VF Aktie

Ladies and gentlemen, thank you for joining us, and welcome to the V.F. Corporation First Quarter 2027 Earnings Call. [Operator Instructions]

I will now hand the conference over to Alegra Perry, Vice President of Investor Relations. Please go ahead.

Hello, everyone. Thank you for joining us on V.F. Corporation's First Quarter Fiscal 2027 Conference Call. On our call today, 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 are referred to on today's call are all on an adjusted constant dollar continuing operations and excluding Dickie's basis, which we've defined in the presentation that we posted this morning on our Investor Relations website.

We use those 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 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.

Before we proceed, I want to highlight that scripted remarks have been posted at the start of the earnings call for ease of reference during the call. The scripted remarks will be removed after the earnings transcript is made available on our Investor Relations website.

Joining me on today's call are VF's President and Chief Executive Officer, Bracken Darrell, Chief Financial Officer; Paul Vogel, and Chief Operating Officer, Abhishek Dalmia. Following our prepared remarks, we'll open the call for your questions. I'll now hand it over to Bracken.

Thank you, Allegra. Hello, everyone, and thank you for joining us. Before we get into our call for the quarter, let me talk about our CFO transition. As you know, if you read our release this morning, Paul Vogel will be stepping down and Abhishek Dalmia will be taking on the newly combined role of Chief Financial Officer and Chief Operating Officer.

Let me start with Paul. I'm so thankful to Paul for being my partner these past 2 years. He's played a key role in dramatically improving our balance sheet, lowering our cost base and returning us to growth. Paul should be very proud of his accomplishments and I know he is. He's also been a good friend and partner to me and the entire team, and we're going to all miss him. Paul, I know you want to say a few words.

Thanks, Bracken. As Bracken shared, after a lot of reflection over the past several months, we decided it's the right time to transition in my role. Over the past 2 years, I've become very passionate about the brands within VF, and I've been driven to execute on the transformational work underway across the company. That work has required a significant amount of time away from my family who have remained on the East Coast. As I looked ahead and discussed with Bracken, the ongoing expectations, we decided now would be the right time for VF to transition to a new CFO. I remain confident in the company the strategy, the progress we are making. In fact, I lead this role with great confidence in where VF is headed.

Over the past few years, we've made meaningful progress, stronger financial discipline, improved execution, a significant reduction in debt and a sharpened portfolio. We returned to growth for the full year in fiscal '26 for the first time in 3 years expanded margins materially and reduced the leverage ratio by 2 full turns in 2 years, and I'm confident we will hit our previously provided guidance for the medium term.

I'm also very pleased that Abishek will be stepping into the CFO role, combining with his current remit as COO. He understands the transformation agenda. He understands the operating model, and he brings a powerful combination of strategic, operational and financial perspective. I believe he is the right leader for this role and the right partner for Bracken and the leadership team in this next phase.

On a personal note, Abhishek has been a true partner to me, and we've become real good friends and how a lot of fun working together. Over the next quarter, I will work with Abhishek to help ensure a smooth and thoughtful transition, and I'm committed to doing everything I can to support the team during this period.

And last, I want to say thank you. First, thank you to Bracken for his partnership, trust and leadership. It's been a privilege to work alongside him during such an important period for VF. Thank you to the Board and the broader leadership team for their support and collaboration. Thank you to our shareholders and analysts. And most of all, thank you to the finance organization and to the teams across VF. Serving CFO of VF has been an honor. I'm proud of the progress we have made, and I'm confident in the company's future. And now I'll turn it back over to Bracken. Thank you, Paul. And thank you, Paul.

I would have put the rest any rumors there might be about the suspicious coincidence that Paul's move back to Philadelphia and Lebron James moved to Philadelphia in the 76ers. They seem to be uncoordinated, although we will try to confirm that over time. Now for Abishek. We are really fortunate to have 1 of the most knowledgeable and impactful people in our industry as COO. After stance at Dell and Lululemon, and I didn't mention GE in the beginning of his career, Abhishek spent 7 years of BCG, working with almost every major company in our industry on a very wide range of projects. And that has already paid big dividends of VF. As he is reengineered first, our technology organization, then supply chain and soon finance. He's also been a partner for me in our strategy and execution across the business. He's a particularly good fit for the CFO role as an expansion of his current role.

You'll soon see though, he's not going to be a COO who just adds finance. He will be a CFO who really understands at a practical level how to create total shareholder value. He deeply understands brand value creation. And the combination of these roles will drive sustainable and profitable growth, agility and cost efficiency. As the business evolves into the next phase of growth, his ability to blend financial acumen with change management and transformative thinking will be just the right cocktail for VF's ongoing transformation as we continue on our way to becoming a high-performing, high-growth business. Abhishek, I know you'd like to say a few words.

Hello, everyone. Thank you, Bracken, for your confidence and for the opportunity to take on this expanded role. I'm honored by the trust you and the Board have placed in me. I also want to thank Paul for his partnership and friendship. He has helped guide VF through an important period of transformation and has developed strong finance leaders. I look forward to partnering with this talented team as we enter our next phase.

I chose to join VF a few years ago because I love our brands, and I believe in the long-term potential and success of this company. Going forward, my commitment is to ensure that every dollar of capital is deployed where it creates the greatest long-term value. That means maintaining discipline in how we invest, strengthening returns across our portfolio and balancing growth, profitability and cash generation to deliver sustainable TSR. I'm energized by what lies ahead in this next phase, as I continue to work closely with Bracken and key leaders in brands and commercial to make VF a high-performing and a highly profitable growth business. Now back to you, Bracken.

Thanks, Abhishek. Now let's talk about the quarter. The first quarter was a solid start to the year. As a result of this start and better visibility into the rest of the year, we're raising our full year fiscal '27 outlook from 1% to 2% growth to 2% or better. We guided last quarter, we said you could expect another year of growth. Now you can expect a year of acceleration, albeit modest so far, but this is just the beginning of that.

First quarter revenue was flat to last year, ahead of our guide. Q1 is typically a negative operating income quarter, but Q1 operating income was also slightly better than we expected, even though we invested in growth across multiple dimensions.

Turning to the individual brands. The North Face grew 4% in Q1. That was stronger than our expectations of a flat quarter that we shared with you earlier. You might recall that the primary driver of our flat quarter expectation was orders that would normally have occurred in Q1, actually shipped in Q4 last year. So we expected a stronger Q4 would result in a lighter Q1. As in the past, this year, we have timing ships across the quarters. In that vein, we expect Q2 to be flattish versus last year on North Face.

However, we expect the full year to be roughly in line with last year's growth rate. Let me repeat that. We expect the full year to be roughly in line with last year's growth rate. From a product standpoint, The North Face growth was led by transitional outerwear, shells and equipment. And we barely tapped the many opportunities to bring in strong spring and summer categories in the years ahead that we don't do much in today, which makes a solid quarter like this even more satisfying. Imagine what it will be when our assortment in stores and online is much broader and appropriate for warmer seasons.

In footwear, the Altamesa Version 2, which I've actually been wearing all week, I've been wearing the 500 is absolutely amazing. We launched during the quarter with a very strong debut across regions.

Now let me give you a little taste of what's coming for The North Face in Q3 and Q4, looking into the back half of the year. As I mentioned last quarter, The North Face is the exclusive performance apparel sponsor for the U.S. Ski and Snowboard team. The athletes will wear our product across all major events, including World Cup and, of course, the Olympic Winter Games, and official training caps between now and through 2034 and beyond, we hope.

The first drop of the U.S Ski and Snowboard apparel is this winter. I'm wearing one of the T-shirts underneath this [ year ] right now. We'll be upgrading our largest single icon, the [indiscernible] from Summit Series all the way down through all of our lifestyle. This 1 has an innovation twist as well, which I will share with you later.

From a marketing standpoint, there's also there's also something very exciting coming out. We can't tell you exactly what it is, but keep an eye out for your local IMAX theater, just watch for developments ahead.

Timberland revenue was up 3% in the quarter, both DTC and wholesale grew on a global basis. While regional performance was driven by continued strong growth in the Americas, up 10%. As expected, at this stage, the 6-inch premium boot is the growth engine. While behind the scenes, our initiatives to build and diversify around this strength are taking hold. Outside of the boot, shoes continue to perform strongly in all regions, led by the Boat Shoe. As we get into fall '26 season and beyond, you'll begin to see more of the new product lines being developed from below the ankle to sneakers in footwear and across apparel.

Alongside those product initiatives, we continue to develop the brand distribution network. And for the first quarter, we opened 3 new full-priced DTC stores in the Americas, taking the total number of full-price stores to 14 in the region, and there are more to come. We're driving brand energy with our social-first marketing strategy, as we talked about before, while leveraging the brand's cultural relevance. Search interest was up in all key markets. The brand continues to play a central role in big cultural moments. For example, during the quarter, the yellow boot became a symbol of New York during the New York's magical New York Knicks championship run this year and an associated social media post generated the brand's highest engagement ever. We expect another good year of growth for Timberland as we continue to take steps to unlock the true potential of Timberland over the next few years.

Now let's talk about Vans. Q1 revenue was down globally by 9% year-over-year. We expect a similar trend in Q2. We began signaling a few quarters ago, the business would turn around first in DTC then wholesale, and we focused on the Americas. And that's exactly what continues to happen. We expect to be a little bit better in Q1 than we were. We expect it to be a little bit better in Q1 than we were. But this quarter doesn't at all change our indication of what we see for the full year.

To that end, let me start by giving you a little more data than you've had before on our DTC. I'm going to focus on the U.S. where half our business is, but the strategy is the same globally. Remember, we have more flexibility in introducing new products into our own DTC channels that we do in wholesale, just takes more time. E-comm is where we're starting to see accelerated growth.

Now let me talk about our fleet of stores, focused on the U.S. where most are. Almost 60% of our comp stores are now flat to growing in Q1. There are stubborn stores we continue to work on. But you can see what our -- the e-com and the majority of our fleet is now positive in the U.S. So what's going to change between the first half of fiscal '27 and the second half fiscal '27 at Vans.

In addition to the improvement we've seen in e-com in our stores, wholesale is going to be a lot better around the world. We're confident because we have much better visibility into our wholesale partners' plans. This is 1 of the things that gives me confidence to commit to a better second half of Vans. In fact, for Vans as a whole, while the first half revenue will be down about 9% versus last year, we expect second half to be down 2% or better versus last year.

Let me go further on Vans now. There have been many green shoots in the past few months. DTC in the Americas continues to grow, as I said. We have more and more new products that are generating energy, excitement, engagement and sell-out, complete sellout. The press and social media analysts have published many headlines like Vans hot street is only getting hotter, and Vans might just be the footwear brand of the year. The brand is even inspiring luxury brands like Louis Vuitton, Prada, Dior and [ Memo ] as they see the energy move to Vans silhouettes. And speaking of brand energy, in just its second year, the Vans work tour will have almost 600,000 attendees across its 6 venues, making it the -- for sure, the largest rock festival in North America and maybe Tide or 1 or 2 or 3 for the largest music festival in North America.

And when you go, you see 2 out of every 3 people wearing Vans. Our focus on innovation is driving consumer demand. We continue to reinvigorate the original icons. Authentic had another double-digit quarter. Slip-ons grow. Old Skool continues to benefit from Peralized, distressed and collabs like the Travis Barker, colab all resonating and achieving a very high sell-through. The latest example just last week was the Souvenir asphalt collection, which is Old Skool, we sold out in 30 minutes.

The team is also putting out powerful new silhouettes, like loafers and others. One of the things we're under leveraging as some of this incredible energy we're creating we can do a better job of having sufficient volumes of those hot styles of our icons and entirely new silhouettes to better capitalize on demand. We're working on that. But overall, our energy strategy on our DT channels is starting to work, and we're going to keep going and build on this. Wholesalers will be bringing in more new products as we approach the holiday season and into the spring. We continue to be very optimistic on Vans.

Beyond the top 3 brands, we're fueling the engines that are showing strong potential among the smaller brands, and there are a growing number of those. Altra?is the most visible example Altra?continues to deliver, building on a strong performance last year and progressing towards another year of powerful growth. Franchise styles, including Lone Peak, Torin, [ Experience Flow and WILD ] continue to perform well. We're continuing to invest in brand awareness, which remains low but is growing. Altra?plays in a very large addressable market.

For perspective, we're a leader in trail running, but rotary running is 10x as large of a market. Even though we've only recently gotten seriously into road running, over the past few quarters, road running has become larger for Altra? than trail running for the brand. As I've said before, we believe this brand will be a $1 billion-plus brand over time.

To conclude, I'm confident about the year, and we're raising our full year guidance as a result of our better visibility into the second half and our Q1 performance.

With that, I'll hand it to Paul first for more financial depth on this quarter, and then Abhishek Dalmia for the forward-looking guidance for the next. Paul?

Great. Thank you, Bracken. Turning to our first quarter results. Q1 revenue was approximately $1.7 billion, flat year-over-year and above our guidance of down low single digits, and operating performance was slightly ahead of guidance. By brand, as Bracken said, The North Face grew 4%, Vans was down 9% and Timberland was up 3%. In Q1, Timberland's growth was impacted by the ongoing conflict in the Middle East as well as ongoing work with 1 of our distributors. This was roughly 3 points impact to Timberland in Q1.

From a regional perspective, growth in the Americas was up 4%, while EMEA was down 7% and APAC was up -- was down 1%. And lastly, by channel, DTC led us up 5%, while wholesale was down year-over-year at minus 4%. Adjusted gross margin for the quarter was 54.9%, up slightly over last year. Our core underlying gross margin is actually stronger than it peers as this quarter's margin was impacted by 140 basis points as a result of unfavorable FX.

As a reminder, there's roughly no incremental advantage or disadvantage of tariffs in Q1 this year versus Q1 last year. SG&A stepped up year-over-year as we deliberately invested in the business to drive growth. As we signaled in May, we are making first half investments in brand building initiatives. The $225 million of structural SG&A savings since fiscal 2024 remain in the run rate. This has been a choice to reinvest on a lower fixed base to drive growth.

Our Q1 adjusted operating loss for the quarter was $95 million, slightly ahead of guidance as a result of the higher-than-expected top line. Finally, adjusted loss per share was $0.27 versus $0.25 in Q1 and of last year. The tax rate was approximately 11% in Q1, and there is no change to our full year outlook for the tax rate in the low 30s.

On the balance sheet, we continue to strengthen our position. Inventories excluding Dickies and FX, were down 4% and net debt was down $1.1 billion or down 20% versus last year. Free cash flow was up approximately $75 million in Q1 year-over-year. This includes approximately $50 million benefit from tariff refunds.

I'll now turn the call over to Abhishek, who will walk you through our guidance for Q2 and the full year. Abhishek?

Thank you, Paul. For full year fiscal '27, let me start with key metrics. First, on revenue, we had guided to up 1% to 2% and now expect to be up 2% or better versus last year. Second, we continue to expect our operating margin to be approximately 8% for the full year. Third, we expect free cash flow to be flat to up versus last year, with operating cash flow up over -- year-over-year. As a quick reminder, this excludes any potential net benefit from tariff refunds during fiscal '27. This also excludes the $100 million net impact of the pension termination that we received in fiscal '26.

And finally, we continue to expect our year-end leverage ratio to be between 2.6 and 2.9x. As you know, it's not our standard practice to give you detailed brand guidance. But given we just raised our revenue guidance, we want to give you some additional color on the top 3 brands for the full year. For The North Face and Timberland, we expect the full year to be in line with their respective growth rates from last year, plus or minus a point or 2 on either side. For Vans, we continue to expect revenue trends to improve relative to last fiscal year, down mid-single digits.

