Ladies and gentlemen, thank you for standing by. My name is Krista, and I will be your conference operator today. At this time, I would like to welcome everyone to the VF Corporation Fourth Quarter Fiscal Year '25 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks there will be a question-and-answer session. Thank you. And I would now like to turn the conference over to Allegra Perry, Vice President of Investor Relations. Please go ahead.

Hello, and welcome to VF Corporation's fourth quarter fiscal 2025 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. Unless otherwise noted, amounts referred to on today's call will be on an adjusted constant dollar and continuing operations basis, which we've defined in the presentation that was posted this morning on our Investor Relations website 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 U.S. GAAP. Reconciliations of GAAP measures to adjusted amounts can be found in the supplemental financial tables included in the presentation 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, Paul Vogel. Following our prepared remarks, we'll open the call for questions. I'll now hand over to Bracken.

Thank you, Allegra and welcome to our Q4 fiscal 2025 earnings call and our last call of the fiscal year. In our fourth fiscal quarter, revenue was down 3%, in-line with our guidance of negative 2% to negative 4%. The Reinvent program and our efforts to improve our operating profitability are working well and significantly overperformed on operating income, up by 400 basis points year-over-year to $22 million, exceeding our guidance. Gross margin improved 560 basis points versus last year from lower material costs, less distressed sales, less discounting and higher quality inventory. SG&A declined 2% as we executed comprehensive structural changes as part of our operating model transition under Reinvent to simplify the company and enable long-term growth. Net debt was down by over one-quarter versus last year; we reduced leverage at year-end by a full turn. We are on track to deliver our stated medium-term goal of 2.5 times leverage. Now let me share further details on our total revenue growth. At a high level, if you exclude Vans, we're up 4%. So of course, let us talk about Vans. As I've said before, there is nothing that's not working at Vans that we can't fix with what's working in the rest of the business. We told you last quarter that turnarounds are often nonlinear. To be clear, turnarounds can look nonlinear from a numerical standpoint, and this quarter is an illustration of that. However, we are methodically advancing all our initiatives. The actions we are taking to drive improved performance and progress in our turnaround are moving forward in a clear linear manner. In fact, at Vans, we are making progress every week to turn around the business. You don't see the results just yet numerically, but you will. And when you do, there'll be high quality. Vans was down 20% in the quarter after being down 8% in the prior quarter. This quarter's step back doesn't tell the whole story. If you adjust for deliberate strategic actions to manage the marketplace and set ourselves up to achieve profitable growth, the revenue decline was down high single digits versus last year and is consistent with last quarter's trend. Put another way, 60% of the decline this quarter is a direct effect of deliberately reduced revenue to eliminate unprofitable or unproductive business. Of the total Q4 decline in Vans sales, almost 25% of it was driven by reduced store fronts and reduced channel inventory in China. As we've said in prior calls, the turnaround in APAC has been slower. We are taking the actions needed to set that marketplace up for long-term growth. Another 35% of the total decline was driven by an additional set of deliberate actions, which were also in place last quarter that had a lower impact. These include the closure of value doors mainly in the U.S. that were margin eroding. The reduction of distressed sales that were unprofitable and the closure of our own stores, also mainly in the U.S. that were unprofitable. And the results of these actions and others are that Vans gross margin is up significantly year-over-year. Now let me dissect the revenue a bit further. In non-value wholesale, sell-out was slightly up. And in our key accounts, Vans sell-out was up double