V F Corp (VFC) Q3 2026 Earnings Call Transcript

Ladies and gentlemen, thank you for joining us and welcome to VF Corporation's Q3 Fiscal 2026 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 into 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.

Allegra Perry Hello, everyone. Welcome to VF Corporation's third 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 cause actual results to differ materially. These uncertainties are detailed in documents filed regularly with the SEC. Unless we say otherwise, amounts that Bracken and Paul 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 represent the true operational performance and underlying results of our business. We may also refer to reported amounts, which are in accordance with U.S. GAAP. Reconciliations of GAAP measures to adjusted amounts are found in the supplemental financial tables, which are 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, 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.

Thank you so much, Allegra. Before I get into anything else, I can't help but talk about Alex Honnold. Over the weekend, Alex set a record for the biggest urban free solo climb in history, climbing the 1,667-foot skyscraper Taipei 101. Alex has been an athlete of the North Face for over 20 years, and he's one of the many super impressive and brave human beings we work with as we develop products and marketing. You might remember just last quarter, we highlighted that Jim Morrison completed the first ski descent of the North Face of Mount Everest. That was captured by another athlete of ours, Jimmy Chin, and will be released as a feature film later this year. And Jim's backstory is simply incredible. Our athletes continue to push the boundaries wearing the North Face product. And we continue to push the boundaries of our results. So let me get into the third quarter. We had a strong third quarter. I'm incredibly proud of the team. And I'd like to thank all of our employees for their relentless hard work and dedication. Importantly, our business improved in Q3 relative to the last quarter, returning to growth during our peak holiday quarter. In Q3, total revenue was up 2%, exceeding our own expectations. Over 75% of our business was up by revenue, and excluding Vans and Dickeys, revenue was up 5% versus last year. On a global basis, the DTC returned to growth, up 3%, driven by the U.S., particularly in We also had one of our strongest performances in the Americas in over three years, up 6%, driven by growth in both DTC and wholesale. As you'll remember, fixing the U.S. has been a top priority of our turnaround. Our revenue performance also helped drive stronger than anticipated operating income of $341 million. Reported net debt, excluding lease liabilities, was down almost $600 million versus last year, or down almost 20%. To summarize, we had a very strong Q3, growing revenue, expanding margins, and reducing debt, exactly as we said we'd do. Let's talk through some of our highlights from our brands, where we continue to see continued progress across the board, starting with the North Face, which delivered strong growth during the peak season, with revenue up 5%. Both DTC and wholesale were up globally, and I'm particularly proud of the fact that we grew 15% in the Americas. The North Face is generating broad-based growth across categories. In the quarter, all product categories were up versus last year with strength in performance apparel and footwear, which was up double digits again this quarter. Last quarter, we talked about the expanded product offering of Summit Series. That is also performing strongly with double-digit growth in all regions. We're making inroads as well into elevated products and elevated fabrication. Let me give you an example. Our leather collection, I have the jacket right in front of me, with a leather jacket priced at $1,100 sold out in less than 24 hours. The brand was again recognized for design and innovation through multiple awards, including the top outdoor brand in America in times the world's best brands of 2025 list. You might remember we also won Fast Company's 2025 Innovation by Design Award, Time's Best Innovations of 2025, and the Popular Science 50 Greatest Inventions or Innovations of 2025. In addition to elevating our product offering, we also continue to advance on another key strategic priority to enhance our distribution. During the quarter, we opened our largest global flagship store in New York on Fifth Avenue, which represents how we're reimagining physical retail for the brand. The store has delivered strong results in its initial weeks of trading. We continue to refine and advance our marketing tactics. Our social-first marketing approach is driving brand heat, while broadening reach and Q3 marked our strongest social-first performance to date. And that was before Alex's climb. During the quarter, we launched the second installment of our collaboration with Skims, which also delivered strong