As you heard from Bracken, we expect better trends in the second half and expect revenue to be minus 2% or better for Q3 and Q4 combined. Let me share some details on the second quarter now. Revenue growth will be approximately in line with Q1, and operating income will be broadly in line with last year. Let me break down the key components for you. For our 2 largest brands, The North Face will be flat to slightly up year-over-year in Q2. And as mentioned before, this is primarily driven by wholesale timing.

Vans' Q2 performance will be similar to Q1 of down 9%. Within this number, Americas DTC will continue to grow as we indicated in May with continued improvement in DTC for other regions. As you also heard from Bracken, we expect the wholesale business to improve in the second half, resulting the brand delivering a mid-single-digit decline for the full year. We expect gross margin to be up versus last year.

On SG&A, as you heard from Paul, we continue to make brand building investments specifically in DTC and marketing that will impact the overall SG&A in Q2 year-over-year. These Q2 gross margin and SG&A movements are contemplated within our full year operating margin guidance of approximately 8%.

Finally, Bracken, Paul and I have been working very closely over the last few years on VF's transformation. We are on track to achieve our medium-term targets. Let me remind them. First, and operating margin exit run rate of at least 10% in fiscal 2028. As we clarified on our last call, it really means that we'll be 10% or better for full year '29; and second, a leverage ratio of 2.5x or better by fiscal '28.

So to conclude, we beat our first quarter expectations and raised our full year revenue guidance. We gave you a little more of the runway on Vans for rest of the fiscal year and also additional color for The North Face and Timberland for the full year. We confirmed our guidance on operating margin, free cash flow and leverage and have clear line of sight to our medium-term targets. We are well on our way to becoming a high-performing high-growth business. And with that, I will hand it back to our operator for your questions. Thank you.

[Operator Instructions] Your first question comes from the line of Brook Roach with Goldman Sachs.

Abhishek, Paul, best of luck in your next chapter, and Abhishek congratulations on the expanded role. I was hoping we could unpack the trends that you're seeing in Americas wholesale at the Vans brand this quarter. Bracken, I think you mentioned in your prepared remarks that you were hoping to be a little bit better than where you were. Can you unpack what transpired in the quarter versus your expectations?

And then also give us a little bit more color on what gives you confidence in the improvement and the magnitude of the improvement that you're expecting to see into the back half, perhaps you could give us a little bit of color on what you're seeing in the order book by geography and the types of products that are driving that inflection?

Thank you, Brooke. And it's good to hear from you. Yes, I'll go right into all those questions. So first, in terms of our performance in Vans in North America, we've been saying for a while that DTC is going to turn first in the wholesale will follow. And that's exactly what's happening, exactly what happened in Q2. Our wholesale business continues to be a lot weaker. I mean if you look at our global number, I'll step up to the global number. If you look at that global number for the year, if we're -- or for the quarter, if you're -- if we were telling you we delivered 9% down overall, it was a lot better than that in our DTC globally and a lot worse than that in wholesale globally. And I'm talking a lot worse.

Now our sellout is not that bad in wholesale. So the actual sellout is better. There's some destocking that's going on probably ahead of buying in new inventory. In terms of what are they buying? One of the cool things about having your own DTC, and that is most dramatic for us and Vans in the Americas is the fact that we have a shorter path to market, and we can be very choiceful about what we put out there. So if you go into our stores or certainly if you go online, you'll see a lot of new products from us now. I hope you can see that when you walk into our store, but you could certainly see it online, I encourage you to do it today. Those are selling very well, as I said in the script in the beginning, they're not in wholesale and anywhere near the same volumes as they are in DTC. So that's coming.

Why do we have confidence in wholesale improving as we go in the back half of the year, both in the Americas and around the world, because we have [indiscernible] order books, I'm not going to specifically go into order books, but I will say the discussions we're having with our wholesale partners around the world indicate that we're going to have a strong turn in wholesale in the back half.

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

And congratulations to Abhishek and Paul, thanks for the partnership. It's been really wonderful working with you. So Bracken, you had talked about I mean it's very clear that global luxury is kind of picking up some queues from some of your key styles, the Authentic the Slip-on and skate-inspired. So it's pretty flattering. But your prices really haven't changed over time. And I'm wondering how you think about kind of materially building on this emerging brand moment. What do you do kind of in that competitive, excuse me, competitive atmosphere. And is that an upside opportunity for the back half. Also on this 8% operating margin, Paul and Abhishek, can you talk about kind of the upside and downside risks -- you're putting a lot of SG&A into kind of the operating margin. Could you pull back on that? Or is this really about kind of upside selling in the back half?

Okay. I'm going to take the first and then I'm going to let Abhishek answer the second one, so it's a forward-looking comment. In terms of -- 1 of the things I love about coming into this company, and it makes me so excited to walk in here every day is the fact that we serve millions and maybe even hundreds of millions of consumers as opposed to a fraction of the Earth, which is what luxury is doing. And it's wonderful, though, to be viewed as potentially competing with luxury because they sell at 10 to 20x our prices. So you're right, this is a moment where luxury is going into a lot of our silhouettes, an increasing number of our silhouettes. And that is not only flattering, but it's very good for the brand and brand heat.

Now how do we take advantage of that? So far, as you said, we have not raised price. We don't have a plan to raise price this year. It's certainly always an option. What we really are doing though is trying to move our mix a little higher. So you'll see us emphasize more premium styles not only collaborations, but in our own premium styles and then make sure we're delivering growth.

We got in this -- we're back here. This is a very -- this business is very sensitive to growth. So as we start to grow on Vans, you're going to see the profitability will expand rapidly as we know. So there's a lot of leverage there. Abhishek, do you want to take the second?

Yes. First of all, Adrienne, thank you for the warm welcome, and I do look forward to working with you as well. To your question, first up, we don't see the risk to the guidance that we have given on the operating margin. However, the geography of that 8% might actually be more driven by gross margin because we are open to making discretionary investment in the SG&A as called out by Paul and Bracken in the previous call. So we definitely feel very confident on delivering the operating margin.

Your next question comes from the line of Michael Binetti with Evercore. .

Guys, can you hear me okay?

Yes, we can, Michael. Good to hear from you.

Let me add my congrats Abhishek and Paul. Really appreciate the time, Paul, look your next adventure. Let me ask you on Vans, maybe in Europe, I'll just ask a near-term question here. Still a pretty tough quarter after 3 years of declines there. Maybe just some color between wholesale and D2C, what's going on in that region? Obviously, your comments on what Vans will be doing globally in the second half are interesting. That's 1 market that I'm interested to hear how that will go through that transition in the second half.

And then maybe we could just back up for a minute and take a historical look at Vans margins. A previous regime told us long ago that Vans had a low mid-20s operating margin at its peak. Today, it looks like it's lower mid-single digits. As I look back and think about it, maybe there's a diagnosis that R&D and marketing investments are far too low to drive that brand. Can you just help us understand a little bit better today how much of those investment lines have changed as we look at the current margins in the business. I think that would really help us understand the margin opportunity from here. It seems like a lot of it is the gross margin, but maybe some of it is from the scale of the business and your confidence that you have the right size overhead from the medium-term top line outlook?

Really interesting question. So first one, your question, what does Europe look like from a DTC and wholesale from a DTC and wholesale standpoint relative to the U.S. similar I would say, behind the U.S. from a timing standpoint, similar in trajectory, same thing is happening. So DTC is outperforming wholesale by a wide margin. E-com is positive this quarter. So it's already turned positive there and the brick-and-mortar is improving. So overall, it's a very similar profile. And then wholesale is way south of that, as I said in my last -- the answer to Brook's question. So I think it's very, very similar. You want to answer the second one, Abhishek.

In terms of the overall investment in the shape, we are continuing our investments in R&D. Product investment is a big part of the investment. We are obviously with the momentum that we see in the brand marketing continues to be an area where we are doubling down, but more the right balance between brand and performance. We have taken a significant cost takeout in this part of the transformation. So I do, Michael, to your question, we definitely see opportunity both in gross margin and SG&A leverage on the bank side.

Yes. I would just add to that. I think -- I mean, underneath your question is, can you expect the profitability kind of from the peak that we had on Vans in our future. I'd say, 2 years from now, 3 years from now. The answer is probably no. I don't -- I think we milked it too much. And we got to the point where I believe there was a point where I'm not sure I'm really doing a pure P&L here, but where we were making kind of 20% plus on operating margin, that's probably too high for a business like that. So we're not going to do that.

On the other hand, I do think we're -- we'll spend a little ahead on marketing, maybe product development, but at least marketing. We're probably spending ahead of what we'll do on a rate basis for the long term. So the profitability is going to keep going up. And on top of that, you're going to get leverage on all the SG&A. So I think you're going to see -- we'll see the profitability to get to a really attractive level over the next several years, but probably not back to where we were 5 years ago.

Your next question comes from the line of Laurent Vasilescu with BNP.

And much appreciate for all the color this morning. I want to ask quickly a near-term question, if I may. I think it's very helpful that you provided color on the brands, particularly for the quarter. I think you said Vans down 9%, [ TNF ] flat. I'm curious -- how do we get to overall flat revenues for 2Q? I mean, it would imply that Timberland needs to be up meaningfully. I'm just trying to under square that away. And within that, Bracken and team, I would love to hear what you're seeing in terms of wholesale demand in the Americas for the Timberland brand. And then 1 quick question. Paul, you've been very, very helpful over the last 2 years. And last quarter, you were very helpful in trying to break out the benefit from the receivables for the gross margin. I'm curious to know if you saw that in the 1Q gross margin, if you can potentially help us with the bridge for the gross margin of up 10 bps.

I'll try to take the first 2 and then I'll hand the third 1 off. In terms of how do you get to flat revenue, I think we're trying our hardest not to guide every single brand here. But you're right, you need to do the math to get to your model, and we understand yes, we do expect Timberland to be better next quarter than we did last quarter. And -- but although the other brands are also doing well. So I think we've got some good stories underneath there, too. In terms of...

I think I can take that on the gross margin question. And on adding on the Timberland, if you got Laurent from the script that Paul talked about. Timberland was 3%, but there was a differential impact because of 1 of the distributor impact that we have been managing with the Middle East impact in EMEA. So we do expect that trend to be much better in Q2. I think on your gross margin, let me just clarify a few points there. One, from a year-over-year perspective, we are up about 10 basis points. But if you actually factor in from an FX perspective, it's another 140, 150 basis points. Part of that, we obviously predicted, but part of that was not predicted. So there is an impact around that.

And then two, if you look at the segment reporting in the queue that will come out, you will see that, obviously, there's a mix shift between outdoor and active from our expectation. So outdoor obviously driven by TNF was better than our expectation in Q1. Vans was slightly slower. So that actually impacted the gross margin as well. But we feel very confident on the gross margin improving over the year as well even further going for the full year.

Yes. Let me just answer 1 other question I missed in the first one, which was, how is wholesale looking in Americas. We're trying to slice this too thin by quarter by channel, by everything. But what I would say is wholesale was solid. Search interest continue to be up in the key markets for Timberland. So it looks pretty good.

I guess, to your tariff question, particularly a receivable question, I think there's no benefit on the gross margin at all, right? So we took the entire benefit in Q4 of last year from a receivables standpoint. You will obviously see it in the free cash flow side, which we talked about. So there was $50 million or so that we got back. So there's obviously going to be some quarterly mismatches between what you see in the P&L and what you see in the cash flow statement, which Abhishek will guide moving forward, but there was no impact at all in terms of anything with respect to tariffs on the P&L or the gross margin. You'll only see it on the cash flow statement, where we actually got cash in Q1.

Your next question comes from the line of Paul Lejuez with Citigroup.

I Want to come back to SG&A. I'm curious if mid-single-digit growth is the right way to think about the SG&A build in future quarters? And if not, for how long should we expect SG&A to grow in that range, anything lumpy we need to know about in the remaining quarters of this year. And then similarly, just as we look to that medium-term goal of 10% in F '29, from the current 8% this year, how much of that 200 basis points plus will be gross margin improvement versus SG&A as you think about it?

Do you want to take that?

Yes, sure. So first of all, Paul, from an overall SG&A perspective, this is again something which we called out even in the May earnings and right now. It's a deliberate investment in marketing and DTC and brand-building initiatives in the first half versus the second half. The good news there is to, one, all these savings that we actually did around SG&A from a transformation perspective is still part of the run rate. And two, a lot of the spend that we are seeing in the first half is discretionary. So we have full control over that. So that's 1 piece of it.

To your question around the broader medium-term target of 10%, we did highlight that that the shape -- initially when we launched those medium-term targets back in FY '24 in our first Investor Day, we did say that the shape of that is probably going to be about 55%, 45%. We absolutely see the geography changing on that. We see upside in gross margin, which actually gives us more flexibility to continue investing both in product development as well as in marketing and brand building initiatives. So the geography, the short answer is the geography of that 10% is going to be slightly driven more by gross margin versus SG&A leverage down to 45%.

And remember, when we guided that, I think there was a 100 basis point impact on that by Dickies.

That's right. Yes, we do get 100 basis points good guide just from Dickies?divestiture itself.

I think that initial guidance was excluding any sales growth you're now including sales growth as part of that 10%.

So the guidance was a little lower sales growth from that time, right. So obviously, it's come down a little bit. So we've always said if it comes down a little bit. We've got to get back to that baseline, but it wasn't growth above the baseline.

Your next question comes from the line of Simeon Siegel with Guggenheim.

Paul. It's been great working with you. Best of luck. Abhishek, congrats on the added role. So Bracken, just thinking about the Vans wholesale dynamics for a second, can you just to how much you think is, at this point, still resetting the wholesale base versus how much is demand continuing to rebase? And just maybe how has that evolved over time? So as you think about those 2 dynamics? And then to the -- just follow-up on the regional -- do you see any meaningful brand like divergence in brand perception health in the consumers by region?

Okay. So yes, on your first question, how much of it is resetting the base, how much is it demand? That's a hard 1 to answer. I think right now, you don't have -- what we have in our DTC is a different product mix than we have in wholesale. So whether you call that demand you call resetting, I wouldn't say it's bringing in new distribution and exiting just -- it's not that kind of strong mix change that we had when I first got here. It's more really making sure they've got the right assortments and the right amount of assortment on the floor. So that's really the change that we see happening ahead. The second question was?

Bank perception between the regions?

Brand perception between regions. Yes, we've always -- the Vans brand has always been much stronger in the U.S. than it is in Europe and stronger in Europe than it is in APAC, and that's still true. The good news is the trend line of the biggest -- the 2 biggest geographies looks very similar. EMEA is just behind the U.S. in terms of that trend.

Your next question comes from the line of Jonathan Komp with Baird.

Bracken, just to follow up on Vans. Any more color as the team thinks about translating some of the success and more limited around styles, and do a broader reception and change in the mix for wholesale? Just any more color on how you see that playing out? And then Abhishek Dalmia, a broader question as we think about the second half outlook here. The implied revenue inflection towards 4% plus and a very strong double-digit growth in operating profit year-over-year. Can you give a little more color just to get comfortable with that ramp into the second half year .

