Q2 2024 VF Corp Earnings Call

[music].

Greetings and welcome to the second quarter fiscal 'twenty 'twenty four V F Corporation earnings call at.

At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad.

A reminder, this conference is being recorded.

It is now my pleasure to introduce your host Allegra Perry Vice President of Investor Relations. Thank you Allegra you may begin.

Good afternoon, and welcome to VF Corporation second quarter fiscal 'twenty 'twenty four of 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.

C L.

Unless otherwise noted amounts referred to on today's call will be on an adjusted constant dollar basis, which we defined in the press release that was issued this afternoon and wish 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 press release, 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 will be Vf's, President and Chief Executive Officer, Bracken, Darrell and EVP and Chief Financial Officer not Puckett.

Following our prepared remarks, well open the call for questions I'll now hand over to Bracken.

Yeah.

Good afternoon, everyone I'm excited to be here for my first quarterly call I'll start us off and then well cover Q2 and other aspects of the comments I'm about to make.

Having now been here for over 100 days I've had a chance to go far and wide within the company and outside of it ive talked to employees customers wholesalers investors analysts and more.

There's a universal desire for do you have to be successful again.

It's been exciting to hear the power of our brands and appreciate the consistent performance of our international business as well as the north face.

It was also important for me to hear firsthand what are the biggest issues are including in the U S advance.

I'll come too many conclusions about the organization business and opportunities we have.

Most importantly, our gain conviction, but we need to do next and have begun to see how we can evolve the company longer term into a new kind of brand builder and innovator.

Say that last part for another day.

Before I go into our plans I want to mention that I'm struck by the parallels between V. S. My former company when I first started their 11 years ago.

Get to required a turnaround.

Turnarounds have many consistent features and similar themes.

There are always key focus areas in the beginning to the ball over time, the seriousness of the situation gives you a sense of urgency and a desire to move quickly on key steps.

Our biggest business is declining.

The U S isn't working well.

The innovation engine that had historically been strong, but it's drifted downward over the past few years.

<unk> still love the brands business, but the morale has been hurt by the poor performance and costs are too high all of those features with my last turned around.

My first turnaround long ago was the old price brand to PNG.

Similarly sales were falling profit was down costs were too high for the business and the innovation engine in marketing just weren't working well.

By the time I left old spice it more than tripled market share.

Today, it's a market share leader in the category.

Well My last turn Logitech is now worth more than 10 times, what it was when I started 11 years ago.

While no two two turnarounds at the same I've been here before and I feel quite at home.

Not encountered any big surprises.

I won't start with a replay of the past in the diagnosis of how we got here.

I recognize many of you already have opinions on that.

But it's clear we got here through our own doing it's also clear that getting out of it is in our control and we're focused on doing just that.

We have amazing brands that are recognized around the world.

I'm energized and excited about their potential all of which is in our power to unlock our talent is world class.

I continue to be amazed by the depth and breadth of experience people in this company.

And their passion and commitment to the yes.

So people surely left along the way, but so many stayed where he brought in great people along the way too.

I will spend most of my time looking forward towards the future and what we need to do return to consistent growth and value creation.

Long term will turn VF into a company that relentlessly focuses on delighting consumers throughout the world through superior product design and engaging consumer experiences back.

Operator: Readings and welcome to the second quarter, fiscal 2024, VF Corporation Earnings Call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation.

Backed by a well oiled execution machine simple effective structure supporting highly energized employees.

These are the four key areas, we're prioritizing aggressively.

Operator: If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded.

I will go into some of the specific actions, we're taking to address them next.

The four key areas are fixed the U S.

Allegra Perry: It is now my pleasure to introduce your host, Allegra Perry, Vice President of Investor Relations. Thank you, Allegra. You may begin.

Oliver the bands turnaround.

Lower our cost base and.

And strengthen our balance sheet.

Allegra Perry: Good afternoon and welcome to the F Corporation, second quarter, fiscal 2024 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 and documents filed regularly with the SEC.

Now let me highlight some of the immediate actions that will begin to deliver those.

First we are establishing a global commercial organization inclusive of an Americas region.

Throughout my career I've been in a lot of different corporate structures from an execution standpoint.

Having an engine was fast transfer into best practices and ensuring as things work they get transfer throughout the company and throughout the different parts of the world in my view is absolutely critical.

Allegra Perry: Unless otherwise noted, amounts referred to on today's call will be on an adjusted constant dollar basis, which we've defined in the press release that was issued this afternoon, 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 US gap. Reconciliation of gap measures to adjusted amounts can be found in the supplemental financial tables included in the press release, which identify and quantify all excluded items and provide management view of why this information is useful to investors.

We don't have that in North America.

And our results show. It however, we do have anemia, and we recently successfully transferred that model to APAC, which is also operating well.

To ensure we're executing consistently across the globe in terms of supply chain management relationships with wholesale customers customer service and more we are changing our operating model and creating a global commercial organization led by a chief commercial officer, who will lead the day to day execution of the business around the world and bring execution excellence back to north.

Erica.

The leader of this combined platform across North America, EMEA, and APAC will be Martino scabby, Greenie, who many of you know well, who we promoted to this newly created role reporting directly to me.

Allegra Perry: Joining me on the call will be VF's president and chief executive officer, Bracken Darrell and EVP and chief financial officer, Matt Puckett. Following our prepared remarks will open the call for questions.

Some of you already know that Martino has been highly effective in building a platform for EMEA that's delivered sustained growth.

Bracken Darrell: I'll now hand over to Bracken. Good afternoon, everyone. I'm excited to be here for my first quarterly call.

Revenue and operating income for many years.

Bracken Darrell: I'll start us off and then mail cover key to another financial aspects of the comments I'm about to make. Having now been here for over 100 days, I've had a chance to go far and wide within the company and outside of it. I've talked to employees, customers, wholesalers, investors, analysts, and more. There's a universal desire for VF to be successful again. It's been exciting to hear the power of our brands and appreciate the consistent performances of our international business as well as the North Face.

Our platform has delivered superior growth in all our brands.

Bracken Darrell: And it was also important for me to hear firsthand where the biggest issues are, including in the US and VANS. I've come to many conclusions about the organization, business, and opportunities we have. Most importantly, I've gained conviction about what we need to do next and I've begun to see how we could evolve the company longer term into a new kind of brand builder and innovative. Later.

A winning spirit this comparable when you beat our people in EMEA.

Second our second step we're taking is to sharpen brand presidents focused on sustainable long term growth and brand health.

A direct consequence, and intent of the operating model change, which is particularly critical at this stage for all the brands, but especially bands.

The new structure enables brand presence to focus on what matters most.

Getting closer to the customer.

And creating consistent pipeline, a consistent pipeline of amazing products and creating excitement around our brands.

You'd think about it we really do two things for the world, we create products that people choose to wear and we build brands, which operate like clubs the consumers want to be part of.

Those two things are so critical to the success of any brand in our business.

Bracken Darrell: I'll save that last part for another day. Before I go into our plans, I want to mention that I'm struck by the parallels between VF and my former company when I first started there 11 years ago. It, too, required a turnaround. Turnarounds have many consistent features in similar themes. There are always key focus areas in the beginning that have all over time. The seriousness of the situation gives you a sense of urgency, and it's desired to move quickly on key steps.

And that's where our brand presence will focus.

Three.

We will be making a change in brand president advance trim.

Trends today for vans arent getting any better and in fact could even be viewed is getting worse we.

We will not see a turnaround this year. The good news is the brand continues to be loved by so many consumers.

Bracken Darrell: Our biggest business is declining. The U.S, isn't working well. The innovation engine that has historically been strong, but has drifted down to those past few years. Employees still love the brands in business, but the morale has been hurt by the poor performance, and costs are too high. All of those were features of my last turnaround. My first turnaround long ago was the old's price brand, the PNG. Similarly, sales were falling, profit was down, cost were too high for the business, and the innovation engine and marketing just weren't working.

There are many good steps that we've made but we now have to make some changes and move faster.

To that end today, we're announcing the Kevin Daly, we will be stepping down from the position of Golar Grand President bands.

Kelvin will remain on the executive leadership team reporting to me and our leadership role in reinvent.

His long history at VF as brand President and our regional President, helping build the APAC platform will be valuable as we build a more effective and efficient organization in the months ahead.

Bracken Darrell: But the time I left old's price hit more than triple market share. I'd today had some market share leader in the category. My last turnaround of the Logitech is now worth more than 10 times what it was when I started 11 years ago. While no two turnarounds are the same, I've been here before, and I feel quite at home. I've not encountered any big surprises.

I'd like to thank Kevin for stepping back into this role about 18 months ago, He's been a loyal and wise leader for this company for many years.

An external search underway for a new president for France, and in the interim I will personally take a very active role in delivering the turnaround strategy with the brand.

Fourth we will optimize cost structure to improve operating efficiency and profitability and I predict also effectiveness.

I've never seen a turnaround situation that didnt have a need for addressing cost structure, we're committing to $300 million of cost reductions across the business.

Bracken Darrell: I won't start with a replay of the past and a diagnosis of how we got here. I recognize many of you already have opinions on that. But it's clear we got here through our own doing. It's also clear that getting out of it is in our control, and we're focused on doing just that. We have amazing brands that are recognized around the world. I'm energized and excited by their potential, all of which is in our power to unlock.

This program is comprehensive and will touch almost everything but importantly, we will invest back a portion of our savings into brand building and product innovation as we are organized to return to growth at the same time improve profitability.

Of course addressing our cost base is an important factor in making progress on our critical financial priority to deleveraging the balance sheet, which is our next topic.

Bracken Darrell: Our talent is world-class. I continue to be amazed by the depth and breadth of experience people in this company, and their passion and commitment to the EF. Some people surely left along the way, but so many stayed. We brought in great people along the way too.

So less section I'll be talking about today will be to bring down our debt and reduce leverage. This is our top financial priority to strengthen the balance sheet.

Bring down debt levels and deleveraging our important for shareholders.

Bracken Darrell: I always spend most of my time looking forward towards the future, and what we need to do to return to consistent growth and value creation. Long-term, we'll turn VF into a copy that relentlessly focuses on delighted consumers throughout the world, through superior product design and engaging consumer experiences, backed by a well-oiled execution machine, a simple, effective structure, supporting highly energized employees. These are the four key areas we're prioritizing aggressively, and we'll go into some of the specific actions we're taking to address them next.

And that today.

As a consequence, the dividend reduction we've announced is one step towards achieving this objective, but there will be more.

We also will not be doing any acquisitions until we bring the debt level down I.

I want to underscore our full commitment to creating and maximizing value for all our shareholders.

Are there to bring down our debt levels and improve our operations. The board and I are fully aligned that everything is on the table and there are no sacred cows.

Now moving onto our outlook for fiscal year 'twenty four.

Bracken Darrell: The four key areas are, fix the U.S., deliver the vams, turn around, lower our cost base, and strengthen our balance sheet.

The headline here is that we're not guiding revenue and profit for remainder of the for the remainder of the year. We are providing an update on free cash flow and projected liquidity levels at year end, which remained more than apple under a wide range of scenarios.

So why are we removing guidance.

As the new CEO I want to hit our numbers at the end of the day. The first numbers I'm going to give you we will head.

