Ladies and gentlemen, thank you for joining us and welcome to the VF Corporation 4th Quarter and Full Year Fiscal 26 Earnings Call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please raise your hand. If you have dialed in to today's call, please press star 9 to raise your hand and star 6 to unmute. i will now hand the conference over to allegra perry vice president of investor relations please

go ahead hello everyone coming to you live from vans headquarters in sunny southern california welcome to vf corporation's fourth quarter fiscal 2026 conference call on today's call we will make forward-looking statements these statements are based on current expectations and are subject to uncertainties that could actually could cause actual results to differ materially these uncertainties are detailed in documents filed regularly with the sec unless we say otherwise amounts that are referred to on today's call are all on an adjusted constant dollar continuing operations and excluding dickey's basis which we've defined in the presentation that was posted this morning on our investor relations website we use those as lead numbers in our discussion as we believe they more accurately accurately present the true operational performance and underlying results of our business we may also refer to reported amounts which are in accordance with u.s gap reconciliations of gap measures to adjusted amounts are found in the supplemental financial tables included in the presentation where we identify and qualify all excluded items and provide management's view of why this information is useful to investors Joining me on today's call are VF's President and Chief Executive Officer Bracken Darrell, EVP and Chief Operating Officer Abhishek Damia, and EVP and Chief Financial Officer Paul Vogel. Following our prepared remarks, we'll open the call for your questions. I'll now hand over to Bracken.

Well, I've got to correct you. It's not sunny here. It's 5 o'clock in the morning, let's be honest. Although it always feels sunny in California, and we have a pretty sunny quarter. thanks Allegra everybody everybody thank you for joining the call we finished this year strong exceeded our fourth quarter guide and took another big step towards transforming BF we returned to sales growth for the year for the first time in three years our portfolio is getting healthier in fiscal year 2024 taking it back away including Dickey's 43 percent of our business was growing now as we finish fiscal year 26 70 percent of our business is growing We also expanded operating margins to 7% in fiscal year 26. But to remind you, that's an expansion of 220 basis points over the 4.8% we had in fiscal 24, including DICU. Over the last three years, we've paid off over half of our net debt, excluding lease liabilities. Let me repeat that. Over half of our net debt has paid off, excluding lease liabilities. Net debt has dropped from $5.8 billion to $2.7 billion. As a result, we've dropped our leverage from 5.1 times to two times, a full two turns in two years. A lot of strong progress on growth, on cost, and on the balance sheet. We've strengthened our financial position while we've increased our investment in brand building, product creation, and ultimately in growth, which is what it's all about. Our results demonstrate that our strategy is working and that we're well on track with VF's transformation. I'm very confident in our ability to drive strong performance and shareholder value in the years ahead. Now, let me turn briefly to Q4. We delivered our strongest revenue performance in three years, with revenue up 3% versus last year, ahead of our expectations and despite an evolving macro environment. In the Americas, our largest market, we accelerated growth to 10%, including a return to growth for vans for the first time in almost four years. Our revenue performance helped drive stronger-than-anticipated operating income of $54 million. We ended the fiscal year with a strong Q4, growing revenue, and expanding margins while further strengthening our balance sheet. Now let me talk just about a few brand highlights for the quarter. We're continuing to see progress across the portfolio, starting with the North Face. The brand grew 7%, driven by broad-based growth across categories and by stellar performance america's up 16 our investments in product creation and innovation are delivering results soft shells and fleece were key drivers in apparel our investment in footwear is showing strong results or continues to and in fact we have now delivered five consecutive double digit growth quarters finally we made an exciting announcement last week which i hope you saw which further underlines the performance credentials of this brand we announced a new multi-year strategic partnership for the north face with the u.s ski and snowboard team in other words we'll be outfitting the u.s ski and snowboard athletes as they compete on the world stage including at the upcoming winter olympic games as the exclusive performance apparel sponsor athletes will wear north face across all major events including the world cup all world cup events and of course the olympic winter games and official training camps through at least 2034. of course our customers can also buy this apparel and we're sure they will the brand will be front and center on the world stage further cementing its commitment to elite mountain and adventure sport athletes this is an exciting time for the north face and we're making progress on our path to doubling this business over time there's so many ways we can grow this brand category growth market share growth new categories we can expand into and elevate and finally elevation to more premium versions of the products we already sell at higher price points we have a lot of pin-up opportunity to drive growth at the north base let's turn now to timberland which which grew two percent this quarter as expected our dtc growth was up eight percent driven in part by full price stores wholesale was slightly down versus last year primarily due to lower distress sales six inch premium boot continues to be the key engine behind the brand's momentum we're also seeing good results from the boat shoot which is growing across all regions with significant growth potential ahead we'll continue to both build on the strength of the iconic boot but also introduce more innovation across the rest of our footwear assortment