results. As you can see, lots of great developments at the North Face. Moving on to Timberland, this is another brand with great momentum. Brand revenue was up 5% in Q3 with global growth across both wholesale and DTC. Americas had another strong quarter, up 9%. From a product perspective, the 6-inch premium boot was a key driver behind the brand's strong momentum. And we're innovating against this core icon while also continuing to develop products across other categories. The boat shoe continues to grow strongly, up double digits in all regions. And we're developing the brand's product lineup, including new transitional styles for the warmer seasons. Timberland has incredible energy, and we're amplifying that brand's cultural relevancy and reach through social-first marketing as well. Building on last quarter's trends, search interest continues to grow in the U.S. and key email markets. The brand consistently shows up in key cultural moments and is embraced by celebrities everywhere, from courtside to the red carpet. As you can probably tell, I couldn't be more excited about Timberland's growth opportunity over the long term. More to come. Moving on to Ultra. It's clearly a smaller brand today than our top three, but I have to tell you, I love the brand's energy and distinctive products. The potential here is large and probably underappreciated. The brand delivered another quarter of extremely strong growth, up 23% versus last year. Key franchises in both trail and road running continue to drive growth, and we're fueling this growth with more and more innovation. New products are delivering, including Via and Temp6. We're investing strongly in marketing, given the very high ROI. We're well on track to exceed $250 million in revenue for Altra in fiscal 26, but the addressable market is large and growing. Now let's turn to Vans. We continue to make progress here, and we're seeing green shoots. In line with our expectation, revenue is down 10%, similar to the last quarter. You already know that we're focused on executing the key commercial moments as we continue to refresh and upgrade the product lineup. This strategy is starting to deliver. In fact, global digital revenue grew in the quarter, grew in the quarter, led by the Americas. In terms of product newness, or in terms of product, new products delivered growth again this quarter with consistently strong trends delivered by the Super Low Pro, the Skate Loafer, which I'm wearing right now, and the CrossFath XC, where we continue to innovate with design colors and materials. Elevation, innovation, and newness are also increasingly visible and having an impact across our icons. The authentic and the slip-on are delivering improving trends, benefiting from a rising interest among the high fashion brands and skate-inspired shoes. The K-Pop Demon Hunters collaboration launched in early December, just a few months after the movie hit the screens. In this one, we showed how fast we can bring a product to market. We went from idea to store shelf in 10 weeks. We're working on product creations free to cross our portfolio now for 2027. Turning to marketing, our shift in strategy is visible. Our holiday campaign, Meet the Vans, featured lifestyle product and drove online energy during the gift-giving holiday period. Our digital traffic trends improved in the Americas and Nemia, which led to growth in our global e-commerce sales for the first time in over four years. led by the Americas. We are excited about the influence we see as well. We'll see later this year from SZA in her role as Artistic Director. Just last week, SZA was in Paris at Paris Fashion Week, seated in the front row at the Louis Vuitton and Dior fashion shows, wearing bespoke vans, old school and authentic, bejeweled with gemstones by New York-based jewelry designer Rachel Goatly. We'll see more of SZA and her artistic vision for the brand in the coming months. In summary, Vance continues to make progress. I'd like to share a planned transition now within our global leadership team. Our Chief Commercial Officer, Martino Scabia-Gurini, is stepping down from his role. Martino will continue to support the company as an advisor to me to ensure a smooth transition. Brent Heider will assume the role of Chief Commercial Officer, in addition to his continuing role as President for the Americas, a role he's held since last spring with strong results. I want to sincerely thank Martino for his 20 years of outstanding contributions to the company. Martino's energy, passion, and deep focus on design and consumer-led brands have left an enduring impact on our business and on me. I'm confident this leadership team, comprised of best-in-class talent, will enable us to fulfill VF's significant growth opportunities ahead. But to conclude, we have momentum, and now we've gone positive for the first time in a while. We're on track to deliver our targets. I'll now hand it over to Paul, who will dive in deeper into the numbers.