Yes. So a little more color. So as I said in my opening, I think we can do a better job. We're learning. I think we can do a better job of translating those immediate like really, obviously, I mean I hope you're looking at it and saying, "Wow, they do really do have some hits." I mean we're just -- we're serially notching things now they're selling out really fast. Some have very low quantities like some of these collabs, some have larger quantities. Like this last [indiscernible] was not a small quantity that sold out really fast.

I think we can -- we know we can do a better job of translating that volume into sales, whether it's our own DTC or as you said or wholesale. In terms of wholesale, we're -- yes, a little more color on that. You're going to see us bring in some of those things like Pearlized into wholesale distribution. And there are consumers who want to buy that, and right now, if they're not going into our stores, they're not seeing it. So we don't look differentiated enough when you walk into wholesale.

One of the things I always said, well, things I love about wholesale is when somebody walks into wholesale, they often don't have a brand in mind. They walk in with a category in mind. And when you walk in with the category of mine, you need to have something distinctive to sell because other people will do that. And so we don't need to have that. We've tended to have the same kind of product in wholesale that we've had historically, whether it's black and white Old Skool?or checker slip-ons. And so we really need to make sure we've got refreshed product. We have some of that in wholesale, but not nearly enough. So that's going to start to come.

Now the challenge we have, I think, is how do we accelerate and maximize that heat. And I think this is a learning curve we're on right now to get better and better at that. And I think our team is really learning all the way throughout the chain of the business, and we'll get better at that over time. But we're not going to let up. We're going to keep coming with these new styles and new silhouettes serially forever. I mean that's our -- that's the move we're making here as a company.

Yes. And Jonathan, to your question, first up, you might feel like it's a bold move for an incoming CEO to raise the guidance, but I've been in close -- but I've been working very closely with Bracken and Paul over the last 2 years. And we feel very confident because of 3 reasons. One, Bracken did call out that Vans, we have better visibility into the wholesale business for Vans, which is going to be minus 2 or better. So that's one. I did call out as part of the guidance that both TNF and Timberland are going to be roughly in line with the growth rates of last year. So that is definitely something for TNF. It's a wholesale timing between Q2 and Q3 and the rest of the quarters. And then for other brands, we expect again to be similar in the line. So if you do the math, you're right that the second half from a growth rate perspective will be around 3% to 4%, but that gives us the confidence that we will be definitely minus 2 or better for the full year, or plus 2 or better for the full year.

Your final question comes from the line of Jay Sole with UBS.

Great. Maybe if I can just ask you about trends in Asia and Greater China, specifically by brand. It seems like that region has been a little bit choppy side. But maybe just talk to us about what you're seeing there and maybe what the outlook is going forward for the rest of the year.

Yes. I mean, you can see in our numbers that the China APAC in general has been more muted than the rest than it's been historically, and we expect that to really continue. I think [ T&F's ] been relatively flat, and that's not a something we've historically had. And I think, as I said before, I think part of that is us. We're just -- we don't have enough -- I don't think we have enough innovation in APAC especially with the competition there, which is really strong, as we talked about before, and I love strong competition. So it's making us better. And believe me, we are doubling down on what we're doing internally to make sure we're in a position to win there.

So overall, I would say, you can kind of expect more of the same. There's no real new news there. I do think it's not as big a region as the other 2 for us, but it's super important, and we're going to get stronger and stronger there over time. But it will be a little more muted than it's been in the past for the next year or 2.

Excellent. Well, look, thank you so much. We're super -- we're finishing Q1. It's a little -- it's just -- but we -- but it was really important for Q1 for us because, as you know, we did exceed our guidance. And we also just feel like during this quarter, we've gotten much better visibility to the back half of the year. So we're pumped about the start of the year. we're not going to pretend that this quarter was great. It wasn't, but it was better than our expectations, but it really sets us up for another year of -- for a year of accelerated growth, which is great. Very modest. I'll say that. but that accelerated growth story is going to get stronger and stronger over the following year. So thanks, everyone. We look forward to seeing you in one-on-ones or group meetings or next quarter.

This concludes today's call. Thank you for attending. You may now disconnect.

Ladies and gentlemen, thank you for joining us, and welcome to the V.F. Corporation Fourth Quarter and Full Year Fiscal '26 Earnings Call. [Operator Instructions]

I will now hand the conference over to Alleg Perry, Vice President of Investor Relations. Please go ahead.

Hello, everyone. Coming to you live from Vans headquarters in sunny Southern California. Welcome to V.F. 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 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 Dick'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 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 V.F. President and Chief Executive Officer, Bracken Darrell; EVP and Chief Operating Officer, Abhishek Dalmia; 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.

Allegra, I've got to correct you, it's not sunny here. It's 5:00 in the morning. Let's be honest. Although it always feels sunny in California, and we had a pretty sunny quarter. Thanks, Allegra. Everybody, thank you for joining the call. We finished this year strong. We exceeded our fourth quarter guide and took another big step towards transforming V.F.

We returned to sales growth for the year. For the first time in 3 years, our portfolio is getting healthier. In fiscal year 2024, taking you back away, including Dickies, 43% of our business was growing. Now as we finish fiscal year '26, 70% 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 Dickies.

Over the last 3 years, we've paid off over half of our net debt, excluding lease liabilities -- I'll repeat that, over half of our net debt is 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 5.1x to 2x, a full 2 turns in 2 years, a lot of strong progress on growth, on cost and on the balance sheet.

We 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, that we're well on track with V.F. 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 believe we delivered our strongest revenue performance in 3 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 4 years.

Our revenue performance helped drive stronger-than-anticipated operating income of $54 million. So 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 advise stellar performance in the Americas, up 16%.

Our investments in product creation and innovation are delivering results. Softshells and were key drivers in apparel. Our investment in footwear is showing strong results or continues to. And in fact, we have now delivered 5 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 multiyear strategic partnership for The North Face with the U.S. ski and snowboard team. In other words, we'll be out hitting 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 North Face across all major events, including the World Cup -- all World Cup events and, of course, the Olympic Winter Games and official trading camps through at least 2034. Of course, our customers can also buy this apparel and we sure they're well.

The brand will be front and center on the world stage, further submitting 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 are so many ways we can grow this brand, category growth, market share growth, new categories we can expand into and finally, elevation to more premium versions of the products we already sell at higher price points. We have a lot of pent-up opportunity to drive growth at The North Face.

Let's turn now to Timberland, which grew 2% this quarter as expected. Our DTC growth was up 8%, driven in part by full price stores. Wholesale was slightly down versus last year, primarily due to lower distressed 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 shoe, 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, seating and partnerships. We're continuing to see positive brand search interest in the U.S. and the U.K. 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 Altra. Altra had an exceptional Q4 performance. Another 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% with revenues surpassing $270 million.

Performance was led by successful franchise launches, including the original loan peak, now the loan Peak 9 and the experience and strong execution in both DTC 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 Altra's brand where we've absolutely increased the investment to drive growth.

We're excited to see outsized growth in search interest, traffic and new consumer acquisition. This brand plays a very large -- plays in a very large addressable market. And we believe this can be a $1 billion-plus brand over time. There's so much opportunity here.

Now let's talk about Vans. Q4 was down globally by 5% year-over-year. What I'm most excited about by far is our progress in Americas DTC. Remember, DTC is where we are closest to the consumer with our products and our marketing. Americas is more than 50% of our total business, and it's where the trends start for Vans. If you remember, our e-comm business in the Americas first turned to growth in Q3 of '26 with 4% growth. Then in Q4, America's total DTC grew 5%. Americas is a foundation for the brand's energy. This is where we said the recovery would start. And as the Americas 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 reenergize our core icons, one silhouette at a time. As an example, the paralyzed 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% versus last year and slip on its return to growth, too.

Apparel also returned to growth in Q4. Vans continued to leverage a social-first culture-led marketing approach, amplifying product stories and driving traffic, particularly in the 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 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 [indiscernible] 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 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 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 Americas 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 Abhishek and Paul will also tell you in a minute, we're operating in an unusual macro environment. with 2 wars at least in 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. Important, 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 will 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 on the past 2 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 Dalmia, 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 a lot more as we move forward.

So Abhishek, welcome to the earnings call. The 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 gives me energy is that transformation is no longer just a plan or a set of initiatives. It goes up in the way we operate, the decisions we make and the results we are delivering. As you heard, gross margins of 55% plus, leverage ratio improvement of 2 turns and positive growth for full year [indiscernible].

In October 2024, we shared with you our plan to transform [indiscernible] strengthening 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% and exit run rate operating margin of 10% in FY '28, a leverage ratio of 2.5x or less [indiscernible].

We are 2 years into a 4-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 to pursue. Beyond portfolio moves, our turnaround has been focused on 3 [indiscernible] pending gross margin, controlling SG&A and accelerating top line growth. All 3 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 improve. In FY '24, V.F.'s full year gross margin, including Dickies, was 51.6%. In FY '26, we finished the year at 55.2%, an expansion of approximately 360 basis points. Now about 100 basis points came from Dickies 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 a meaningful uplift in gross margin dollars.

We have reengineered our processes, built new capabilities and upskilled 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 FY '24, including -- 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 V.F., and we are shifting it towards 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 FY '26 revenue growth of 1%, our first year of growth in 3 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.

So let me share a few examples from Vans. In fall 2025, Vans' pull-forward products originally planned for season fall 2026 and delivered them in less than 6 months. Roughly 1/3 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, REIT 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 Vans performance in Americas DTC, as you heard from Bracken. At the same time, Vans has been rebuilding brand energy through a more social-first content-led model. Targeted product and content drops with artists, including Cortes, Cesar, Williams, Travis Barker, are helping recorrect 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 shapper 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 V.F. 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 2 near-term cost challenges, oil price fluctuations and potential tariffs. On oil price fluctuations, there are 2 areas of impact, freight 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 V.F. 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. Over 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 margin targets in FY '28.

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, our 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 V.F. 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 want to underscore what Abhishek just said, leverage is down a full turn compared with fiscal '25 and now 2 full turns versus 2 years ago.

Let's turn to the financial view for the fourth quarter. We closed out the year with another quarter of revenue growth. Q4 revenue was $2.2 billion, up 3% versus last year and above our guidance of flat to up 2%. Wholesale demand in the quarter drove our better-than-forecast results led by The North Face.

By Brand in North Face grew 7%, led by the Americas region, which had another quarter of double-digit growth. Vans was down 5%, as expected, including about 2% benefit from earlier orders from wholesalers. And lastly, Timberland grew 2%, its sixth consecutive quarter of growth.

By region, the Americas grew 10% in the quarter, and up 3% for the full year, reflecting the continued progress in our largest region. EMEA was down 5% as we're navigating the macro headwinds in the region and APAC was up 1% driven by demand across North Face and Timberland.

And lastly, we grew across both channels. ETC delivered another quarter of growth at up 2% and wholesale is up 3%, 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 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 to the midpoint of our guidance range.

Gross margin for the quarter was up 240 basis points versus last year to 56.4%, 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.

SG&A as percentage of revenue was up 70 basis points versus last year or down slightly excluding the accelerated restructuring costs. Our operating margin for the quarter was 2.5%, up 170 basis points versus last year. In Q4, net interest commence 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 $0 versus a loss of $0.14 in Q4 of last year.

Now turning to the balance sheet. Inventories declined 11% in constant currency and inventory days were down year-over-year, reflecting improved inventory discipline across the organization. Net debt was down approximately $800 million versus last year or down 16% following the repayment of the EUR 500 million maturity made earlier this year. As noted, year-end leverage improved to 3.1x and down 1 full turn versus last year.

Our free cash for the year was 50 million including our $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 in operating margin expansion as we advance towards our medium-term targets. We expect revenue to be up 1% to 2% in constant dollars. And by brand, we expect continued growth at The North Face, Timberland and Altra 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 recognized that 1% to 2% is the 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 0.5 point benefit from the 53rd week. Today, we've had some impacts to 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 were making in the quarter, and particularly around investments in Altra 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 into tangible improvements, particularly in the Americas, where DTC continues to lead the recovery. I'll reiterate what Bracken said earlier. For the full year, we expect then to be down mid-single digits compared to minus 11% in 2016 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 expect -- where we are headed for Vans.

For Q1, on a reported basis, we do expect a softer performance relative to Q4 '26, mainly related to the wholesale timing I mentioned previously. On a normalized basis, the growth across the 2 quarters is roughly the same. Now moving down the consolidated P&L. We expect fiscal 2017 operating margin of approximately 8%, supported by gross margin expansion and a lower SG&A rate relative to last year. Full year operating cash flow will be up versus last year, and free cash flow will be flat to up versus 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 our -- 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 a step up in CapEx this year, about $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 2.9x, driven by both a further reduction in net debt as well as improved operating [Audio Gap]

[Operator Instructions] Your first question comes from the line of Michael Binetti with Evercore.

Just a couple, the D2C improvement, are you -- maybe you could just help us understand what you're seeing if you're seeing the same level of improvement itself through 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 what you think is the difference between the 2 today? 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 first quarter would be helpful.

I'll take the first one, and I'll give Paul a second one. Yes, sell-through, it wouldn't be as strong as our DTC because the DCC has a different mix. And also DTC includes e-com, we're able to really drive a lot of traffic to our own websites -- and we're not strong -- we don't normally drive everywhere else. So I would say the sellout in wholesale is not as strong as in our DTC in the Americas. Our DTC is a good harbinger of what's going to come because products that we have in our wholesale -- sorry, our DTC are coming. So the piece 1 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 you -- we view that as a really clear harbinger of what's to come.

Now what's the time frame on that? We're being a little cagey on that intentionally. So we're going to wait and see how it plays out, but we feel very strong about the trend line on DTC and then how it's going to play out in wholesale over time.

Yes. And then on Vans, so I think for Q1, the reported number will be slightly lower than what we experienced in Q4 of 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 reported basis, Q1 will be slightly worse than Q4 and then we expect it to improve throughout the year.

And I know normal practice for V.F. has been to take a conservative approach to DTC as you get further out in the calendar. Is the confidence in the improving growth rate in advance 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 just looks really, really strong. And 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 seeing in a room, it's about 400 feet from where we look at 1 and 2 and 3 seasons out, and we just feel really, really good about what's coming.

Your next question comes from the line of Denise District with BTIG. [Operator Instructions].

Sorry about 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 need to clean up more distribution? Or is that a reference to kind of need to build back the order books? And maybe give us some thoughts on how you're thinking about the U.S. wholesale distribution currently.

Yes, 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. 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. So overall, though, I think our distribution 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 kind of hide 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.

Great. 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?

Yes. Certainly, traffic has gotten a little better and conversion has gotten a lot better. I think our execution at retail has really improved. We put in -- we had a new leader go in in 2 quarters ago. and he has really reenergized the team got focused on execution, and that's really -- 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 U.S. over time, and we're excited about it.

Your next question comes from the line of Laurent Vasilescu with BNP.

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 tariffs -- ex the tariff benefit? And if that's the case, how do we think about 1Q gross margins? And obviously, there's no precedent 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?

Yes. So for Q4, yes, if you back out the receivable gross margin, it will 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. So that's why you're seeing that dynamic in Q1 with a 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 margins in 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, yes, 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 million to $80 million for the year. Again, we'll see how it goes. Obviously, it's very fluid. It could be better, it 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 million $80 million impact -- negative impact on our gross margin.

Paul, that's super helpful. And then I think you mentioned to Michael, there were some timing shifts between 1Q, 4Q due to the timing shift on wholesale. Maybe can you quantify that number? I think you said anywhere 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 assume that there's probably 2Q be flat for the year on the top line?