Bracken Darrell: Now let me highlight some of the immediate actions that will begin to deliver those. First, we're establishing a global commercial organization, inclusive of America's region. Throughout my career, I've been in a lot of different corporate structures. From having an engine with fast transference of best practices and ensuring us, things work they get transferred throughout the company and throughout the different parts of the world. In my view, is absolutely critical. Charles. We don't have that in North America.

There are a lot of moving pieces in our business and in the market and we're moving even more as a function of our reinvent program.

I would through guidance in my early days 11 years ago, a large decking quickly reinstated it at the appropriate time.

There's no reason why we can't do the same here.

To conclude this is a turnaround I've been here before so I know what it takes.

We have a strong foundation world class brands and great people and we're taking aggressive action as we started to announce today.

Bracken Darrell: In our result, show it. However, we do have anemia and we recently successfully transferred that model to APAC, which is also operating well. To ensure we're executing consistently across the globe in terms of supply chain management, relationships of wholesale customers, customer service, and more. We are changing our operating model and creating a global commercial organization led by a chief commercial officer who will lead the day-to-day execution of the business around the world.

This will lead the way to a new future for VF in which the company will be leaner faster and stronger.

While it takes a while it will take time for the initiatives, we're implementing to take full effect, we do expect to make progress being quickly and.

And we will build on that in the quarters to come with that I will now hand, it over to Matt to talk to you through the financials Matt.

Thank you Bracken, it's great to ear here with us as together, we face these challenging and critical time in our company's history.

Bracken Darrell: The leader of this combined platform across North America, Amia, and APAC will be Martino, Scavia, Greeny, who many of you know well, and who we have promoted to this newly created role reporting directly to the state. Some of you already know that Martino has been highly effective in building a platform for Amia that has delivered sustained growth in revenue and operating income for many years. A platform that has delivered superior growth in all our brands and a winning spirit is possible when you meet our people in Amia.

Despite these difficult circumstances, I'm energized and positive about the future and the plans that we're laying out today just.

Strengthen our financial position to improve our operating performance and to position VF to achieve its full potential.

Now, let me turn to the results of the quarter.

Q2 remained weak overall as bright spots in the north face and international markets continued to be outweighed by declines in vans and in our Americas business that said, we delivered on our commitment to reduce inventory versus last year and paid down 850 million Euro term debt in September ending the quarter with liquidity of $1 7 billion.

Bracken Darrell: Second, a second step we're taking is to sharpen brand presence focus on sustainable long-term growth in brand health. A direct consequence and intent of the operating model change, which is particularly critical at this stage for all the brands, but especially bands, is that the new structure enables brand presence to focus on what matters most. Getting closer to the customer and creating consistent pipeline, a consistent pipeline of amazing products and creating excitement around our brands.

And net leverage of four five times slightly ahead of our plans mid year.

Revenue for the quarter was down 4% overall in line with our near term expectations, but disappointingly, reflecting continued weakness in the U S business and advance globally, two areas, where we're not making the anticipated progress.

As indicated last quarter Q2 revenue benefited from a change in shipment timing, particularly at the north face as importantly, we have delivered more consistently on time. This year and are lapping late deliveries from last year that fell into Q3.

Bracken Darrell: If you think about it, we really do two things for the world. We create products that people choose to wear, and we build brands which operate like clubs that consumers want to be part of. Those two things are so critical to the success of any brand in our business, and that were our brand presence will focus.

Normalizing for this change in shipment timing, which benefited the quarter by a couple of points overall Q2 momentum had a relatively similar trajectory to Q1.

Bracken Darrell: Three, we'll be making a change in brand presence in advance. Trids today for bands aren't getting any better, and in fact could even be viewed as getting worse. We will not see a turnaround this year. The good news is that the brand continues to be loved by so many consumers. There are many good steps that we've made, but we now have to make some changes and move faster.

By region, the Americas was down 11% in the quarter as results continued to be pressured by wholesale as expected.

<unk> saw an outsized impact from vans underperformance, excluding vans Americas DTC was up 5% in the quarter with all brands, except vans and timberland recording positive performances.

Bracken Darrell: To that end, today we're announcing that Kevin Bailey will be stepping down from the position of global brand president bands. Kevin will remain on the executive leadership team reporting to me in a leadership role in re-invent. His long history at the office brand president and a regional president helping build the APAC platform will be valuable as we build a more effective and efficient organization in the months ahead.

EMEA returned to growth up 6%, achieving its first $1 billion quarter in the company's history.

Wholesale was up 7% also reflecting some of the delivery timing benefits highlighted earlier, while DTC was up 3% led by the north face up low teens.

Lastly revenue in the APAC region was also up 6% led by greater China up 14% brick and mortar stores rose double digits, driven by increasing traffic and average unit retail.

Bracken Darrell: I'd like to thank Kevin for stepping back into this role about 18 months ago. He's been a loyal and wise leader for this company for many years. An external search underway for new president bands, and in the interim, I will personally take a very active role in delivering the turnaround strategy to the brand. Four, we will optimize cost structure to improve operating efficiency and profitability, and I predict also effectiveness. I've never seen a turnaround situation that didn't have a need for addressing cost structure.

The consumer continues to be impacted by the economic environment in China.

Aerospace had another outstanding quarter up nearly 50% in greater China growing across channels.

Now, let me turn to the performance by brand and staying with the North face brand had another strong quarter with revenue up 17% were up high single digits on a normalized basis, excluding the change in shipment timing, which benefited wholesale it up 19%.

Bracken Darrell: We're committing to $300 million of cost reductions across the business. This program is comprehensive and will touch almost everything, but importantly, we will invest back a portion of our savings into brand building and product innovation as we organize the return to growth at the same time improve profitability, of course, addressing our cost-based and important factor in making progress on our critical financial priority to de-leveraging the balance sheet, which is our next topic.

Importantly, and continuing the good results for the last several quarters DTC was also strong up 12% in this quarter.

This compares to a run rate of a little over 20% for the first five months of the fiscal year.

However, our later than typical start to the fall season, particularly in insulated outerwear weighed on September results, which were plus 2%.

Globally and across channels, we saw strong performances in bags impacts supporting a robust back to school season.

Vance had another disappointing quarter with revenue down 23%.

Bracken Darrell: So the last section I'll be talking about today will be to bring down our debt and reduce leverage. This is our top financial priority to strengthen the balance sheet. Bring down debt levels and de-leveraging are important for shareholders. And today, as a consequence, the dividend reduction we've announced is one step toward achieving this objective, but there will be more. We also will not be doing any acquisitions until we bring the debt level down.

So sell through rates continued to put pressure on wholesale across all regions. All traffic remained challenged and weighed on DTC.

As Bracken mentioned earlier the brand remains loved by consumers that we must and will do more to generate demand.

Newness and innovation continued to outperform and silhouettes like the new school lowland ultra range in MTBE, which all saw strong growth during the quarter.

Bracken Darrell: I want to underscore our full commitment to creating and maximizing value for all our shareholders. In order to bring down our debt levels and improve our operations, the board and I are fully aligned that everything is on the table and there are no sacred cows.

Volumes in these styles continue to have limited impact in offsetting declines in classic products.

At Timberland Q2 revenue declined 10% as growth in both EMEA and APAC was more than offset by softness in Americas wholesale.

Bracken Darrell: Now living under our outlook for fiscal year 24, the headline here is that we're not getting revenue and profit for remainder of the year. We are providing an update on free cash flow and projected liquidity levels at your end, which remain more than ample under a wide range of scenarios. So why are we removing guidance? As a new CEO, I want to hit our numbers. At the end of the day, the first numbers I'm going to give you, we will hit.

Results were affected by demand softness for six inch boots, which negatively impacted both the wholesale order book conversion and DTC.

Outdoor women's continued to perform well as the motion six trailing hiking collection became the brands number two collection globally.

And success in women's sandals from spring paved the way for new fall boots.

Bracken Darrell: But there are a lot of moving pieces in our business and in the market and we're moving even more as a function of our reinvent program. I went through guidance in my early days, 11 years ago, a large decade quickly reinstated it at the appropriate time. There's no reason why we can't do the same here.

Dickies continue to feel pressure from the value in consumer in the core work business and all of those sequentially improving versus Q1 revenue declined 9% in Q2 increased caution from key partners has continued to weigh on results.

Last but not least supreme had its strongest start to a season in a couple of years with double digit revenue growth in the quarter. The August opening of Supreme New store in Seoul is off to a terrific start and has delivered impressive results across a number of metrics a strong proof point on the roadmap of our grow wide strategy, which is aimed at expanding access to the brand to more consumers.

Bracken Darrell: To conclude, this is a turnaround. I've been here before, so I know what it takes. We have a strong foundation, world-class brands and break people and we're taking aggressive action as we started to announce today. This will lead the way to a new future for VF in which the company will be leaner, faster and stronger. While it will take time for the initiatives we're implementing take full effect, we do expect to make progress being quickly. And we will build on that in the quarters to come.

Globally.

Now moving down the P&L.

And a 51, 3% was down 20 basis points year over year, although excluding the impact of additional inventory reserves and <unk> would have been up 30 basis points.

Matthew Puckett: With that, I will now hand it over to Matt to talk to you through the financials. Matt. Thank you, Bracken. It's great that you're here with us as together we face this challenging and critical time in our company's history. Despite these difficult circumstances, I'm energized and positive about the future and the plans that we're laying out today to strengthen our financial position to improve our operating performance and to position VF to achieve its full potential.

Tailwind from mix price and lower promotions were more than offset by product cost and FX headwinds.

Positive mix of up 20 basis points in the quarter was driven primarily by international growth.

It was a lower than anticipated benefit as DTC slow due to the challenges advance.

Rate was down 50 basis points more than offsetting these benefits is margin expansion from price and lower promotions, which has improved versus last year, but remains higher than fiscal 'twenty two.

Matthew Puckett: Now, let me turn to the results of the quarter. Q2 remained weak overall. As bright spots in the north face and international markets continue to be outweighed by declines in vans and in our America's business. That said, we delivered on our commitment to reduce inventory versus last year and pay down 850 million Euro term debt in September, ending the quarter with liquidity of 1.7 billion and net leverage of 4.5 times, slightly ahead of our plans mid-year.

It was more than offset by increased product cost and negative transactional currency impacts.

During the quarter, we booked an unplanned $50 million distressed inventory reserves associated with dickies, which flows through the cost line and negatively impacted gross margin by about half a point.

We generated a healthier operating margin of 12% in the quarter down 30 basis points year over year, mainly reflecting a small gross margin decline and slight SG&A deleverage of 10 basis points.

Matthew Puckett: Revenue to the quarter was down 4% overall in line with our near-term expectations, but disappointingly reflecting continued weakness in the U.S, business and in vans globally. Two areas were not making the anticipated progress. As indicated last quarter, Q2 revenue benefited from a change in shipment timing, particularly the north face, as importantly we have delivered more consistently on time this year and are lapping late deliveries from last year that fell into Q3.

SG&A spend in the quarter was down 1% year over year as we continued to maintain tight cost discipline and began to generate modest benefits associated with reinvent.

But saw some deleverage in digital and technology and distribution expenses.

Q2 adjusted earnings per share was <unk> 63 downturn versus fiscal 'twenty, three largely due to elevated interest and tax was higher tax driven by jurisdictional mix and the reversal of tax interest income that had been accrued associated with the timberland tax payment.