Great. Thank you, Brecken. Before I go into the details of Q3 actuals and Q4 guidance, let me give you the punchline for how fiscal 26 is shaping up. Annual revenue will be flat to up this year versus last year. Gross margin will be at 54.5% or better, within striking distance of our fiscal year 28 target of 55%. Operating margin will be 6.5% or better. Operating and free cash flow will be up for us last year. Leverage will be 3.5 times or lower, down from 4.1 times at the end of fiscal 2025. Now turning to Q3. We delivered strong results with revenue up 2% and nicely ahead of our guidance. Our operating profit was also better than planned. As Bracken said, we had a good holiday selling period across our key brands. Q3 revenue was $2.8 billion of 2% year-on-year on a constant dollar basis, above our guidance of down 1% to down 3%. The better than expected performance was primarily due to stronger results from the Americas across both DTC, especially e-comm, and wholesale. By brand, the North Face grew 5%, led by growth in both DTC and wholesale, with particularly strong results in the Americas region. up 15 percent. As anticipated, APAC was down 3 percent and EMEA was down 2 percent. Ben's revenue in the quarter was down 10 percent, broadly in line with last quarter and in line with expectations. And finally, Timberland had another good quarter with continued momentum with revenue of 5 percent, reflecting growth across all channels and in the Americas in EMEA, while APAC was down. By region, the Americas region had a strong performance up 6 percent, while the international regions performed as expected with EMEA region down 3 percent and APAC down 4. And lastly, by channel, DTC was up 3%, our first positive quarter in a couple of years, driven by strong econ performance, while wholesale was down 1%, although growing in the Americas region. Our adjusted gross margin was up 10 basis points for us last year, as mixed and sourcing savings resulted in lower product costs and offset the impact from tariffs. As expected, we had the first meaningful impact of tariff flow through the gross margin in the third quarter. The unmitigated impact was approximately $40 million. And as a reminder, pricing actions were only implemented in Q4 and did not have an effect in Q3. Our SG&A rate leveraged 20 basis points as we continue to realize cost savings across the business. SG&A expense in constant dollars was up 1% due to increased marketing efforts and higher variable costs associated with higher revenue within the quarter. Our adjusted operating margin for the quarter was 12.1%, up 30 basis points year over year. Net interest expense of $35 million was a little better than expected and below last year. Tax was $81 million, or a rate of approximately 26%, also better than our guidance due to slightly different geographical mix in the quarter. And finally, adjusting earnings per share was $0.58 for $0.61 in Q3 of last year. Now moving on to our balance sheet. Adventories were down 4% in a constant dollar year-on-year. On a reported basis, free cash flow through Q3 was $513 million, in line with our expectations for the year, and broadly flat to last year. Year to date, cash flow includes the payment of approximately $100 million of incremental tariffs. Overall, we are right where we expect it to be. Reported net debt, including lease liabilities, was down approximately $500 million versus last year, or down 11%. In addition, earlier this month and post the end of the quarter, we announced that in February we will be prepaying the March 2026 Euro $500 million notes. Turning to the outlook for the fourth quarter, we expect Q4 revenue to be flat out 2% on a constant dollar basis. We expect a positive FX benefit of about 5% on the top line. The North face is expected to be broadly in line with Q3 growth. We will see slower growth at Timberland as we discussed last quarter, and we expect Vans to decline roughly mid-single digits. Moving down the P&L, we expect Q4 adjusted operating income to be in the range of $10 to $30 million. Our gross margin will be flat to slightly up versus last year, as the impacts from tariffs are expected to be offset by initial pricing actions and ongoing sourcing savings. SGD rate is expected to be flat to slightly down versus last year due to cost-saving initiatives. And finally, we expect Q4 interest of approximately $30 million. Our Q4 tax rate is based on an estimated full-year effective rate of 33 to 34 percent, and this is in line with my recent comments about the increasing trend in our tax rate over the next one to two years and quarterly fluctuations as a result of the changes in global tax rates and in our geographic mix. Let me now give a bit more detail on our progress in Fiscal 26. As I said, we expect revenue to be flat to up for the full year. This will mark the first year since Fiscal 23, excluding Dickinson Supreme, in which revenue was stable or grew versus the prior year. We continue to expect operating income to be up versus last year. Within that, we expect gross margin to be 54.5% or better, reflecting progress made on various work streams unveiled at the Investor Day last year. In addition, we anticipate operating margin to be at least 6.5% for the year, up versus last year's comparable margin of 5.9%, reflecting further progress made on streamlining costs, while also prioritizing investments in key strategic areas. On cash flow, we continue to expect both reported operating cash flow and free cash flow to be up year on year. This includes over $100 million negative impact of tariffs and a negative impact from the sale of Dickies, which we estimate to be about $35 million. And finally, we expect to end the year with leverage at or below 3.5 times as we continue to make progress on our top financial priority to reduce debt and leverage. This is a nice improvement from where we entered the year at 4.1 times and continues to put us on a path to hit the goal of 2.5 times by year-end fiscal 28 as we outlined at our investor day. I'll now hand it back to the operator to take your questions.