and starting this fall we're resetting our apparel proposition to create a better head-to-toe expression that matches our footwear offering as part of these efforts we're also focusing on our women's business and you'll see more there too we're driving the brand's energy and leveraging its cultural relevancy through collaboration seeding and partnerships we're continuing to see positive brand search interest in the us and uk more recently in april timberland was awarded the fashion maverick award of the year at the american image awards we also as you know are expanding our distribution footprint with 11 full price stores now open and operating in our home market the outsized productivity shown by our new stores are early proof points of our new operating model working as planned we have exciting plans for timberland in coming season as we continue to set the stage for long term profitable growth ahead this brand can become much larger over time and i'm confident we're taking the right strategic steps to ensure that happens now let's talk about ultra ultra had an exceptional q4 performance another fifth consecutive quarter so the fifth consecutive quarter of double-digit growth here too across regions all regions and channels revenue grew 45 driven by broad-based growth everywhere and new launches growth for the year was over 30 percent with revenues surpassing 270 million performance was led by successful franchise launches including the original loan peak now the loan peak nine and the experience in strong execution in both ttc and wholesale we have a really differentiated product in this space and we're continuing to drive awareness which remains very low i talked about investing in product creation and marketing and ultra's brand where we have absolutely increased the investment to drive growth we're excited to see outsized growth in search search interest traffic and new consumer acquisition this brand plays a very large plays in a very large addressable market and and we believe this can be a billion dollar plus brand over time there's so much opportunity here now let's talk about vans before was down globally by five percent year over year what i'm most excited about by far is our progress in america's dtc remember dtc is where we are closest to the consumer with our products and our marketing america's is more than 50 percent of our total business and it's where the trends start for fans if you remember our econ business in the america's first turned to growth in q3 of 26 with four percent growth then in q4 america's total dtc grew five percent america's is the foundation for the brand's energy this is where we said the recovery would start as and as the america's dtc continues to grow its brand heat will start to show up elsewhere these tangible green shoots are a result of our focus on product and brand energy advance you'll hear abhishek talk more on the work we're doing on speed to market which helps us with newness newness continues to build across the assortment as we re-energize our core icons one silhouette at a time as an example the pearlized drops are having great consumer response and driving improving results within the old-school franchise another icon the authentic delivered outstanding growth in the quarter up 80 percent versus last year and slip-ons returned to growth too apparel apparel also returned to growth in q4 fans continue to leverage a social first culture-led marketing approach amplifying product stories and driving traffic particularly into digital channels during our fourth quarter we launched our off-the-wall campaign anchored around the authentic and it resonated with consumers and supported improved search and engagement trends in key markets our strategic investments in design brand energy and demand creation have been instrumental in driving improved performance for the brand we are excited about the progress advance turning to fiscal year 27 paul will go deeper in in a minute i feel very good about our forecasting abilities and today we're reinstating annual guidance we're expecting our second consecutive year of growth and strong progress towards our 10 operating margin medium term goal i also understand better the seasonality of our business today especially because on wholesale order flows and the mix of our business based on the wholesale order flows and the mix of of our business quarter by quarter. As you'll hear from Paul, we expect Q1 revenue to be down slightly, low single digits. Remember, it's a very small quarter for the year and it has no impact on our ability to deliver our guidance for the year. With respect to VANS, first let me say that for the full year, we're going to move from a double-digit decline last year to a mid-single-digit decline this year. The more important signal is that we will continue to deliver growth in America's DTC throughout fiscal year 27. Overall, the front half will be weaker than the back half. Wholesale will start weaker and pick up steam as the DTC growth drives order flow. We still have work to do in our wholesale business in the U.S. and around the world. We'll be focusing on continuing to accelerate in DTC and developing a stronger global wholesale growth engine. In the near term, as Auzhek and Paul will also tell you in a minute, we're operating an unusual macro environment with two wars at least and tariffs in flux like others in our sector we're impacted by the developments in the middle east despite these headwinds we're on track to deliver our medium-term targets importantly i'd like to emphasize our confidence in getting to the 10 margins we promised and now we've returned to growth in fiscal year 26 and we'll grow again in 27 and we're not going back we're shifting our initial turnaround phase to our growth phase so this next part of our story is all about driving durable profitable growth for many years to come overall looking ahead through fiscal year 27 just like looking back back on the past two years you'll see more growth better margins lower debt and better leverage in the coming years today i've asked our chief operating officer abhishek dalmi to provide an update on our turnaround strategy a year on from our last investor day we've really accomplished a ton over the last year and all these building blocks are contributing to both near-term success and will contribute to a lot more as we move forward so abhishek welcome to the earnings call