digits. The balance of 40% of the decline was all driven by DTC, which is primarily due to soft traffic. What are we doing to address traffic? We are evolving our marketing rapidly to drive brand heat and we'll get that back. As I said, we've demonstrated that we can do this at Timberland, for example, where we also had a period of declines. So to answer the question, I'll get later, how do I feel about Vans and its outlook? Good. As confident as ever. We're executing our game plan, as Sun recently laid out. On talent, Sun's building her team, has made several key hires, including the Head of Merchandising, and others are well underway. On products, we continue to focus on footwear by bringing in newness that will roll out over back-to-school, holiday, and next spring and beyond, while reigniting the existing core icons. Our focus on women and youth is starting to show early results with a positive response to the Super Low Pro, which was just launched and sold out in key colorways early on. Girls bought this product disproportionately, a signal that when we have something new and on trend, girls and women will come back. In terms of marketplace, we are pursuing brand elevation through channel cleanup, elevated stores and digital marketplaces, digital experiences. The cleanliness of our channels are non-value wholesale, which is a high proportion of new products, is showing encouraging results and we have opportunities to keep driving more new products to increase that momentum and improving marketing. To quickly summarize, we are making the right decisions to build a durable, growing brand over the long-term. We are learning every week, and we're making progress. Growth will come. Now let me talk about some key highlights from our other brands. In the North Face, revenue for the brand was up 4% in Q4. DTC rose 9%, with positive growth in all regions, including double-digit increases in both the Americas and EMEA. From a product standpoint, outerwear was a standout and footwear continued to grow nicely in all regions. Timberland continued its strong performance with revenue up 13% in Q4. Wholesale and DTC were both up globally with lower discounts driving higher margins. Momentum in the 6-inch premium boot continued, while other styles also performed well, including Stone Street and Mt Madson. U.S. search interest growth remained strong in the quarter. Let me close by touching on tariffs and the market uncertainty where Paul will go deeper. How are we approaching tariffs? The same way as we are approaching the rest of the business with a long-term view but a short-term pace. This is of course a dynamic situation. But at a high level, we are well-positioned to manage the impact. We have an asset-light model, which gives us great flexibility to move things and adjust quickly. And in fact, over the past several years, we've strategically diversified our supply chain and proactively reduced our U.S. finished goods sourced from China to less than 2% today. We've also taken steps to strengthen our flexibility, learning from prior macro events. We're seasoned. When the tariffs were announced, we immediately activated our team and processes, organized a series of daily meetings to share feedback from Washington and supplier countries, supply chain opportunities, cost and factory moves, pricing strategy and communications. These continue to be coordinated, daily and effective. As a result, we have excellent visibility on the whole equation and have activated a plan to effectively manage it. This is also a catalyst to make our business operate with a faster cycle time, the way we will always operate going forward. Looking ahead, clearly, there is a lot of uncertainty out there from a macro standpoint, but we are not at all distracted by it. Our goal is to leverage it to improve our business. Our transformation is on track and progressing well and is allowing us to be more agile and nimble, making better decisions more quickly. We are making progress towards our medium-term goals, regardless of the volatility of the macro environment. We continue to advance on our goal to create a unique multi-brand portfolio company. I'm more confident than ever that the actions we are taking will enable VF to return to growth and deliver strong, sustainable value creation. With that, I'll now hand it over to Paul to run through the financials.