We will now begin the question and answer session. Please limit yourself to one question. If you would like to ask a question, please raise your hand now. If you have dialed into 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 Adrian Yee with Barclays. Your line is open. Please go ahead. Great. Good morning. I think you can hear me.

I think I unmuted properly. First of all, congratulations on the milestone. Great to see sales growing again. Bracken, I guess the big question for the year is kind of, you know, the price increases that are happening broadly, not just kind of at your company, but broadly across the space, starting to come through, potential consumer, you know, demand erosion. And obviously we got some consumer confidence board metrics yesterday, some competing ones against sentiment versus consumer confidence. How are you thinking about the consumer? What metrics are you looking at to assess whether there is sort of, you know, a slowing? And what is your kind of plan if we do see that? Then number two for Paul, if you can just talk about you're close to your gross margin, as you just said, the FY28 target. How should we think about that in terms of potential upside to the margin now that you're also gaining leverage on the sales?

Thank you, Adrian. and it is very exciting to be positive again, and that's what we're here for. It's all about growth. In terms of the market and price increases and, you know, all the consumer sentiment discussions we're all having, you know, I think the good news for us is we have so much within our control. You know, I've never been in a position where I felt like we had as many levers to pull to really drive our business. That's kind of the nature of a turnaround. We're in that sweet spot right now where we've just gone positive. We've got a lot of engines firing, a lot of green shoots in every direction. So I feel really confident, even in a really choppy environment, that we're going to do well.

Yeah, and then on the gross margin side, yeah, I mean, we are getting close to the 55%. I think all along, you know, our target was 55% or better, so it's great. They were sort of heading in that direction. I mean, obviously, keep in mind, tariffs are just starting to hit us. We've talked about our ability to mitigate those tariffs within fiscal 27, and nothing's changed on that at all. So I'd say, A, we feel good about where we are on gross margin. We've made great progress. B, you know, 55% is obviously the target, but hopefully over time we can do better than that. And C, we feel like we're in really good shape, but obviously we've got to make sure that we're able to manage the tires the way we expect. And, again, we have no reason to expect we won't, but, again, just something to keep in mind for.

Thank you very much. Thank you, Adrian. You suck on horseball. It's been a long day.

Your next question comes from the line of Tom Nikich with Needham. Your line is open. Please go ahead.

Hey, guys. Good morning, and thanks for taking my question. I wanted to ask about VANs. So the last couple quarters, you know, you kind of said that the underlying trend was down high single digits, excluding some of the deliberate actions you took. Was that the case also in Q3? And then, you know, for Q4, you're guiding to, you know, down mid-singles, which is, you know, kind of an improvement from there. So is it kind of safe to assume that, you know, you're expecting some improvement in the underlying Vans trend, I guess, kind of beginning in Q4 and, you know, hopefully thereafter?

Yeah, I mean, I think that's a pretty good description of what we see going on. You know, we're finally lapping that quarter, that year-ago quarter when we took a lot of strong actions, and we feel really good about the steps we're taking. You know, I talked briefly in my introduction about some of the green shoots we're seeing, but, you know, I think it's the first time we saw e-com growth in something like 19 quarters or something. It's a long time. We feel really good about that. We're excited about we saw traffic up in the U.S. We saw a lot of strength in the U.S. in general. You know, the new products are picking up steam, you know, Super Low Pro and the Skate Loafer, which I'm tempted to pull off my foot and show you because I bet a lot of you have not. Okay, I'm going to do it. A lot of you have not seen. This is such a cool product because it literally is a skate loafer. So I could almost go out and shoot around and play basketball on this thing, but it's a loafer, and it looks good. So, you know, we've got a lot of good things. And even in the icons, which have been such a difficult area for us for so many years, we're seeing some bright spots, you know, really innovating against those icons. You know, the authentic and the slip-on, we've seen real improvement trends there, even in the old school. So, overall, I feel just very, very good about vans, but we're going to be patient. We're not going to push it. We're not going to force anything. We're going to let this thing really play out as it should. I've learned one thing about turnarounds. You don't want to force a turnaround early. You want to let it develop, and we are letting it develop.