Matthew Puckett: David, Normalizing for this change in shipment timing, which benefited the quarter by a couple of points. Overall, Q2 momentum had a relatively similar trajectory to Q1. By region, the Americas was down 11% in the quarter, as results continue to be pressured by wholesale as expected. D to C saw an outsized impact from Vans underperformance, excluding Vans America's DTC was up 5% in the quarter, with all brands except Vans in Timberland recording positive performances.

A quick comment on the reported tax expense in Q2 on September eight the Appeals court ruled in favor of the IRS in the Timberland tax case with regards to the timing of income inclusion from the timberland acquisition in 2011.

We are disappointed with the outcome and still believe in the technical merits of our case.

This decision has no impact to our cash outlook for fiscal 'twenty four as the payment was made last year.

Matthew Puckett: A mere return to growth, up 6%, achieving its first $1 billion quarter in the company's history, wholesale was up 7%, also reflecting some of the delivery timing benefits highlighted earlier, while DTC was up 3%, led by the North Face, up low teens. Lastly, revenue in the APAC region was also up 6%, led by greater China up 14%. Brick and mortar stores rose double digits driven by increasing traffic and average unit retail. While the consumer continues to be impacted by the economic environment in China, the North Face had another outstanding quarter of nearly 50% in greater China growing across channels.

But we recognized a noncash $690 million net increase to our reported tax expense in Q2, which includes anticipated refunds of some tax payments from prior years.

The process of filing amended returns for each tax year across both federal and multiple state jurisdictions will take time, and we're not assuming any benefits to cash over the next 18 months from these refunds.

Turning to the balance sheet and cash flow I am pleased to report that our inventory is down 10% at the end of Q2 versus last year in line with our expectation to inflect at this point in the year.

This result, despite ongoing revenue challenges speaks to the improved performance of our supply chain and the important results. Our teams are accomplishing to improve operational metrics and benefit cash flow or.

Matthew Puckett: Now let me turn to the performance by brand and staying with the North Face. The brand had another strong quarter with revenue up 17%, or up high single digits on a normalized basis, excluding the change in shipment timing, which benefited wholesale at up 19%. Importantly, and continuing the good results of the last several quarters, DTC was also strong, up 12% in this quarter. This compares to a run rate of a little over 20% to the first 5 months of the fiscal year.

Our inventory composition remains healthy overall and is concentrated in corn carryover product.

Our use of cash during the first half was slightly better than planned driven by lower working capital with $19 million used by operations and negative free cash flow of $158 million. As a result liquidity sits at $1 7 billion, which is again better than our plans at this point in the year.

Matthew Puckett: However, a later than typical start to the fall season, particularly an insulated out-of-wear, weighed on September results, which were plus 2%. Globally, and across channels, we saw strong performances in bags and packs, supporting a robust back-to-school season. Fans had another disappointing quarter with revenue down 23%, slow sales through rates continued to put pressure on wholesale across all regions, while traffic remained challenged and weighed on DTC. As Bracken mentioned earlier, the brand remains loved by consumers, that we must and will do more to generate demand.

And it relates to debt, we paid down $850 million Euro term debt in September and ended the quarter with the commercial paper balance of $1 billion.

Midway through the fiscal year and at our seasonal peak levels of working capital total debt is up modestly versus the beginning of the year.

Now, let me talk about reinvent our newly announced transformation program through reinvent, we're addressing fundamental structural challenges that have impacted our performance as well as tackling our cost structure head on as we expect to generate $300 million in fixed cost reductions.

Matthew Puckett: Nenus and innovation continued to outperform in filowets like the New School, Lowland, Ultra-Range, and MTE, which all saw strong growth during the quarter, though the volumes in these styles continued to have limited impact in offsetting declines in classic products. At Timberland, Q2 revenue declined 10%, as growth in both AMIA and APAC was more than offset by softness in America's wholesale. Results were affected by demand softness for six-inch boots, which negatively impacted both the wholesale-order book conversion and DTC.

It will streamline operations in line with the changes to the operating model that bracken discussed to generate efficiencies and create a faster and leaner organization companywide.

Additionally, further drive down costs in non strategic areas and ensure the overall cost structure across the company as balance to the business and pointed towards our biggest opportunities.

This will include reinvesting a portion of the savings directly to our brand building and product innovation first and foremost against our largest brand assets.

Matthew Puckett: Outdoor and women's continued to perform well, as the motion-fixed trail and hiking collection became the brand's number two collection globally, and success in women's sandals from spring paved the way for new fall boots. Dickey's continued to fill pressure from the value and consumer in the core work business, and although sequentially improving versus Q1, revenue declined 9% in Q2. Increased caution from key partners has continued to weigh on results.

We expect to achieve to achieve the vast majority of the 300 million target on a forward run rate basis by the middle of the next fiscal year.

We'd anticipate anticipate about half on a run rate perspective will be in place by the beginning of fiscal 'twenty five.

As a portion will in fact be achieved in fiscal 'twenty four.

We will provide more specifics on our plans and details around timing over the next couple of quarters.

Speaking of fiscal 'twenty four as bracket explained earlier, we are resetting our expectations for this year to more appropriately reflect the uncertainty and continued underperformance that has impacted our results to date and are attracting revenue and profit guidance for the fiscal year, while updating our cash flow guidance.

Matthew Puckett: Last but not least, Supreme had its strongest start to a season in a couple of years, with double-digit revenue growth in the quarter. The August opening of Supreme's new store and sold is off to a terrific start, and it's delivered impressive results across a number of metrics. A strong proof point on the road map of our grow-wide strategy, which is aimed at expanding access to the brand to more consumers globally.

Together myself and <unk> and are committed to coming back and re establishing guidance and we're fully confident in our ability to consistently meet commitments.

Matthew Puckett: Emily. Now moving down the P&L, this margin of 51.3% was down 20 basis points year over year, although excluding the impact of additional inventory reserves and dicks would have been up 30 basis points. Telwins from mixed price and lower promotions were more than all set by product cost and FX headwinds. Positive mix of up 20 basis points in the quarter was driven primarily by international growth, but was a lower than anticipated benefit as DTC slowed due to the challenges advanced.

Our decision to attract revenue and profit guidance today centers, mainly on four key changes to our assumptions.

First the timing of the vans turnaround is taking longer than we thought and specifically we are now no longer expecting any discernible improvement in half two results relative to have one.

Through today's announced actions, we are addressing with urgency the work needed to stabilize the business.

And I plan to share our expectations with the market on the timing of the turnaround when we see a tangible impact from the initiatives underway.

Matthew Puckett: Rate was down 50 basis points, more than all setting these benefits. As margin expansion from price and lower promotions, which has improved versus last year but remains higher than fiscal 22, was more than all set by increased product cost and negative transactional currency impacts. During the quarter we booked an unplanned $15 million to stress inventory reserve associated with dicks, which flows through the cost line and negatively impacted growth margin by about half a point.

Second the North America business, primarily U S. Wholesale is now anticipated to be modestly weaker versus our prior expectations as we look to back half of the year.

And although much less impactful, we now see a choppy macro environment in Europe.

Lastly, we'll be cross currents from reinvent as we remove costs changed the organization structure and reengineer the Americas for growth. This will create noise in the P&L in the short term.

Matthew Puckett: We generated a healthier operating margin of 12% in the quarter, down 30 basis points year over year, mainly reflecting the small growth margin decline and flight SGNA D leverage of 10 basis points. SGNA's spin in the quarter was down 1% year over year as we continued to maintain tight cost discipline and began to generate modest benefits associated with reinvent, but saw some D leverage in digital and technology and distribution expenses. Q2 adjusted earnings per share was 63 cents, down 10 cents versus fiscal 23, largely due to elevated interest in tax.

In addition to the changes just highlighted most notably bands, which will directly impact Q3, it's worth reminding the importance of looking at the two quarters Q2, and Q3 combined to get them more comparable reading of the season.

This is particularly true for the north face, which is comping bigger distortions from last year's late shipment timing and subsequent benefit in Q3 last year and will therefore be negatively impacted in Q3 this year.

And to remind you the third quarter's result, the third quarters wholesale resulted in the brand will also be impacted by the lower overall order book for the season as planned reflecting greater retailer caution theyre focused efforts to reduce inventories and our poor service to customers last year, which was a big win.

Matthew Puckett: With higher tax driven by jurisdictional mix and the reversal of tax interest income that had been accrued associated with the timberland tax payment. A quick comment on the reported tax expense in Q2. On September 8th, the appeals court ruled in favor of the IRS and the timberland tax case with regards to the timing of income inclusion from the timberland acquisition in 2011. We're disappointed with the outcome and still believe in the technical merits of our case.

Which we have been working hard to correct.

While we expect the DTC business to continue to deliver healthy growth in Q3, taking it all together, we anticipate global north face revenue decline in the third quarter.

Stepping back from the near term impacts and optics I've. Just explained we continue to feel very good about the underlying consumer demand for the brand the broad based performance across product categories and geographies and a significant growth opportunity that lies ahead for the brand.

Matthew Puckett: This decision is no impact to our cash debt outlook for fiscal 24 as the payment was made last year, but we recognized a non-cash $690 million net increase to our reported tax expense in Q2, which includes anticipated refunds of some tax payments for prior years. The process of filing amended returns for each tax year across both federal and multiple state jurisdictions will take time, and we're not assuming any benefits to cash over the next 18 months from these refunds.

Now turning to our balance sheet and cash flow expectations. We continue to focus on reducing inventory and now expect to end the year down mid to high single digits compared to previous guidance of at least down 10%, reflecting the more challenged vans and U S wholesale outlook.

Fiscal 'twenty four free cash flow is now expected to be approximately $600 million a decrease from previous guidance of approximately $900 million.

Matthew Puckett: Turning to the balance sheet and cash flow, I'm pleased to report that our inventory is down 10% at the end of Q2 versus last year, in line with our expectation to inflect at this point in the year. This result despite ongoing revenue challenges speaks to the improved performance of our supply chain, and the important results our teams are accomplishing to improve operational metrics and benefit cash flow. Our inventory composition remains healthy overall and is concentrated in core and carry over product.

Flowing through to more muted operating results.

We now anticipate liquidity of about $2 2 billion by the end of the fiscal year.

Deleveraging the balance sheet remains our top financial priority.

In the U S with leveraged slightly higher than last year, given the anticipated impacts to half two revenue and profit.

We continue to be laser focused on addressing both the numerator and the denominator moving forward and are taking the necessary steps to impact both including a $300 million in annualized cost reduction to reinvent and a reduction to the dividend, which on an annualized basis is approximately $325 million in cash savings.

Matthew Puckett: Our use of cash during the first half was slightly better than planned, driven by lower working capital, with $19 million used by operations and negative for cash flow of $158 million. As a result, liquidity sits at $1.7 billion, which is, again, better than our plans at this point in the year. And it relates to debt. We paid down $850 million Euro term debt in September, and ended the quarter with a commercial paper balance of $1 billion. Cine, Midway through the fiscal year and at our seasonal peak levels of working capital, total debt is up modestly versus the beginning of the year.

Lastly, as an update on our <unk> business all three brands continue to perform strongly and dispositions as well as we progressed the sale process. We are confident we will achieve our objective.

In summary, we are taking the necessary actions to reset the business and strengthened the balance sheet. Our transformation plan reinvent directly addresses our biggest performance issues and in the U S and importantly committed to lowering our cost structure by $300 million.