floor is yours thank you bracken good morning everyone it's great to be here and i'm excited to speak directly about the work our teams are doing every day to transform this company what What gives me energy is that transformation is no longer just a plan or a set of initiatives. Shows up in the way we operate, the decisions we make, and the results we are delivering. As you heard, gross margins of 55% plus, average ratio improvement of two terms, and positive growth portfolio. In October 2024, we shared with you our plan to transform the balance sheet and creating a more durable foundation for profitable growth. Paul will share more detail around our commitments, but we remain focused on delivering against these medium-term commitments. Gross margin of at least 55%, exit run rate operating margin of 10% in FY28, and leverage ratio of 2.5x or less. We are two years into a four-year journey to our medium-term targets. While macro environment has become more complex, our commitment has not changed. At the start of the turnaround, Our primary focus was liquidity and leverage. You heard from Bracken, we have made meaningful progress there. And this matters because it gives us flexibility to reinvest behind our brands. Beyond portfolio moves, our turnaround has been focused on expanding gross margin, controlling SG&A, and accelerating top line growth. All three are progressing in parallel to create fuel for further growth, Strong EBITDA, and Target Operating Margin. Let me start with Gross Margin, where we have made significant progress and have more room to. In FY24, VF's full year gross margin, including Dickey's, was 51.6%. In FY26, we finished the year at 55.2%, an expansion of approximately 360 basis points. Now, about 100 basis points came from Dickey's divestiture. The remaining 260 basis points came from the work we have done across several work streams, across our brands and portfolio. So how did we achieve this? We strengthened our product creation engine and inventory planning capabilities that are improving decisions across the business. The work we are doing to strengthen our capabilities has driven gross margin expansion in certain key areas. One, we are driving a stronger mix of higher margin products. Two, we are taking targeted pricing actions. And three, we are executing sharper markdowns. For example, the North Face and Timberland Americas were the first to deploy our improved markdown capabilities at scale, using AI and stronger in-season analytics. The result has been meaningful uplift in gross margin dollars. We have re-engineered our processes, built new capabilities, and up-skilled our talent. As we scale them across our brands and regions, we expect to drive further improvement in gross margin rate and dollars. Let me talk about SG&A now. Since FY24, excluding Dickies, we have taken out more than $225 million of sustained savings. now fully in the run rate. These structural savings, not temporary actions. We have taken significant actions to simplify the organization, to drive efficiencies in DTC and distribution, and to optimize our digital and technology expenses. For example, in distribution, we consolidated some of our footprint and balanced it more between our owned and 3PL DCs. In digital and technology as an example, we deployed faster, more cost optimized commerce platform, which allowed us to elevate our consumer experience at a much lower structural cost. Now, while we have made good initial progress, we continue to streamline our cost base. As you can see, when we commit to something, we deliver. SG&A savings have been partially offset by Forex impacts and inflation, and we have deliberately made some incremental investments in product development and marketing. Marketing is an investment engine for VF, and we are shifting it toward more working media spend, which means more of our dollars are reaching consumers directly and supporting brand momentum and demand creation. The work we have done on gross margin and SG&A sets the foundation to drive growth, and hence I'm talking about it now. That is why we are here. Now let me get into a little bit more details there. As Bracken mentioned, we delivered full year FY26 revenue growth of 1%, our first year of growth in three years. Deeper understanding of our consumers and building back consumer love for our iconic brands is central to driving this growth. We started the work by segmenting consumer demand to make clear choices about where each brand will compete and win. This commitment continues to shape what products we design and how we curate relevant experiences for our consumers. Ultimately, we need to get the right products for our consumers at the right time. This is where our product go-to-market process matters. As you all know, in our industry, go-to-market cycles are long. Speed is and will continue to be a critical enabler to accelerate this growth, and we have done a lot of work there. Let me share a few examples from WANs. In fall 2025, WANs pulled forward products originally planned for season fall 2026, and delivered them in less than six months, roughly a third of the time a standard cycle would take. We did that by working more closely with our vendors, being more precise in our product briefs, and making sharper decisions with creative confidence in design. And that speed mattered. It allowed the team to test new silhouettes on smaller scale, read consumer responses, and make better decisions about what to scale, what to refine, or what to discontinue. Some styles were dropped from Fall 2026 line, while others were refined with those insights. This kind of speed enables improved Vance performance in America's DTC, as you heard from Bracken. At the same time, Vance has been rebuilding brand energy through a more social-first, content-led model. Targeted product and content drops with artists, including Curtis, Cesar, Hayley Williams, Travis Barker, are helping reconnect the brand with culture and drive consumer engagement. These efforts are becoming visible in the marketplace. It is early and we are clear about the work ahead advance. This combination of speed, product newness, and sharper marketing will be the building blocks we continue to execute into the next year and beyond. That's the growth engine we are building across VF brands. Looking ahead, let me reiterate our priorities. Keep expanding gross margin, maintain cost discipline, and accelerate growth across our brands. We are encouraged by the momentum we see in the business. We have made significant gross margin progress, which gives us fuel to drive growth, and we continue to realize additional margin expansion opportunities. We have mitigated outsized external challenges while continuing to invest in accelerated growth. Now, while we manage our cost discipline, we have two near-term cost challenges, oil price fluctuations and potential tariffs. On oil price fluctuations, there are two areas of impact, rate and product cost. For freight, we are leveraging scale with our carriers and partners and driving cost discipline across the supply chain. On product cost, we are consolidating materials across brands and leveraging our VF materials library to drive pricing scale while also reviewing our pricing strategies. On service levels, we are adjusting sourcing flows, monitoring logistics, and working closely with our regional teams. We have contingency plans in place and are operating with extreme flexibility. On tariffs, we are closely watching a potential step up to take effect mid-July, following the conclusion of the Section 301 investigations. For the past year, we have been actively mitigating, rebalancing our sourcing footprint, reducing exposure to higher tariff routes, and working with partners to share cost burden. Putting this all together, we continue our work across several initiatives and remain extremely confident in our ability to achieve our margin targets in FY28. We have many opportunities ahead, including the ones that I can highlight in particular. First, our faster go-to-market enables us to drive outsized growth in DTC channel, which in turn generates a higher level of profitability and fixed cost leverage for us. Second, a return to top line growth and a more efficient marketing approach that we are deploying results in further leverage on marketing spend. And finally, AI is creating incremental optimization opportunities across our brands and corporate functions. We are leveraging AI where we see clear value, scaling what works, and embedding it into how we operate. You will see us communicate progress in terms of operational outcomes, margin dollars, inventory quality, speed, and productivity, not just AI investment dollars. The work is not finished, but VF is operating with more discipline, more speed, and more focus than it did a few years ago. The conversation inside this company has shifted from turnaround to growth, And that is what gives us extreme confidence in the next phase. With that, I will hand it over to Paul.