Yes, you're right on the numbers. numbers. The reported constant dollar was down 10%. Again, on the like for like, it is kind of down high single digits in the same way we talked about it in quarters past. And so, yeah, the underlying trend kind of down high single digits. And obviously, I got it to down mid single digits for Q4. So, there's some improvement there in the underlying trend in Q4. All right.

Sounds good. Thanks very much, guys.

Thank you very much. Thanks, Tom. I'm waiting for an Alex Hummel question. The first one gets the prize.

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

Good morning. Thank you for taking our question.

Brad and Paul, I was hoping you could unpack the sequential acceleration that you saw at TNF Americas this quarter. How much of this strength is repeatable as you move into calendar 2026? How are inventory levels exiting this season? And were there any one-time tailwinds that may have benefited the trend this holiday season?

I'm going to let you talk about the inventories. What I'd say is, you know, we're not really forecasting into 27. What I would say is the underlying business was very strong in the Americas, but I think it's more a reflection of the fact that we were just very weakly developed in the Americas. We have a lot of upside there. You know, compared to the other regions of the world, whether you look at average price or market share, We're just underdeveloped what we could be, given this is our home market. We've got so many places we can grow there, and you saw them this quarter, and you see them in the Americas. We grew in our footwear business. We grew in e-comm. We really just grew across the, you know, we talked about elevated products we're launching. You know, so we've got just one after another thing that we really, levers we can pull, and they're all very, very visible in the Americas. Probably the strongest opportunity in the world right now is the Americas. So I feel really good about what's happening there, and I'm not going to forecast into 27, but I don't see anything extraordinary about this quarter that makes it an outlier. I really think this is the kind of – we should be able to deliver strong performance across the North States over time.

Yeah, on the inventory side, dollars are up slightly. That's just to support the strong sales we've had, but overall, maybe three days are down pretty much across the board.

You know what else is really good, Brooke, is so many things aren't working well enough yet. You know, we have so many things we can do better, and that makes me even more optimistic. If I look at APAC, you know, I'm sure I'm going to get a question there. APAC, we're soft, you know, and we know we're going to be soft. We'll be soft probably through most of next year because we've really consolidated gains. We've had such a long period of strong growth in APAC. We've really expanded our distribution. We're where we ought to be. Now we need to get – we're missing some products we really need to have there and get our marketing revved up even more. By the way, thank you, Alex. And, you know, and then EMEA, EMEA is just a macro, kind of a macro slowdown. I mean, we have a really good business in EMEA, and I'm optimistic for the North States there. But I think in general, if you just look across our portfolio, we have a really good performance, and we can do a lot better.

Thanks so much.

Thanks, Brooke.

Your next question comes from the line of Michael Benetti with Evercore. Your line is open. Please go ahead.

I'll add my congrats to the positive inflection there. I guess for vans, did you see the traffic in the U.S. stores improve sequentially? I know you said it improved all the way to positive digitally. Are the stores following that trend to a lag? So we see some impact from the new products working in the physical stores. And I'm curious, any kind of initial thought you can give us to how the order books are building up for vans for back to school?

Yeah, we probably won't talk about the order books because we usually don't. But I'd say in terms of traffic in stores, no, we didn't see it in stores. I mean, physical traffic is much tougher to get rolling, and I think it's going to take us longer. But we're really excited about the traffic we saw online. So I think we're just going to have to keep going. We continue to try to identify ways that we think we can start to bring the traffic up in our stores. And that's kind of the holy grail when we get that going, look out. But right now, the traffic online is exciting to see. And, you know, I do think things like Demon Hunters, you know, like some of the really specialized products we're launching, we need to direct them more into our stores first, you know, so that you really have to come to our stores to see them because we've got some really cool things that are kind of exclusive. You know, and look at Demon Hunters. That was super. But we refilled that already, and we've already sold really strongly in a second running of that. So we need to be bringing those more into our stores and making sure, you know, our our customers are where that's the place to buy them we might have made it too easy to buy some of that stuff online so so anyway so bottom line is no the traffic in stores wasn't up wasn't up yet but give us time I think we'll get there yeah I would just add that traffic is still down we did see a slight improvement sequentially from Q2 to Q3 so traffic to practice point is still down we haven't yet seen positive traffic yet but at least the trend is moving in the right direction okay thanks a lot guys thanks Michael you're Our next question comes from the line of Simeon Siegel with Guggenheim.

