we are seeing a nice uptick in our outdoor business in apparel and even more importantly in pro.
<unk> came through this last year.
Posting low single digit growth and is poised to.
To move to greater growth in fiscal 'twenty 2.
But you're also seeing us evolve.
Our more lifestyle offering the bradstreet to cloud.
Solar wave.
On the Green stride platform. These are the these are the things that we've been doing in the background to evolve and balance out our product offer.
And it's coming with a with a greater capability and consumer engagement with our marketing.
As our new marketing leader comes up to speed and is able to partner with the product team on really telling the stories against that monthly flow of product.
Very helpful. Thank you very much.
Thank you. Our next question comes from the line of Camilo Lyon with BTG. Please proceed with your questions.
Thank you.
And Matt I'll add my welcome to the hot seat.
Hi.
Wanted to first ask about.
Guidance, if there's still a lot of moving parts to the year.
It seems like there is more of a replenishment happening at wholesale that's that could be happening faster than on the typical cadence supply chain disruptions continued about European doors are still closed.
Could you give us some shape into how you think the year will controls may be front half versus back half I think that'd be very helpful. And then that will follow up.
Yes sure.
And thank you camilo.
I think you said it well.
It's a really difficult environment too.
To project.
Certainly I think it's we're in a better place than we've been as the business is coming back up and consumers are coming back into stores.
But certainly all the things you mentioned are top of mind for us.
We expect continued sequential improvement really across the business.
In particular in those parts of the business.
Consumers are back shopping.
The physical environment, and that's both our own stores as well as our wholesale partners and then we're going to see that continue through the year I think.
Every quarter, we expect that number to you.
We continue to improve and at the same time, we expect the strength in our digital business to to continue given all the progress that we've seen there and the good work that our teams have done as it relates to just the numbers themselves I think we I'll tell you we expect our first half revenue growth to be about 50%.
And EPS about $1.20.
So obviously, we're lapping COVID-19 lockdown.
And have a bit of an inorganic contribution from Supreme as part of that.
I'll remind you that for our first quarter is always seasonally our smallest quarter of the year. So.
Obviously that continues but we do expect Q1 to be about double what it was last year.
And we do expect to return to profitability in Q1.
That's great color. Thank you for that Matt and then.
Steve I wanted to ask on China.
If you could just give us some perspective on where the vans business is today.
From a size perspective, I, just talked about it being a $1 billion brand, but maybe just from that.
A market penetration perspective, and how you see the growth path unfolding there.
Whether it's on that distribution.
Doors basis or on a peers.
Cities basis anything that could help us understand.
Runway that you Havent trying to view and then any thoughts you could share on Supreme entering China and when that could.
That could happen.
Thank you okay great.
Hello.
So our vans business.
In case I think it's true for all of our businesses. This is where we have the largest runway. That's why we really peg China is 1 of our strategic growth pillars.
Now Mark our vans business, there, it's just around $500 million.
Over $500 million.
What we see as a tremendous opportunity to grow beyond tier 1 cities in the tier 2.3 and 4.
But also clearly the importance of the digital.
Piece of it.
Exciting opportunities in China for US is our new leader Winnie.
Is getting more and more engaged is bringing the consumer engagement skill sets that she has from prior prior roles in CPG.
And the partnership she has with with the Titans just strengthening what was already a very important part of our go to market strategy sheet. She brings the skill and the rigor to make that an even more important.
Part of our strategy and how we use our stores.
To engage and tell those in person stories supported by the by the online component.
But I think there is this is a very important market not just prevent is that for every 1 of our businesses.
Showed very good growth last year and are positioned to continue to have strong double digit growth as we go into fiscal 'twenty 2.
And then on <unk> in China.
On Supreme Yes, so Supreme as we get.
The team has engaged with our with our Asia platform quite a bit of work is going on and just understanding the model and how can we leverage our skills.
In region, but more importantly in China.
You won't see anything this year it will come in probably next year and the year after is where.
That work will be done and I think that the key here Camilo is.
Supreme team ability to travel to the marketplace.
It's been a tremendous amount of time.
Understanding the consumer.
Finding their specific consumer and then the store location, which is how we enter markets.
As such a critical part of.
How they think about new market penetration.
Need to be able to get in market they need to be able to partner with our teams to begin to understand.
Those key consumer markets, and where best to put that first store and that is 1 of the big drivers of why it won't be this year, but it will be the years to come.
That's really great to hear thank you and congrats on the momentum.
Okay, great. Thank you.
Thank you. Our next question comes from the line of Matthew Boss with Jpmorgan. Please proceed with your question.
Great. Thanks, So Steve Ah Kee storyline that you've talked about pretty consistently during the pandemic with market share acceleration at north face. So maybe could you just help unpack drivers of the 14% to 16% forecast for this year and just overall confidence in growth prospects for north.