Yes. 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 2 points in each quarter. And so kind of -- that's why I say if you normalize it out, the gross is about the same. And if you look at the trends relative to kind of the normalized trends in Q2 and Q3 and Q4 and Q1 are again slightly better from a kind of normalized trend in terms of the client's advance.

And the 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 a benefit to them in Q4. Given the size of Q1, it actually has 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 Face as well. And so again, the demand was there, which is great, fell in Q4 versus Q1. That has a disproportionate impact on North Face in Q1 in particular. But again, we still expect 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 -- what we think will be a stronger -- or fiscal '27.

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

In the prepared remarks, you talked a little bit about some of the drivers of product cost 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 cost or tariffs or other factors in the environment?

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 could 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 to 110, maybe even more at the high end. And so we have it out there. Again, it's really not getting back to product cost 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.

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 changing prices where appropriate.

Great. And then just a follow-up. Can you unpack the trends that you're seeing in EMEA? What assumptions are you embedding for Western Europe beyond the 100 bps 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. I think it's been weaker. I mean Europe has been weaker for us. And in general, I think the whole macro environment is kind of swirled Europe. The traffic has been down across the board, across the whole industry, and it certainly affected us. So it has been weaker for us. 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. It kind of echoes the same story we told about the bands in the U.S. in general. So I think as we go forward, we expect -- we certainly expect it will get back to good growth over time. We've also got new -- we're taking a new approach there. 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 multibrand 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 it 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. So you'll see that happen. It's already happening in the U.S. That's why you saw such a strong quarter. And I think you'll see it in the quarter and certainly years ahead around the world.

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

Can you hear me?

Perfectly.

Excellent. Bracken, Paul, 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 really -- if you think about it, so the full -- 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. So just as a level set, like the operating margin, the 7% operating margin in fiscal '26 is a good clean margin. I wouldn't think about the -- 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 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 -- we had a benefit, we didn't because it's not really a benefit. It's just we had been assuming we're 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 a tougher compare, but it's not really like-for-like. It's more that we will potentially have tariffs back in the mix through Q4 of next year, I'm sorry.

And Paul, if I can just add. I think 2 things. One, to underscore the point that the 7 points of operating income in FY '26 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 1 year in terms of thinking about our sourcing footprint, thinking about readouting the product and also working with our vendors. So we do feel confident of mitigating almost all of it in FY '27. So that's what we are saying when we are committing to the guidance of 8%.

Got it. Okay. That's helpful. And then as a follow-up on the fiscal '28 margins, I know at the Analyst Day, 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 coming in a lot of things? Is there any more clarity you could kind of give us into what your expectations for the annual margin in '28?

Yes. Let me be crisper. So when we gave that, we said in fiscal '28, we would deliver 10%, what we meant was a run rate, and we then got a lot of feedback, very understandable, like, 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, that it's -- so we used the term exit rate. So you can kind of count on it 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?

Yes. Appreciate it.

Thanks for asking that. We were hoping we'd get that. If you had ask Abhisek and Paul.

[Operator Instructions] Your next question comes from the line of Jay Sole with UBS.

Can everybody hear me now?

We can hear you perfectly.

I just want to ask about the free cash flow guidance for this year. Maybe can you elaborate on what flat to up means? And then what are you comparing to? Because it looks like in the slide deck, you're comparing it to $405 million for this year? And maybe how do we think about the pension expense and the pension termination cash benefits from this year? Are you excluding those from that number? If you can just maybe just define the fiscal '26 number, what's in there. and then tell us how you think about free cash flow in '27 in a little bit more detail, that would be great.

Yes. Sure. So yes, so the pension benefit was when we terminated the pension, there was a cash benefit of about $100 million. So our free cash flow, including that is $505 million. On a normalized basis, we obviously don't expect that. That was a onetime thing. We won't get that every year. It's real cash in the door. But so on a normalized basis, it's $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 will be flat to up versus 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 million. So it's excluding the pension, it's $405 million. And then we said free cash flow 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 were we're growing in Timberland. So 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 continue to delever. So as we said, we finish this year at 3.1x. It's a full turn better than last year, we'll get below 3x 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 is on track, and then we actually had an even better improvement in our leverage ratio for fiscal '25 or fiscal '26, we are giving ourselves the ability to invest even more, particularly on the store side in fiscal '27. So hopefully that was clear.

It was.

Your next question comes from the line of Samuel Poser with Williams Trading.

I have a handful here. One, 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 is 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, about -- at about 0.5 point growth overall. So that is helpful because it somewhat mitigates the point or so impact we see from the conflict over in the Middle East.

Got you. And then in in The North Face, how long will it take to double? And then with Vans, how -- you talked about the speed to market, given some of the strength of some of the new shoes how like if -- like 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 talked about your DTC, but that's the shoes that appears to do decently but isn't showing up on your website. So that's -- there's a lot of questions, a lot of stuff I want to understand.

Sure, sure, sure. Absolutely, Sam. So first, on the doubling of TNF, we're not committing to a time frame, but we're very optimistic about it. And 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 at an Investor Day, we'll lay kind of a time line out for that.

In terms of brands? And 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 play absolutely place orders today. They've also got product in their currently in their stores. So it's a process of one by one by one. And we were just a cookout last night with our wholesalers for Vans as a matter of fact. And there's a lot of optimism out there, but this is going to take time. You've got to keep the momentum going. We've also got approved to them, as you know, from being a former buyer. We got to prove to them. These things are selling. I think they're now seeing it. So the optimism is starting now it's got to turn into orders. So...

My question was, if I wrote an order today, could I get it in 3 months? Or would it still take 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 Lowpro 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 with the variation of fabrication and color and material. So that's good news.

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 does 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 a particular style available only in the wholesale partner. Now this is the kind of another shift in mindset that we are seeing at 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 wholesalers, take that in DTC stores for 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 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.

[Operator Instructions] Your next question comes from the line of Anna Andreeva with Piper Sandler.

Can you guys hear me?

Yes, we can.

Terrific. Yes. Thank you for the color this morning. Very helpful. We wanted to follow up on Timberland. I think you mentioned wholesale declined on lower distressed sales in the fourth quarter. What was that amount? And is that dynamic continuing into fiscal '27. Just any color on that would be great.

And then secondly, you talked about marketing and moving towards the upper funnel across the brands, which makes a lot of sense. Just what was your marketing as a percent of sales for the year? And how should we think about that for '27?

Yes. On the Timberland side, it's just the inventory is actually in a healthier position. And so we were selling less distress there. And so that's some impact on that, that falls through into the beginning of this year. But it's actually all a good sign because we're in a really good place there.

Yes. Just to answer your question on cost. So we're investing, I would say, pretty strongly in marketing. So we're at 8.6% about fiscal year '26. And our game plan is to continue to invest pretty strongly in marketing. I do think there's somewhere in the future where we can bring that down a little bit. We're probably at the high end of the upper quartile of the industry right there. But given where we are 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.

Your next question comes from the line of Lorraine Hutchinson with Bank of America. [Operator Instructions]

I was hoping that you could have been -- just help talk through a little bit of the strategies you've used to turn Vans 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 Vans strategies that have driven the turnaround in the DTC in Americas and ultimately presumably that will move around the world. Correct?

Exactly.

Yes. So it's pretty much what we've been laying out from 2 years ago. It comes back to product, marketing 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're not already and I'm sure most of you are, if you're not following us and all the social media 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 and the excitement around them. I'm sitting on -- literally, I just wanted to -- I was going to bring this out for those of you who are looking at the video, but this shoe, we just launched. We had lines in front of stores and all the places we sold it. We actually had flights in front of which we're not proud of.

But we're generating that kind of heat for some of the collaborations that are harder to get is and then bringing those same attributes like the pearlized 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 final and lower funnel. We're really doing a lot on both ends of that spectrum. We're trying to make sure our low-for marketing is really strong in brand building, too. And so we're -- you've probably seen the character of our marketing change. 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.

We've got a new campaign on off the wall. But generally speaking, we're trying to 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. I think hats off to Brent Hyder who's taken -- took over the American was now running our global commercial team. He's really done a super job of raising the caliber of play there, and he's got a fantastic team under him, including Shack and so many others that have really raised the execution level in our stores and in our e-commerce execution.

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 -- the last question for today will come from the line of Blake Anderson with Jefferies.

For most of them. I just wanted to ask Bracken, first on Vans. I would be interested to hear how the customer base is evolving kind of versus your expectations over the last year. Maybe talk about the growth of new customers versus existing and there are a lot of loyal Vans customers out there. 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.

Yes. I'll give you a little color, but I'm going to 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 meant. I think when we came out of the gate, we really felt like there's -- 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 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 in men.

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. They are 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 broadened 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 want to buy like the latest stuff that's coming out. So we have a very clear specific targets, very narrow, but we're opening the aperture sure a little bit to make sure that the -- our awareness is staying up among that a broader group that really wants to buy, and that seems to be working.

That's really helpful. And 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? Just was curious, directionally, if you can talk anything about how much you're able to generate, excluding revenue, just taking cost out of the business this year versus last year?

Do you want to take that, Paul.

Yes. I mean we're not going to be overly specific other than to say Well, a, what Abhishek already said, right? So we have taken out $225 million out on a run rate basis. Some of that's been offset by inflation and then specific and decisive investment decisions, we will get SG&A leverage this year, but we're not going to specifically talk about the overall numbers other than to say, to get to the 8% operating margin on, call it, 1% to 2% revenue growth, we're going to see both gross margin expansion leverage on the SG&A side?

Yes. And the only thing I would add is like I want to underscore the point that I made on the gross margin. We did expand 350 basis points, 360 basis points, but 100 of that was actually through the Dickies divestiture. So we do see the composition of that 10% that Bracken talked about for the full year FY '29 and beyond, it 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.

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, 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 in more, and we're going in the right direction, and we'll see more improvement. North Face and Timberland are growing. We're seeing tangible signs of momentum advance led by Americas DTC. We didn't get that from that call, we said it many times can we feel so strongly about it.

We're growing for the first time in over 4 years in America DTC. We're on track to achieve our medium-term targets, an exit run rate of 10% operating margin in fiscal '28 and a leverage ratio of 2.5x or lower by fiscal year '28. So this has been a very strong year for V.F. 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 investor meetings and things in the quarter ahead.

Thank you, everyone.

Thank you, and thanks to you.

Thank you.

This concludes today's call. Thank you for attending. You may now disconnect.

[indiscernible] VF Corp. Thank you for being here. Bracken Darrell, CEO; Paul Vogel, CFO. Before we kick off, I'm just going to give the mic quick to Allegra Perry in IR to say a few opening comments.

Good morning, everyone. Okay. So throughout today's discussion, VF management may 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 by VF.

Unless otherwise noted, amounts referred to on today's call are all on an adjusted constant dollar continuing operations and excluding Dickies basis. The company uses those as lead numbers in its discussion as it believes they more accurately represent the true operational performance and underlying results of the business. VF management may also refer to reported amounts which are in accordance with U.S. GAAP.

Thank you, Allegra, and thank you, Bracken and Paul for being here. Appreciate it. We'll kick off with just kind of a high level. I'm curious to hear from both of you guys, both of you fairly new in the overall scheme of things to the retail world, the brand world. I'm curious just at a very high level, how it's been for you guys generally, how it's compared to your previous experiences? What's been positive surprise, negative surprise? Anything along those lines, I think, would be really interesting here.

I'll let Paul go first.

So I'd say a couple of things. I think one is, from a brand perspective, it's actually somewhat similar, right? When you -- my prior world, I've worked for very strong brands. And so when you have really strong brands, the cultivation of those brands, the ownership of those brands, the protection of those brands, that's all very similar, right? Everything you want to do is in service of making sure that, that brand is growing and you're thoughtful about how you're managing and protecting that brand, right? So that's very similar to me.

I think obviously, in the tech world, the ability to make change sometimes can be pretty fast in terms of just writing new code. So it actually -- in my view, it actually makes the decision-making process have to be even faster in this world because you know when that decision happens, it's going to take a little bit of time to see it roll through the system. And so I had a lot of speed in my old job. One of the things that Bracken and I have both really stressed is bringing speed to this world. Because of lead time to get products on the shelves, you can't really take your time and making other decisions.

And so that's where I think -- I don't know if it's different to the same. We did things pretty quick in the other world, but we do things quick here for a different reason because there's quick and then there's not so quick. And so I think the better you can be and the more thoughtful stuff you can be quick on, it helps you get that stuff done in a timely manner.

I think for me, it felt -- in the beginning, it felt so similar, it was almost uncomfortable. I was checking myself on every decision because it just felt like literally almost a rinse and repeat of Logitech. And -- because when I went into Logitech, it was a deep turnaround, came in here, it's a deep turnaround. Turnarounds are characterized by your costs are too high, your growth is too low. You've got to change a lot of things. So it felt so comfortable and there was so much change to do that I was almost nervous that I was missing something.

As I stayed here longer, the differences have started to appear. And I would say through the first year, it felt like, "Boy, this feels like a play. I know how to run really well." Now it's getting even more interesting. Like, for example, I mean, one of the biggest differences is just the number of leadership changes I've had to make here, including Paul. So I think we've changed the entire leadership team. In fact, just in the last 3 months -- now the good news is they've been really, really systematic and planned. Like in the last 3 months, we announced the transition of Martino, who is running our global commercial organization, is going to step down sometime in the next quarter or so and -- or step away in the next quarter or soand we've already promoted Brent Hyder, who I brought in literally in, I think, the second month I was here, and he ran the Americas for a while. And then our plan was to promote him and put him in place, and we did that. So a very, very long planned transition.

Same thing we're doing actually today. We're announcing that Caroline Brown, who is on our board, I asked her to step in to really help us really get the North Face going again. We had a lot of political challenges inside the company. There was a lot of strife and the morale was terribly low. Caroline came in. I thought you'll be lucky if we keep her for a couple of years. She's come and done a super job.

In the meantime, we hired in Chris Goble, who was at the Gap. He had led the turnaround of the Gap brand. He's been with the Gap for a long time. He'd run the North America business for the Gap, a little like Brent had. So we had somebody in the -- and we put him on Dickies. And then we held him back from Dickies because we knew we were going to make this move. So we've now -- now we're systematically making the next step. So Caroline will go find a new transformation she really wants to do, and Chris will be promoted and put in charge of the North Face brand.

So the cool thing about this situation is that we've been able to systematically do a lot of the things that, honestly, you would want to do in a long time frame, but we've been able to do them relatively short. And that's probably just because of my experience. And the last thing that I'd say is quite different is AI. Paul talked about speed, and I really am very excited about speed. I always say when I hire people, people usually ask you, what do you hire for? It's definitely too of Chris and Brent and others, Paul. I really end up hiring for 2 things. By the time you're a CEO and you're hiring people, they have the capability. I mean, everybody I interviewed. But the 2 things that really stand out are the personal drive to have an impact. It really stands out -- usually stands out in an interview. And the other one is speed, which is harder to see in an interview, but they just drive to make things happen right away because the faster you make things happen, the faster you find out if they work, then the faster you can change. So I think this has been a super exciting -- it will be 3 years this summer for me. Super exciting 3 years. And we're definitely on track to what I thought we could do here.

One of the things that you inherited when you came -- both of you was kind of a struggling Vans business. I think that's been a hot topic for certainly the investment community, I'm sure within the company. How do you feel about the progress? Maybe give us an update on how you feel about that brand by geography where you're furthest along where you still have more work to do?

