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Text: These uncertainties are detailed in documents filed regularly with the SEC.
We use adjusted constant dollar amounts as lead numbers in our discussions because we believe they more accurately represent the true operational performance and underlying results of our business.
You may also hear us refer to reported amounts which are in accordance with U.S. GAAP.
Due to the significant impact of the coronavirus pandemic on our prior year figures, today's call will also contain certain comparisons to the same period in fiscal 2020.
These comparisons are all on a reported dollar basis.
On June 28, 2021, the company completed the sale of its Occupational Workwear business.
Accordingly, the company has reported the related held-for-sale assets and liabilities of this business as assets and liabilities of discontinued operations and included the operating results and cash flows of this business in disc ops for all periods through the date of sale.
Joining me on the call will be VF's Chairman, President and CEO, Steve Rendle; and EVP and CFO, Matt Puckett.
As we move through the halfway point of our fiscal year, I remain encouraged by the underlying momentum across the portfolio and the broad-based nature of this strength gives me confidence that we are driving the right strategy to accelerate growth in the quarters ahead.
Looking through pandemic-related disruption and near term headwinds in China, we continue to see a healthy retail landscape, a strong consumer outlook and accelerating demand signals across our business.
While the recovery has not been as linear as we had anticipated for some parts of our business, I'm proud of how our teams continue to deliver through the volatility.
This is certainly where we excel.
We are focused on what we can control.
And despite a more challenging environment than we had envisioned, we are able to reaffirm our fiscal '22 revenue and earnings outlook; a clear testament to the resiliency and optionality of our model.
We see our business emerging in an even stronger place than before the pandemic.
We've accelerated our strategy to be a more digitally enabled enterprise for driving significant investment behind key capabilities to connect with our consumers.
We are driving organic growth as we elevate direct channels, distort Asia, led by China, and accelerate our consumer-minded, retail-centric, hyper-digital business model transformation.
On top of that, our number one strategic priority to drive and optimize our portfolio has netted us significant benefits.
Over the past five years, we have strategically evolved and simplified our portfolio from 32 brands to 12 brands, each with significant D2C and international opportunity, squarely focused on large, growing addressable markets.
The macro trends around outdoor and active lifestyles, health and wellness, casualization and sustainability have only strengthened over the past 20 months and our current portfolio is well-positioned to benefit from these accelerating tailwinds.
Active portfolio management remains an evergreen process and M&A remains our top capital allocation priority.
This is a differentiator and a competitive advantage for VF as we continue to refine our portfolio mix to maximize exposure to the most attractive parts of the marketplace.
We are confident that we have the right strategy and our continued execution on each of these key strategic pillars positions VF for a stronger emergence.
Now, moving into our Q2 results.
While noisy, our second quarter results highlight ongoing progress against our strategy and reflect a healthy, accelerating underlying business with broad-based strength across our portfolio.
I'll start with Vans, which delivered 7% growth in Q2 despite meaningful wholesale shipments pushed into Q3, representing sequential improvement in underlying demand despite a more challenging than anticipated operating environment.
The EMEA business has accelerated meaningfully during the quarter.
However, in the U.S., encouraging brick and mortar recovery trends, which had been building into July, were impacted by the Delta surge and its implications across our most important markets.
This led to sharp shifts in store traffic trajectory during the peak back-to-school window.
Additionally, the brand faced headwinds in Asia Pacific with virus disruption across the region and a more challenging near term consumer environment in China.
While Vans Americas Q2 recovery did not meet our expectations, I'm pleased with our team's response.
We're focused on what we can control.
Our retail associates are driving best-in-class conversion, up 20% relative to pre-pandemic peaks this quarter in the Americas.
And despite the impact of expedited freight, the Vans Americas team has brought full price DTC gross margins above fiscal 2020 levels, supported by discounting below pre-COVID levels.
At the same time, leveraging our strong inventory position, we've secured additional shelf space at several key wholesale accounts for the second half.
So despite a more challenging operating backdrop than anticipated, we are able to hold on to the low end of our prior outlook for Vans and now expect 7% to 9% growth relative to fiscal 2020.
We're confident in Vans' strategic choices as evidenced by improving demand signals and strong consumer engagement.
The September Vans Horror collection launch supported the fifth highest sales day on record for our Americas DTC digital business achieving a 100% sell-through within days.