So as you see them moving forward.
Yes, so the north face is really gaining momentum there is certainly benefiting from the outdoor trend.
But there are also benefiting from the work being done over the last few years too.
Strengthen our product pipeline strengthen our ability to engage consumers with with stronger.
Demand creation.
And I think what you see here is really a strong momentum globally and it's really not just 1 thing on mountain is really setting the tone and the performance product.
Has seen really good sell through and Thats driving that off mountain lifestyle franchise growth that we see.
Building.
Has been growing nicely in Europe, we've seen that now really move its way into Asia really significant growth in China.
As that consumer becomes more engaged with the outdoors and the Winter Olympics becomes a big part of.
Of the China focus and we're right in the middle and being able to benefit from that but we're seeing really strong return to growth here in the U S market.
And.
Really witnessed with the strong holiday sell through we saw here not only in our own channels, but in wholesale.
The disciplined market management, as we clean up distribution strengthened.
Key wholesale partner relationships and balance.
The use of our own stores, our own digital platform to drive that on mountain off Mountain story.
But I would tell you we're set up really well for fiscal 'twenty, 2 and we're expecting mid teen growth in fiscal 'twenty 2 versus prior peak revenue.
But even more importantly, we are seeing.
Mid teen profitability opportunity.
Yeah, Brad this is exactly the way we planned it.
As we came through this year, our international business has remained incredibly strong.
Very impressive work that our teams are doing across the globe and what we saw in the Americas.
Pulled way back on inventory and we talked about.
Creating.
How is the scarcity in some cases and maybe even some mis revenue and we knew that would probably happen in the north faces case, it absolutely did and that positions us really really well just from a math standpoint, as we think about.
Coming back into fall into next year.
Leaving this year really clean and really low in some cases too low in inventories as we build back and continue that strong sell through that we've been enjoying so yes.
Set up nicely.
Great and then just multiyear could you just elaborate a little on drivers of the increased confidence to know at a minimum return to the long term algorithm. So would this be greater revenue growth higher gross margin mix accretion or is this the sustained SG&A leverage and feel free to say all of the above.
Thats applicable.
Yes.
Is that a pretty well maybe but.
I think I think that's probably the thing that we're looking at is the confidence that that we've had but the broad based strength of all the brands.
We're coming into the year feeling feeling good about all the big brands and we're seeing some really nice.
Albeit smaller basis really nice numbers and some of the emerging brands as well. So I think we're confident in that regard.
In terms of again.
Some of the other pieces.
You think about.
I think we all recognize and acknowledge that bringing supreme into the equation and taking occupational work out of the equation is a benefit.
We also noted.
Outsized growth in digital outsized growth in China.
In a vacuum we're going to be a benefit to us.
We're in the midst of the Covid recovery everything is.
Everything is equal in that regard, we will see a continual improvement in our brick and mortar.
Business over time, and probably even extending into fiscal 'twenty..3 so there are puts and takes in there, but when you stack. It all up we feel really good about.
As we begin to emerge.
Fully over the next several quarters and looking beyond 'twenty 2 into 'twenty 3 'twenty 4 we're really confident in the overall algorithm.
And.
We're committed to that at a minimum and I will say we recognize that.
There is a need to update our MRP, our long range plan and we will do that in the context of our full investor day at some point.
Next calendar year.
Great Best of luck.
Thank you. Our next question comes from the line of Bob <unk> with Guggenheim Securities. Please proceed with your question.
Hi, good morning.
2 questions for you I think the first 1 is.
As you go to the weekly drop on vans can you talk a little bit about the marketing plans in terms of how youre going to communicate that and and I guess if.
I think the second question just off of that marketing overall, where do you see the levels of your marketing spend where do they end up this year and what sort of investments do you foresee in 'twenty 2.
Good morning, Bob I'll take the first half and I'll, let Matt pay off the back.
Second half of your question so.
The weekly drops this is something <unk> has been very well prepared for and what you see here is an opportunity for them to take a very deliberate and coordinated effort to to pull those stories together and.
I think it is just a learning we've taken from this last year is the need.
For that.
More frequent touch to the consumer and how we will do that.
Bob.
Oftentimes it will be a weekly new product story and there could be a new style could be a co lab could be a color of an existing franchise, but there'll be very coordinated.
Global launches of these products toys, but there'll also be important moments is to engage.
The consumer things like we've done with book to Bill type engagements where revenue.
Is supporting specialty stores in.
Forcing the local community connections to advance has with their consumers.
I think how you how will really.
Drive that marketing.
We'll certainly be heavily focused towards online.
Through our own direct engagement through social channels through through.
Email marketing the power of the loyalty program that now has about 15 million people.
And really engaging on opportunities that are unique to that particular consumer that they are able to access due to the loyalty membership will be a very important part, but I think the in store piece as well, both our stores and our key wholesale partners that coordinated.