Your line is open. Please go ahead.

Hey, guys. I was curious if you could help how you're thinking about the broader just AUR versus unit dynamic across the brands as you're seeing these inflections. And then, Bracken, it feels like you're starting to speak, at least mention Ultra a little bit more than historically. Anything you can elaborate on the brand, the signals you're seeing there just to give you confidence that maybe this becomes a VFC pillar brand if I'm reading the Easter eggs correctly? Obviously, I'll leave it in any way to think about how you'd see sizing potential of that brand. And then just lastly, out of curiosity, what floor were you waving to Alex on as he did that? What's my prize?

It's the average unit retail, but I'll – A-U-R versus unit retail, average unit retail. So first of all, on Altra, yeah, you do hear me talking about it more. You can see me wearing it a lot more. I've become a raving fan both because I love the business and also because I love the product. So I've also got a few things I don't want to talk about just yet, but we'll bring them out a little bit later, of other people that are not wearing this product that you're going to be surprised at. So we've got a lot of quiet momentum, and as I've said before, we're really holding the brand back. I mean, it could be growing faster. We're just not letting it go because we want to control distribution, make sure it's in the places where it establishes a really strong pedigree and awareness as a running brand, and a running brand not just on the trail but also on the road. So I am excited about Ultra. I do think it's got, you know, I said it before, I think it's got a billion-dollar-plus potential, and it's up to us to make that happen. I was with the founder yesterday here in our Denver headquarters, and he said to me, you know, he said, I remember the day when I knew that business could hit $500 million. And I said, wow, you know, I remember the day when I knew it could hit a billion. So we're both living a little bit in the future.

He was before and we are now, but it's going to go over $250 this year, probably $270. and I see a lot of potential beyond that you want to average the yeah I mean I could say across all the brands not much changes for vans in particular you're seeing a little bit of an uptake in AUR in the Americas which is great and TNF AUR is up as this Timberland so they're all up nothing I would say too crazy but all up like you know moderately you know I know you're joking about the floor I I was on waving at Alex.

I was hiding under my couch waving at Alex while he was on TV, and I literally had it on in the other room, and I would walk in and watch it for a few seconds, and I had to run back out of there. That was the most terrifying thing I've ever seen. But I talked to Alex when he flew back, you know, when he got back to Las Vegas, and it's amazing how humble the guy is, and he's such a great reflection of what it is to be a great human being and a great athlete, and he reflects, he really reflects what, unfortunately, you can't see every day, which is we have 100 or 200 people, like, a lot like Alex, who are super courageous. They really love, love, love what they're doing. They really would, and some of them do, do it for almost free or free. And it's just exciting to be part of a business that has a little piece of that. That's great. Best luck of the year. Thanks, Simeon.

Your next question comes from the line of Tracy Kogan with Citigroup. Your line is open. Please go ahead.

Thanks, guys. I was hoping you could talk more about the drivers of the gross margin beat versus your expectations in this quarter, wondering if you were able to mitigate more. I know you mentioned mix and lower product costs, but was also wondering about promotions versus your expectations.

And then if you could just talk about the drivers of your view for gross margin to be uh flat to up slightly in 4q thank you yeah so on the puts and takes on gross margins um uh it's a little bit less promotion so the full price um was better we did have a tariff impact which we did not mitigate um and we got a little bit of a benefit on the sourcing side so those are kind of the main components um in uh on the gross margin side and in for um q4 kind of similar trends. We will have some pricing benefiting us to help mitigate some of the tariff impact in Q4 that we didn't have in Q3.

Are you expecting lower promotions year over year, similar to 3Q?

We don't really talk that much. I mean, maybe slightly. Again, we've been getting a little bit better in that overall, but I would say slightly, but nothing really to call out.

Got it. Thank you.

Your next question comes from the line of Jonathan Komp with Baird. Your line is open. Please go ahead.