We are encouraged by the ongoing strength from Progression Footwear lines, up 15% relative to fiscal 2020 led by UltraRange and MTE and are pleased with the continued growth in Vans Family membership reaching 18.5 million consumers globally.
Our confidence in the long-term runway for Vans remains unchanged.
The brand came into this disruptive period exceptionally strong and consumer engagement has remained healthy.
The active space remains a large and growing TAM and the casualization trend continues to present a long-term tailwind for Vans.
And although Vans remains a very important part of our story, we must remember that VF is not just one brand.
We have a diversified portfolio of global brands, each with exposure to attractive TAMs with enduring tailwinds.
We have significant shared platforms of expertise, highlighted by our international platforms and global supply chain, which are enabling broad-based profitable growth.
And as a result, our model drives ongoing capital allocation optionality to further enhance VF's growth and shareholder return profile.
Matt will build on many of these themes shortly, but I'd like to start with an overview of the broad-based momentum we're seeing across the portfolio.
Starting with The North Face, which delivered 29% growth in Q2 despite significant wholesale shipments pushed into Q3, representing a sharp acceleration of underlying demand alongside meaningful margin improvement.
Our international businesses are gaining share, while the underlying U.S. business has accelerated meaningfully this quarter on tight inventories driving high quality sales.
We remain encouraged by the strength across categories as TNF has been successful at balancing On- and Off-Mountain messaging to its consumers.
On-Mountain platforms like FutureLight, Vectiv and the recently launched Advanced Mountain Kit continue to drive strong sell-through and reinforce TNF's performance credibility.
Off-Mountain lifestyle apparel and equipment are delivering outsized growth as strong 365-day demand persisted led by Logowear, Apex and [Indecipherable].
We also saw strong performance for more versatile athletic-inspired products, highlighted by the Wrangler franchise.
We are raising the outlook for TNF to 27% to 29% growth in fiscal 2022.
We continue to believe this moment for TNF is under-appreciated.
This will be a $3 billion business, delivering high-teen growth relative to fiscal 2020 levels, with strong margin expansion underway.
Looking into next year, The North Face will continue to benefit from broad-based brand momentum, fueled by innovation, extremely clean distribution channels, increasing year-round relevancy and ongoing tailwinds from the outdoor marketplace, supported by growing consumer interest in active outdoor lifestyles.
We therefore expect The North Face to be at least within its long-term plan range of high-single-digit growth in fiscal 2023.
Moving on to Dickies, which continues to build upon its incredible run, delivering 19% growth in the quarter.
The brand is driving their integrated marketplace strategy, supporting growth horizontally across work and work-inspired categories, as well as vertically as they focus on higher tiers of distribution and bring new consumers into the brand.
Sell-through remains elevated and demand signals continue to be strong.
Across the globe, the Dickies team remains focused on the key drivers of their business, expanding core workwear beyond traditional channels and leveraging the brand's authenticity to accelerate the Lifestyle segment.
Icons have been a focus for the marketing and sales teams and the results are compelling, highlighted by the accelerated growth of the 874 Work Pant.
There are several versions of this 50-year-old icon, supported by ongoing innovation, which collectively have delivered over 100% growth year-to-date.
In addition to the strong growth trajectory at Dickies, we remain encouraged by the significant margin expansion runway which accelerated in Q2 on the back of strong full price selling and SG&A leverage.
We're proud of the continued success at Dickies, which we feel is another under-appreciated part of the story.
We are raising the outlook for Dickies to at least 20% growth in fiscal '22, representing at least 30% growth relative to fiscal '20.
We expect the brand will approach $1 billion next year as Dickies celebrates its 100-year anniversary.
Next, Timberland delivered 25% growth in Q2, despite significant wholesale shipments pushed into Q3, representing an acceleration of underlying demand over the quarter.
The PRO business remains a consistent growth driver for the brand, supported by a new campaign celebrating the skilled trades to inspire the next generation of worthy workers.
Despite historically low inventory levels, core boots and outdoor footwear continue to show strength as we head into the holiday, each growing over 40% in Q2.
Timberland continues to create and own boot culture with the September introduction of GreenStride Eco-Innovation in boots for the first time.
The Solar Ridge Hiker launched with much fanfare in New York City and posted 50% sell-through in North America.
Two more GreenStride drops will hit in October, driving further momentum behind its important franchise.