Thank you, Bracken. Before I discuss our numbers, I want to address the current tariff situation. As Bracken pointed out, we are taking proactive measures to mitigate the potential effects of the new tariffs, ensuring that we not only adapt to any changes but also come out stronger as a company. We are monitoring the situation closely and believe that the key to unlocking value within VF is under our control, which will ultimately enhance our performance and contribute to VF's recovery. We are implementing a comprehensive plan to manage the potential impact of tariffs and are confident that we can mitigate these costs. To provide some context on our sourcing structure into the U.S., around 35% of our global cost of goods sold relates to products sold in the U.S. Specifically, exports from China account for less than 2% of total costs, primarily because our manufacturing in China is mainly for local sales. The majority of our sourcing comes from Southeast Asia and Central and South America, which collectively represent about 85% of our imports. The top four sourcing countries are Vietnam, Bangladesh, Cambodia, and Indonesia. Furthermore, it's important to note that the current 10% incremental tariff could result in an unmitigated annual cost impact of approximately $150 million for our business if no actions are taken to mitigate it. We anticipate that if the current timetable for tariff implementation remains consistent, about 65% of this cost will be felt in fiscal 2026, primarily in the latter half of the year. We are determined to offset this impact and have initiated plans that include cost management, selective sourcing relocations, and strategic pricing actions. Our long-standing relationships with partners will be instrumental in establishing a favorable cost structure. Our pricing strategy is thoughtful, leveraging the strength of our brands. Additionally, our asset-light model allows for flexibility and quick adjustments. We are confident that we will fully offset these costs and emerge as a more robust business. Now, moving to the financial performance for the fourth quarter. Our revenue for Q4 was $2.1 billion, a 3% decline compared to last year, consistent with our guidance. Overall, we remained flat in the second half of the year after a 7% decrease in the first half. By brand, The North Face grew by 4% due to its direct-to-consumer performance. Vans revenue fell by 20%, influenced by strategic actions and ongoing challenges with direct-to-consumer sales. Timberland achieved a solid 13% growth. Regionally, the APAC market saw a 2% increase, while the Americas and EMEA experienced declines of 5% and 2% respectively due to reduced promotional activity. Excluding Vans, the Americas performed as expected and showed growth consistent with Q3 trends. In terms of channels, direct-to-consumer sales dipped by 3%, while wholesale decreased by 2%. Our gross margin improved by 560 basis points to 53.4%, driven mainly by cost advantages, fewer promotions, and improved inventory quality. Selling, general, and administrative expenses were down by 2% as we realized faster cost savings from our Reinvent program, more than offsetting inflation and investments in products and marketing. Our adjusted operating margin for the quarter was 1%, a 400 basis point increase compared to last year, indicating that we are making meaningful improvements in our margins and profitability as we work on solidifying the foundation of our business. The adjusted loss per share was $0.13, better than the $0.30 loss in Q4 of the previous year. For the full year, our adjusted operating margin improved by 110 basis points compared to last year, reflecting our progress toward creating a more efficient and well-operated business, as we strive for the medium-term targets laid out last fall. Regarding our balance sheet, we made significant strides. Inventories decreased by 4%, equating to $71 million, and net debt fell by $1.8 billion or 26% year-over-year, especially after paying off the $750 million senior notes in March, aligning with our plans. Consequently, our leverage ratio was 4.1 times at year-end, down a full turn from last year. Our free cash flow totaled $330 million, with the sale of non-core assets bringing the total to $401 million, slightly below our guidance due to a timing impact affecting working capital. For our outlook, while we won't provide full-year guidance, I can share some metrics. We expect both operating cash flow and free cash flow, excluding the sale of non-core assets, to increase year-on-year. Although operating margin leverage won’t be evident in Q1, we anticipate margin expansion in fiscal 2026 as we continue our progress on Reinvent initiatives and move toward medium-term targets. For Q1, remember it's our smallest quarter of the year where Vans has a significant influence on overall growth. We expect revenue to decline by 3% to 5% on a constant dollar basis, aligned with our earlier statement about first-half growth mirroring the second half of last year. Due to our actions regarding stores and wholesale strategies, the revenue trends for the first half of fiscal 2026 are projected to be slightly beneath those of the second half of fiscal 2025. In terms of the P&L, we anticipate an operating loss of between $110 million and $125 million for Q1. Gross margin should benefit from fewer discounts and foreign exchange movements, while SG&A expenses are expected to be flat or decrease slightly compared to the previous year. Q1 interest is expected to be around $40 million, with an effective tax rate between 13% and 14%, which is higher than last year’s reported rate. We will provide ongoing quarterly updates as necessary. Lastly, regarding our long-term tax expectations, we foresee increased reported tax rates over the next 1 to 2 years because of global tax rate changes and our geographic mix, although this will have minimal cash tax implications. In conclusion, we remain confident in our strategic direction and are actively working to transform VF, reinforcing our business to handle any forthcoming challenges. Now, we can open the floor to your questions.

