VF Corp., reporting The North Face revenue rose 24 percent to $800 million while Vans revenue was flat at $1 billion, sees a significant opportunity to revive the latter’s sales and position in the market.
In a Nutshell: Kevin Bailey said it was “good to be back in my old chair at Vans, a brand I first joined in 2002 as the head of retail and from 2009 to 2016, [and] served as brand president, architecting the growth from $800 million to $2.3 billion.”
Bailey, who rejoined Vans as global brand president just two months ago, outlined where the skate shoe label is underperforming and how it can improve.
“We distorted our focus to our Progression footwear and apparel, which led to strong double-digit growth in those areas in fiscal ‘22. But we underestimated the level of balance needed to maintain appropriate growth in our Classics business, which represents approximately two-thirds of our global footwear business,” he told Wall street analysts Thursday. “We have an opportunity with our five classic icons to optimize the consumer trends and plan to use style adaptations to extend the trends.”
Plus, Bailey said Vans has lost some of its historic brand heat.
“Vans has enjoyed outsized brand heat in its history that we have not emerged from the pandemic with as much velocity as expected and have lost some momentum,” he said, pointing to several factors behind the underperformance. “Our top-tier limited distribution footwear, which you may know as Vans Vault, has previously met the needs of influential footwear trend accounts in the past. As Vans has grown, our approach to this aspirational product and channel needed to evolve more quickly.”
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Competition for attention-grabbing collaborations is also growing and proving to be a challenge, he said. “We have an opportunity to better segment our top-tier product from other products in our line to drive more energy with influence our consumers and provide geographic relevance across our three regions, a critical component to build brand heat locally,” he added.
China’s lockdowns are also causing problems. “China and the ongoing challenges of COVID [have] slowed a major opportunity for the brand,” Bailey said, noting that local regulations, travel restrictions and consumer concerns drove “declining online and off-line traffic.”
Bailey added that Vans’ top-tier distribution needs a more focused strategic approach and that the brand will look to accelerate “go-to-market” avenues and engage consumers in the metaverse and Roblox in the year ahead.
VF CEO Steve Rendle said supply-chain disruption had the biggest impact on Supreme.
“This has been a year of really significant learning for both Supreme and our VF supply chain,” he told Wall Street analysts on a conference call. “And understanding the Supreme model, every week, this brand puts a new assortment in front of its consumer. And if that flow is interrupted and they have to rebalance and reset, they start to get on to their – on to the heel of their foot versus the toe.”
Well-documented congestion led to Supreme starting “the year with 30 percent less inventory on the fall season than we do historically,” Rendle said. “So, we started from a position of a little bit less strength than they are used to, and they reacted the best they could. I think as you look forward, what’s exciting for us is as we have gained a deeper understanding, we know where we can help to support. But I think the Supreme team also is understanding the needs that they have.”
Hiring Denim Tears founder Tremaine Emory as Supreme’s creative director will “further elevate both the product and the experience of the brand,” Rendle said. “This is a talented individual that has a deep understanding of this consumer and this particular channel.”
VF Corp.’s fourth quarter and fiscal year 2022 financial results also provided an outlook for fiscal 2023 that included total revenue to increase at least 7 percent.
The company forecast The North Face revenue to rise low double-digit percent and Vans revenue to be up mid-single digit percent. In a presentation to Wall Street analysts, Steve Murray, global brand president of the North Face, said the outdoor brand has grown annual revenues 21 percent over the past two years to $3.26 billion, with the mix strategically shifting in favor of international regions and digital sales.
VF expects gross margin to grow approximately 50 basis points and operating margin to come in at around 13.6. Earnings per share (EPS) is projected to be $3.30 to $3.40.
VF said the outlook assumes no additional significant Covid-19 related lockdowns in any key commercial or production regions, with the current restrictions in China expected to ease from the beginning of June. It also includes no significant worsening in global inflation rates and consumer sentiment.
The come said the zero-tolerance policy in China in response to Covid-19 is impacting some specific raw material suppliers within the country. The majority of VF’s supply chain is currently operational and most final product manufacturing and assembly suppliers are back to normal operating levels.
“Continued port congestion, equipment availability and other logistics challenges have contributed to ongoing product delays,” the company said. “VF is working with its suppliers to minimize disruption and is employing expedited freight strategically as needed. VF’s distribution centers are operational in accordance with local government guidelines while maintaining enhanced health and safety protocols.”
The company added that as Covid-19 uncertainty continues, it expects ongoing disruption to its business operations.
Sales: Revenue for the fourth quarter ended April 2 rose 9 percent to $2.8 billion, driven by increases in the Europe Middle East and Africa (EMEA) and North America regions, partially offset by a decline in the Asia-Pacific (APAC) region primarily due to Covid lockdowns.
The North Face revenue increased 24 percent to $800 million, while Vans revenue was flat at $1 billion. The company noted that the fourth quarter of fiscal 2021 also included an extra week when compared to the fiscal 2022.
For the full fiscal year, revenue was up 28 percent to $11.8 billion, driven by increases in VF’s largest brands and regions.
Earnings: Net income in the quarter declined 9.7 percent to $80.84 million from $89.52 million in the prior-year period. EPS grew 32 percent from the year-earlier period to 21 cents.
On an adjusted basis, operating income increased 30 percent to $224 million. Operating margin came in at 6.8 percent, up 210 basis points.
Gross margin was 51.9 percent in the period, down 20 basis points, primarily driven by incremental freight costs.
For the year, net income rose 70.5 percent to $1.39 billion from $407.87 million in fiscal 2021. EPS increased 242 percent to $3.10.
Gross margin was 54.5 percent, up 180 basis points, as operating margin was up 720 basis points to 13.8 percent.
On an adjusted basis, operating income increased 109 percent to $1.5 billion. Adjusted operating margin increased 510 basis points to 13.1 percent.
Gross margin increased 180 basis points to 54.5 percent, primarily driven by a higher proportion of full price sales more than offsetting incremental freight costs.
CEO’s Take: Steve Rendle, chairman, president and CEO, said: “I am pleased with the progress we have made advancing our strategic priorities while successfully navigating another eventful year. We largely delivered on the commitments we made at the outset of fiscal 2022 by achieving broad-based growth across our family of brands. A portion of our active segment did not achieve its potential.”
“We understand the issues, we have the right people in place and we know we will do better,” Rendle added. “We will continue to thoughtfully invest in our brands and value-enhancing strategic growth opportunities, and I am confident VF has a long runway for sustained, profitable and broad-based growth ahead.”