At the same time, the TrueCloud collection, another eco leadership story, drove strong traffic and social engagement across all regions.
We believe the Timberland brand is in a much healthier position today relative to where it was before COVID.
This leadership team has a sharpened focus on the brand's product architecture, getting back to Timberland's core, work and outdoor, sustainability and craftsmanship, while increasing energy and newness.
They have refocused strategic clarity around the target consumer and on executing the right go-to-market set of choices.
The brand is demonstrating strong marketplace discipline, reducing discounts and thoughtfully rebuilding depleted inventory while driving significant improvements in profitability.
The integration of Supreme continues to move according to plan and our teams are learning from this highly productive business, including how they manage product creation, building energy ahead of drops, and optimizing assortments in product flow across regions with great agility.
Looking forward, we remain confident in the significant whitespace opportunity for this brand across geographies with a clear opportunity to leverage VF platforms.
Supreme remains on track to become VF's fifth billion dollar brand in the coming years.
And lastly, when speaking to the broad-based strength across our portfolio, I'd like to briefly shine a light on our three outdoor emerging brands: Smartwool, icebreaker and Altra.
This group collectively represents nearly $550 million in revenue for the mid-to-high-teen growth profile longer term.
While smaller today, these brands are all profitable and are exposed to the attractive tailwinds around health and wellness, active outdoor lifestyles and sustainability.
And we're seeing it in their results.
The Smartwool brand is up nearly 60% [Phonetic] year-to-date, representing high-teens growth relative to fiscal 2020.
We've accelerated investment in brand awareness campaigns, highlighting the high performance and versatility of this product, while targeting an active, younger consumer.
We're seeing it pay off with broad-based strength across categories, led by apparel and outsized growth from new consumers.
Our other natural fiber brand, icebreaker, has successfully relocated the core leadership team from New Zealand to our Stabio headquarters, further integrating into our EMEA platform, which will accelerate the brand's global reach.
The brand has grown nearly 30% year-to-date with balanced growth across its largest markets in Europe and the U.S. Base layers, tees and underwear represent about 70% of icebreaker global revenue confirming the consumer appeal of a 100% natural product in next-to-skin categories.
And lastly, Altra, the fastest growing brand in our portfolio is celebrating its 10th anniversary this year by establishing its legendary Lone Peak franchise as the number one trail running business in the U.S. The brand has continued to build accolades from the running community with awards from Runners World, Self Magazine, Women's Health and Outside Magazine across multiple franchises.
Through the first half of the year, the brand has grown over 60% relative to fiscal 2020 and we expect this to accelerate into the back half of the year as the brand continues to expand its presence in road running with innovative new styles and designs.
We see tremendous opportunity for Altra to expand distribution domestically and internationally, leveraging its differentiated product and continued strong tailwinds for this category.
I see significant potential for each of these brands to deliver outsized growth in the years to come.
We have demonstrated the ability to scale brands in the big businesses and have confidence that, over time, these outdoor emerging brands will become another strong component of VF's financial algorithm.
While we remain in a disrupted environment, I believe VF's long-term prospects are even more attractive today.
We've accelerated our transformation strategy.
We have further optimized our portfolio and importantly, this portfolio today is capable of delivering greater broad-based strength, relative to where we were before the pandemic.
This gives us even greater confidence in our ability to drive high-single-digit topline and low-teens earnings growth at a minimum as we emerge as an even stronger company.
I'm happy to give an update on our progress as we navigate the recovery and importantly, I am encouraged by the resiliency of our business during the first half of fiscal 2022.
The environment has clearly evolved differently than we had planned in May.
However, our teams remain focused on what we can control, and they are delivering.
The underlying topline recovery across the majority of our business has exceeded our plan, offsetting new challenges in the APAC region and ongoing disruptions across the supply chain network.
With thoughtful allocation of investments, we've been able to drive continued strategic investment spending, while leveraging other parts of our SG&A base to protect earnings.
As a result, I'm proud of our ability to hold on to our fiscal 2022 earnings outlook of about $3.20 despite a more challenging than anticipated operating environment, including an incremental headwind of about $0.09 from expedited freight.
This should be a strong signal that this management team is committed to leveraging the significant optionality in our model to deliver on our earnings commitment.
Before unpacking our Q2 results, I want to quickly run through the operating environment across the region and share the latest outlook for our global supply chain.