Thank you. We will now begin the question-and-answer session. Your first question comes from Simeon Siegel with BMO Capital Markets. Please go ahead.

Thanks. Hey everyone. Good morning. So a nice job on the gross margin improvement. Obviously, the uncertainties there, and you guys were alluding to it, but just maybe any help how you're thinking about gross margin further into the year and then how we should think about how this looks structurally longer-term? And then an ignorant question for you guys, sorry, the $313 million free cash flow from this year, does that include anything from Supreme? And if so, can you just talk about bridging the past years $313 million to the expected growth for next year? Thanks guys.

Yes, we do not provide full year guidance. I want to reiterate my earlier comments about margins. We anticipate continued improvement in margins for fiscal '26 and believe we are on track to achieve the goals set during our Investor Day a few months ago. There are various factors to consider at this point, but we remain optimistic. We won't give specific guidance on gross margin or SG&A right now, but that's the direction we're heading, as I mentioned in my prepared remarks. You may not notice much in Q1, which gives an indication of where things might go for the rest of the year. The free cash flow of $313 million excludes Supreme. In the past, we've included asset sales in our free cash flow figures, but moving forward, we'll focus solely on pure free cash flow. We expect operating cash flow to increase next year, and free cash flow will also rise. The extent of that increase will depend on where CapEx ends up for the full year.

Great. Thanks a lot, guys. Best of luck for the year.

Thanks a lot.

Your next question comes from the line of Brooke Roach with Goldman Sachs. Please go ahead.

Good morning. Thank you for taking my question. Hi Bracken, hi Paul. Was hoping that you could talk a little bit more about the one-time strategic reset actions that you are taking at Vans that weighed on fourth quarter results and are expected to weigh again on first quarter results. Can you just give us a sense of when you might be fully through some of those actions that have already been taken and whether or not you are contemplating any additional strategic reset actions to return the brand to health? Thank you.

Thank you for the question. We anticipated this. By the way, I'm on my seventh day post-COVID. If I cough during this call, I apologize. So, as I mentioned in my script, there are four main points to address. First, we are taking deliberate actions in China to reduce the overall availability in our channels to align it with the right size and locations. This peaked in Q4 and will impact Q1 and Q2, then decline in Q3 and be resolved by Q4. Secondly, we reduced the number of our own stores, which started last year, and it's significantly impacted this quarter. This will gradually decrease through Q1, Q2, and more in Q3, disappearing by Q4. Thirdly, we are closing value doors, which peaked in Q4 and will decrease in Q1, Q2, Q3, and be gone in Q4. Finally, we are reducing distressed sales. The impact of these actions will continue through Q1 and Q2, then decline through Q3 and disappear by Q4.

Great. Thanks so much I'll pass it on.

Thank you, Brooke.

Your next question comes from Laurent Vasilescu with BNP Paribas. Please go ahead.

Good morning. Thank you very much. Hi, Bracken, how are you?

Better, much better.

Thank you very much for taking my question. Good to hear from you guys. So I understand that you're guiding for free cash flow to be higher at $313 million from last year. I think you have the 500 million Euro note due March 2026, should we assume that you refinance that amount or pay it down? And then Bracken, really specifically here, I think I remember a few quarters ago, you called out that you were happy with the portfolio as it stands. Is that still the right way to think about it? I'd love to get your take there as the environment continues to change. Thank you.

Sure, I’ll let Paul.

So I'll take the debt first. Yes, so we have the next maturity about a year from now. So yes, between free cash flow, we have about a $2 billion revolver right now, which we'll have access to. Our expectation right now is that between free cash flow and drawing a little bit on the revolver, we'll be able to pay that down a year from now? And then moving forward. Again, we expect free cash flow to continue to improve year-on-year, along with our operating performance and our operating margins. And so that's how we'll go moving forward. So we feel really confident that we are in a good place to continue to pay down debt, particularly the one that's coming up in about a year from now.

In response to your second question, Laurent, we are pleased with the portfolio as it aligns with the strategy we outlined in October. That being said, there are always minor adjustments we will consider, and we conduct a thorough review with our board every year. If there's anything in the portfolio that is not suitable, we will certainly exit, but currently, there isn't anything significant to address.

Okay, very helpful. Thank you very much and best of luck.

Your next question comes from Michael Binetti with Evercore ISI. Please go ahead.

Hi guys. Thanks for taking my questions here. Paul, I’d like to ask about the free cash guide. Could you help us understand how to assess where CapEx might land? Is there any initial plan regarding CapEx and working capital? I believe there won’t be any benefits this year, and you mentioned a strategic timing shift. Have you moved some benefits from working capital into fiscal '26 as we consider the growth in that area? Also, could you provide more insights on the fundamentals of Vans since you noted that the next quarter is seasonally significant? Can you elaborate on the strategy for Vans back-to-school and what we can expect to be different coming out of Sun and the team? I know this is a critical time of year seasonally.

Sure. I'll take that one after Paul.