I love the Vans brand. I loved it before I got here. I liked it before I got here. I loved it once I got into it. And it is a phenomenal brand. You can't see because we're not doing video, but I have the coolest shoes. I mean these are -- the exciting thing for me to be able to say today is we have so many cool things out there and so many more coming. So it's -- I'm really, really excited about the brand. I'm also very patient, as you know, probably more patient than some investors would like.

I think it's more important to really get the brand sturdy and healthy and then grow it through elevation, through innovation and through great marketing in a really systematic long-term way than it is to try to get it quickly turned around. I think some people would have loved for me to just wave a magic wand and get it turned around. I've seen people do that. It does turn around. It's easy to do that. And then it goes the other way pretty quickly in the next year or 2. I'm not here for that.

We want this thing to be a long-term sustainable growth engine again, and it can be a really strong one. We've got fantastic products that are out there. We've got even better ones coming. And I'm super excited about the team on the brand, too. I mean from the Head of Marketing, to the Head of Design, to the Head of Merchandising, [indiscernible], we just got a great team. So I'm very excited about the business, but I'm patient.

And about in terms of where you stand in that journey by geography, where do you feel like you're furthest along? Where is the brand starting to really resonate? Any green shoots you can share?

Yes. I'm sorry, I didn't answer that right away. I would say -- I think I've said this in the last couple of calls, I'm really fixated on the U.S. on our own DTC, not because it's the only thing that matters, it is more than half the business is our U.S. business, which is because I think you're going to see stuff there first. We already started to see it last quarter, as you know. The excitement around the brand is going to show up first where you have the greatest number of new products. And I originally thought, well, maybe we'll see it in wholesale first because they can curate faster because we've got -- we'll have a few new products coming and they'll be able to curate their assortment and get a bigger proportion of that. That's not exactly the way I think it really has worked. I think it's the opposite.

I mean I think where we can bring -- it's taken longer, but I think where we could bring a broader assortment of new products where you can really see what's coming and see it in the context of apparel has -- that's where we're starting to see it. And so e-com, I think, went positive for the first time last quarter in the U.S.. I think you're going to continue to see great progress in the U.S. market, both e-com and brick-and-mortar. The rest of the world will be slow.

I mean I think APAC will be very slow because the brand was never well established there. So I think our sales there are really built on kind of retail momentum and e-com momentum more than fundamentals. And so I don't expect magic in APAC. And I think EMEA will be somewhere in between. EMEA, we do have a strong brand there, but not as strong as the U.S. So keep your eyes on the U.S.. That's where the action is.

Got it. You referenced some management changes within the North Face. Maybe talk about what prompted those changes, what you're looking for to drive momentum in that brand? Anything that needs fixing? What are you looking for new leadership to do?

First of all, this was a plan. So we've had this for a while, and the North Face business is in good shape. So you've seen the growth quarter-by-quarter, and we expect it to look something like that all the way through next year. So we feel good about where we are in the North Face. What I do think we'll get from Chris, which is exciting, is he's somebody who comes in with a direct commercial background and a direct merchandising background, which is a little different from a lot of the presidents that go into these jobs. Many of them in this industry don't have both, that combination of practical and commercial experience, delivering the numbers, making sure you know what the assortment ought to be by channel, even by retailer and at the same time, have a really strong merchandising background.

I mean this business is a product business. If you don't have great product, you're not going to win. So he's got that rare combination of both, and I think he's going to bring a really good touch to that, probably a simplifying touch to that. And the North Face is a big, healthy brand, but it's also complex, and I want to keep simplifying it. Even as we expand into 365 days a year, expand into more and more women's product, elevate more of our product, it's working. We're doing that now, but we can do that and make it more transparent to consumers.

And we touched on 2. Let's go for the third, Timberland. What are you seeing? What are you looking for? This brand certainly has some momentum. How do you think about the longer-term growth opportunities at Timberland? What is it that drives that momentum?

It's really cool to -- being a part of this business is so cool because each brand has a really defined challenge. The challenge in the North Face is how do we double that thing when it's already so big. And the answer is, boy, do we have a lot of opportunities and the momentum is with us. The challenge of Vans, of course, is how do we get the momentum back. It's starting to come back now. You're seeing -- you mentioned green shoots. We're seeing -- we're selling out of more and more of the new products. I mean all the new products are working, almost all. I think there's probably almost -- there are very few exceptions. When we launch something, it really sells out. We've got to be a little bolder on our buys.

And Timberland, the story is how do we get this incredibly strong momentum we have on the brand and how do we make sure it transfers into other products beyond that yellow boot everybody is so familiar with. And we're going to do that. We've got a great plan to do. We've got a great team to do it. We're starting to do it. If you keep an eye on our Instagram, you see how we're doing it. We're not going to let up on making sure that we're selling that yellow boot and the black boot, but we're going to keep bringing it into new things in both footwear and apparel. So that's a challenge. I feel good about it. That's another place where we have a fantastic team, great marketing, great products. Just stay tuned. It's going to be fun to watch.

Maybe we'll give one to Paul, just to give you a break, Bracken. You guys have committed to a 10% EBIT margin by '28. At the time you gave that guidance. Since then, we've had Liberation Day, we've had this [indiscernible] decision, had a few curve balls. So maybe talk about where you feel you're on track towards hitting that goal, maybe where you're running above, if there's any places that you're running behind just as we look out to hitting that 10% target?

Yes. So we definitely still feel very good about the targets we put out. if you kind of break it down, the fiscal '28 number, the exit run rate number was you kind of premised on flat growth on fiscal '24, right? So we do need a little bit of revenue growth in there, not a ton, but a little bit to get back to sort of what we said flat from that point. And we expect to get that.

Second, on the gross margin side, we said 55%. We're pretty close to it now if you kind of look at where we're going to end the year based on how we've done for the first 3 quarters and then for Q4. So we're pretty close to there. So I think we're definitely on track if not ahead of track on the gross margin side.

On the SG&A side, we're right on track there as well, right? You continue to see -- you'll see leverage each year. You started to see some leverage. I think you'll see incrementally more leverage as we go on. And so we feel good about it. And not only that, we're generating free cash flow and positive free cash flow. We said it would be up this year. It will be up this year, which is great. We've been able to pay down the debt. We said our debt would be below 3.5x or below at the end of the year. So we're on track to hit that 2.5x at the end of fiscal '28 that we talked about. So we feel like we're just kind of systematically checking off all the things we said we're going to do. We feel really good about it, and we'll continue to execute.

Can you maybe talk about some of the puts and takes on gross margins as we look out to next year? Just it's a complex business, a lot of moving pieces. Maybe talk about what's working for you, what's working against you. And I'd love to also know is there any low-hanging fruit on the SG&A side that you can still kind of extract?

Yes. So on the gross margin side, obviously, the tariffs are obviously running through. We've talked about we'll be able to mitigate it within fiscal '27. So maybe not for all of fiscal '27, but within fiscal '27, we'll be on that rate. We feel like we're projecting where we want to be, right? We said that pricing really wasn't a factor in Q3, will have some impact on Q4 in terms of helping mitigate it and moving forward. With all that, we've been able to deliver kind of at or better-than-expected gross margin. So that's been really great.

On the margin side, obviously, we're always working on sourcing and supply chain, all those things. And so just trying to continue to get incrementally better there. And then so much just being selling more full-price items, right? And the more we can sell full-price items, be a little less promotional has also helped. So that's kind of been the mix that's gone into the gross margin. So I would say really good job on the supply chain sourcing side. We're going to have the ability to mitigate the tariffs the way we thought, and we're starting to do a better job on sort of selling full price on the gross margin side.

On the SG&A side, I don't know if there's any more low-hanging fruit. I think it's just -- I mean, SG&A is just a day in, day out, year in, year out line items that you just have to pay attention to, right? And I think in our case, obviously, we're trying to return to growth, so you need to be very thoughtful and strategic about your SG&A. And then when you return to growth, it's like how do you not get ahead of your skis? All of a sudden, you start seeing real growth. It's easy to kind of take the foot off the gas in terms of the discipline you want on the SG&A side. So I think we're in that position now where, hopefully, we're going to return to growth. Obviously, we'll be up this year, just a little bit, but we'll be up. And then -- so it's -- continue to just show that discipline. And I think that's where we're headed on the SG&A side.

Helpful. In the U.S. specifically, if we were sitting here 2 weeks ago, I might have asked you how are you thinking about refunds coming back to the U.S. consumer and how much of a driver can that be to the business if you were even really thinking about it as a driver in yours. Now we're sitting here with some pretty crazy fluctuations on oil. Talk to us about the U.S. consumer, the macro, how that sort of pervades your view of growth across brands.

I think generally speaking, I think I said this 6 months ago or something that the U.S. consumer has been stubbornly positive. And I don't know, the best predictor of the future is usually the past, and I think that's probably going to continue. We don't expect robust consumer growth ahead, but we don't need much. I mean we have so much in our control. We're -- as you -- we started by talking about Vans. We've so much in our control to make sure we're really executing well. And we have a lot of things we're improving right now in all 3 brands.

So I don't think we're very dependent on how good or bad within a range. How good or bad the macro is in the U.S. to have a good business. We should have a good business regardless. And I'm not saying no matter what. I mean if things got really bad for some reason, it would be different, but they haven't. And it feels like we're probably going to keep going about the same way, we'll see. Nobody can really predict with this war right now in Iran. It's really unpredictable. But I'm quite optimistic. I think we have a lot of things in our control.

How about some of the other geographies? Obviously, your global business. Talk to us about Europe, talk to us about Asia, how you're looking at the macro, the backdrop that you're playing under?

Yes. I think EMEA is tougher. I think they always -- now I'll generalize, and I apologize to all the Europeans out there for having another American talk about Europe. I think Europe is always a little more -- takes things a little harder and takes good news a little softer. So I think that probably the challenge over there is the Middle East is closer there, and I think they probably feel it more every day than we do a little bit. And they've got 2 wars happening in the Middle East right now or 2 battlegrounds happening in the Middle East, 3 in Europe and the Middle East put together, if you add Ukraine, which, of course, you have to. And so there's just a lot going on over there. So I think it's a little rougher over there.

But again, our business is okay over there. There's nothing too alarming, and I think it's been okay. And I think we're almost -- and maybe Europeans too are almost desensitized to all the challenging news, which in a way, from our business standpoint, is kind of a good thing.

APAC is different. APAC, it feels like it operates more in isolation, and it's a much smaller part of our business. The one thing you do know is there is nothing happening in the Middle East right now from a business standpoint. Now the good news right now for us is that's a really small part of our business, but it's a lot of potential out there. So one day, we'll get that back. But yes, I think, generally speaking, I think outside of especially Europe, probably we'll feel it more.

Maybe talk to us about tariffs. We've obviously had some fluctuations, right, with in recent weeks. Maybe talk to us about how you kind of changed and adjusted to the higher tariff world and what sort of changes you might be making now, if any? And I'd love to hear also what your plan is if we are operating in a lower tariff environment, does it mean anything for you in terms of pricing and how you think about what you put in front of the customer from a price point perspective? How did that change?

I'll go first and then Paul, why don't you pick it up from here. I think, first of all, we adjusted very fast to the tariffs. I mean we -- as I think you all know, we've been very practical and said, the tariffs just aren't going to affect our business as imposed before the Supreme Court decision. They're not going to impact our business by the middle of next fiscal year because we're going to offset them between cost reductions and pricing, and we're well on track to do that. Now that they've been -- after the Supreme Court decision, we're operating as if that Supreme Court decision didn't happen because we're not going to count on anything. We don't believe in luck. So we're going to -- we'll see. If that happens, it will be great. If it doesn't, we'll be fine.

Yes. I mean I don't know if there's much more to add on that. I think to Bracken's word, we're operating as if nothing has changed, right, in terms of -- anything change down the line, we'll adjust. But we've acted very quickly. We work closely with our suppliers. We've been very thoughtful about how we're going to raise prices, and it's very different by brand. It's very different by product by brand. And so for us, it's just sort of status quo. And then I think when there's this level of uncertainty, just kind of stay the course unless something is definitively changing.

And if we were in a refund situation where you would actually get something back, what is that number? What did you pay under IEEPA tariffs? And if you do have some money coming back to you, what is...

Yes. We haven't disclosed that number. I don't think we have, right, Allegra. We probably can. We haven't done yet. So I don't know the exact number. But it's -- I mean, look, it's not immaterial. I mean it's real money. But again, at this point, we're not counting on it. So if everything goes through and it turns out that we get the money back, great. But at this point, we're assuming, again, no change to anything.

We're also not assuming, going back to your first question, that this decision is going to have any material effect on pricing in absolute terms or relative to other companies.

Got it. You made some changes from an organizational structure. Maybe can you talk to us about those, how it's allowed you maybe to be a little bit faster speed to market, the positives and the benefits from those changes?

Yes. I kind of opened with that. We've made a series of changes, and we're going to continue to make changes. I personally love being close to the brands and close to the commercial teams. And those are the 2 areas where I probably feel like I can add the most value. So everything I do, I always think about how can I make sure that I get to be close to those leaders who are leading those parts of the business. And some of these changes are directly on that. I also think you're never done. We have a very, very deep and rigorous succession planning process. So you've got to always have a plan for where you're going next, who you're developing, who are those people.

We've got such an ambitious program for developing people inside the company. That's a key part of every change we make. I'm really, really excited about the path that our Chief People Officer, Brent, had and Tyler has. We've got a new Chief People Officer in place now. He was promoted internally, just like Chris was into the North Face.

So I'm really excited about really the people development part of our model. It's going to get stronger and stronger. And we're already able to attract really great talent. And I think we're going to keep that talent and grow talent internally a lot more now. So yes, overall, the changes are -- they're beginning to be kind of table stakes every quarter, every year for us. It's just part of it, but it's a lot of internal promotion.

AI is a hot topic. We're hosting a lunch today on that topic, exactly. Curious how you're using AI in your business to find efficiencies. How are you using it today versus what you see in the future? How is it helping you, if at all, right now? What kind of changes do you expect on the AI front?

I'll start and again, hand it off to you, Paul. We've got a very ambitious agenda for AI like most companies do or should. I mean the obvious places you see it are in places like customer service where it's a direct cost reduction and efficiency play. But we probably have, I don't know, 14, 15, 16 different AI projects across virtually every part of our business. All of them are relatively small today. We're investing aggressively in AI across the board. We think it's the game changer, people are thinking it is. We're also aware that -- we don't see anybody who's really done anything remarkably transformative yet in this industry. And so we're hesitant to talk too much about what we're doing until we have real proof. And it's not skepticism on our side at all. It's practical reality. We like to do things and then talk about. So we probably won't talk too much about what we're up to, but we're excited about what's possible.

Yes. I would just add, Bracken talked about the sort of the brand and the product side and the marketing side. And for us on the corporate overhead side, there's obvious things there as well, right, when you think about finance or HR or the technology side. I mean in finance, in particular, there's just a ton of opportunity there, right? I mean there is a curve to get there, particularly when you've got as many brands as we do, making sure you've got sort of the data in a place that you can really analyze it the way you want. But I mean, there's going to be semantic models where literally, if you ask me a question, I'll just be able to type it right into the chatbot and get the exact answer you want, every number, every trend line, everything with a chart and a picture, and it will happen automatically. So we're not there yet, but we're not years and years away from that either.