Starting with the Americas region, product delays and reduced traffic during virus surges impacted the business during the highest volume periods this quarter.
However, the region was able to deliver 22% organic growth in Q2, representing continued sequential underlying improvement.
Retailers remain bullish on the upcoming holiday season and we are focused on delivering products in time to support strong demand signals.
Cancellation rates remain historically low due to tight inventories, conversion remains exceptionally strong, and we see continued reductions in promotions compared to last year, driving strong average selling prices.
Next, the EMEA region delivered mid-teen organic growth in Q2 despite meaningful supply chain disruption, particularly for The North Face.
The underlying business continues to perform above the overall market, supported by strong performance of key Digital Titans.
This region was strong before the pandemic and has shown incredible resiliency throughout this disruptive period.
Stores are showing continuous recapture of volumes despite softer street traffic in large metro areas.
We are encouraged to see the brick-and-mortar DTC business for both The North Face and Vans, and quite meaningfully this quarter, each returning to positive growth relative to fiscal year '20.
Recovery momentum and sustained growth are expected to accelerate throughout the year as vaccine rollouts progress.
Finally, the APAC region delivered low-single-digit organic growth despite a more challenging backdrop than anticipated for parts of our portfolio.
Due to a resurgence of COVID-19 across the region, economic growth and consumer confidence has softened since July.
Parts of our business in China have been further impacted by weaker digital traffic for non-domestic brands.
This has been more impactful for Active brands relative to Outdoor.
Across the portfolio, we believe we are performing better in our respective categories versus other international brands.
And while we remain bullish on the long-term opportunity in the region, these pressures have impacted our near-term outlook.
We now expect low-teen growth in China in fiscal 2022.
Moving on to our global supply chain.
The environment remains challenging and has continued to deteriorate following our Q1 call in late July.
The resurgence of COVID-19 lockdowns in key sourcing countries like Vietnam have resulted in more impactful production delays and the logistics network continues to face unprecedented challenges.
We are experiencing increasing product delays from the supply chain disruption, which is creating meaningful quarter-to-quarter volatility in our results.
Let me unpack all of this in a little more detail.
Due to VF's large and strategically diversified sourcing footprint, our overall production capacity has remained better positioned than most with about 85% of production operational throughout the quarter.
Pressures have generally concentrated in the southern region of Vietnam, which represents about 10% of VF's overall sourcing mix.
We remain confident in our ability to navigate the production environment.
However, the logistics network remains under increasing pressure.
Ports are generally open, but operations remain severely impacted by labor and equipment availability, servicing significantly higher ship volumes.
As a result, our dwell times at points of destination have increased significantly.
In aggregate, supply delays are pervasive and, in some cases, have extended 8 weeks to 10 weeks.
As a result, in the most recent quarter, we had a material shift of revenue from Q2 into Q3 with more than half of this tied to Vietnam.
Despite these delays, cancellation rates have remained below historical levels, signaling strong demand and tight channel inventories.
However, delays ultimately impact product availability across the marketplace.
Virtually all of our brands are experiencing delayed collections, style and, in some cases, insufficient size assortment, limiting their ability to fully meet strong demand.
For example, the Supreme brand has experienced around 30% less inventory around drops.
So despite strong sell-through trends, we are losing volume from limited supply.
This environment is where our world class supply chain differentiates itself, highlighting the significant competitive advantage VF has created with its platform.
We have always maintained a diversified sourcing footprint to provide resiliency against unforeseen changes in the operating or geopolitical environment.
For example, our largest market, Vietnam, only represents about one-fourth of our sourcing mix.
And within Vietnam, we work with multiple partners and have presence in multiple provinces, both between the northern and southern regions of the country, and maintain access to multiple ports.
Our teams are leveraging VF's scale and relationships to navigate the challenging logistics environment in the most cost-effective way.
We continue to utilize expedited freight across the large number of air providers.
We've doubled our network of ocean carriers and significantly expanded the number of ports utilized across the globe.
Our commercial and supply chain teams are working closely with our key wholesale partners, increasingly using direct shipping and our work indicates we're doing better than most of the competitive set at keeping products on the shelves.
Our relationship with these key wholesale partners continues to strengthen with our open, transparent and timely communication throughout this dynamic situation.