Yes, regarding the free cash flow, the shift occurred because we had a payment that was due in early April. To prevent any issues or potential interest charges, we decided to prepay at the end of March, which was essentially a shift of a couple of weeks. While this impacts our free cash flow relative to our guidance, making that payment was the right decision for the business to avoid additional charges. So, the change was simply from early April to late March. As for capital expenditures, operating cash flow will increase, and free cash flow will also rise. We have a plan for capital expenditures, but we won't provide specific guidance at this time. We are considering remodels, store openings, and necessary technology upgrades. We have long-term and intermediate-term plans, along with short-term flexibility to adjust based on our needs. That's our current situation.

Yes. To address your second question, I want to emphasize some key points about Sun's role in our leadership. We are confident in having the right leaders in our President roles, and I'm particularly impressed with Sun, who attracts top talent. She has extensive experience in this industry, and many people want to collaborate with her, which speaks to her influence. This is a crucial first step, and it is undoubtedly happening. Next, Sun is particularly focused on product, which is vital for the Vans brand. We will continue to systematically introduce new products. This quarter, we launched the Super Low Pro at a small scale and quickly sold out of our top two styles, which were aimed at women and youth. This indicates a positive trend. However, Sun's focus isn't limited to women; she is also targeting men, boys, and youth, emphasizing footwear first and apparel second. You'll recall our four-season strategy, which aligns with our current efforts. Our social media presence has increased, particularly in surf culture, representing our lifestyle approach. While we don’t have an extensive surf product line yet, the lifestyle aspect is important to us. We will continue to expand our offerings in these four areas that she has outlined. Additionally, we are making strategic decisions regarding distribution, ensuring we do not maintain unprofitable stores while enhancing our profitable value channels. I am very pleased with our progress, and as we move towards back-to-school season, we will introduce more products, with even greater offerings during the holiday season and spring. The momentum will continue to build throughout the year.

Thanks a lot, guys.

Thank you, Michael.

Your next question comes from the line of Matthew Boss with JPMorgan. Please go ahead.

Good morning, thank you. Bracken, could you discuss the current status of the North Face brand and its health? Are there any updates regarding direct-to-consumer momentum as we approach spring? And for Paul, what is the best way to assess the progress being made with cost actions? Where do we currently stand on that?

Yes. I feel very positive about the North Face brand. We experienced strong direct-to-consumer sales this quarter, which is excellent and indicates positive trends. This momentum is encouraging, especially with what I know is on the horizon. I'm excited about our overall strategy. Regarding spring, I want to highlight our footwear business, which is essentially a year-round market but tends to be less prominent outside the winter months. We've seen significant growth in footwear globally. This indicates that our brand has a valuable presence beyond just the winter season, and we expect to release more products over time. Similar to a storyline for brands, you will notice a consistent introduction of new products with each passing season. Additionally, we used to develop only two seasons a year, but we are transitioning to four seasons. This change is crucial because designing for two seasons often leads to overlap, particularly between winter and fall. I hope I didn't cause any confusion, but shifting to four seasons will compel us to enhance our offerings for spring and summer. While the benefits of this change may not be immediate this year, we are confident you will see positive results next spring and summer. That said, we still have excellent products for this year and will continue to roll out more items.

Yes. On the cost side, I want to highlight a couple of points. First, we have achieved slightly over $300 million from the first phase of our Reinvent initiative, meeting our goals and targets. Second, we are beginning to see some benefits from our second initiative aimed at generating an additional $500 million to $600 million in operating profit, which is divided between SG&A and gross margin. In Q4, we noted positive results on the operating income line and operating margin, with revenue aligning with our expectations. This indicates that we are realizing some benefits sooner than anticipated, and we are witnessing solid progress across our direct-to-consumer business, supply chain, and stores. I also mentioned that SG&A is expected to remain flat or decline in Q1. Overall, we are starting to see improvements in terms of costs.

Great. Best of luck.

Thank you so much.

Your next question comes from the line of Adrienne Yih with Barclays. Please go ahead.

Great. Thank you very much. Sorry you're sick.

Yeah, me too. But I feel better now. I'm on the other side.