I'll give you one little example of something we just -- so we have so much going on, just one tiny example. We just introduced last week a portal where you can just go in and depending on what kind of thing you're trying to solve, you didn't have to go into the AI engine itself, you go into our portal, you decide what kind of question am I asking? Is it about creativity? Is it about analysis? You just go into that, you hit that portal, you ask the question, you get the answer, it goes to the appropriate engine. So -- and that's so that we can make sure we shield our data from the broad AI models data, but also that we give people super frictionless access to AI across our company. That's just one tiny example of what we're up to. We're doing a whole bunch of things like that.

On the AI topic, it kind of moves into just the discussion overall of cash, right? So -- and CapEx, like how much investment are you having to make on AI? Is that more of a CapEx investment? Does it run through the P&L? Maybe talk about cash flow and priorities for cash in that context.

Yes. I mean it's not that big right now. I think it will probably be a combination of both, if I'm being honest. There'll be some long-term projects that will capitalize and there will be some short-term things will be just expenses we're trying to figure out how they are. The numbers right now are not that big, but they will obviously get bigger. And that just goes into the broader CapEx strategy we have in general, which is balancing our free cash flow with our CapEx, which -- within CapEx, the 2 biggest ones for us are really on the technology side, on the store opening side. So just making sure that as we open stores, we're doing them effectively with a good ROI. As we're building out technology, we're doing it smartly and efficiently and then having room to add in the next-gen stuff like AI or other investments we want to make in other areas where we think there's long-term growth.

But I also suspect that the bigger expense long term is not going to be CapEx. It's going to be expense. And the great thing about that is there's so much efficiency in the application of AI to offset that expense and deliver significant savings on top of it that. I think we're going to be really successful in lowering our costs as we invest more in AI. And it's a little early to say that with 100% confidence, but say 99%. I feel really strongly about that. I think we're in a really -- there's a sweet spot ahead on this.

And also I'm curious, again, it's capital allocation to a certain extent. You've got a history of buying brands. You've got a history of disposing of brands. Where are you now just in that thought process? What's next, if anything, at all?

Yes, it's all good. Look, I think a couple of things. I think one is we're very committed to getting our leverage down, right, which we've talked about. And so you can think of our -- from a capital allocation standpoint, any excess cash is going to go towards bringing that leverage ratio down. And that's -- we're on that track. We've given you kind of where we are at. So until we're 2.5x or below, I think that probably kind of limits some of where we may go. But I'll steal the line Bracken always uses, we're all here for growth, right? And so we all want to grow, and we want to get this business back to growing.

Growth obviously comes from organic growth, but eventually, it also can come from M&A growth. And so we're not there yet. We've said all along, our #1 priority is to get our leverage in the spot we want to get in. And then from there, we'll see. But I think about it really from optionality, right? And what we're trying to do is get this business back to a place where we have maximum optionality to do what we want to do to grow the business.

I also think we're in this luxurious spot that may be hard for some investors to see today where we have so much internal growth potential that we don't even need to worry at all about acquisitions. I mean If I look just at those 3 large brands we talked about, all of them can grow strongly. And then if you add Ultra, which we haven't talked about it all today, Ultra is a running brand that's last quarter grew, I think, over 20%. It's between 20% and 35% the last few quarters, and I don't see any reason why that's going to let up. And that's before we even expand its "footprint" of what kind of business it can be. So I think there's a lot of growth there.

And then there are other small brands we never talk about that have lot of growth potential. So we have a lot of potential here internally before we worry about acquisitions. And my general view of companies is that if you do nothing but just grow with the market, you're going to grow low single digits. That's your business. If you outperform the other people in your business by having a better innovation engine and a better marketing engine, that's always the goal. That's certainly our goal, and we're going to do that, then you grow mid-single digits. And if you do that and you're entering new categories, either by acquisition or through organic decisions to go into new categories within those brands you have, then you can grow upper single digits or even touch double digits on a consistent basis. And so that's the model that we're running. And we're not at that mid-single digits yet. We're on our way to lower single digits. But one day, I think we'll get higher than that.

Can you maybe talk -- on that growth topic, can you maybe talk about the drivers when you think about DTC and retail versus wholesale, maybe by brand, where you see the outsized growth opportunities? We've heard from a couple of folks at this conference that are saying things like, "Hey, stores are back, right?" And maybe e-com is losing a little bit of share. Some of the younger consumers like to go into stores, which can impact both your retail business and your wholesale business. But I'd love to hear your thought on the drivers for each of those brands.

Well, I'll talk for just a second. I'll do -- I'll break it down by brands maybe one time and then I'll ladder up. On Timberland, we really need to expand our retail footprint because people want to buy Timberland, they don't know where to go buy it. And if you're going to buy a footwear, especially a boot, you kind of feel like you need to try it on. So we've been -- we've expressed this, we need to have more stores for Timberland, especially in the U.S. market where there's not enough obvious places to go buy.

Now that said, if I step back up again, all 3 of those channels are super important. And I think they're all going to play a really important role for us. The cool thing about DTC, as I said earlier, is that you can bring your products to market in an unfiltered way, and you don't have to convince somebody else that they're going to sell. You just have to convince yourself. So -- and we haven't always taken advantage of that, by the way. We got -- our own process has got in the way of us doing that. So we're changing that right now.

And then the cool thing about wholesale, which I just love, is it's the most competitive environment there is to sell in. I mean you go in there, the average person who walks into a wholesaler is not necessarily and maybe not at all committed to your brand, but they're committed to buying something. They're in there to do something. So it's a real torture test, and you must be in there or we must be in there to make sure that we have compelling products and compelling marketing. If we're not winning in there, then we have to ask ourselves what's wrong with us.

So I love being kind of equally distributed among the 3. The little larger on wholesale, I like having half the business be wholesale because man oh man, if you're not winning there, you got to soul search. And then I love the e-commerce business because it's so fast and you can do things so lightning fast there. And then bricks-and-mortar is where you really get to experience your customer and you get to find out, are we doing everything we can to get them everything they might need in that shopping trip. So I like all 3, and I think we're going to do well in all 3 over time.

Maybe talk a little bit more about the wholesale channel and where you're seeing the greatest receptivity to the product? Which brands are you just having great conversations and seeing great traction with those wholesale accounts? Because it is a challenging environment, right, to get that shelf space and continue to have those partners order up every year.

Timberland is like running through open doors right now because there's very strong demand. And so we're -- I'd say there is the easiest discussions. The opportunity in North Face is big because we had a period of several years ago where we didn't do as good a job with our wholesalers as partners. We just didn't treat them well. We didn't serve them well, and we paid the ultimate prices as our business shrunk in there. And so we have the opportunity now to get that back, and we're really working on that. We're trying to be a really first class. First of all, good and then great wholesale partner for all those players that are so important to us.

And then Vans is, as I said, focus on the U.S., focus on DTC, wholesale will follow that. We have a few key wholesalers who are really critical to that business long term. But honestly, we can do so much in DTC before we really are winning big with them. And I think you'll see those come back. It will be sequential. We'll first win in DTC and Vans and then we'll win in wholesale. And again, for all those comments, I'm really focused on the Americas business, which is about half of our business.

Got it. How about when you think about from a traffic and units perspective versus price? What do you see as being the primary driver of growth? And how does that differ by brand?

Well, I'm not -- maybe I'll step back and just say traffic in general is like the -- that's like the holy grail of retail, right? So getting people into stores is really key. And the traffic in general has been more difficult, I would say, since I got here than it was before I got here. And I suspect that's starting to change a little bit by brand, and we'll see. But I'm, again, focused on the U.S. market. I think we're starting to see that change by brand, and I think that's a good thing.

But there's so much beyond traffic that -- and this is one of the things I really learned in this business. The execution in store is so critical to really the performance of the business. And we were not executing at the level we could have been. And as of about 3 or 4 quarters ago, we're starting to see a change in that. We're getting more out of everybody who's walking in that store. And that's great because when the traffic comes on top of that from brand heat, brands like Timberland and North Face and then ultimately Vans, we're going to be in a much better spot. So overall, I think traffic is the ultimate measure of brand heat, and we've got a ways to go before I'll feel like, okay, we're really there.

Got it. And with all this talk of growth, I guess, just going back to that 10% EBIT margin target that was kind of put out there under a no-growth scenario initially. But maybe can we talk about that? And what does that potentially look like if you are, in fact, successful at achieving some of these growth levels that we're talking about?

Yes. I think we always -- I think we had said at the initial Investor Day that the targets we have was sort of a base like this is what we were going to get to. It didn't mean that's where we're going to stop, right? And so I think we've always believed that 10% was a good starting point for saying, "Hey, here's what we can get back to. Here's what we think a well-run, well-executing business should perform at and we can get there by this period of time." That was the 10%. I think we also said that we believe we can get above that. And then the question is how far above that is really just dependent on where we want to invest, how much we want to spend to continue to grow the business, where the opportunities are.

And so as I said before, I think we're really confident in the numbers we put out, the targets. We think we'll hit them. If growth starts to really accelerate, yes, I think there's probably upside from there, again, if that happens. And then the question is how much of that upside do we use to reinvest either into the current businesses or something else or how much we would flow to the bottom line. It would be a great problem to have and we have it.

We're almost at time, but maybe Bracken, maybe just to close up, what's got you most excited within the business right now?

I don't think I've ever been as excited as I am right now. Last week, we had 800 of our leaders in a big meeting we do every year to plan out next year. We really celebrate this year and then plan next year. And I think I can safely say, man, there are people who are walking out of there super pumped, and I was. And I just feel really good about our plans. I feel really good about our teams. I think we're just committed. And I think there's nobody working in our business now who doesn't see that we can be a really strong, really strong long-term growth business. That's what I came for. That's what everybody came for.

Appreciate it, Bracken and Paul, thank you for doing this, and thanks, everybody, for joining.

Thanks so much.

Thank you.

Ladies and gentlemen, thank you for joining us, and welcome to V.F. Corporation's Q3 Fiscal 2026 Earnings Call. After today's prepared remarks, we will host a question-and-answer session. [Operator Instructions] I will now hand the conference over to Allegra Perry, Vice President of Investor Relations. Please go ahead.

Hello, everyone. Welcome to V.F. Corporation's Third Quarter Fiscal 2026 Conference Call -- today's call, we will make forward-looking statements. These statements are based on current expectations and are subject to uncertainties that cause actual results to differ materially. These uncertainties are detailed in documents filed regularly with the SEC. [Technical Difficulty] which we've defined in the presentation that was posted this morning on our Investor Relations website. We use -- are found in the supplemental financial [Technical Difficulty] -- joining me on today's call, our V.F. President and Chief Executive Officer, Bracken. [Technical Difficulty]

[Technical Difficulty] Can help and talk about Alex [indiscernible] Third quarter with a strong -- this improved in Q3 relative to the last quarter. Returning growth during our peak holiday quarter. [Technical Difficulty] total basis, DTC returned [Technical Difficulty] in both DTC and wholesale -- let's talk through some of our highlights of our brands, where we continue to see continued products [Technical Difficulty] up versus last year with strength in performance apparel and footwear, which was up double digits again in this quarter.

Last quarter, we talked about the expanded product [Technical Difficulty] 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 -- a greatest inventions or innovations of 2025. We opened our largest global flagship store in New York [Technical Difficulty] Avenue, which represents how we're reimagining physical retail for the brand. The stores delivered strong results in its initial weeks of [Technical Difficulty] also delivered strong results.

As you could 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 [Technical Difficulty] it's across other categories. The Boat Shoe continues to grow strongly, up double digits in all regions, and we're developing the brand's product [Technical Difficulty] continuous to grow in the U.S. and key EMEA markets. The brand consistently goes up in key cultural moments and is embraced by celebrities everywhere from court side to the red carpet. As you could probably tell [Technical Difficulty] I love the brands 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 [Technical Difficulty] and growing.

Now let's turn to Vans. We continue [Technical Difficulty] delivered growth again this quarter with consistently strong trends delivered by the [Technical Difficulty] and having an impact across our icons. The Authentic and the Slip-On are delivering improving trends, benefiting from a rising interest among the [Technical Difficulty] in our global e-commerce sale [Technical Difficulty] for years, led by the Americas. We are [Technical Difficulty] gemstones by New York-based jewelry design at [indiscernible]. We'll see [Technical Difficulty] for the coming months.

In summary, brands continue to support the company as an adviser to me to ensure a smooth transition. Brent Hyder will assume the role of Chief Commercial Officer [Technical Difficulty] outstanding contributions to the company. I'm confident this [indiscernible] team comprised to best in class talent will enable us to fulfill V.F.'S significant growth opportunities ahead.

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[Technical Difficulty]

[Technical Difficulty] 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 [indiscernible] last year, leverage will be 3.5x or lower, down from 4.1x at the 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 [Technical Difficulty] as down 1% to down 3%. The better-than-expected performance was primarily due to stronger results from the Americas across both DTC, especially the e-com 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% as anticipated [Technical Difficulty] APAC Americas and EMEA [Technical Difficulty] while APAC was down.

By region, the Americas region had a strong performance, up 6% while [indiscernible] regions performed as expected, with EMEA region down 3% and APAC down 4%. And lastly, by channel, DTC was up 3%. Adjusted gross margin was up 10 basis points versus last year as mix and sourcing savings resulted in lower tariffs [Technical Difficulty] as expected, we had the first meaningful impact of tariff flow through the gross margin in the third quarter [Technical Difficulty] SG&A expense in constant dollars was up 1% due to increased marketing efforts and higher [Technical Difficulty] $35 million was a little better than expected and below last year.

Tax was $81 million or a rate of approximately 26% and also better than our guidance due to slightly different geographical mix in the quarter. And finally, adjusted earnings per share was $0.58 versus $0.61 in Q3 of last year.

Now moving on to our balance [Technical Difficulty] 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 expected to be. Reported net debt, including lease liability is 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 March 2026 [Technical Difficulty] $500 million notes.

Turning to the outlook for the fourth quarter [Technical Difficulty] in line with Q3 growth, we will see slower growth in Timberland as we discussed last quarter. And we expect Vans to decline roughly mid-single digits. Moving down to [Technical Difficulty] slightly down versus last year due to cost-saving initiatives. And finally, we expect Q4 interest of approximately $30 million [Technical Difficulty] our Q4 tax rate is based on an [indiscernible] As I said, we expect revenue to be flat to up for the full year -- or better, reflecting [Technical Difficulty] versus last year's comparable margin of 5.9% -- reflecting further progress made on streamlining costs -- while prioritizing investment [Technical Difficulty] sale of Dickies, which we estimate to be about $35 million. And [Technical Difficulty]

[Operator Instructions] Your first question comes from the line of Adrian E with Barclays.

with [Technical Difficulty] here is kind of -- the price increases that are happening. [Technical Difficulty] Yesterday, some [Technical Difficulty] meeting once again sentiment versus consumer confidence. How are you [Technical Difficulty] You can just talk about your close to your gross margin, as you just said [Technical Difficulty]

[Technical Difficulty] We've got -- and then on the gross margin side, yes, I mean, [Technical Difficulty] we are getting closer to 55%. I think all along our target was 55% or better. So we're -- 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 [Technical Difficulty] good shape but obviously we -- that we're able to manage the tariffs, the way we expect. And we -- again, we have no reason to expect we [Technical Difficulty]

Next question comes from the line of Tom Nikic...