So despite the unprecedented level of disruption across the global supply chain, our teams have been able to keep products flowing, supporting our strong holiday growth plan and allowing VF to effectively hold our revenue guide for fiscal 2022.
Moving into some additional highlights on our second quarter.
Total VF revenue increased 21% to $3.2 billion despite a significant amount of orders shifted from Q2 into Q3, implying continued sequential underlying improvement for the portfolio.
For context, we estimate this shift represented a mid-to-high single-digit impact to VF's Q2 growth rate relative to fiscal 2020.
Our adjusted gross margin expanded 300 basis points to 53.9% due to higher full price realization, lower markdowns, favorable mix and around 20 basis points contribution from Supreme.
When compared to prior peak gross margins in fiscal 2020, our current year gross margin was impacted by about 180 basis points headwind from incremental expedited freight and FX.
Excluding these two items, our organic gross margin in Q2 is over 100 basis points above prior peak levels, driven by favorable mix and strong underlying margin rate improvement.
And as a reminder, our Q2 2020 gross margin was very strong.
So our ability to deliver this level of underlying expansion against fiscal year '20 margins is a strong testament to the health of our brands in the marketplace.
Our SG&A ratio improved in Q2, down 100 basis points organically to 37.2% despite elevated distribution spend and continued growth in strategic investments.
This strong underlying leverage was driven by discretionary choices and is a clear reflection of the optionality within our model, supporting organic earnings per share growth of 60%.
I'm proud of our team's ability to deliver earnings of $1.11 in Q2 despite incremental expedited freight expense and significant wholesale shipment timing headwinds in the quarter, reflecting the strong underlying earnings momentum of the portfolio.
Now a few comments on our revised fiscal 2022 outlook.
We are holding our revenue guidance to be about $12 billion despite a weaker China outlook in the near term and a lower than expected back-to-school performance at Vans in the U.S. and ongoing supply chain challenges; all of this, highlighting the broad-based strength across our brands and geographies.
Our gross margin outlook is now about 56%, including 40 basis points of incremental freight cost relative to what we had expected in July, implying an improving underlying gross margin outlook.
And adjusting for incremental freight and FX, our fiscal 2022 outlook implies over 100 basis points of underlying gross margin expansion relative to peak gross margins in fiscal 2020, driven by favorable mix and clean full price sell-through.
We are holding our operating margin outlook to around 13% for fiscal 2022 despite the incremental freight cost covered.
As Steve said, we're focused on what we can control and for me, SG&A control is clearly top of mind.
We are offsetting supply chain and distribution cost headwinds with spend reduction actions, while protecting strategic investments and demand creation.
The business is driving impressive underlying leverage and our confidence is strong that we can continue to accelerate this over time.
Finally, as discussed, we are reaffirming our full year earnings outlook of around $3.20 despite about $0.09 of incremental costs directly attributed to the supply chain disruption; a strong testament of portfolio resiliency and the optionality of our model.
Before the pandemic, VF was more reliant on the Vans brand.
Today, however, we have a much larger portion of our business performing at or above our expectations.
There is broad-based momentum across the portfolio.
VF also has a power -- has powerful enterprise platforms, highlighted by our world-class supply chain, which provides a significant competitive advantage to our business.
And lastly, VF has the capacity to drive meaningful incremental shareholder value through capital allocation optionality.
We've demonstrated this over the course of the pandemic by maintaining our dividend and trading our occupational work business for the Supreme brand.
As we have line of sight to our leverage threshold, we have this additional optionality and we'll be opportunistic in share repurchases moving into the balance of this fiscal year.
VF is not just one brand.
We are a diversified portfolio of strong brands supported by world-class enterprise platforms, which we believe at minimum can drive high-single-digit revenue growth, low-teens earnings growth and provide meaningful capital allocation optionality moving forward.

user
sees fy revenue about $12 billion.
sees fy adjusted earnings per share about $3.20.
qtrly revenue from continuing operations increased 23 percent to $3.2 billion.
full year fiscal 2022 adjusted earnings per share is expected to be around $3.20.
qtrly adjusted earnings per share from continuing operations $1.11.
majority of vf's supply chain is currently operational.
port congestion, equipment availability and other logistics challenges have contributed to increasing product delays.
vf is working with its suppliers to minimize disruption and is employing expedited freight as needed.
as covid-19 uncertainty continues, vf expects ongoing disruption to its business operations.

assistant