Great, thank you Abhishek, welcome to the call.

As Bracken and Abhishek illustrated earlier, we made important strides in fiscal 26. We returned to top line growth, expanded our gross margin to 55%, and achieved an operating margin of 7%. I wanna underscore what Abhishek just said, leverages down a full turn compared with fiscal 25, and down two full turns versus two years ago. let's turn the financial review of the fourth quarter we close out the year with another quarter of revenue growth q4 revenue was 2.2 billion up three percent versus last year and above our guidance of flats up two percent wholesale demand in the quarter drove our better than forecast results led by the north face by brand and north face grew seven percent led by the america's region which had another quarter of double digit growth bands was down five percent as expected including about two percent benefit from earlier orders from wholesalers and lastly timberland grew two percent its sixth consecutive quarter of growth by region the americas grew ten percent in the quarter and up three percent for the full year reflecting the continued progress in our largest region may was down five percent as we're navigating the macro headwinds in the region and apac was up one percent driven by demand across north face and timberland and lastly we grew across both channels DTC delivered another quarter of growth at up two percent and wholesale was up three percent aided by higher than expected demand. Before I review the rest of the P&L, I want to address a few items that impacted comparability in the quarter. Following the Supreme Court's ruling in February related to certain tariff refunds, we recognized a net benefit to our gross margin during Q4. We also elected to accelerate select restructuring costs in the quarter which drove a higher SG&A rate and partially offset the gross margin benefit. On a normalized basis, excluding these items operating income would have come at the midpoint of our guidance range gross margin for the quarter was up 240 basis points for us last year to 56.4 percent helped by a roughly 50 million net benefit from the tariff receivable and offsetting charges normalized gross margin was roughly flat versus last year driven by the benefits from targeted price actions offset by mix and fx sgna's percentage of revenue was up 70 basis points for us last year or down slightly excluding the accelerated restructuring costs our operating budget for the quarter was 2.5 percent up 170 basis points versus last year in q4 net interest expense was 27 million while tax expense was 25 million reflecting a full year adjusted rate of 36 this should be the peak year in tax rate with the expectation that a reported rate should be in the low 30s in fiscal 27 and back in the 20s beyond that finally q4 adjusted earnings per share was zero dollars versus a loss of 14 cents in q4 of last year now i'll turn to the balance sheet inventories declined 11 in constant currency and inventory days were down year over year reflect reflecting improved inventory discipline across the organization net debt was down approximately 800 million verse last year or down 16 following the repayment of the 500 million euro maturity made earlier this year as noted year-end leverage improved to 3.1 times down one full turn verse last year our free cash for the year was 505 million including a 100 million cash benefit from the net impact of the pension termination normalizing for this activity free cash flow of 405 million was approximately 90 million above last year now on to our outlook as bracken mentioned we are reinstating annual guidance effective fiscal 27. for the full year we expect another year of growth and operating margin expansion as we advance towards our medium-term targets we expect revenue to be up one to two percent in constant dollars by brand we expect continued growth at the north face timberland and ultra driven by our ongoing focus on investing in product and marketing we expect vans to deliver moderating declines for the year as a whole with improving trends in h2 relative to h1 we recognize that one to two percent is this somewhat specific range incorporated into this guidance is our belief that we will grow in fiscal 27 but that there are real headwinds related to the middle east conflict and that we expect about a half a point benefit from the 53rd week. Today, we've had some impacts on our operations in the Middle East, in particular on the wholesale side. We are anticipating the conflict in the Middle East to negatively impact revenue by about 100 basis points. While we have full confidence on where we will land for the year, we expect slower top-line trends across the first half of the year. This is reflective of the slowdown in the Middle East and Europe due to the war and company-specific trends, including wholesale timing shift, which can have a disproportionate effect given the relatively small size of q1 in particular and as such we expect q1 to be down low single digits for q1 operating income partly driven by some investments we are making in the quarter and particularly around investments in ultra and dtc both of which bracken highlighted earlier we do expect a 100 million loss for the quarter about 40 million more than last year this is all contemplated in our annual guidance and for vans we feel very good about the direction of the business and the underlying momentum execution is translating to tangible improvements particularly in the Americas where DTC continues to lead the recovery. Let me reiterate what Bracken said earlier. For the full year, we expect vans to be down mid-single digits compared to minus 11% in 26 and down 15% in fiscal 25. Americas is our most important region and DTC Americas is approximately 40% of our global business and the DTC Americas business has turned. The progress here is clear harbinger of where we are headed for vans. For Q1 on a reported basis, we do expect a softer performance relative to q426 mainly related to the wholesale timing i mentioned previously a normalized basis on a normalized basis to growth across the two quarters is roughly the same now moving down the consolidated pnl we expect fiscal 27 operating margin of approximately eight percent supported by gross margin expansion and a lower sgda rate relative to last year full year operating cash flow will be up first last year and free cash will be flat to up first last year when you exclude the 100 million net impact of the pension termination from both years On the working capital side, we're making additional investments in inventory to support top-line growth and expect inventory to be up year-on-year. This is an intentional decision to invest behind a few of our brands, and we still see our overall inventory in the long-term heading lower and expect our inventory days to be flat this year and lowering moving forward beyond that. We also expect to step up in CapEx this year, about a $100 million year-over-year increase, with new full-year store openings of Timberland as one key driver. We continue to focus on strengthening the balance sheet, and we expect to exit the fiscal year with leverage between 2.6 and 2.9 times, driven by both the further reduction in net debt as well as improved operating performance. Our plans for fiscal 27 represent another step towards our medium-term goals, namely an exit run rate of 10% operating margin in 2028 and lowering our leverage below 2.5 times by fiscal 28. As we continue to progress towards our operating margin targets, we are seeing gross margin come in even better than planned, with our SG&A percentage slightly higher. Much of this can be attributed to the elimination of Dickies in our portfolio, where that brand had structurally lower gross margins and lower SG&A. So while the makeup of our 10% margin target may be slightly different, the goal is still the same and we are on track to achieve it. To close, Fiscal 26 represented meaningful progress for VF, and we remain on track to achieve our medium-term financial targets. With that, I'll hand it back to the operator for your questions.

Thank you. We will now begin the question and answer session. Kindly limit yourself to one question per person. If you would like to ask a question, please raise your hand using the raise hand function at the bottom of your screen. If you have dialed in to today's call, please press star nine to raise your hand and star six to unmute. Please stand by while we compile the Q&A roster. Your first question comes from the line of Michael Dinetti with Evercore.

line is open please go ahead hey guys thanks for taking our question here and thanks for all the detail um just a couple um on vans you know the d2c improvement are you are you maybe you could just help us understand what you're seeing um if you're seeing the same level improvement itself through at wholesale as you're seeing a d2c we're trying to parse together how you're looking at it in total but i know you're managing sell in to some extent on wholesale so i'm curious what you're seeing at sell through at wholesale how similar it is to d2c and you know what you think is that is the difference between the two today to just kind of help us understand how you're looking at it for the year and then any comment on how you think we should model vans for for

first quarter would be helpful i'll take the first one and i'll i'll uh give paul a second one yeah on sell through it wouldn't be as strong as our as our dtc the dcc has a different mix and also DTC includes e-com, where we're able to really drive a lot of traffic to our own websites, and we don't normally drive to every rail. So I would say the sellout in wholesale is not as strong as our DTC in the Americas. Our DTC is a good harbinger of what's going to come, because the products that we have in our DTC are coming. So one by one, they'll come into the wholesale network, both online and offline, And so you'll see a stronger and stronger set of products in the portfolio. And I think we view that as a really clear harbinger of what's to come. Now, what's the time frame of that? We're being a little cagey on that intentionally because we're going to wait and see how it plays out. But we feel very strong about the trend line on BTC and then how it's going to play out in wholesale over time.

Yeah, and then on Vans, so I think for Q1, the reported number will be slightly lower than what we experienced in Q4 this year. Again, keep in mind, we did have some demand that pulled forward some orders into Q4, and given the size of Q1, it does impact that. So on a normalized basis, Q4 and Q1 are roughly the same, but on a recorded basis, Q1 will be slightly worse than Q4, and then we expect it to improve throughout the year.

And I know normal practice for VF has been to, you know, take a conservative approach to DTC as you get further out on the calendar. Is the confidence in the improving growth rate in vans through the year related to something you could tell us about with the order books on wholesale?