Matthew Puckett: Now let me talk about re-invent, our newly announced transformation program. Through re-invent, we are addressing fundamental structural challenges that have impacted our performance, as well as tackling our call structure head on as we expect to generate $300 million in fixed call reductions. We'll streamline operations in line with the changes to the operating model that Bracken discussed to generate efficiencies and create a faster and leaner organization, company-wide. We'll additionally further drive down calls to non-strategic areas and ensure the overall call structure across the company is balanced to the business and pointed towards our biggest opportunities.

We will make progress toward our number one financial priority of lowering our debt and leverage from these actions along with the reduction in the dividend as we set the stage for a return to growth and increased ROIC.

We look forward to updating you in coming quarters on our ongoing progress.

Finally under Brian's leadership through our great brands. The continued commitment of our outstanding teams and the reinvent program announced today I'm confident we have the foundation to once again deliver strong shareholder returns.

Matthew Puckett: This will include reinvesting a portion of the savings directly toward brand building and product innovation, first and foremost against our largest brand assets. We expect to achieve the vast majority of the $300 million target on a forward run rate basis by the middle of the next fiscal year. We anticipate about half on a run rate perspective will be in place by the beginning of fiscal 25. As a portion will, in fact, be achieved at fiscal 24.

We now open the line and take your questions.

Thank you we will now be conducting a question and answer session.

I'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if you'd like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys in the interest of time, we ask that participants limit themselves to one question and one follow up.

Matthew Puckett: We'll provide more specifics on our plans and details around timing over the next couple of quarters.

One moment, please while we poll for questions.

Matthew Puckett: Speaking of fiscal 24, as Bracken explained earlier, we're resetting our expectations for this year to more appropriately reflect the uncertainty and continue under performance that has impacted our results today and are attracting revenue and profit guidance for the fiscal year while updating our cash flow guidance. Together, myself and Bracken are committed to coming back and reestablishing guidance when we're fully confident in our ability to consistently meet commitments. Our decision to retract revenue and profit guidance today centers mainly on four key changes to our assumptions.

Thank you our first question is from Lauren.

Alaska with BNP Paribas. Please proceed with your question.

Good afternoon.

Hey, good afternoon. Thank you very much for taking the question and also thank you for your.

Initial thoughts then.

Bracket on that on that.

As a chance to get to closer to the north face brand.

You saw in the softer September that changes your view of the direction of the brand is headed as long term potential.

Matthew Puckett: First, the timing of the vans turn around is taking longer than we thought, and specifically, we are now no longer expecting any discernible improvement in half-two results relative to half-one. Through today's announced actions, we are addressing with urgency the work needed to stabilize the business. Bracken and I plan to share our expectations with the market on the timing of the turn around when we see a tangible impact from the initiatives underway.

No not at all.

I'm really excited about the north face brand I think brand business team kind of across the board.

Let's face it we all lived through the the warmest September on record I think in the first half of October looked like that now but on my way into work today I was absolutely freezing, but only because my hands were exposed to those worrying north face jacket. So I'm feeling sales are going to pick up.

Matthew Puckett: Second, the North America business. Primarily, US wholesale is now anticipated to be modestly weaker versus our prior expectations as we look back after the year. And although much less impactful, we now see a chopier macro environment in Europe. Last, there will be cross-currents from reinvent as we remove costs, change the organization structure, and re-engineer the Americas for growth. This will create noise in the P&L in the short term. In addition to the changes just highlighted, most notably vans, which will directly impact Q3, it's worth reminding the importance of looking at the two quarters, Q2 and Q3 combined, to get a more comparable reading of the season.

And I just did a big review of all our products with the KOL, who runs the Colorado, who runs that business and her team.

I couldn't be more excited about it.

And then maybe question for Matt.

Any sense that youre pulling the guys, but youre talking about hitting numbers that you are guiding to that $600 million of free cash flow can you. Maybe just I know you don't guide by quarter, but how do we think about the shape of the free cash flow between third and fourth quarter and then maybe maybe bracken. If you can just talk about the 300 million.

Matthew Puckett: This is particularly true for the North Face, which is comping a bigger distortion from last year's late shipment timing and subsequent benefiting Q3 last year. And will therefore be negatively impacting Q3 this year. And to remind you, the third quarter's wholesale result in the brand will also be impacted by the lower overall order book for the season as planned, reflecting greater retailer caution, their focused efforts to reduce inventories, and our poor service to customers last year, which we have been working hard to correct.

Cost savings where is that coming down.

In terms of is that coming from marketing I think marketing was seven 4% of sales.

Number for this year and beyond.

Bonds any shape on the cost savings and where it's coming from the D very helpful.

Yes, so hello, Rod on the 300 million or the reduction in the cash flow, but really your question is whats cash can look like over the next couple of quarters. I think Q3 will be a pretty strong cash generating quarter, because it's a heavy direct to consumer business with a really short cash conversion cycle right. So that's one.

Matthew Puckett: Act. While we expect the DTC business to continue to deliver healthy growth in Q3, taking it all together, we anticipate global North Face revenue to decline in a third quarter. Stepping back from the near-term impacts and optics I've just explained, we continue to feel very good about the underlying consumer demand for the brand, the broad base performance across product categories and geographies, and a significant growth opportunity that lies ahead for the brand.

Inventories will continue to come down good progress in Q2 that will continue as we move through the back half of the year kind of equally probably between Q3 Q4 from that from an inventory working capital perspective, but I would say our cash generation overall will be a little more distorted towards Q3 versus versus Q4 as it typically is.

And on the on the although the cost reduction first of all where is it coming from.

Matthew Puckett: Now, turning to our balance sheet and cash flow expectations. We continue to focus on reducing inventory and now expect to end the year down mid-high single digits compared to previous guidance of at least 10%. Reflecting the more challenged vans and US wholesale outlook, fiscal 24 free cash flow is now expected to be approximately 600 million, a decrease from previous guidance of approximately 900 million, flowing through the more muted operating results. We now anticipate liquidity of about 2.2 billion by the end of fiscal year.

This is the this is going to be a very comprehensive cost reduction program. So it's really going to touch virtually every area of fixed cost.

But I just want to make sure I said this in the opening remarks, and I want to reiterate but we will be reinvesting back part of that back into brand building marketing and the innovation that Youre question specific question was what's the what ratio what percentage should we expect I am not ready to declare that yet.

But I know one thing for sure. This is a business built on amazing products and amazing brands and so we're going to make sure. We're investing the right level and that will come back later in the year.

Matthew Puckett: The leveraging the balance sheet remains our top financial priority. We plan to end the year with leverage slightly higher than last year, given the anticipated impacts to have to revenue and profit. We continue to be laser focused on addressing both the numerator and the denominator moving forward and are taking the necessary steps to impact both, including a 300 million in annualized calls reduction through reinvent and the reduction to the dividend, which on an annualized basis is approximately 325 million in cash savings.

As we head into next year was real clear principles on how much we're investing in those different areas.

Very helpful. Thank you very much.

Thanks, Laura.

Thank you. Our next question is from Ike <unk> with Wells Fargo. Please proceed with your question.

Hi.

Matthew Puckett: Lastly, as an update on our Pax business, all three brands continue to perform strongly in this position as well as we progress the failed process. We are confident we will achieve our objective.

Hey, guys how are you.

I guess I wanted to.

I wanted to focus on North face just maybe Matt. This is for you just understand a little bit more about the.

The comment about <unk> being down so direct to consumer slowed in September I think you said it was up to but it sounds like.

Matthew Puckett: In summary, we are taking the necessary actions to reset the business and strengthen the balance sheet. Our transformation plan reinvent directly addresses our biggest performance issues, vans in the US, and importantly commits to lowering our call structure by 300 million. We will make progress toward a number one financial priority of lowering our debt in leverage from these actions along with the reduction to the dividend, as we set the stage for return to growth and increase our LIC.

Things are getting cooler not warmer should direct to consumer continue to slow like should we expect direct to consumer to also be negative or is this more of a.

Dynamic that has to do with the wholesale channel I don't mean to get so granular I was kind of curious, though as I was surprised to hear that the brand could be negative.

Yes ill keep this simple.

Matthew Puckett: We look forward to updating you in coming quarters on our ongoing progress.

It's really a wholesale issue in the quarter and it's it's timing, but it's also the order book itself, which is nothing new we've talked about that for a couple of quarters DTC, we expect to grow in the quarter.

Matthew Puckett: Finally, under Bracken's leadership, through our great brands, the continued commitment of our outstanding teams, and the reinvent program announced today, I'm confident we have the foundation to once again deliver strong shareholder returns.

Got it and then a quick follow up you had talked about <unk>.

<unk> U S wholesale makes sense.

Talk a little bit about seeing some of that pressure overseas in Europe could you just elaborate a little bit more Matt maybe is that is it broad based is it more specific to one of the brands was kind of curious to learn a little bit more.

Operator: We now open the line and take your questions. Thank you.

Operator: We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tunnel will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your hand set before pressing the star keys. In the interest of time, we ask the participants limit themselves to one question and one follow-up. One moment, please, while we pull for questions. Thank you.

Yeah, I mean, I would say first of all our Europe business continues to perform well and we expect to continue to perform well and its far and away kind of the smallest I would say impact of how we're seeing the second half of the business evolve. This what's going on in Europe, but I think it's fair to say the macro is a little bit is a little bit tougher I mean, there's a lot going on there from a geopolitical standpoint.

Consumer sentiment remains pretty difficult.

A lot of caution being being deployed there may be maybe a little more so in the U K is what we're seeing so I would say, it's kind of across the business, but it's not significantly impactful in what I would also have a lot of confidence in saying is that our our business there and our platform and the go to market strategy, we're going to win whatever the environment as we just think the <unk>.

Bracken Darrell: Our first question is from Laurent Vasilescu with BNP Power Bus. Please proceed with your question. Good afternoon. Thank you very much for taking the question and also thank you for your initial thoughts, 100 days in. Bracken, on that chance to get closer to the North Face brand, is there anything you saw in the software September that changes your view? The direction of the brand is headed as long as the potential. I know, not at all.

<unk> is going to be a little bit tougher in the short term.

Got it thank you.

Thank you.

Thank you. Our next question is from Lorraine Hutchinson with Bank of America. Please proceed with your question.

Hi, Lorraine.

Hi, Bracken.

I'm interested in hearing the initial steps that you're taking to first stabilize and then grow the vans business.

Bracken Darrell: I'm really excited about the North Face brand. I think brand business team kind of across the board. You know, let's face it, we all lived through the the warmest September on record, I think in the first half of October, look like that now, but on my way into work today, I was absolutely freezing, but only because my hands were exposed because I was wearing an Earth Face jacket. So I'm feeling sad, we're going to figure out.

Well first of all you know, there's a turnaround plan in place, which I think you've been exposed to before and those steps continue.

So my game plan is really to step in until we bring in a new brands.

New brand President.

And really accelerate and then make some select changes.

Bracken Darrell: And I just did a bigger view of all our products with the coal who were going to run the coal out of the runs that business and her team and I couldn't be more excited about it.

I don't plan to undo a whole bunch of things I think the steps we put in place are the right ones I'd just like to see it happen faster. There are few things we are changing.

Matthew Puckett: It's good to hear. And then maybe questions from Matt, you know, in the sense that you're pulling the guide, but you're talking about hitting numbers that you are tied into, that $600 million of free cash flow. I know you don't guide Matt by quarter, but how do we think about the shape of the free cash flow between the third and fourth quarter, and then maybe, maybe bracket, if you can just talk about the $300 million cost savings.