[Technical Difficulty] so the last couple of quarters, you kind of [Technical Difficulty]

Yes. I mean, I think that's a pretty good description of what we see going on. The -- we're [Technical Difficulty] section about some of the green shoots we're seeing, but I think it's the first time we saw e-com growth in something like 19 quarters [Technical Difficulty] picking up [Technical Difficulty] and so many years. We're seeing some bright spots. [Technical Difficulty] Really innovative bands, but we're going to be patient. We're not going to push it. We're not going to see 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.

[Technical Difficulty] and just to be clear, yes, you're right on the numbers -- reported constant dollar was down 10%. Again, -- and on the like-for-like, it is kind of down high single [Technical Difficulty] digits in the same way we talked about it in quarters past. And so yes, the underlying trend kind of down high [Technical Difficulty]

I'm waiting for an Alex [indiscernible] question. First one gets the prize.

[Technical Difficulty] TNF Americas this quarter. How much of the strength is repeatable as you move into calendar 2026, how are inventory levels exiting this season. And were there any onetime tailwinds that may have benefitted the trend...

[Technical Difficulty] lying very strong in the Americas. But I think it's more [Technical Difficulty] quarter and you see them in the Americas. You got -- we grew in our footwear business. We grew an [indiscernible] very visible in the Americas, probably the strongest opportunity in the world right now is the Americas. So I feel really good about the [Technical Difficulty] what's happening over there [Technical Difficulty] dollars are up slightly. [Technical Difficulty] I look at APAC, I'm sure I'm going to get a question there [Technical Difficulty] up even more. By the way, thank you, Alex.

And then in EMEA, EMEA is just a macro [Technical Difficulty]

Your next question comes [indiscernible]

It improved all the way that's positive digitally [Technical Difficulty] the stores following that trend to a lag. So we see some impacts from the new products working in physical stores. And then I am any -- I'm curious, any kind of [Technical Difficulty]

[Technical Difficulty] physical traffic 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 [Technical Difficulty] go on. We continue to try to identify ways that we think we can start to [Technical Difficulty] really specialized products we're launching. We need to direct them more into our stores first so that you really [Technical Difficulty] that. So we need to be bringing those more into [Technical Difficulty]

I would just add that. [Technical Difficulty]

[Technical Difficulty] a little bit more than historically. Anything you can elaborate [Technical Difficulty] sizing potential of that brand. And then just lastly, out of curiosity, what floor were you [Technical Difficulty] a lot more...

I've become a raving fan both from a [Technical Difficulty] lot of quiet momentum and -- [Technical Difficulty] really strong -- awareness is a running brand and a running brand [indiscernible] also on the road. So I'm think it's got -- I said it before, I think it's got [Technical Difficulty] $1 billion-plus potential, and it's up to us to make that happen. I was with the [Technical Difficulty]

[Technical Difficulty] not much change for Vans in particular, you're seeing a little bit of an uptick in AUR in the Americas, which is great. and TNF [Technical Difficulty] taking about the floor out there [Technical Difficulty] that was the most terrifying thing I've ever seen. But I talked Alex [Technical Difficulty] you can't see every day, which is we have 100 or [indiscernible] people like a lot like Alex, who are super courageous [Technical Difficulty]

[Technical Difficulty] gross margin beat versus your [Technical Difficulty] Your gross margin to be flat to upside...

[Technical Difficulty] a benefit on the sourcing side. So those are kind of the main components on the gross margin side. And then for [Technical Difficulty] Q4 that we did not have in Q3...

[Technical Difficulty] expecting lower promotion...

Your next question comes from the line of [Technical Difficulty]

[Technical Difficulty] initiative there. And Paul, if I could just follow-up 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?

[Technical Difficulty] seeing some good traffic on brands -- actually turning to growth on brands. I just so carefully avoided ever [Technical Difficulty] saying the brand turn positive and -- interest in our very premium elevated product that we're launching, which we're bringing down into our channels and into over time into the wholesale channel, so I'm really -- I love the path that we're on [Technical Difficulty] It really does -- but I feel really good about what they feel. So it's really very, very exciting. I think [Technical Difficulty].

[Technical Difficulty] So nothing changes from the perspective of what we give you in terms of our goals, where we get to [Technical Difficulty] get there. So we still expect to get that. We continue to pay down debt. So if you think about it, we went from 4.1 to 3.5x leverage. So you can see there's a pretty clear [Technical Difficulty] from tariffs, a $35 million of the headwind from Dickies -- and we also were spending about 33%, 35% [Technical Difficulty] fiscal '27 [Technical Difficulty]

[Technical Difficulty] And it's -- that's certainly not changed, which is why we're aggressively bringing down debt levels. But there's a big benefit to that, which [Technical Difficulty] obsession with getting our business is growing and our brands growing the right systematic [Technical Difficulty] some of them particularly impressive brands we have, we don't talk about very much. So we've got growth opportunities across the board.

[Technical Difficulty] Pension premiumization as a focus as an opportunity for the brand. How do you think about that? And now is the right time to do so? How do you envision the The North Face...

[Technical Difficulty] As the North American market goes, Vans goes. So we're really focused there. So -- and then within that, I would [Technical Difficulty] in terms of premiumization for The North Face, why now [Technical Difficulty] but we do have -- we're not -- we don't -- I don't like jigsaw. I don't like these ups and downs. I like systematic growth. So you'll see us [Technical Difficulty] Chris in my view, we're going to do it systematically and well.

Please go ahead. -- is that working?

[Technical Difficulty] guidance. What needs to change?

Look, at the end of the day, we [Technical Difficulty] try to in the fourth quarter this year and next. It sounds like that's the last question, unless you have another one, operator.

There are no further questions at this time.

Okay. Well, I'll bring this to a close. We feel great of our progress. We feel great about the results we delivered this quarter. There are so many things that we can do better. That's the best news we're really seeing great improvement and we have so many more things to make better. So I'm really excited about where we are. This -- I'm going to -- at some point [indiscernible] in a turnaround 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. See you in a quarter.

This concludes today's call. Thank you for attending. You may now disconnect.

Well, great. We'll get started with the 9:30 session here. Welcome, everyone. I'm Jon Komp, the senior research analyst from Baird. Very pleased to have V.F. Corp with me today. V.F., as you know, operates a portfolio of authentic performance brands, apparel and footwear. And with me today, we have Bracken Darrell, CEO, who joined in mid-2023, executing on the turnaround; and Paul Vogel, joined as CFO in mid-2024, and hopefully, we'll have a good discussion here. So welcome. Thank you.

Thank you, everyone. Thanks for having us.

I do want to start, Bracken. I know you like to post on social media and have a lot of insights to share. And one of the ones that's caught my attention is you talk about in your past experience as a CEO. You like to go through the exercise of pretending that you -- or the simulation that you'll fire yourself and evaluate if you would rehire yourself as CEO again. So sitting here today, 2 years plus into V.F. Corp. Maybe for all of our friends in the room here, you could walk through that exercise.

Okay. Yes, I actually did that again this year. It started as a -- it wasn't a simulation. When I was at Logitech after I've been there about 5 years, I've really wondered if I was the right person for the next 5 years because the company was so different after 5 years and I thought, "Am I really the right person?" So I literally thought I would quit the next day and ended up staying for another 6 years. But -- and then I slept on it and when I woke up, I thought that was a mistake. I think I can be the right person, but I've got to be very objective going forward.

So it started as a real thing. And then I just thought that's a good thing to do every year. So yes, I did do it this year as usual, and I really tried to think about what am I doing that I should be very comfortable undoing. And I won't share that here, but there are always things that you spend your time, you kind of layout your clear plan, you're executing like crazy and then you're like, wow, wait a minute. So as the year unfolds, those things will unfold. I mean, we will absolutely change things that we've already started. What we won't change is the general direction. I'm super excited about this idea of creating a real multi-brand company that takes advantage of the fact that it's got all these different places for learning and the ability to create best-in-class processes in each one of them.

We've got -- I'll give you just one example. We're in the early days of all of it. But we're -- I think it's 2 weeks from now. We've got -- and you're going to be there, too. We've got an academy where we're bringing in about, I think, 60 of our top people to really train them for in our culture, our values and really what we're up to. And that's just one of the many things that we'll do -- we'll keep building out until we're really -- all of our key processes have a V.F. way.

Well, one of the things you have changed, you set up a new commercial structure, you have elevated design, you changed our brand leadership. Maybe provide a bit of an assessment of the good, the bad, how that's gone and anything you're willing to share?

I think I feel really good about the changes we've made and the number of new people. We really have changed a lot of leaders at the top, I did not expect to do that. It wasn't because we didn't have great people, but they just were -- we didn't have the right people in the right jobs. And so my leadership team, including our CFO are new. And that's had a couple of advantages. I've never done that before where we changed that many people in the first year or so. But one of the advantages of that is, I think it got everybody right on the same page right away because they came in with the Bracken Darrell sales pitch. And so there's no problem getting people aligned on a vision for what we're trying to do. So that's been really, really good. I think there are other things you'd say, "God, I wish we've moved faster on this earlier." I think -- some of the things, if I look back, I'd say, "Wow, I wish I'd move faster on some of the areas of distribution, for example, in Vans or like right out of the gate." There's no secret that we reduced the number of stores over the last 5 quarters, 4 quarters and reduced our distribution footprint on Vans. And then there are other things that I don't regret doing but you just keep learning. So we're -- and I'm learning this industry, too. It's got lots of similarities to some of the places I've worked in the past, but there's always good new learning. So...

So ultimately, the goal is to get back to growth as a company. I think -- in fiscal Q2, you highlighted, excluding the Dickies business, 70% of your portfolio roughly was back to growth. How should we be thinking about the journey back to growth in total for the company?

Well, I think a really healthy business like ours and my proxies are the past places I've worked. A really healthy business like ours should have, in general, should have -- 75%-plus of your business should be growing at any point in time. You've always got things to work on. And then you should have periods where 90%, 95%, 100% are growing. And that's kind of the model we have in our heads, which is we ought to have a period somewhere ahead of us where everything is growing. And we've got a really healthy business. And then even when that matures and you -- and some things are drop back in the need to be fixed range, we should never drop below 75% or 80% of the business growing.

And what's your take on the consumer environment? Is it a tailwind? Is it a headwind today or upcoming as you think about getting back to growth?

As there are so many assumptions you have to make to decide whether it's a tailwind or headwind. I would say overall, I said this in -- I think the last time I was interviewed on stage, I called the consumer stubbornly positive. And I think I sort of feel the same way today. I mean I think you can hear a mixed message, and I was just saying in a small group earlier, just in the last 2 weeks as I've been moving around, you pick up these little senses here and there. I've heard a little more negative commentary from consumers just -- not the high end, but the medium and lower end consumer. And it's the first time I felt that. And I -- so I'd say maybe it's -- maybe the trend is shifting a little bit. I don't know -- please don't take that as a commentary on our Q3 or on anything. It's just an instinct intuition. But overall, I still think I'm surprised how the consumer, especially in the U.S., is really hung in there, a little less so in Europe, but that's not surprising.

Maybe, Paul, I want to bring you in to talk more about the operating efficiencies and some of the capabilities. You've highlighted some of the work streams. Maybe share an update there.

Yes. I mean, everything is progressing nicely. If you -- I mean, we gave out targets or where we thought we want to exit kind of 2028 from an exit velocity with respect to the 10% operating margin. And we're trending on plan with there. I think if you look at the last couple of quarters, you'll see we've been pretty diligent on the SG&A growth, and we've been pretty diligent on delivering better operating income. So that's number one. And when you kind of tick down all the initiatives, they happened in a layered fashion, right? So if you think of some of the gross margin initiatives, we've got markdown management and some initiatives we have around there, which help in the more short term. We have integrated business planning, which will help us more over the long term in terms of better planning. And so to get the better planning and we get sort of the better inventory management, then actually the markdown management part becomes a little bit smaller. So that will help us on the gross margin side.

And then on the SG&A side, again, we're making good progress. We've seen impact on the store side, which is great impact on the technology side, which is great. We still have, I think, even more work we can do to improve some of the admin costs, particularly even in my world in finance, where I think I become even more efficient. So we just keep ticking down the boxes, but -- everything is great. Everything is on track to deliver the goals we put out at the Investor Day. And hopefully, you'll see each quarter, we continue to deliver against those targets of meeting or exceeding our operating income growth.

Maybe just to put one finer point on that. I know we get asked sometimes that the plan for 2028 was for no revenue growth to hit those targets. There's been a little bit of a headwind so far. So are you tracking to plan because you see visibility to top line improvement or because some of the initiatives are coming through faster or better?

Yes. So I'll level on a couple of things. So it was no revenue growth from the period we started, right? So obviously, we had a little bit of a decline in revenue. So that means we would have to take back up to where the baseline was. So it does imply some revenue growth, it's modest, but some revenue growth to get back to where we were at the baseline. And then the rest is just all the efficiencies we've talked about, the improvements on the gross margin side, the improvements on the SG&A. So it does require a little bit of revenue growth from here, not a ton, but it was the baseline of where we exited '24.

Let's maybe turn to Vans, if we could.

What a surprise.

What a surprise, I know. Well, you've been very strategic and clear on the actions you're taking for Vans. I guess the question is, would you say the business is improving faster than the fundamentals would show? Or could -- maybe shed some light there?

Yes. So here's what I would say. I would say the actions we're taking feel right, and I think we have lots of internal data that would say that we're doing the right things. We're launching new products. We're changing our marketing. We certainly changed a lot of people. We've got a full complement of team there now with Sun and Rick and George and others. So I'd say the steps we're taking. And I do think it's yet to show up in the business, in the financial outcome of the business yet. But if any of you -- how many people here have read Atomic Habits? Atomic Habits, not many. Okay, there's an opportunity. But in that book, there's -- he describes how to improve things. He said -- he describes this guy who's sitting on a huge rock. He's a sculptor and he's hammering at the rock, trying to break the rock and he hits at 100 times and 101 and 102 and then 998 and 999. On the 1,000 time, the whole rock shatters in the sculpture. Sometimes that's the way it feels when you're in a turnaround. You just got to keep doing the right things and the right outcomes will follow. So I don't know what strike you think we're on. Some of you may feel like we're at 1,562 or something, but we're striking the right. We're hitting it right. It's going to happen.

I don't think the audience knew this to be interactive this morning. So maybe share more on some of the wins that you see in product and marketing, what are the green shoots you're looking at? And then what's the path as we look forward to have more wins for Vans?

I'd say the -- I'll just throw out a few. I think the Tier 0 stuff that we're doing, and what does that mean? Tier 0 is very, very high end of the market, very small but it's the part that -- where the trends kind of start. And if you look at the OTW, which is the high end of the Vans line, the things we're doing there are all working. I mean it's -- in fact, I've never quite seen anything like it, where everything we launch up there just sells out almost immediately. Or if it doesn't sell immediately, it does well.

And the Tier 0 retailers, I think we said this in our last earnings call, are -- we're getting huge interest. I mean, it's really there. So on top of that, if you went to some of these fashion weeks like the last one, I don't remember where it was in the world, but you've got -- you have a surprising member of what looks like a skate shoe showing up. I don't think it's because skate is coming back into fashion. It's just that this overall impact, whether it's us or the -- or just an interest in that more flat kind of bottom shoe, it just seems to be coming. So I think those are really good signs. A few of the things we're launching are also having really good outcomes. I mean, we launched the Super Lowpro way back in the back-to-school period. It sold super well right away, and we had to restock. It continues to do well. We launched a second version of it, this kind of a collapsible shoe, and that's done very well.