Yeah, good morning. I'm surprised nobody suggested yet, Alex, do the next climb in the skate loaper, just as a thought for a cross-brand initiative there. But, Brackett, if I could follow up, just in your view, what's it going to take to translate positive global digital traffic for vans into total growth, you know, as you think forward here, or a better trajectory for total revenue? And then, Paul, if I could just follow up. With the medium-term targets, I think you've said you're not putting all the eggs in the basket for fiscal 2028. So can you just give any more flavor, how you see revenue and the margin progression playing out at a high level?

I'll take the first two and then probably take the one that was directed at you. So in terms of how is that translation of finally seeing some good traffic on bands going to eventually turn into growth on bands, You know, I've just so carefully avoided ever saying, when will the brand turn positive, and I'll do it again. But I would say it is a very good sign. And I think we've got – we also have just a lot of – there's a lot of good brand discussion now happening. You know, at the tier zero accounts, you know, we've really got strong interest in our very premium elevated product that we're launching, which we're bringing down into our channels and over time into the wholesale channels too. So I'm really, I love the path that we're on. It really does feel like the right kind of meaningful path. You know, when I talk to the team that's running the business, you can feel the enthusiasm they have for it. Now, they're admittedly living into the future. You know, we live a year out and two out, but I feel really good about what they feel. You know, so it's really very, very exciting. I think I will call Alex when we hang up and talk to him about the skate loafer climb. It seems like a great idea.

And so on the medium-sized targets, yeah, we still feel good about all those targets, so nothing changes from the perspective of what we've given you in terms of our goals, where we get to. So you think about the operating margin, where we said it'll be 6.5% or better this year. Exit run rate, fiscal 28, 10%. So you can assume we're going to have some improvements in 27, 28 to get there. So we still expect to get that. We'll continue to pay down debt. So if you think about it, we're going from 4.1 to 3.5 times leverage. So you can see there's a pretty clear path. go from 3.5 to 2.5, just if we stayed where we are. We obviously expect our operating income to do better and our operating cash flow to do better over time, which will obviously help on reducing that leverage, and so we feel like we're in a really good place to hit that 2.5 times leverage. And our free cash flow, you know, was strong this year, and it was strong in the face of, you know, a $100 million headwind from tariffs, a $35 million headwind from Dickies. excuse me and we also are spending about 33-35% more in CapEx right now year to date and we're able to do all that and still generate the free cash flow we want to continue to pay down debt so we feel like we're in a really good place to hit those targets and as we get closer to the end of the year we'll give you more guidance and thoughts on Tisco 27. You know I just threw out one thought on debt.

You know you heard those of you who have been listening for a while you've heard both Paul and me independently and practically as a duet, say how much we dislike debt. And that's certainly not changed, which is why we're aggressively bringing down the debt levels. But there's a big benefit to that, which is it's really forced us to not rely on M&A. And so we've really focused on organic growth. And it's the reason why you saw us go positive this quarter. It's that complete obsession with getting our businesses growing and our brands growing the right way systematically. automatically. I think it's partly because there is that discipline of debt hanging out there that we bring it down and we're bringing it down fast. We don't have a lever that we're going to go try to pull on M&A. We're going to grow these brands. We have amazing brands and some of the particularly impressive brands we have, we don't talk about very much. So we've got growth opportunities across the board. That's great. Thank you. Thank you.

Your next question comes from the line of Anna Andreeva with Piper Sandler. Your line is open. Please go ahead.

Hey, guys. This is Noah on for Anna. Thanks so much for taking our questions. So good to hear Vans expect it down mid-signal digits for 4Q. Can you elaborate how we should think about DTC versus wholesale for the brand and then anything, you know, by GEO going forward? And then as a follow-up, on North Face, you've mentioned premiumization as a focus, as an opportunity for the brand. And how do you think about that and why now is the right time to do so? How do you envision the North Face positioning versus some of the newer brands in the category?