This change in North America is a change in our approach to the vans business and the biggest problem. We've had because the biggest part of the business is in the U S.

Is is to address that very directly and quickly.

And beyond that I'll come back to you and tell you when I think I've got something to say, but right now I'd say just stay tuned.

Thank you very much.

Thank you.

Matthew Puckett: Where is that going to go in terms of that coming from marketing? I think marketing with 7.4% of sales is at the right number for this year and beyond any shape on the cost savings and where it's coming from would be very helpful. Yeah, so I'll write on the 300 million or the reduction in the cash flow, but really your question is, what's cash going to look like over the next couple quarters?

Thank you. Our next question is from Brook Road with Goldman Sachs. Please proceed with your question.

Brooke.

Hi, Bracken. Thanks, so much for taking the question. Thank you I was wondering if we could follow up on Lauren's question and.

Get your thoughts and perspective on what attributes you're looking for in a new brand president.

And what might be the right leadership attributes to drive that stabilization and turnaround plan.

Matthew Puckett: Q3 will be a pretty strong cash generating quarter because it's heavy directed consumer business with a really short cash conversion cycle. So that's one thing, inventories will continue to come down. Good progress in Q2, that'll continue as we move through the back half of the year. Kind of equally probably between Q3, Q4 from an inventory and working capital perspective, but I would say our cash generation overall will be a little more distorted toward Q3 versus Q4, as it typically is.

Well you know I'm always.

The most of it.

An important quality of a leader at this level is always leadership.

Just general leadership, but the next step down from that if youre looking at real capabilities.

I think I tried to be very clear my opening I believe the most important attributes of a leader for us for a brand or a brand president is being able to lead in innovation process and to consistently deliver an amazing set of innovations over time and the segment is to build brand heat.

Matthew Puckett: And on the cost reduction, first of all, where is it coming from? This is going to be a very comprehensive cost reduction program, so it's really going to touch virtually every area of fixed cost. But I just want to make sure I said this in the opening remarks and I want to reiterate, but we will be reinvesting back part of that back into brand building, some marketing and innovation. Your question, a specific question was, what's the ratio or percentage should we expect?

Brand power in the marketplace and so those are the those are two probably the top two skills will be looking for.

Great and if I could just ask one follow up question.

PFS historically had a few lenses by which they elaborate.

They look at ownership of brands in the portfolio can you elaborate on how you're thinking about the broader portfolio of composition of VF today, and whether or not those strategic lenses of ownership are still appropriate.

Matthew Puckett: I'm not ready to declare that yet, but I know one thing for sure, this is a business built on amazing products and amazing brands. And so we're going to make sure we're investing right level on that. We'll come back later in the year, as we had in the next year with real clear principles on how much we're investing in most different areas.

Under your leadership.

Yeah, you know I've been through those lenses and I'd like them a lot I think it's a great way to look at it I'd never heard of them called lenses.

I've heard them called about everything else, but I think thats the right way to think about strategy first and then.

Matthew Puckett: Very helpful.

Operator: Thank you very much. Thanks a lot.

Operator: Thank you.

Return on investment the various pieces.

But I guess I guess, the most important thing to me, maybe precedes a little bit of that fits into the strategy lands is I love to be in growing markets. I mean, I think that's the whole key.

Matthew Puckett: Our next question is from Ike Burichow with Wells Fargo. Please proceed with your question. Hey, guys, how are you?

Matthew Puckett: I guess I wanted to slow down. I kind of want to focus on North Face. Just maybe Matt, this is for you. Just understand a little bit more about the comment about 3Q being down. So directly consumer slowed in September. I think you said it was up to, but sounds like, you know, things are getting cooler, not warmer. Should direct a consumer continue to slow? Like should we expect direct a consumer to also be negative or this more of a dynamic that has to do with the wholesale channel? I don't mean to get so granular. It's kind of curious because I was surprised to hear that the brand could be done. I'm going to talk about the negative.

So as I think about the portfolio are in in this.

This company has.

As updated and changed in alternatives portfolio over 124 years, a remarkable number of times the 121 years ago.

That's the way I'm thinking about it I'd like to be in growing markets and I would like to have leading brands.

Okay.

We turned 125 next year 125, okay. Good.

That'll be a big party exactly thank.

Thank you Tahira.

Thank you. Our next question is from Simeon Siegel with BMO capital markets. Please proceed with your question.

Matthew Puckett: Yeah, I'll keep this simple. It's really a wholesale issue in the quarter and it's timing, but it's also the order book itself, which is nothing new. We've talked about that for a couple of quarters. D to see we expect to grow in the quarter. Got it.

Hi, Simeon aileron, Hey, good afternoon.

So.

I guess I was wondering if first off any way to think through how much of the Americas wholesale decline was company specific versus the broader environment. I mean, obviously you guys are speaking to your challenges, but there's stuff out. There also so just curious if you have a view there.

Matthew Puckett: Then quick follow up. You would talk about choppy or US wholesale. Makes sense. You also talked a little bit about seeing some of that pressure overseas in Europe. Could you elaborate a little bit more, Matt? Maybe is that is a broad base? Is it more specific to one of the brands? It was kind of curious to learn a little bit more. Yeah, I would say, first of all, our Europe business continues to perform well and we expect it to perform well and it's far and away kind of the smallest, I would say, impact of how we're seeing the second half of the business evolve is what's going on in Europe, but I think it's fair to say the macro is a little bit tougher.

And then any thoughts on that environment going forward and then just any I'm sorry, if I missed it did you guys give any notable onetime cash and working capital items dealt into the free cash flow reduction or was that mostly just the lower income. Thanks guys.

Thank you.

Yes, So let me let me try to take those in terms of in terms of our wholesale performance I would suggest certainly the macro is impactful, but but some of these are issues right. The vans issues I think are very specific to us.

Matthew Puckett: I mean, there's a lot going on there from a geopolitical standpoint, consumer sentiment remains pretty difficult, pretty a lot of caution being deployed there. Maybe a little more so in the UK is what we're seeing. So I would say it's kind of across the business, but it's not significantly impactful and what I would also have a lot of confidence in saying is that our business there and our platform and the go to market strategy, we're going to win whatever the environment is. Because we just think the environment is going to be a little bit tougher in the short term.

Operator: Thank you.

We've seen a little bit of a weakness in sell through in parts of the timberland business, particularly the six inch boot. The premium boots has been slower now you could argue lots of reasons as to why that might be externally driven but we own it.

Dickies has continued to be a bit softer than we would've expected I think that's in many ways. The marketplace itself, but we have to we have to be better creating demand. So we own all of these things the north face is really strong.

Matthew Puckett: Our next question is from Lorraine Hutchinson with Bank of America. Please proceed with your question. Hi Lorraine.

By the way as well as our the rest of the outdoor emerging brands. So I think it's a combination of both as it relates to what's happening in the U S wholesale business, particularly and by the way one of the biggest reasons that the changes we're announcing today from an operating model perspective.

Bracken Darrell: Hi, I'm interested in hearing the initial steps that you're taking to first stabilize and then grow the vans business. Well, first of all, there's a turnaround plan in place which I think you've been exposed to before and those steps continue. So my game plan is really to step in until we bring in a new brand president and really accelerate and then make some select changes. I don't plan to undo a whole bunch of things.

Perspective are so critical to us.

One of the biggest to see the first point that <unk> made is fixed fixed the U S business and that by and large starts at the wholesale business in a big way.

So that's one as it relates to the.

The change in free cash flow, that's really that's really primarily the operating results and updates in working capital.

Bracken Darrell: I think the steps we put in place are the right ones. I just like to see it happen faster. There are a few things we are changing. You know, this change in North America is a change in our approach to the vans business. And the biggest problem we've had because the biggest part of the business is in the US is to address that very directly and quickly. And beyond that, I'll come back to you and tell you when I think I've got something to say. Right now, I'd say just stay tuned. Thank you very much. Thank you.

Right now, we havent yet talked.

<unk> talked about the specific cash impact impacts of reinvent there will be some charges that will take over the next couple of quarters, which will include both cash and noncash charges.

We're not ready to talk about the specifics and details of those today, but that will come I will tell you as it relates to the year end liquidity number that we've guided to we think we've captured all of that very effectively.

Okay.

Great Alright, Thanks, a lot best of luck with last year and looking forward season.

Thanks, Amit.

Thank you our next call from Jim Duffy with Stifel. Please proceed with your question.

Brooke Roach: Our next question is from Brooke Roach with Goldman Sachs. Please proceed with your question. Hi, Brooke. Hi, Bracken. Thanks so much for taking the question. Thank you.

Hi, Jim.

Good afternoon.

Bracken I was hoping you could speak for a moment about your vision for the organizational structure. The establishment of the commercial organization. It seems like an incremental layer to the structure at least in North America or their layers within the organizational structure to be streamlined too.

Bracken Darrell: I was wondering if we could follow up on Lorraine's question and get your thoughts and perspectives on what attributes you're looking for in a new brand president at vans and what might be the right leadership attributes to drive that stabilization and turn around there. Well, I think, you know, I'm always, you know, my most important quality of a leader at this level is always leadership, you know, so just general leadership. But the next step down from that, if you're looking at real capabilities, you know, I think I tried to be very clear in my opening, I believe the most important attributes of a leader for a for brand or brand president is being able to lead an innovation process.

Speed efficiency that will coincide with this.

Bracken Darrell: And to consistently deliver an amazing set of innovations over time, and the second is to build brand heat, you know, real real brand power in the marketplace. And so those are the those are two and probably the top two skills will be like.

Yes, if you think about it we're running.

<unk> five different North America organizations today.

Various brands and that includes quite a bit of duplication.

And while you'll have one person over that now we should get consolidation of some of it underneath it. So I expect it to be a much more efficient approach. It will also make sure that we're really good at executing in stores and one <unk>.

The brand will move that quickly into the others or whether we're doing it in Europe that will come into the U S. So I just see this as a win win.

Great. Thank you.

Thank you.

Bracken Darrell: Thank you for it.

Thanks, Jim.

Bracken Darrell: Great, and if I could just ask one follow up question, VF has historically had a few lenses by which they elaborate that they look at ownership of brands in the portfolio. Can you elaborate on how you're thinking about the broader portfolio composition of VF today and whether or not those strategic lenses of ownership are still appropriate under your leadership? Yeah, you know, I've been through those lenses and I liked them a lot.

Thank you our next calls from Janine Stichter with <unk>. Please proceed with your question.

Thanks, Steve and good afternoon, Hi, Bracken.

Wanted to ask more about the timeline for the change at band it sounds like the playbook that's been in place.

So still very much there, but now there's just more of a sense of urgency wanted to understand how much of the pace of change can be done by things that are organizational or internal and then if there is anything that can be done in terms of the lead times and our product pipeline on my understanding that that's always been somewhat of a longer lead time brand I think around 18 months or anything that can be done just to get the product to market quicker.

Bracken Darrell: I think it's a great way to look at it. I've never heard them called lenses. I've heard them call them about everything else, but I think that's the right way to think about strategy first and then you'll return on investment at the various pieces. But I guess I guess the most important thing to me, you know, that maybe precedes a little bit of that fits into the strategy lens is I love to be in growing markets.

Thank you.