We normally don't talk about order books. I mean, our confidence is really built on everything we can see internally, especially the DTC sellout. This looks really, really strong. And the new product performance in particular is really strong. And, of course, we also get to look at what you can't see at all, which is the new products that are coming. and we're sitting in a room that's about you know 400 feet from where we look at you know one two and three seasons out and we just feel really really good about what's coming okay thanks a

lot guys appreciate it thanks michael thank you and by the way the sun's coming up if you're

wondering this is now sunny california almost your next question comes from the line of janeen's dichter with btig your line is open please go ahead i drive on this one a kind reminder if you've dialed in you will need to unmute your line by pressing star six sorry about that we're

back um thanks for taking our question um you know on vans you mentioned that there's still some work to do in u.s wholesale can you help us understand exactly what that means is that a reference to um needing to clean up more distribution or is that a reference to kind of need to build back the order books and and maybe um give us some thoughts on how you're thinking about the u.s wholesale wholesale distribution currently thank you yeah it's

It's mostly just really building back the order flow into the business. The distribution looks pretty good. We're going to continue to edit that. You'll remember we took down the value channel pretty significantly over the last year. We've done some editing. We may have overcorrected there a little bit, so we're going a little bit back into that, but not dramatically. Overall, though, I think our distribution looks about right in wholesale. It's really more about just going to continue to follow the DTC performance, Make sure that our wholesale partners really get to see that, and they have, and then have the orders that come behind it. So it's really much more of a follow the leader mode now rather than add on to the number of players in the market.

And then just on DTC, it sounds like a lot of that improvement is coming from online. Can you elaborate a little bit more on what's going on with stores in terms of both traffic and conversion?

Yeah. Yeah, certainly traffic's gotten a little better, and conversion's gotten a lot better. I think our execution at retail has really improved. We had a new leader go in two quarters ago, and he has really re-energized the team, gotten focused on execution, and that performance has really improved on retail and e-com. So bricks and mortar and e-com, he's now taken over the rest of the world, as you know, and we're bringing some of that magic into the rest of the world over this year. So that's another reason we feel so strongly about our ability to deliver kind of the performance we're seeing in DTC in the U.S. into the rest of the world and into the wholesale in the U.S. over time. And we're excited about it.

Great. Thanks very much.

Thank you very much.

Your next question comes from the line of Laurent Vasilescu with BNP. A kind of writer to press star six to unmute.

Good morning.

Good morning.

Good morning. Thank you very much for taking my question. Hi, Bracken. How are you? I've got a quick question as the sun comes up here in California. But it's a question about, I think you mentioned, Paul, that the gross margin for 4Q would have been flat, if I understood correctly, on the tax-to-tariff benefits. And if that's the case, how do we think about 1Q gross margin? And obviously, there's no precedence with this tariff refund, but how do we think about the tariff benefit for the fiscal year 27 guide relative to the gross margin and the free cash flow guide? Thank you so much.

Yeah, so for Q4, yeah, if you back out the receivable gross margin, it would be roughly flat for Q4. So that is correct. Q1 gross margin will be up. SG&A is also going to be up, as we mentioned, some of the investments we're making. Q1 in particular is a smaller quarter, and so we're starting the year with some investments we think are really going to help throughout the full year. And so that's why you're seeing that dynamic in Q1 with the better gross margin, but the higher SG&A, which is why the OI is down year-on-year in Q1. But again, that's all part of our plan for the fiscal year 27. And you see our expanding operating margin to 8% for the full year on the better gross margins and leverage of SG&A. So you'll see, again, higher gross margin than Q1, higher SG&A for the full year. You'll see higher gross margins, leverage on SG&A. You'll see us get to the 8%. So that's how it works out. On the tariff side, yeah, so we're assuming that the tariffs are back in place at the end of July. And so we expect to have sort of a full year impact of tariffs of an incremental 70 to 80 million for the year. Again, we'll see how it goes. Obviously, it's very fluid. Could be better, could be worse. But we're assuming they're going to be back in place and we're assuming it's going to be call it roughly 70, 80 million impact, negative impact on our on our gross margin.

Paul, that's super helpful. And then I think you mentioned to Michael there were some timing shifts between 1Q and 4Q on revs during the timing shift on wholesale. Maybe could you quantify that number? I think you said they would have been roughly equal. So it seems like a pretty big delta. And then are you assuming that there's some timing shift from 2Q to 1Q? And so I know you're not ready to guide for 2Q, but should we at least zoom that there's probably two QB flat for the year on the top line. Thank you so much.

Yeah, the biggest impact was Q4 and Q1. So we just had some stronger demand, and orders just came in earlier for the season, which is obviously a positive sign. We knew that. So, again, with the Vans number, the guidance, it was in there in the guide. We knew the demand was going to be there. It was about two points in each quarter. And so kind of – that's why I say if you normalize it out, the growth is about the same. And if you look at the trends relative to kind of the normalized trends in Q2 and Q3, then Q4 and Q1 are, again, slightly better from a kind of normalized trend in terms of the client's advance. Thank you very much for that. One thing I should add also, because it also impacted the North Face as well. North Face also has had some really strong demand as well. that impacts it was it was a benefit to them in Q4 given the size of Q1 it actually it's a bigger the negative benefit on the actual growth rate is higher in Q1 just it's a smaller quarter so one of the other things that's impacting again growth just for Q1 but not for the full year is again some of that timing shift for the north faces as well and so again the demand was there which is great fell in Q4 versus Q1 that has a disproportionate impact on north base in in q1 in particular but again we still expect um you know good growth in north face for the full year again so there's a lot of things going on that just kind of specifically impact q1 but don't really impact the the what we think will be a stronger q uh or fiscal 27.