In store.
Element of the demand creation and the experience linked to that online piece is that you really that seamless integration that you hear us talk about and our teams are working diligently on being able to really sequence that appropriately.
Yes in terms of.
And where you are in terms of the numbers certainly in fiscal 'twenty, 1 our marketing levels come down both in absolute terms as well.
As a percent of revenue.
It's been a pretty significant way in the first half of the year as we pulled way back and Theres began to build back in Q3 and in fact in Q4 were back above prior year levels are pretty much in line with historical ratios.
We talked about.
The SG&A increase from 'twenty to 'twenty, 2 and the investments that we're making 150 million accumulatively, a big piece of that is demand creation and we are actually returning to.
To levels that are in line and actually probably modestly slightly higher from a ratio standpoint, and what we ran in fiscal 'twenty.
We remain focused on the highest ROI activities very disciplined in our management of the marketing as we've shifted more towards towards digital the good news. There is you get really quick.
Reeves.
Now in terms of the effectiveness of that marketing and the returns that it's driving and the ability to be to be much more dynamic and your ability to move in and move those dollars around against things that are really driving our returns you can see that certainly much quicker than maybe.
You couldn't previously so.
We're confident this confidence that the marketing we've been able to do and drive returns.
Certainly we are leaning back in to support the strong.
Revenue recovery assumptions, we have in our outlook.
Got it and then just a follow up question is.
With the digestion of Supreme in Gist, and the disposal of the workwear business.
Where do you feel like you are on the ability to potentially do another acquisition or get back on that trail and how would you envision that maybe in terms of the timing in the future. Thanks.
Yes, so well.
We got a lot we're dealing with with superior in terms of the integration there will more or less.
100 day, Mark or even well past the 100 day, Mark So theres work to be done.
But.
I think if you look at the sort of the balance sheet side as you were seeing as we return to sort of more more normal EBITDA level for this year.
Looking at our leverage position.
And the.
We're focused on Unlevered first and foremost we bring that leverage back in line and we've got the ability to do that we think we're going to exit this year.
Taking into considerations.
Pay down opportunities with leverage back.
Net leverage.
2.5 to 3 times and so I think pretty quickly we'll have the ability to do that and certainly M&A remains our number 1 capital allocation priority. We are committed to our dividend certainly, but nothing's changed in that regard from capital allocation and where we'll be in a position as we move through the back half of this year to beat.
Again to be able to to think more.
More meaningfully about that.
Thank you.
Thank you ladies and gentlemen, our final question. This morning comes from the line of Ike <unk> with Wells Fargo. Please proceed with your question.
Hey, good morning, everyone and welcome Matt.
Just 2 quick ones is there any more details on the occupational work sale price.
I'm just kind of curious on that and then just understanding the markdown component of gross margin this year.
On the right side, clearly youre planning to capture back a lot of lost margin from last year, but are you planning to get that rate line back above fiscal 'twenty levels fully I'm trying to understand how much youre expecting about 56%.
They kind of came back this year.
Thanks.
Yes sure sure let me start with the second part of that question.
We expect.
Most of that back.
This property.
There is still.
A little bit of overhang in the way we model the business.
Going forward, but generally speaking, we're pretty much back to normal levels from a from a rate perspective has access to our assumption at the moment.
As it relates to the occupational work, so I'm not going to tell you. The number I'll tell you the proceeds will be pretty significant.
I think we did give some shaping in the presentation.
And we expect to end fiscal 'twenty, 2 with about $2 billion in cash inclusive of these proceeds so.
And other than the dividend, we've not assumed any share repo or debt repayment and our outlook.
Got it thanks a lot.
Okay. Thanks, Greg.
Thank you, ladies and gentlemen that concludes our question and answer session I will turn the floor back to Mr. Randall for any final comments.
Great well, thank you everybody for joining us.
Joy the opportunity to talk you through our how we navigated last year.
And help you understand where we're headed next year I would just tell you that the efforts we put in place to now and next framework that we've talked about throughout the year has really positioned us well in the acceleration, we see coming through March into fiscal 'twenty, 2 and the broad based momentum.
Across our 4 big brands.
The addition of Supreme.
Strength of our international platform, specifically, the strength of our China business and the investments that we've made around really connecting those the stronger consumer.
Loyal relationships with the enhanced digital capabilities is positioning us extremely well to accelerate and return to our pre COVID-19 growth rates and I would just leave you with this as we.
As we.
Work to complete the occupational work divestiture and the integration of Supreme and the investments across our portfolio. We now have an organic portfolio, that's capable of delivering the high single digit revenue and low turn low teens earnings growth on a sustainable basis that we spoke to you about <unk>.
Creek, and we look forward to being able to pay that off quarter by quarter to the next fiscal year. So thank you and we look forward to talking to you all in July.
Thank you. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.
Okay.