Yeah, on DTC versus wholesale, I probably, if you had to rank them, I'd say probably we'll see. First of all, if you ask me where am I focused, I'm focused on the Americas right now. It's 50% of the Vans business. You know, as the North American market goes, Vans goes. So we're really focused there. And then within that, I would say, yeah, DTC first, but even there, e-comm first. So e-comm is the fastest lever we can pull because the products can get there faster. They can be displayed well. We're getting better at social marketing, which we can bring consumers to our site. And so between good products and good marketing, I think you'll see that we're really keeping our eye on DTC for vans first, but particularly e-comm. And the stores are harder, you know, so that's going to come. It's just going to come up with a little lag and then wholesale after that. In terms of premiumization for North Face, you know, why now? You know, it's kind of one of those things where there's just – it's such a great opportunity. And I'll go back to the comment I made a minute ago, especially in North America. You know, we're not going to go, you know, start selling 50% of our business at $1,100. But we do have opportunities around the world in premiumization. You know, Summit Series, we don't talk about it that way, But Summit Series is a very premium product lineup, and it's very small today. But it has a really good growth potential, too, as does the more lifestyle-oriented product, like the leather pack that we talked about. So why now? Because there's just such a good opportunity. You're not going to see us go crazy. We're not a – I don't like jigsaw. I don't like these ups and downs. I like systematic growth. So you'll see us systematically change that North Face offering to systematically see us premiumized. But don't expect a revolutionary change. That would be dangerous in my view. We're going to do it systematically and carefully and well.

Thank you, Noah.

Otherwise, a.k.a. Anna.

Your final question comes from the line of Jay Soule with UBS. Your line is open. Please go ahead. Jay, as a reminder, please unmute yourself. If you have dialed into today's call, please press star six to unmute.

Hi, is that working? Yes. I thought you were on the fourth floor and you lost connection like Alex.

I don't think I would have made it to the fourth floor. I would have been down like half a floor up on that client. But I think that the question is about guidance. You know, we're still doing one quarter time guidance. How are we thinking about possibly giving full year guidance? What needs to change for you to start giving a longer term outlook? Thank you.

I'm going to jump in ahead of Paul because I'm afraid he's going to give an answer that we agree with, but we haven't decided whether we really agree with it yet. Look, at the end of the day, we pull guidance because I think you can guide when you have predictability. And then we haven't put it back because, gosh, it's really nice not to give a full year guidance. It's really comfortable. But we also know that investors like it. And so we're seriously considering. We're going to think through it. And we're weighing the pros and cons, you know. It's a really – I think it's a really good thing in some ways and a really bad thing in other ways, you know, from some viewpoints. But we're thinking carefully through it, and I promise you that we are not underestimating that there's a lot of interest out there for it. So stay tuned.

Brad, maybe just to follow up on that, I mean, given that fourth quarter's coming up, Does the fourth quarter be a more important quarter to try to reintroduce that kind of full-year guide, or does it really not matter what quarter you're reporting?

Yeah, I mean, logically, if you were going to reintroduce a guide, you'd probably do it in a fourth quarter this year or next year or something. So, yeah, I think that makes a lot of sense, either if they close the quarter, you know, kind of after you finish the year or something like that.

Yeah, I would just add one thing on guidance, too, because I know this quarter, obviously, we exceeded expectations. Our philosophy on guidance in terms of whatever we got hasn't really changed, right? We're always going to give ranges. Our goal is to hit the top end of the range, you know, in a really good quarter, exceed the range, but really at the top end of the range. And so nothing has changed with that. So I know sometimes you have quarters where you're right in the range. Sometimes you have quarters when you outperform. We outperformed just organically in this quarter. If you look at the outperformance, it was really all DTC. DTC is obviously a little bit less predictable than wholesale. And so our guidance philosophy hasn't changed. We just had a really strong quarter and was really led by DTC, which can always be a little bit more valuable in any quarter. So I just wanted to kind of reiterate sort of how we think about guidance.

Thank you so much. Thank you, Jay. Oh, it sounds like that's the last question unless you have another one, operator.

There are no further questions at this time.

Well, I'll bring this to a close. You know, we feel great about our progress. We feel great about the results we delivered this quarter. There's so many things that we can do better. That's the best news. we're really seeing great improvement and we're in and we have so many more things to make better so I'm really excited about where we are you know that this I'm going to at some point soon I'm going to stop turn it's calling this a turnaround of VF because it will no longer be it's about growth and we're going to stay focused on really fulfilling this enormous potential we have across each of our brands all of our brands and creating exceptional shareholder value so thanks everyone stay tuned we'll see you in a quarter this concludes today's call thank you for attending you may now disconnect