very clear best of luck thanks laura your next question comes from the line of brooke roach with goldman sachs your line is open please go ahead good morning and thank you for taking our

question. In the prepared remarks, you talked a little bit about some of the drivers of product costs as a result of some of these higher oil prices that will be flowing through the P&L. You mentioned several mitigating factors, including pricing. Can you unpack for us a little bit more what that annualized headwind is going to be when it gets fully into your inventory cost and how much pricing actions you're contemplating both this year and into next year as a result of these inflationary factors, whether it is oil costs or tariffs or other

factors in the environment? Thank you. So the impact on fiscal 27 is pretty minimal. We are obviously looking at oil prices in general in terms of product costs and how that can impact fiscal 28. So I think it's kind of a wait and see where oil prices sort of net out between 80 90 at the low end 100 110 maybe even more at the high end and so we we have it out there again it's really not getting back to product costs all that much in fiscal 27 if anything and then we'll give you more guidance as we get towards the back half of the year what that may or may not do from a headwind for fiscal 28 um and then from a pricing standpoint we're just being strategic across the brands there's nothing really incremental new to call out on pricing just sort of strategically going through the portfolio and you know changing prices where appropriate

great and then just a follow-up can you unpack the trends that you're seeing in emia what assumptions are you embedding for western europe beyond the 100 bits related to the middle east are you seeing any change in demand in that region for any of your brands

i'd say generally speaking no you know i think uh you know it's been weaker i mean europe has been weaker for us and in general i think the whole macro environment's kind of swirled europe that traffic's been down across the board across the whole industry and it's certainly affected us So it has been weaker for us, and we sort of, looking forward, we're not expecting magic there. I mean, the good news is our DTC is stronger than our wholesale there, so that feels good. Kind of echoes the same story we told about the vans in the U.S. in general. So I think as we go forward, we certainly expect it will get back to good growth over time. We've also got new, we're taking a new approach there. You know, we've learned so much as we brought the, just to take you back a few years even, We brought this European platform for our commercial engine into the U.S. It was a very successful multi-brand platform. We weren't doing that in the U.S. We put it in the U.S. It certainly has driven improvement in the U.S. Then we've upgraded that even further by getting focused on our DTC in the U.S. and really improving our execution engine. Now we're bringing that execution over into Europe. So it's kind of an illustration of this whole value of having multi-brand, multi-category, multi-region business like we have where we're going to keep learning in different parts of the world as we tap into a new vein of understanding and insight that improves our business. We're going to bring it to the rest of the world and the rest of our brands. That's exactly what's happening now. You'll see that happen. It's already happening in the U.S. That's why you saw such a strong quarter. I think you'll see it in the quarters and certainly years ahead around the world.

Great. Thanks so much. Best of luck.

Thanks, Brooke. Thank you, Brooke.

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

Hey, guys. Can you hear me?

Perfectly.

Hey, Bracken. Clarification and a question. I think for Paul, the refund benefit you saw in the first quarter, should we basically be modeling that as a bad guy, $50 million in the fourth quarter of next year? I'm assuming we should. I just want to kind of make sure that that's the case.

It's not really a bad guy, so if you think about it, if you think about the full year, the full year just basically assumes that we didn't have to pay the tariffs. We took a receivable to account for that, which all hit in Q4, so we tried to normalize out for Q4. Just as a level set, the 7% operating margin in fiscal 26 is a good clean margin. I wouldn't think about, is it a benefit in Q4? I think more a function of if the tariffs are put back in place at the end of July and if we're back in an environment where we're having to overcome the tariffs, it will impact the back half of the year. That was the $70 million to $80 million or so that I mentioned earlier in terms of the incremental impact we would see in the back half of the year. So it's not really, oh, we had a benefit, we didn't, because it's not really a quote-unquote benefit. It's just we had been assuming we were going to have to pay something we didn't, so there's no impact really at all. We have a clean 7% margin in 26, but next year we will potentially have to face increasing tariffs if the July announcement goes through and then we have higher tariffs. It will make Q4 tougher compare, but it's not really like for like. It's more that we will potentially have tariffs back in the mix for Q4 next year. Or Q4 this year, I'm sorry.

And Paul, if I can just add, I think two things. One, to underscore the point that the seven points of operating income in FY26 is clean. It doesn't have the tariff impact. And two, the $70 million to $80 million that Paul is talking about, we do have mitigation action, as I highlighted, as part of the work that we have been doing over the last one year in terms of thinking about our sourcing footprint, thinking about rerouting the product, and also working with our vendors. So we do feel confident of mitigating almost all of it in FY27. So that's what we are saying. when we are committing to the guidance of eight percent.

Got it. Okay, that's helpful. Then as a follow-up on the fiscal 28 margins, I know what the analysts say, I believe you guys said you were committed to achieving a margin of at least 10% in fiscal 28. I think now you're saying it's a run rate. I know there's noise, there's tariffs and things like that, so that's understandable. But can you just elaborate what a run rate means? That could mean a lot of things. Is there any more clarity you could kind of give us to what your expectation is for the annual margin in 28?

Yeah, let me be crystal clear. So when we gave that, we said in fiscal 28, we would deliver at 10%. What we meant was a run rate, and we then got a lot of feedback, very understandable, like, oh, so you mean for the full year? And we said, no, we didn't mean for the full year. We never intended that to be the full year. The idea was that during the year of fiscal 28, we'd reach that point where we'd be a 10% margin business. So we redescribed that a couple of quarters ago. We've tried to reiterate that to everybody. So we use the term exit rate. So you can kind of count on as an exit rate, fiscal year, as we exit fiscal year 28, we've got a 10% operating margin run rate. So the other way we could have said it, maybe we should have said it, is full fiscal 29, you can count on 10% or better. So during fiscal 28, we'll hit 10% sometime during that year. And we've committed now to a 10% exit rate. Is that clear enough?

Yeah, I appreciate it.

Thank you. Thanks for asking that. We were hoping we'd get that. If you hadn't, Abhishek was going to ask Paul. My pleasure.

And a kind reminder, if you would like to ask a question, please raise your hand using the raise hand function at the bottom of your screen. And if you have dialed into today's call, please press star nine to raise your hand. Your next question comes from the line of J. Sol with UBS. Your line is open. please go ahead hey jay a kind reminder to meet yourself unmute yourself on locally

got it can everybody hear me now we can hear you perfectly super bregan thank you so much um i just want to ask about the free cash flow guidance for this year um you know maybe can you elaborate on what flat to up means uh and then what are you comparing it to because it looks like in the slide deck you're comparing it to um 405 million for this year and maybe how do we think about the the pension expense and the pension termination cash benefits from this year are you excluding those from that number if you could maybe just define the fiscal 26 number what's in there and then tell us how you think about free cash flow in 27 um in a little bit more detail that'd