Good, just in time for earnings. So my question is not to keep on the Vans, but it sounds like there are four things that are kind of like non-comp sales headwinds in two of them, the value doors and the reducing of the inventory seem like they are largely done. But the other two kind of at various levels, diminishing kind of follow-ups into all four quarters. Is that the comp progress that you are seeing in the non-value doors enough to offset that? Or are you guiding us to think that Vans will be down throughout the year, all four quarters? And then I guess a follow-on to that is non-value channel demand is one thing, and consumer demand, right? And I think you're talking about the sell-out, it's actually getting better. But in your own DTC, what are you seeing in terms of that end consumer talking to you about kind of brand equity, mind share, et cetera? Sorry, we'll do a last one. Go ahead.

At a high level, the impacts of those four factors will continue to be felt in the first and second quarters, then diminish significantly in the third quarter, and disappear by the fourth quarter. This pattern holds true across the board. They all show consistent results; we aren’t increasing the volume, just maintaining it. For example, when you close a door, you lose revenue for four quarters. So if you close a value channel, you will see the effects last for those four quarters. The impacts will be relatively similar during the first two quarters, lessen in the third, and be nonexistent in the fourth. Regarding consumer demand, we are still not attracting enough traffic to our stores and websites, which I mentioned earlier. This is a fundamental issue of brand recognition. We are experimenting to find the right strategies to address this challenge, and while I don’t want to make any specific predictions about upcoming results, we are learning a lot. The positive takeaway is that when traffic does come to our curated assortment in non-value wholesale, we are seeing stable to increasing results. For our key accounts, we ensure we have the best assortment and execution available, which has resulted in double-digit growth. Our focus now is on implementing the strategies we’ve discussed and increasing traffic. This requires offering products that attract buyers and effectively marketing them. Sun is working hard on new product development, with super low Pro being a prime example of what’s to come. Additionally, we are continually enhancing our marketing efforts. While not all changes are visible yet, progress is on the way. We have successfully navigated similar challenges in Timberland and have the expertise to do it again; we just need to execute effectively.

Timberland looks great. My follow-up is regarding the tariff dollar amount that has not been mitigated. If you were to try to address that through pricing, it seems like a low to mid-single-digit price increase would be necessary across all regions. So, when does the inventory come off the balance sheet and affect you? Which brands and regions are involved, and do you have any additional insights or thoughts on pricing?

Let me address the first part of that. I'll have Paul discuss when it starts to show up in our P&L. I apologize for that, Paul stepped out briefly. You're right about the pricing. We have a history of pricing strategies, so it's not unfamiliar to us. We've implemented systematic pricing over time, and we're confident in our ability to manage it. I've looked closely into this, and we have a solid grasp on it. You're right that a 10% increase would likely translate to a low or mid-single-digit number, but we’re not going to take that route. We plan to be very strategic about our pricing adjustments. We are also focusing on cost reduction and relocating manufacturing, as mentioned in the script. We're thorough in our approach. Rather than seeing this as a challenge to mitigate, we view it as an opportunity. We aim to more than offset any impacts and turn this situation to our advantage. The phrase "never waste a crisis" isn't just a saying; I've experienced several such situations in my career. At one point, I thought we could only do our best to manage the situation, and while we did receive positive feedback from investors and our Board, I later realized that with the right mindset, we could have significantly exceeded the challenges. We did so the following year, and we plan to replicate that success now. We're fully committed to this effort.

Yes. I mean, Bracken out the most I say just from the impact, you'll see most of the impact in the back half of the year. We are not going to be in specific by brand. We don't really disclose sort of the brand geographic mix of our COGS. But yes, second half of the year, and as I said, the numbers that we gave you, we expect if nothing changes, if the timing of the implementation doesn't change. It is exactly where it is. We'll see about 65% of that, as I mentioned, in fiscal '26, again with most of that coming in the last two quarters of the year.

Great. Thank you very much, best of luck and feel better.

Thank you. I do. I don't sound better, but I feel better.

Your next question comes from the line of Ike Boruchow with Wells Fargo. Please go ahead.