Yes, Thanks, Ross mentioned it you know there is just.

The reality of this market of this business that there are certain timelines to bring products to market, especially shoes.

Bracken Darrell: I mean, I think that's the whole key. And so as I think about the portfolio we end in, you know, this company has as updated and changed and alternatives for fully over 124 years or remarkable number of times, 121 years ago. That's the way I'm thinking about it. I like to be in growing markets. I like to have leading brands. We turn 125 next year. 125. Okay, good. Sorry. That'll be a big party. Yeah, exactly.

Where that that is what it is although parts of that footwear business to come to market faster than most so.

I'm not going to commit to you that we're going to we're going to suddenly accelerate all the lead times to market at least not yet although I think that's a very worthy goal.

But I do think there are other things, we can do to execute better and probably do that a little faster and one of them is an outcome of what we announced today, having one commercial organization that just moves with the cadence and a and a process that roles across our tower business. It takes the best practices of places that are where we're really performing well in vans and brings it into.

Bracken Darrell: Thank you. See for it. Thank you.

Simeon Siegel: Our next question is from Simeon Siegel with BMO capital markets. Please proceed with your questions. Hey, everyone. Hey, good afternoon.

The U S market I think can help so.

Yeah, I'd, just say stay tuned theres a lot of work to do on bands, but I'm really really excited about it and I'm excited about getting in the middle of it and I love the team over there so.

Matthew Puckett: So I guess I was wondering just first off, anyway, to think through how much of the America's wholesale decline was company specific versus the broader environment. I mean, obviously you guys are speaking to your challenges, but there's stuff out there also. So just curious if you have a view there. And then any thoughts on that environment going forward. And then just any, I'm sorry if I missed it. Do you guys give any notable one time cash or weren't capital items built into the pre cash flow reduction or was that mostly just the lower income? Thanks guys. Thank you.

I think it's going to be we'll be well I'm sure we'll be talking about this every quarter.

Okay. That's helpful. And then if I could just ask a follow up we noticed some of that.

The classic, but wondering if <unk> seen anything now and just help us size up the magnitude of it.

How broad that question.

Yeah. It has it's been pretty broad across a certain classic styles. It was about $5 four different styles and I think it was really to try to just reset.

Vance those vans classics are always a good value and I think we're in an economy where value matters. So we did see a lift I don't think it was broad enough to really notice from the total of our P&L standpoint, but I think it sets the stage for having us be the right kind of price point.

Matthew Puckett: Yeah, so let me try to take the terms in terms of our wholesale performance. I'd suggest certainly the macro is impactful, but, but some of these are our issues, right? The van's issues. I think are very specific to us. We've seen a little bit of a weakness in fell through in parts of the temporal and business, particularly the six inch boot, the premium boot has been slower. Now you could argue lots of reasons as to why that might be externally driven, but we own it.

And you know we're not just one price point. So you also have the ability to trade up and down from there, but mainly up.

To add anything to that Matt.

I think you got it Brian I mean, we've seen a little bit a little bit of uplift in terms of.

The sell through velocity on the back of that but it's a few weeks and it's relatively at this stage hasn't been hasn't changed the overall outcome all that materially but.

Matthew Puckett: Dickie says has continued to be a bit softer than we would have expected. I think that's, you know, in many ways, the marketplace itself, but we have to be better creating demands. So we own all these things. The North Face is really strong. By the way, as well as are the rest of the outdoor merging brand. So I think it's a combination of both as it relates to, you know, what's happening in the US wholesale business, particularly.

But ultimately the right thing to do in our view in terms of the opportunity to increase velocity and it will also help us clear through some inventory a little more quickly which is an important aspect of what we need to do in the wholesale channel as well.

Perfect. Thanks, so much.

Matthew Puckett: And by the way, you know, one of the biggest reasons that the changes we're announcing today from an operating model. The first aspect of our so critical to us, you know, one of the biggest, you know, the first point that bracket made is fix the US business and that by and large starts with the wholesale business in a big way.

Thanks Jeanine.

Okay.

Thank you. Our next question is from John Kernan with TD. Please proceed with your question.

Hi, Jeff excellent. Thanks for taking my question and Brian.

Okay.

Go back into the <unk> turnaround, obviously, there's going to be some new leadership that you bring in.

Matthew Puckett: So that's one is it relates to the change in free cash flow. That's really that's really primarily operating results and updates and working capital. Right now we haven't yet talked about the specific cash impact impacts of reinvent. There will be some charges that will take over the next couple of quarters, which will include both cash and non cash charges. We're not ready to talk about the specifics and details of those today, but that will come. I will tell you as it relates to the year end liquidity number that we've guided to, we think we've captured all that very effectively.

How do we think about the top line and the margin opportunity there.

Our points of distribution that needs to be shut down I know there is I guess around.

Around 730 stores, there's quite a few wholesale partners globally, particularly in the U S. How should we think about managing the top line and also the margin.

Yes, I think there is there is there is always cleaning up to do especially when our businesses is in ahead of decline period, you always have to go through and clean up the excess distribution lets say, we are shutting down stores. We've shut down I don't know the exact number that may of <unk>, we have absolutely shut down stores and that's a.

Operator: Great, all right, thanks a lot, that's luck for us to be here and looking forward to seeing you soon. But thanks, Simeon.

That's a weed and feed process all the time, we're actually opening some stores, but we're also showing a more.

Operator: Thank you.

Jim Duffy: Our next call from Jim Duffy with Steve Full. Please proceed with your question. Good afternoon. Bracken, I was hoping you could speak for a moment about your vision for the organizational structure. The establishment of the commercial organization seems like an incremental layer to this structure, at least in North America. Are there layers within the organizational structure to be streamlined, to speed efficiency that will coincide with this? Yeah, if you think about it, we're running effectively five different North America organizations today for the various brands.

And I think from a wholesale distribution standpoint, I don't think Theres anything specific I would point to but we're going to continue to evaluate the distribution you know, it's obviously such a critical to this business.

But I don't think those are really the answer I think the real answer is we need great innovation and great execution.

Got it and that we can follow up.

John I would just add real quick here.

Yes, there is opportunity and we will drive higher profitability in this business as we stabilize the business and begin to grow it again.

Doing a lot of work on the cost structure, you can imagine within that $300 million Vantis band is impacted there given it's you know, it's a really big business and there are places in that business, where the cost structure is a little bit out of whack given that what we've seen in the declines store closures capacity in certain parts of the business et cetera. So we're going to work and improve the profitability of that business as we can.

Jim Duffy: And that includes quite a bit of duplication. And while you'll have one person over that now, we should get consolidation of some of it underneath it. So I expect to be a much more efficient approach. It'll also make sure that, you know, we're really good at executing stores and one brand will move that quickly into the other. So whether we're doing it in Europe, it will come into the US. So I just see this as a win win.

Stabilizing gross margins will stabilize there is still a really high gross margin structure business and as we as we begin to grow off of a right sized cost structure, we're going to we're going to have the ability to drive a lot of profitability relatively quickly back into that business, because we certainly lost a lot.

Operator: Great. Thank you. Thanks, Jim.

Understood and that maybe one quick follow up for you on just on the capital structure, how should we think about.

Janine Stichter: Thank you. Our next calls from Janine Stichter with BTIG. Please proceed with your question. Hi, everyone. Good afternoon. Hi, Bracken. I want to ask more about the timeline for the change advance. It sounds like the playbooks that's been in place is still very much there, but now there's just more of a sense of urgency. I want to understand how much of the pace of change can be done by things that are organizational or internal and then if there's anything that can be done in terms of the lead times in the product pipeline.

The refinancings in the next couple of years and debt pay down and obviously.

Solid dividend announcement today that does free up some cash so how shall we think about your approach to capital structure.

Yeah, So actually I'm glad you asked that question I am too.

Yes.

Deleveraging and we can't say it enough.

Paying down debt deleveraging is our number one financial priority and our target Hasnt changed two and a half time gross leverages, our target and we're going to make substantial progress against that over the next couple of years. The actions we've announced today, specifically the cost reduction, which will generate cash also improve EBITDA as well as the benefit of the dividend reduction which is 325.

Janine Stichter: I'm understanding that it's always been somewhat of a longer lead time brand. I think around 18 months. Anything that can be done just to get the product market quicker. Thank you. Thanks for asking that. There is a reality of this market of this business that there's certain timelines to bring products to market especially shoes, you know, footwear that it is what it is, although parts of that footwear business come to market faster than most.

5 million both of those things put us in a better position to address those things I would say as we sit here today, our plan and I've got a lot of confidence in our ability to do this also when you factor in the work that we're doing to sell the <unk> business is to pay off the next couple of tranches of debt and.

Janine Stichter: So I'm not going to commit to you that we're going to suddenly accelerate all the lead times the market, at least not yet. Although I think that's a very worthy goal. But I do think there are other things we can do to execute better and probably do that a little faster. And one of them is an outcome of what we announced today. You know, having one commercial organization that just moves with the cadence and a process that rolls across our entire business and takes the best practices of places that are where we're really performing well in bands and brings it into the US market, I think can help.

And not refinance those that's about 1 billion to $7 50, that's due over the next 18 months and Thats our expectation.

Excellent. Thank you.

Thanks, Jeff.

Thank you. Our next question is from Dana Telsey with the Telsey Advisory Group. Please proceed with your question.

Hi, Dana Hello, Bracken high and as you think about wholesale which has been one of the challenged parts of the business and your Big picture view, how do you think about what percentage.

Janine Stichter: So, you know, as I said, stay tuned. There's a lot of work to do on bands, but I'm really, really excited about it. And I'm excited about getting in the middle of it. And I love the team over there. So I think it's going to be we'll be sure we'll be talking about this every quarter. Great. That's helpful. And then if I could just ask a follow-up. We noticed some of the changes on over the classic.

<unk> of the business do you want it versus DTC and does it differ by brand and then when you're thinking about fixing the U S. What are the markers that we should be thinking about watching as we go through the next year or so to say that it's it's on track so to speak.

Janine Stichter: With wondering if that change felt there at all, do you see anything there and just help us find out the magnitude of how broad that that price change was? It's been pretty broad across certain classic styles. It was about $5 and four different styles. And I think it was really to try to just reset. You know, those bands, classic styles are always a good value. You know, and I think we're in an account where value matters.

Thank you.

I, probably won't throw a specific number I'll just say I think wholesale is super important in this business.

As much as I Love DTC, and we all do I think the pendulum for a lot of companies in this industry swung too far over and there's a reason why wholesale.

As in the marketplace and places outsized rollouts, because consumers like to buy that way a lot of the time so.

Janine Stichter: So, we did see a lift. I don't think it was broad enough to really notice from a total of our P&L standpoint, but I think it sets the stage for having us be the right kind of price point. And you know, we're not just one price point. So, you also have the ability to trade up and down from there, but mainly up. You had anything to that, Matt? Now, I think you got it, Bracken.

So I've met with.

Several of the Ceos of our wholesale partners in the U S and in Europe, I've been really impressed by their plans and by their capability and I fully intend for us to cater to them effectively which doesn't mean, we won't be investing in DTC. We will so if you read between the lines that means also it can be really poor.

Janine Stichter: We've seen a little bit of uplift in terms of the sales through velocity on the back of that, but it's a few weeks in. It's relatively at this stage hasn't changed the overall outcome all that materially. But ultimately it's the right thing to do in our view in terms of the opportunity to increase velocity. And it'll also help us clear some inventory a little more quickly, which is an important aspect of what we need to do in the wholesale channel as well. Thanks so much. Thank you.