be great thank you yeah sure um so yeah so the the pension benefit was when we terminated the pension um there was a cash benefit of uh of about uh 100 million dollars so our free cash flow including that is 505 on a normalized basis we obviously don't expect that that was a one-time think we won't get that every year it's real cash in the door but so in a normalized basis it's you know 405 million is our free cash flow now that's up 90 million versus last year and so again we had said all along that we would have free cash flow in fiscal 26 that would be flat to up versus you know last year and we obviously delivered 90 million more than that so the base rate the base number we're talking about is the 405 so it's excluding the pension it's four or five and then we said it'd be free cash will be flat to up this year again the biggest variable there is we are upping our capex spend this year which i mentioned we're investing about 100 million more this year in capex than last year a lot of that is going to investment some of that as we talked about is on the growth in timberland and the full price stores that we're we're we're growing in timberland so we even with that increased investment we still believe that we will have free cash flow that is equal to or better than last year we're going to to continue to de-lever so as we said we finished this year 3.1 times it's a full turn better than last year we'll get below three times this year so between 2.6 and 2.9 is what we said we're still on track to be at 2.5 or better in fiscal 28 so everything is on track and given the fact that everything's on track and that we actually had an even better improvement in our in our leverage ratio for for um for fiscal 25 or fiscal 26 our fiscal 26 that we we are giving ourselves the the ability to invest even more particularly on the on the store side in fiscal 27 so hopefully

that was clear it was well thank you so much yep great your next question comes from the line of samuel poser with williams trading your line is open please go ahead hi sam uh good morning thank

you for taking my questions um i have a handful here one um the 53rd week in fiscal 27 i assume that that will be gross margin accretive because most of that additional business comes from DTC. The wholesale part of that is small. Would that be a fair assumption? I mean, it's small. We

haven't really quantified it. It's small. I mean, your logic is definitely sound, but it's pretty small. And then just while you're on the 53rd week, just to be clear, we said it'd be on a revenue side at about a half a point to growth overall. So that is helpful because it's somewhat mitigates the point or so impact we see from EMEA from the conflicts over in the Middle East.

MR. Got you. And then in the north face, how long will it take to double? And then with vans, you talked about the speed to market. Given some of the strength of some of the new shoes, when could a wholesale partner write an order for right now and expect to get some deliveries. And lastly, there's a new authentic called the Authentic Kickdown, which apparently isn't on your website, but is being sold through some like urban and free people. I'm wondering just the strategy there because you talk about your DTC, but that's a shoe that appears to be doing decently, but isn't showing up on your website. So that's just a lot of questions, a lot of stuff I want to understand.

Sure, sure, sure. Absolutely, Sam. So first on the doubling of DNF, we're not committing to a time frame, but we're very optimistic about it. I mean, I do think at some point, because we're really laying a lot of groundwork right now to grow across multiple categories around the world, we're really putting the next phase of planning in to drive that long-term sustainable growth. The growth should start to accelerate. Now, we're not committing to that, and we're not going to do it today, but at some point, maybe in an investor day, we'll lay kind of a timeline out for that. In terms of vans, can you place an order today? Absolutely, they can. You know as well as anybody, maybe better than anybody else in this call, how wholesale works. They can absolutely place orders today. They've also got product, and they're currently in their store. So it's a process of one by one by one. And we were just at a cookout last night with our wholesalers for vans, as a matter of fact. And there's a lot of optimism out there, but it's going to take time. You know, you've got to keep the momentum going. We've also got to prove to them, as you know from being a former buyer. We've got to prove to them these things are selling. I think they're now seeing it. So the optimism's starting. Now it's got to turn into orders.

My question was, if I wrote an order today, could I get it in three months or would it still take six, given the speed situation?

Let me take that, Sam, because you actually asked a really good question, which is one of the big unlocks we actually executed on last year so we had a lot of success with super low pro as you know on vans as well and that was a great example where we actually saw the initial buys we saw the momentum in the product we actually chased down and got the product back on the floor in exactly 77 days so we did demonstrate that we have the capability the capacity and the partners on the supply chain side to actually accelerate any product chase if it's on the same silhouette and the same, you know, with the variation of fabrication and color and material. So that's good news. You know, on your question around wholesale, if we do get the order, we feel very confident that we can meet it. And that's what the team are in the works for, in terms of looking at their open to buy and really figuring out what, where we can actually drive. Your last question that you had around, you know, a particular style available only in the wholesale partner. Now, this is the kind of, you know, another shift in mindset that we are seeing at VF, that we are constantly going to be testing different ideas and scaling them pretty fast like one of the ideas could be that do we actually take a particular style a particular silhouette test that in wholesale worse take that in DTC stores first take that in online first so this was one of the examples I'm glad you observed it which is where we are testing that what if we actually kind of you know push a certain style more at a rapid speed in wholesale partner first see the velocity there see the sell through there and then replicate that across the other channels

thank you thank you sam a kind reminder to limit yourself to one question per person if you'd like to ask a question please raise your hand if you've dialed into today's call please press star nine your next question comes from the line of anna andreva with piper sandler

your line is open please go ahead uh great thank you so much can you guys hear me yes we can uh terrific uh yeah thank you for all the color uh this morning very helpful uh we wanted to follow up on timberland i think you mentioned wholesale declined on lower distress sales in the fourth quarter uh what was that amount and is that dynamic continuing into fiscal 27 uh just any color on that would be great um and then secondly you talked about marketing and moving towards the upper funnel across the brands uh which makes a lot of sense uh just what was your marketing as percent of sales for the year and how should we think about that for 27. yeah on the timberland

side it's just the the inventory is actually in a healthier position and so um we were selling less distress there and so that's there's some impact on that that follows through into the beginning of this year but it's actually all a good sign because we're in a really good place there

yeah just to answer your question of course so we're investing i would say pretty strongly in marketing so we're about 8.6 for fiscal year 26 and uh you know our game plan is to continue to invest pretty strongly in marketing i i do think there's somewhere in the future where we can bring that down a little bit or we're probably at the high end of the upper quartile of the industry right there but given where we are and and the and what we're seeing from a responsiveness standpoint we'll probably stay in that range for a while but we'll eventually bring it down okay

fair enough uh thank you so much best of luck thank you your next question comes from the line

of lorraine hutchinson wood bank of america your line is open please go ahead a kind reminder to unmute yourself locally if you've dialed in please press star six to unmute hi everybody