Hi, good morning Bracken and Paul. I hope you're feeling better, Bracken. I have two questions. First, can we discuss Vans? I'm not focusing on the revenue, but I’m interested in your plans for the store base moving forward. I’m unsure about the final store count for Q4. Are there more closures planned? What is your strategic thinking around this? Second, Bracken, regarding the dividend, I know it has been reduced due to current business conditions, tariffs, and the macro environment. Are there considerations for further reductions or potentially eliminating it entirely? I’m curious about your approach to cash preservation in this context.

Okay. I will take the first, and I'll let Paul take the second one. Yes, on the store count, we've added our store count pretty aggressively as we suggested in the last two calls. And I think that's great. We're never going to be done. You're always going to be editing away stores that aren't working and adding where you feel like you have opportunities, and we'll be doing both. But I think the heavy lifting is basically done.

Yes, on the store count, it is down on a percentage term about 7%. Yes or so year-on-year, down 8% actually officially globally, I think it's 8%. And we are going to continue to look to optimize with no news. I think you've probably seen a majority of it, but we'll see where it goes. And again, it is all part of CapEx. I will strategically look at stores to close. We look at stores open if it makes sense. We'll look at ways to remodel stores. If that makes sense. We've been testing some new remodels that have gone pretty well. Again, very early days. So we'll see we'll roll them out slowly. Again, that's why I said that we lease some room in our CapEx budget to adjust, right? So we have some new store remodels, not just in Vans but across our entire store footprint. When we get traction, if we think they are working, we'll have the capacity to accelerate remodels if we don't get the ROI on those that we think we will, we can always decide to pull back and think about it other ways. So that's how I think about both vans, but the store count in general and how we're thinking about it from a growth perspective and a CapEx perspective.

I'll start with the dividend and Paul can finish. There's nothing new to announce. We have reduced our dividend twice, bringing it down to about $140 million a year now. That's always an option if we feel it's necessary. Our priority is to bring the leverage down to under 2.5 times. If we feel the need to make a move, we will, but we've made our decision for now and I don't expect that to change.

Yeah, no, nothing else to add.

Thank you.

And we have time for one more question. And that question comes from the line of Dana Telsey with Telsey Group. Please go ahead.

Good morning everyone. Hi. As you think about the buckets of the gross margin, where you mentioned the product cost tailwinds, the lower promos and the higher quality inventory. How does that relate by channel and by brand and are any of these buckets continue going forward? What's your outlook? Thank you.

That's a complex question, but I’ll try to provide a higher-level response, and then Paul can add more detail. What we are doing going forward is not just a temporary change to boost our gross margin that will fade over time. We are fundamentally improving our gross margin. While there may be differences between gross margins in wholesale and retail due to higher SG&A on the retail side and lower SG&A on the wholesale side, we believe we will have a well-balanced portfolio of channel choices that should yield strong gross margins. I am excited about the gross margin improvement we are seeing in Vans as planned. The strategies we are implementing are clearly making a positive impact, as reflected in our P&L, especially in our gross margin. We are enthusiastic about this progress and have no intention of reverting to previous practices. We expect these improvements to continue.

I would like to emphasize that the Reinvent initiatives are designed to positively impact all of our brands, particularly through integrated business planning. The benefits we anticipate, as mentioned by Bracken, contribute to our vision of becoming a strong multi-brand company. The initiatives we are implementing on the Reinvent side, including integrated business planning, will provide a standardized approach that benefits all our brands, ultimately enhancing our gross margins. Moreover, improving markdown management will also support all our brands. Additionally, as Bracken pointed out, eliminating some underperforming stores at Vans specifically enhances gross margins there. Overall, most of our initiatives are relevant to all brands.

Thank you for the question. Paul and I, along with the entire leadership team, understand that gross margin is the most critical metric in any profit and loss statement. We are committed to systematically improving it over time. In my previous company, we increased gross margin by nearly 1,000 basis points during my tenure. Although this is a different situation, I am realistic and believe there is significant room for improvement in gross margin. I anticipate continued progress in that area. In summary, we are confident in our strategy and are well on our way to transforming VF to strengthen the business and tackle any macro challenges we may face. We feel good about our current position, have an excellent team, and are making substantial progress. We’ll keep you informed as we move forward. Thank you all for your questions and engagement, and we look forward to speaking with you next quarter.

This concludes today's conference call. Thank you for your participation, and you may now disconnect.