Part of this business.

But your first your second question was Oh markers I think yes.

What are the key markers. So we I think they're the ones that you expect to see I think you. Just you would be looking like you will we're going to be looking very carefully at sales, but on a very short term basis. So we're going to keep an eye on that as we start to execute on I would expect our revenues to get better when we really fully operational it will take us a little while to get that in place, but I expect improvement.

John Kernan: Our next question is from John Kernan with TD. Please respect your question.

Paul Lejuez: Excellent. Thanks. Take my question, Bracken. To go back into the band's turnaround, obviously there's going to be some new leadership that you bring in, but how do we think about the top line and the margin opportunity? Are there points of distribution that need to be shut down? I know there's around 730 stores, there's quite a few wholesale partners globally, particularly in the U.S. How should we think about managing the top line and also the margin?

Thank you.

Thank you.

Thank you. Our next question is from Paul Lajoie with Citigroup. Please proceed with your question.

Hi, Paul.

Hey, Thanks, guys.

So you talked a bit about how the current VF turnaround is similar in share certain characteristics that are similar to your prior turnarounds, but I'm also curious to hear how you view this as the most unique and what does that mean in terms of how to tackle it.

Paul Lejuez: I think there's always cleaning up to do, especially when a business is in at a decline period, you always have to go through and clean up the excess distribution, let's say. We are shutting down stores. We've shut down, I don't know the exact number, that may be off the top of the tab. We have absolutely shut down stores and that's a weed and feed process all the time. We're actually opening some stores, but we're also shutting down more.

Yeah, I think what are the differences is it takes a long time too long to develop products in this business and this industry actually.

A lot longer than I would've expected before I started researching it obviously knew that before I came here, but I was I was surprised back during the early stages of kind of trying to work to understand what <unk> is all about while I was in the interview process.

Paul Lejuez: I think from a wholesale distribution standpoint, I don't think there's anything specific I would point to, but we're going to continue to evaluate the distribution. It's obviously such a critical part of this business, but I don't think those are really the answer. I think the real answer is we need great innovation and great execution. I would just add real quick over there. There is opportunity and we will drive higher profitability in this business.

It takes in this industry to develop footwear and apparel.

So I think that is quite a difference there is also this.

Is this.

Volleying that happens in this industry this new to me, which which we call seasons.

You sell a seasoned and somebody's got to decide they want to buy the season and then you see how it does and those are two key differences in this industry, but theyre not major I mean, there is significant in terms of the way. We are process operates but they don't really they don't really fundamentally change the way I think about the business. It's still the same business which is.

Paul Lejuez: As we stabilize the business, we begin to grow it again. Doing a lot of work on the call structure, you can imagine, within that 300 million vans is impacted there, given it's a really big business and there are places in that business where the call structure is a little bit out of whack, given what we've seen in the declines, store closures, capacity in certain parts of the business, etc. We're going to improve the profitability of that business.

You know create great innovation, so that most of the moderate level of innovation that keeps things fresh and new so that really dramatic and innovative and then make sure that consumers love what you're all about very values driven and so there is a there are a lot more parallels and differences.

Paul Lejuez: As we stabilize it grows, margins will stabilize. There's still a really high-grossed margin structure business. As we begin to grow, all sorts of right-sized call structure, we're going to have the ability to drive a lot of profitability relatively quickly back into that business because we certainly lost a lot. I understood that maybe one quick follow-up for you on just on the capital structure. How should we think about the refinancing in the next couple of years and debt pay down? Obviously, we saw the dividend announcement today. That does free up some cash. How should we think about your approach to the capital structure?

At five to one or six to one or something.

Okay.

Got it thank you and good luck.

Thanks, Paul.

Thank you. Our next question is from Gabby Carbone with Deutsche Bank. Please proceed with your question.

Good afternoon. Thank you for taking my question.

Hi, how are you so I understand you're withdrawing guidance, but I guess I was wondering if you can dig into gross margins in the back half maybe what are the main buckets, where you have some opportunity for expansion in the area do you expect crusher and then if you could just talk about what youre seeing on the promotional front that'd be helpful. Thank you.

Matthew Puckett: I'm glad you asked that question. Deleveraging, I can't say it enough. Paying down debt and deleveraging is our number one financial priority and our target hasn't changed. Two and a half-time gross leverage is our target. We're going to make substantial progress against that over the next couple of years. The actions we've announced today, specifically the cost reduction, which will generate cash, also improve EBITDA, as well as the benefit of the dividend reduction, which is 325 million.

Yeah happy to do that.

I'll just tell you we still.

Feel pretty good about our ability to see improved gross margins in the back half of the year, obviously, not calling a specific number today, but you know the promotional environment.

Matthew Puckett: Those are those things put us in a better position to address those things. I would say as we sit here today, our plan, and I've got a lot of confidence in our ability to do this. Also, when you factor in the work that we're doing to sell the tax business, it's to pay off the next couple of branches of debt and not refinance, though. That's about a billion, seven, 50 to two over the next 18 months, and that's our expectation.

Has begun to moderate a bit and fall. We saw we saw a bit of a benefit in Q2, we think that will continue for not going to fully recapture what we lost last year, which was obviously significant but.

Operator: Excellent, thank you. Thanks, John.

We're in a position with inventories cleaner lower sell in this year, we've talked about that.

And improved and improved performance to see some improvement on the promotional side. So it is moderating it's still elevated versus historical I think that's kind of the case across most of the marketplace, but certainly will be a bit of a benefit in the back half in our in our point of view business mix will continue to be.

Dana Telsey: Thank you. Our next question is from Dana Telsey with the Telsey Advisory Group. Please proceed with your question. Hi, Dana. Hello, Bracken. Hi.

A bit of a tailwind in the back half from a from a channel and geography standpoint, our product costs will be cut.

Bracken Darrell: As you think about wholesale, which has been one of the challenge parts of the business, in your big picture view, how do you think about what percentage of the business do you want it versus DTC, and does it differ by brand? And then when you're thinking about fixing the US, what are the markers that we should be thinking about watching as we go through the next year or so to say that it's on track, so to speak.

Kind of neutral to some degree we've got some puts and takes in there.

And then and then you think about FX FX is going to be a negative number in the back half of the year, that's probably the single biggest headwind that we see but yes kind of wrapping it all up I think.

We fully expect to see some improvement in gross margins. If you look at just kind of a half II in isolation.

Got it thank you for that.

Thanks Debbie.

Bracken Darrell: Thank you. I probably won't throw a specific number, I'll just say I think wholesale is super important in this business. As much as I love DTC and we all do, I think the pendulum for a lot of companies in this industry is going too far over. And there's a reason why wholesale is in the marketplace in place of an outsized role. It's because consumers like to buy that way a lot of the time.

Okay.

Thank you. Our next question is from Jonathan Komp with Baird. Please proceed with your question.

Yes, Hello, Jonathan Thank you. Thank.

Thanks for all the detail.

So we aim.

First question, if I could break and just I know, Matt outlined roughly four quarters it sounded like to achieve the full run rate of <unk>.

Bracken Darrell: So as I've met with several of the CEOs of our wholesale partners in the US and in Europe, I've been really impressed by their plans and by their capability. And I fully intend for us to cater to them effectively, which doesn't mean we won't be investing in DTC, we will. So if you really, between the lines, that means also it would be a really important part of this business.

Cost savings that you mentioned today.

Just wanted to get your thoughts the timeline to get the commercial organization structure in place and then maybe to start to see some tangible benefits from cross sharing best ideas do you have any initial thoughts on how long it might take to start to realize some of those benefits.

Well the organization will be.

We're calling it here stood up for we'll be standing up as an organization in Q4.

Bracken Darrell: But your second question was, oh, markers, you know, I think that, yeah, what are the key markers? I mean, I think the other ones that you expect to see, I think you just, you will be looking like you will. We're going to be looking very carefully at sales, but on a very short-term basis. So we're going to keep an eye on that as we start to execute, I would expect our revenues to get better. When we really fully operational, it will take us a little while to get that in place, but I expect improvement. Thank you.

And then I would expect we'll start to see benefits from it in early next year could be Q1 or Q2, but it will take a few quarters to really get it to the point, where it's really humming and then a little longer than that to really be full blown absolutely top flight effective.

Great. That's very helpful. And then just two other quick ones if I could.

The thought of there being no sacred cows, I thought I would ask does it still makes sense to operate the full portfolio after the <unk> business.

Paul Lejuez: Our next question is from Paul Leisway with City Group. Please proceed with your question. All right, Paul. Hey, thanks, guys.

Process is completed and then just separately the enterprise level performance targets is the board considering any changes to the structure of how those targets and payouts are determined.

Bracken Darrell: So you talked a bit about how the current VFs turn around is similar and shares certain characteristics that are similar to your prior turn around, but I'm also curious to hear how you view this as different, what's unique and what does that mean in terms of how you tackle it? Thanks. Yeah, I think one of the differences is it takes a long term too long to develop products in this business, in this industry, actually.

Thank you take the last one I'll take the last one first Jonathan.

We're always reevaluating our performance targets and how they work in and certainly Brent Heider, who I'm really excited that our new Chief people Officer is just a fantastic partner for us.

Bracken Darrell: A lot longer than I would have expected before I started researching it. Obviously, I knew that before I came here, but I was surprised back during the early stages of trying to work to understand what VF was all about while I was in the interview process, how long it takes in this industry to develop, and even apparel. So I think that is quite a difference. There's also this valuing that happens in this industry, this new to me, which we call seasons, where you sell a season and somebody's got it decided they want to buy that season, and then you see how it does.

He and I talked about that so I'm sure we will make changes with working with the with the board and the comp Committee Julien Chug, who has been a real partner for US here already you know I think we will absolutely be making some changes over time, but I don't have anything specific to call out.

In terms of the portfolio.

We're not really in a position to talk about today, where this company has always had done I think a pretty good job of going through and reevaluating the portfolio over time.

Making additions and Subtractions.

That will continue.

Great. Thanks again.

Thank you.

Thank you. Our next question is from Bob <unk> with Guggenheim. Please proceed with your question.

Bracken Darrell: Those are two key differences in this industry, but they're not major. They're significant in terms of the way we are process operates, but they don't really fundamentally change the way I think about the business. It's still the same business which is create great innovation, some of it, most of it, moderate level of innovation that keeps things fresh and new, some of it really dramatic and innovative, and then make sure that consumers love what you're all about, very values driven. There are a lot more parallels than differences, you know, committed five to one or six to one or something. Thank you.

Bracken Darrell: Good luck.

Hi, Bob.

Hey, Brian.

I just had two questions. The first one is so with the <unk>.

Martina appointment and I think Kevin.

Bracken Darrell: Thanks, Paul. Thank you.

With Kevin's role do you anticipate any other sort of senior management changes do you feel like you've evaluated everything at this point.

At least in the near term and the second question I have is just.

Inventories are cleaner than they were.

Any pockets of concern either by brand or by region that we should still be concerned with.

I'll, let Matt take less in first of all I'll take the first left.

Okay Gotcha, alright, yeah. So I think overall inventories are in a pretty good place and we are making progress on our owned inventories as we look at where our partner inventory sit.