um good morning i was hoping that you could just help talk through a little bit of the strategies you've used to turn fans america to really move that around the world we got

part of your question but let me try to restate it and see if i got it right just say yes you want to understand a little bit of the van strategies that have driven the turnaround in the DTC in America's and ultimately presumably that will move around the world correct exactly good yeah so it's it's pretty much what we've we've been laying out from you know from two years ago it comes back to product marketing and and in this case really good great commercial execution so the product is coming you've seen a lot of new product from us if you if you're not already I'm sure most of you are if you're not following us in all the social media feeds you should you'll get a lot of color on what we're doing and you'll see just the range of things we're doing in the excitement around them you know I'm sitting on literally I just wanted to I was gonna bring this out for those you're looking at the video but this shoe we just launched you know we had lines in front of stores and all the places we sold it we actually had fights in front of a couple of them which we're not proud of but you know we're the that generated that kind of heat for some of the the the collaborations that are harder to get, and then bringing those same attributes, like the pearl eyes, down into more available, more affordable shoes that you can buy almost everywhere is really part of our game plan. So we're doing that, and we've got really, really great product out and coming. The second thing we're doing is we're really trying to make sure that our marketing is, you mentioned upper funnel and lower funnel. We're really doing a lot on both ends of that spectrum. We're trying to make sure our lower funnel marketing is really strong in brand building too. And so you've probably seen the character of our marketing change some. It used to be a lot of skateboarders, and now it's a lot more about California lifestyle, some skateboarding and some just off-the-wall stuff. You know, we've got a new campaign on off-the-wall. But generally speaking, we're trying more and more. You'll see us tie it directly to individual silhouettes and products because we want to make sure it really converts into sales. The third thing we're doing is really great commercial execution. You know, I think, you know, hats off to Brent Heider, who's taken over, took over the Americas now, is now running our global commercial team. You know, he's really done a super job of raising the caliber of play there. And he's got a fantastic team under him, including Jacques and so many others that have really raised the execution level in our stores and in our e-commerce execution. You know, Abhishek is sitting next to me. His team did a great job of building websites that are more responsive. They look better. They feel better. They sell better. So just all the elements that you would expect us to be doing, I think we're really doing in the DTC. And that's going to make its way around the world and into wholesale over time.

Your next question.

Thank you, Lorraine.

The last question for today will come from the line of Blake Anderson with Jeffries. Your line is open. Please go ahead.

Good morning. Thanks for taking my question. You answered most of them. I just wanted to ask Bracken first on vans. would be interested to hear how the customer base is evolving kind of versus your expectations over the last year um maybe talk about uh the growth of new customers versus existing and other a lot of loyal vans customers out there um anything on retention rates and how the younger female demographic is trending i know you guys have mentioned that as a key segment as well yeah

i'll give you a little color but i'm gonna i'm gonna go i'm gonna go a little deep on parts of this i'd say the most important thing to point out is that the customer base is predominantly men you know i think when we when we came out of the gate you know we really uh felt like you know there's a we have a lot of opportunity in women and we have a lot of opportunity in women and we have a lot of products out and more coming that are going to be able to women we've really doubled down on men and it's uh in in our dtc in the americas and it seems to really be working and we're going to keep that up and now we're also doing a lot more than that we think there is a big opportunity. Now, we're also focusing on a couple of different segments, and I won't bore you with our segmentation strategy, but let me just say they tend to be kind of the people that you tend to notice if you walk down the street. You know, they're the ones who look a little cooler, seem like they're on the edge of a trend, and we have different segments to go after it. Now, that said, we've also expanded our marketing footprint a little bit because we have a lot of lapsed users and even older users who love the brand and just we kind of fell out of favor with so we've we've broadened our um our media buys a little bit so that we're reaching even some of these older people as old as people like me who love vans and and want to buy like the the latest stuff that's coming out so we're tart we have a very very clear specific targets very narrow but we're opening the aperture a little bit to make sure that other our awareness is staying up among a broader group that really wants to buy. And that seems to be working.

That's really helpful. If I could ask one more, I was curious, Paul and Abhishek, on SG&A and COGS, I know there's big initiatives to generate savings there. Can you quantify at all how much you're taking in savings this year versus last year? I just was curious directionally if you can talk anything about how much you're able to generate excluding revenue, just taking costs out of the business this year versus last year?

Yeah, I mean, we're not going to overly specific other than to say, well, A, what average check had already said, right? So we have taken out $225 million out on a run rate basis. You know, some of that's been offset by inflation and then specific and decisive investment decisions. We will get S&A leverage this year, but we're not going to specifically talk about the overall numbers other than to say, you know, to get to the 8% operating margin on call the 1 to 2% revenue growth, we're going to see both gross margin expansion and some leverage on the S&P.

Yeah, and the only thing I would add is like, you know, I want to underscore the point that I made on the gross margin. We did expand 350 basis points, you know, 360 basis points, but 100 of that was actually through the Dickey's divestiture. So we do see the composition of that 10%, you that Bracken talked about for the full year FY29 and beyond, you know, could be a little bit of a different mix than what we said earlier between gross margin and SG&A. But we definitely see opportunities both in gross margin dollars as well as in SG&A dollars going forward.

Thanks so much. Best of luck for the year. Thank you. Okay, I think that was the last question. The sun is up and very bright here as it often is in California at this time of the day. Just to close, you know, we return to full year growth in fiscal year 26 and we expect to keep growing in fiscal year 27 we're going to continue to expand our margins and continue to reduce our leverage so all the things that we've been doing we're going to keep doing and more and we should we're going in the right direction we'll see more of this more improvement the north face and timberland are growing we're seeing tangible signs of momentum advance led by america's dtc if you didn't get that from that call we could we we said it many times because we feel so strongly about it as we're growing for the first time in over four years in america's dtc we're on track to achieve our medium-term targets an exit run rate of 10 operating margin of fiscal 28 and a leverage ratio of two and a half times or lower by fiscal year 28. so this has been a very strong year for vf and i am super excited about the momentum we have and that we're building for the future so thanks everyone for the call thanks for all the questions and we'll see all of you many of you around the world as we do and investor meetings and things in the quarter ahead thank you everyone thank you and thanks two of you thank you this concludes today's call

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