Gabriella Carbone: Our next question is from Gabi Carbone with Doja Bank. Please proceed with your question. Good afternoon. Thanks for taking my question. Hi, how are you? So yeah, I understand you're withdrawing guidance, but we're just wondering if you can dig into gross margins in the back half. Maybe what are the main buckets where you have some opportunity for expansion and in the areas you expect pressure? And then we can just talk about what you're seeing on the promotional front.

We're pretty good there are some pockets and some brand specific challenges as we look across the world vans is a bit elevated here in the U S and to some degree in China, Although that's gotten a lot better I think in China.

The softer sell through we've seen of late and timberland here in the U S market, we're a little bit elevated at this point in the season, although it's pretty early but at this point in the season with a little bit elevated with timberland inventory and while Dickey sell through remains weaker the inventory positions have improved quite a bit so at retail inventories in a pretty good place. There. So if we see sell through improve we'll see.

Gabriella Carbone: That would be helpful. Thank you. Yeah, Gabi, happy to do that. I'll just say we still feel pretty good about our ability to see improve gross margins in the back half of the year. Obviously, not calling a specific number today, but the promotional environment has been going to moderate a bit in fall. We saw a bit of a benefit in Q2. We think that will continue. Not going to fully recapture what we lost last year, which was obviously significant, but we're in a position with inventory cleaner, lower cell end this year.

You know pretty quick benefit on replenishment side, so by and large pretty good Bob but still still a couple of pockets as you'd expect given kind of the challenges that we're having in parts of the business.

To your second question. Your first question, Yes, I think Youre always look I really liked this team.

And we're always looking at like we do with Martino analyst, Kevin our people the right places to have the right effectiveness. So we'll keep doing that for as long as I work here. So that would certainly keep going but we've got so much talent here not only on my direct team, but also the level of the levels below that.

Gabriella Carbone: We've talked about that and improved performance to see some improvement on the promotional side. So it's moderating. It's still elevated versus historical. I think that's kind of the case across most of the marketplace, but certainly will be a bit of a benefit in the back half in our point of view. Business mix will continue to be a bit of a tailwind in the back half from a channel in geography standpoint. Product calls will be kind of neutral to some degree.

We talked a lot about martino, but boy Martinez team really strong I mentioned, Nicole and her team our finance team is super strong.

I think we've just got a really we've got a lot of talent here to work with and even though we've talked about.

Gabriella Carbone: We've got some puts and takes in there. And then you think about FX. FX is going to be a pretty negative number in the back half of the year. That's probably the single biggest headwind that we see. But wrapping it all up, I think the week fully expect to see some improvement in gross margins if you look at just kind of the half-two in isolation. Got it. Thank you for that. Thanks, Debbie. Thank you.

A public search for the next Vince.

Advanced leader in it.

We will do one.

That should not suggest anything about the talent that's internally here, it's really strong.

Alright, thank you.

Thank you.

Okay.

Thank you our final question is from Abbvie.

Next with Piper Sandler. Please proceed with your question.

Hi, Amy.

Gabriella Carbone: Our next question is from Jonathan Combe with Beard. Please proceed with your question. Yeah, hi, Joe. Thank you. Thanks for hosting all the detail. Maybe first question if I could, Bracken, just I know Matt outlined roughly four quarters. It sounded like to achieve the full run rate of annual cost savings that you mentioned today. Just want to get your thoughts at the timeline to get the commercial organization structure in place. And then maybe to start to see some tangible benefits from cross sharing best ideas.

Alright. Thank you for taking my question do you have any aircraft.

No I'd say, it's business from regulation on PFS and then as a follow up are you seeing any changes in wholesale partner behavior as the effective date on some of these regulations are approaching.

I'll start that and then I'm going to finish it you know.

First of all yes, we do see some product changes in the north face based on <unk>. For example is it codes some have zippers and things that.

Gabriella Carbone: Do you have any initial thoughts on how long it might take you start to realize some of those benefits? Well, the organization will be, as we're calling it here, stood up or we'll be standing up as an organization in Q4. And then I would expect to start to see benefits from it. In early next year, it could be Q1 or Q2. But it'll take a few quarters to really get it to the point where it's really humming.

And so we're going to make and are already making changes there and I think we'll be in good shape by the time, we get to the finish line on the north face.

Gabriella Carbone: And then a little longer than that to really be full-blown, absolutely top-flight effective. Great. That's very helpful. And just two other quick ones if I could. On the thought of there being no sacred cow, that I would ask, does it still make sense to operate the full portfolio after the Pax Business process is completed? And then just separately, the enterprise level performance targets is the board considering any changes to the structure of how those targets and payouts are determined.

You want to add anything to that.

Hey.

This is front and center for US and we were out in front of it in terms of managing managing towards the end of clearing through P. Fast inventory, we've got inventory on hand, we've got inventory in stores each of our brands is working aggressively to ensure that we're selling through that over the next 15 months or so and then there's opportunity in.

In different parts of the world and even some of our some of our distribution channels here in the U S to go beyond that but we've got it all out of the line by spring 'twenty four and.

And in fact in many cases, it's already out of the line here as of as of now.

So I think we're in a pretty good place given given the runway that we have and the work that the teams have done very proactively to to be able to manage our way through this over time.

But to take your point, Yeah, I don't really see this as a date at which we hit we were moving towards some data is going to happen I see it sort of as an event is coming towards us because you do have a various wholesalers in the U S who are who are going to try to move quickly here and so we're very respectful that we we applaud them.

Gabriella Carbone: Thank you. I'll take the last one first, Jonathan. We're always reevaluating our performance targets and how they work. And certainly, you know, Brent Eider, who I'm really excited, you know, people officer is just a fantastic partner for us. You know, he and I talked about that. So I'm sure we will make changes with working with the board of the top committee, Julianne Chag, who's been a real partner for us here already.

Our moves and we're going to have to make sure that we are dynamic and the way we deal with is to yes. It's specific to your point about about wholesalers.

It's an ongoing dialogue and we're very close to our wholesale partners in a very strategic way on this topic and others. Obviously, so we're in lockstep with the actions that need to be taken you know kind of kind of across the board.

Gabriella Carbone: Yeah, I think we will absolutely be making some changes over time. But I don't have anything specific to call out in terms of portfolio. You know, just we're not really in position to talk about today. You know, we're this company is always. But then I think pretty good job of going through and reevaluing portfolio over time and in making additions and subtractions. And yeah, I think that will continue. Great. Thanks again. Thank you.

By brand and by and by partner.

Okay.

Thank you so much I really appreciate this was my first call I was a little nervous I think it went okay. We're looking for feedback.

But let me be clear.

We are intensely intensely committed to really continue to be a great company for our customers, making our financial performance a lot better.

Robert Drbul: Our next question is from Bob Durable with Guggenheim. Please proceed with your question. Hi, Bob. Hey, Bradkin. I just have two questions. The first one is so with the Martina appointment. And I think, you know, Kevin, you know, the change with Kevin's role. Do you anticipate any other sort of senior management changes? You feel like you've evaluated everything at this point, you know, at least in the near term. And the second question I have is just, you know, I think inventory is your cleaner than they were.

Attracting and retaining more great people over time.

And I promise you, we'll come back with a more comprehensive strategy overtime I won't commit exact date, yet, but it's coming you'll hear about at all and I really appreciate all your help and support thanks, a lot and see you next quarter.

This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.

Robert Drbul: Are there any pockets of concern, either by brand or by region that we should still be concerned with? Thanks. I'll let Matt take last person. I'll take the first and last. Yeah. So I think your overall inventories are in a pretty good place. And you know, we're making progress in our own inventories as we look at where our partner inventory sit. You know, we're pretty good. There's some pockets and some brand specific challenges.

Robert Drbul: You know, as we look across the world, Vance is a bit elevated here in the US and to some degree in China, although that's gotten a lot better, I think in China. You know, the softer sell through we've seen of late in Timberland here in the US market. We're a little bit elevated at this point in the season, although it's pretty early, but at this point in the season, we're a little bit elevated with Timberland inventory.

Robert Drbul: And while Dickie sell through remains weaker, the inventory positions have improved quite a bit. So, you know, at retail inventories in a pretty good place there. So if we see sell through improve, we'll see, you know, pretty quick benefit on replenishment side. So by and large, pretty good Bob, but still still a couple of pockets as you'd expect, given kind of the challenges that we're having in parts of the business. Yeah, and issue a second question.

Robert Drbul: Your first question. Yeah, I think you're always, you know, I look, I really like this team and we're always re looking at, you know, like we do with with Martino and with Kevin. Our people in the right places to have the right effectiveness, so we'll keep doing that, you know, for as long as I work here, you know, so that will certainly keep going. But we've got so much talent here not only on my direct team, but also the level levels below that, you know, we talked about Martino, but boy, Martino's team is really strong.

Robert Drbul: Now, I mentioned to Cole and her team, our finance team is super strong. You know, I think we've just got a really, we've got a lot of talent here to work with and even though we talked about, you know, a public search for the next dance, dance leader and we will do one. I don't want that should not suggest anything about the talent that's internally here. It's really strong. Thank you.

Abigail Zvejnieks: Our final question is from Abby Zvejnieks, with Piper Sandler. Please proceed with your question. Hi Abby. Hi, thank you for taking a question. Do you have any impact to the North States business from regulations on PFAS? And then as a follow-up, are you seeing any changes in wholesale partner behavior as the effective dates on some of these regulations are approaching? I'll start that and then I'm going to let that finish it.

Abigail Zvejnieks: First of all, yes, we do see some product changes in North Face based on PFAS. PFAS, for example, is it codes some of the zippers and things that we're going to make and are already making changes there and I think we'll be in good shape at the time we get to the finish line on the North Face. You want to add anything to that? I'd say this is front and center for us and we're out in front of it in terms of managing, managing toward the end of clearing PFAS inventory.

Abigail Zvejnieks: We've got inventory on hand, we've got inventory in stores. Each of our brands is working aggressively to ensure that we're selling through that over the next 15 months or so and then there's opportunity and different parts of the world and even some of our distribution channels here in the US to go beyond that. But we've got it all out of the line by spring 24 and in fact, in many cases, it's already out of the line here as of now.

Abigail Zvejnieks: So I think we're in a pretty good place given given the runway that we have and the work that the teams have done very proactively to be able to manage our way through this over time. But to take your point out, I don't really see this as a date at which we hit. We were moving towards some date that's going to happen. I see a sort of as an event that's coming toward us because you do have various wholesalers in the US who are going to try to move quickly here.

Abigail Zvejnieks: And so we're very respectful of that. We applaud their moves and we're going to have to make sure that we're dynamic in the way we deal with this too. Yeah, specifically your point about wholesalers. It's an ongoing dialogue and we're very close to our wholesale partners in a very strategic way on this topic and others obviously. So we're in lockstep with the actions that need to be taken, you know, kind of across the board, you know, by brand and by partner. Okay.

Bracken Darrell: Well, thank you so much. I really appreciate this was my first call. I was a little nervous. I think it went okay. We're looking for feedback. But let me be clear. We are intensely, intensely committed to really continue to be a great company for our customers, making our financial performance a lot better and attracting and retaining more great people over time. And I promise you we'll come back with a more comprehensive strategy over time. I'm not I won't commit exact date yet, but it's coming. You'll hear about it all and I really appreciate all your help and support. Thanks a lot and see you next quarter.

Operator: This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.