We launched a skate loafer, very small volumes, done very well. And the embellished old schools and embellish slip-ons have done really, really well. You have lines at complex con for people waiting to buy those. So I think we're seeing really good signs here and there. I'm really fixated on the U.S. market. Our own DTC, we've got a really strong position in DTC in the U.S., where we can experiment with things, try them and change them and 70% of our business in the U.S. is direct-to-consumer, about half and half stores and online. So I'm looking online first then stores then wholesale, but in U.S. before the rest of the world.

And I know maybe lastly on Vans. I know back-to-school, you shared, I think web traffic was positive. And as you think about layering on more initiatives and some of the products you mentioned, is there a point where Vans could really accelerate out of the turn of this turnaround? Or how do you think about ultimately the shape you want to see from the brand?

I'm really hesitant to forecast that because then somebody will write it down, and I'll be told I was dead wrong or underestimated or overestimated or something. What I do say is I'm too long term to worry about exactly what that curve looks like. I'm more interested in it not being a curve and it being consistently up and to the right over time. I want a 3- to 5-year consistent growth path that sets us up to another set of initiatives that will grow beyond that. So that's really where my head is.

Great. North Face, done a lot of work to bring it for Seasons, straight to the summit. Just talk about the positioning there globally and what you're seeing from the brand?

That's another one where our biggest opportunity is the U.S. And I think I said that in the last earnings call, I'll probably be saying this for the next 2 years. We're underdeveloped in the U.S. relative to where we ought to be in Europe or in APAC. I think we've -- if you -- I know there are a lot of Europeans in here, but I'll use a baseball analogy anyway. If you -- I get asked in one of the meetings this morning for breakfast, where are we in some of these things? And I'm going to -- if you say we're in a 9-inning game, I think on North Face and getting to selling stuff throughout the year, we're probably in the second inning. There's just lots of opportunity.

We've mapped all the categories that we are in or could be in on 2 dimensions. One is how big is the business today? And then another one is what's the consumer, what right do they give us to play in that category. And a lot of those categories are -- categories that sell strongly in the spring and summer. And we just have lots of opportunities. So I see it more as a category game than as a seasonal game, and this is not a new story for us. I mean, if you followed us, you probably heard the same story for 10 straight years, and we don't seem to have made much difference. We've grown the business nicely in North Face, but we haven't grown the business into the categories that are about more seasons. And I think there's a reason for that.

I don't want to get into it here, but we're breaking that down and fixing it. So I'm pretty confident that we'll start to see really significant headway systematically over time into those categories are going to drive more year-round business. But we have opportunities beyond that. I mean we have opportunities for elevation. We sold -- I was talking about -- we put pressure on Summit series, which is the highest priced stuff we've got, we sell more wherever we are in the world. If we launch a leather jacket, leather puffer jacket that we did the last I guess, middle of last quarter, small volumes. leather when it sells for $1,100, we sell out in Italy and in the U.S. and in Japan. So I just think there's -- or sorry, China. I think there's an opportunity for us in multiple dimensions, not just this year on business but also in elevation and also just getting more women in the game. You might have noticed we seem to be shifting some of our marketing more in that direction, and I think it's going to work.

Maybe just one on Timberland then. How do you extend the moment that, that brand is having here?

Well, I don't want it to be a moment, of course, I want it to be a very long-term trend. And I think the key there, as I was talking to Sam Poser, who I'm looking at right over there yesterday. The whole key there is that we really define really well. What are the silhouettes? What are the products that we can move from just yellow boot momentum to momentum in other boots, momentum in other footwear and even momentum in apparel. And we have a really clear game plan for what we're doing there. It's a terrific team. The second side of that is marketing. I think we've probably never had a better marketing program on as we have right now in Timberland. And if you saw some of the people that are wearing it at the Golden Globes last night, things that we're just or 2 nights ago, I guess it was. We're really putting a lot of pressure in the right directions to try to turn this into a lot more than a moment. And we're expanding distribution. So in the U.S., if I ask this room where you're going to buy your next bar of Tims, you'd get a black stair from many of you, especially if you don't live in New York because there's really no where to buy it. And -- or nowhere you would think of to buy it. And so we're going to be addressing that distribution as we go through this year and the next year.

We have -- we only have 8 full-price Timberland stores in the U.S. So...

8.

8. So most of the business is wholesale and outlets. So we think there's a huge opportunity. Again, we'll do it thoughtfully and methodically but there's an opportunity to expand that footprint.

And most of you know that if you do -- if you strategically and smartly open stores, it also helps wholesale. So it's -- and online.

That makes great sense. Maybe a couple of financial questions. But -- two comments I want to explore. Just first, fully offsetting tariffs by fiscal 2027. Can you share more what gives you confidence? And then related to the margin story, can you continue to drive favorable promotions?

I'll take the tariff and let you take the second one. So on the tariff side, what we said actually is that we'd be on a run rate to offset all tariffs within fiscal '27. So we won't completely offset it all in fiscal '27, but we'll be in a run rate by the middle of the year, so to be able to offset the tariffs in fiscal '27. And what gives us confidence is -- the good thing is there's -- well, I was going to say there's certainty, but there's never certainty. At least we know what we're modeling right now in terms of the tariff side. So we've worked with our supplier partners. We work with our wholesalers. We've got a pricing plan in place. And so we feel really good about those 3 things and sort of how they add up to our ability to offset the tariffs. We'll mitigate about $60 million or so in this fiscal year. The impact of tariffs start to hit more in this quarter we just passed as well as Q4, and then they'll roll into fiscal '27. But we feel good about the plan. We feel good about what we have with our partners. And again, we have a strategic pricing plan, different by brand and how we do it, but we feel good about it. And again, we -- there's no change to what we said before, which is within fiscal '27, we'll be on path to offset the tariffs.

Yes. And on your question on promotions, you heard Paul talk about the work we've done in integrated business planning, including markdown management. So we're really trying to minimize the markdowns. And then we'll continue to promote -- we want to promote into the moments, into the key moments, whether it's back-to-school or a holiday period or Black Friday, making sure that promotion is a tool, not a way of life. And we really have corrected our way out of that, to a large extent, I think, across our brands, and we're going to stay there.

Great. Maybe one more on cash flow. I know your target for the year is to grow cash flow and operating income, confidence level there. And then as you think about deleveraging the balance sheet, is there anything that can further accelerate some of the progress you've made already?

Yes. I mean there's no change to what we said in the last quarter in terms of our belief from free cash flow this year. Yes. And for us, it's just continue to execute, right? So we'll continue to grow operating income. Obviously, we've got a target to be on an exit run rate of 10% OI within fiscal '28. So you grow your OI that's going to help on the cash flow. I do think over time, there are some opportunities on the inventory side and the working capital side, which will also help us. Again, that's more on the margin on the -- it's not going to be a huge driver, but I think there's some opportunity there as well. And so we're really confident. Obviously, with the Dickies sale, we're in a great position to pay off the maturity in March. And then we think as get into fiscal '27 with our cash and free cash flow will generate in the next year, the debt coming forward also is -- there's no issues at all. So we feel really great about where we are in terms of our path to pay on debt, and we feel good about where we are in free cash flow position.

Great. That's what we'd like to hear. Maybe Bracken, to wrap up here, we could finish by going off-script a bit. And just as you think about being involved in the business day to day, what's -- could you share some things that get you excited that maybe we all don't see on a normal basis?

If you follow our business and my comments about, I am really excited about the business. I'm -- I was thinking the one thing we haven't talked about is ultra, and I was looking beyond my shoes thinking, when I started here, I thought, well, these look like cloud shoes. You've got these wide toebox. How could anybody want to wear these unless you're really all about running. And then I remember that I spent my whole so much time in design and I thought, polarizing is good. And I've come to fall in love with this look and then -- so are consumers. So our business continues to grow. We grew 37% last quarter. There's so much upside in Ultra. I think if we can solve that problem on Timberland, which we talked about really moving beyond just the yellow boot moment so that it's really about Timberland as a brand. And we're -- I think we have the right team in place, the right strategy to do that. If we can take North Face and really make it a brand for -- that plays across categories is about performance really is about exploration and curiosity. I mean that's really what that brand was built on. The torture test for that is the North -- is that unexplored terrain of the North Face of Mount Everest or -- if you can really turn, exploit that, I think we can. And then if we can get Vans to the point where it's really back to being about -- being off the wall, which there's probably very few people in this room who don't feel a little different from the other people in this room. There's a -- that's a big broad positioning.

We've got lots of opportunities to grow. So I'm just really, really excited about that and exploring that by creating a V.F. way. One way of doing things. It really is the best practice in the industry. And we've got a team that's really focused on what is the best practice in the industry, including the new ones that are being developed with AI. Bring that in throughout our business and making sure we're all -- we continue to up the game, that's our road map. I mean that's absolutely what we're doing. And I'm really, really excited about it. And I'm more excited about it now than I was the day that I joined, and I suspect it's going to keep growing.

Well, that's a great way to end. Thank you both. Thanks to everyone here, and thanks to ICR.

Thank you very much. Thank you.

Thank you.

Hello, everyone. Thank you for joining us, and welcome to the VF Corporation Q2 Full Year 2026 Earnings Call. [Operator Instructions]. I will now hand the call over to Allegra Perry, Vice President of Investor Relations. Please go ahead.

Hello, and welcome to VF Corporation's Second Quarter Fiscal 2026 Conference Call. Participants on today's call will make forward-looking statements. These statements are based on current expectations and are subject to uncertainties that could cause actual results to differ materially. These uncertainties are detailed in documents filed regularly with the SEC. .

Unless otherwise noted, amounts referred to on today's call will be on an adjusted constant dollar and continuing operations basis, which we've defined in the presentation, that was posted on Investor Relations website and which we use as lead numbers in our discussion because we believe they more accurately represent the true operational performance and underlying results of our business.

You may also hear us refer to reported amounts, which are in accordance with U.S. GAAP. Reconciliations of GAAP measures to adjusted amounts can be found in the supplemental financial tables included in the presentation which identify and quantify all excluded items and provide management's view of why this information is useful to investors.

Joining me on the call today will be VF's President and Chief Executive Officer, Bracken Darrell and EVP and Chief Financial Officer, Paul Vogel. Following our prepared remarks, we'll open the call for questions. I'll now hand over to Bracken. .

Thank you, Allegra. We picked a strange day to do a video conference call because many of us were up for 18 straight innings of baseball and probably the -- even though this is the most important event happening today is our conference call in the world, and the second most important event will be one of the 2 Major League Baseball games. It's also happening today because it's never happened, I guess or maybe rarely.

You'll hear more later as Paul talks about it, let me talk you through the financials, but at a really high level. It was a good quarter. We delivered on our commitments, and we made further progress on our turnaround and we delivered this performance despite admittedly a pretty uncertain unpredictable environment around the world. Total revenue was up 2% in reported dollars and down 1% in constant dollars, a little better than planned and showed an improving trend versus last quarter.

Operating income was $330 million, well above our guidance range of $260 million to $290 million. Net debt, excluding lease liabilities, was down $1.5 billion versus last year or down 27%. We're focused on returning the entire company to growth. Last quarter, I highlighted that 60% of our business by revenue was growing, up from just 10% in the prior year. In Q2, so this quarter, that figure expanded over 65%. And if you took out Dickies, that would be almost 70%. Speaking of Dickies, during the quarter, we announced our plans to sell the brand. I'm confident it's a very good move for the company and for our shareholders.

As we've said before, we'll always evaluate any offer we receive reflecting our commitment to shareholder value creation. We had an inbound with a very good price of $600 million. We've done a lot of terrific work behind the scenes on the brand and the product portfolio and I believe this positions the brand well for growth. This was a unique opportunity.

On our end, we'll use the proceeds to pay down debt, consistent with our capital allocation priorities. This allows us to accelerate our path towards our medium-term leverage target of 2.5x or below. We're well on track.

Let me now give you some of the highlights from the quarter on our biggest brands. Let's start with the North Face. The brand delivered another quarter of growth with revenue up 4%. All 3 regions grew versus last year. We grew in wholesale and DTC. In terms of categories, performance apparel was up in every region with momentum in core styles. Transitional outerwear was strong, and footwear continues to gain traction and grew double digits in every region.

Across categories, product innovation, newness and elevation drove growth as we continue to show the extraordinary reach of the North Face from the Summit to the Street. We also celebrated 25 years of the Summit Series, expanding the collection with innovation, adding exciting new colors and designs. This is supported by an athlete lead campaign, featuring our incredible stable of North Face athletes, including the mountain near Jim Morrison, who recently with Jimmy Chin, became the first person ever to climb and ski down the North Face of Mt. Everest.

Across our marketing strategy, we're driving high consumer engagement and brand experiences and amplifying that through social channels. In addition to the Altra-Trail du Mont Blanc or UTMB, this included climb fast in San Francisco, community hiking events in APAC and a Beijing 100,000 Altra-Trail race.

As you know, as good as I feel about the North Face, I can't help but express what an enormous opportunity remains to be realized. We have potential in new categories and ability to develop the women's business and to build across all seasons of the year. Timberland revenue was up 4% in Q2 with growth across both wholesale and DTC as well. Americas is up double digits, reflecting a strong back-to-school period. In terms of product, demand for the 6-inch premium boot remains very strong. But today, the premium 6-inch icon represents only about 20% of our global revenue. So we have a lot of opportunity for growth. We can continue to grow the 6-inch business through colors, materials, innovations, collaborations and more, while we also pursue the huge opportunity to grow this brand across other footwear and apparel categories.

Closer to home, the strategy is already showing up with our recent launch of the Timberland 25, a lightweight version of the boot, which is very small now, but it's resonating well in its early weeks in our stores. A step further away from the boot, we're building our growing business around boat shoes. These sales are growing very strongly in all regions as we diversify the product lineup and give the brand more versatility of fire power during the warmer seasons.

Timberland's adoption of a social-first marketing strategy has been instrumental in driving brand heat globally. During the quarter, the brand launched its advice of an icon campaign with high visibility events in New York, London, Shanghai and Tokyo. Brand interest grew during the summer months with consumer search interest positive in key markets in the U.S. and in EMEA.

The opportunity in Timberland is really significant because we can continue to grow the boot we can grow in other -- or franchises, and we can unlock apparel around the world, all at the same time. And in the U.S., especially, this will be supported by expanded and enhanced distribution. We have the game plan to do that now.

Altra accelerated further with revenue up over 35% versus last year, the third consecutive quarter of strong double-digit growth for the brand. Key franchises that represent a mix of road running and trail running styles show our broad our broad-based approach to building this brand. The growth opportunity for Altra across both road and trail is significant. We're fueling this growth and driving higher brand awareness with targeted marketing investments which, as a reminder, our awareness is less than 10% in the U.S. and even lower in other regions. Let me repeat that. Our brand awareness in the U.S. is less than 10%, yet we still have this sized business, and it's growing fast. This is helping e-commerce deliver particularly strong growth, driven by higher traffic and stronger conversion. Altra is on track to exceed $250 million of revenue this year, and I'm confident the brand has a long, strong runway for growth for many years to come.

Let's turn to Vans. Performance was a little better this quarter with revenue down 11% versus last year. We're really focused on getting the commercial moments right as we upgrade our portfolio of products. I told you that SUNS impact on product could be visible in the back-to-school period, and it is. Product newness across footwear is drawing in new consumers, particularly women, but also youth and kids.

In terms of new styles, non-IQOS are up in the quarter, driven by the super low Pro, which continues to perform well. The new skate loafer, which I'll -- I decided to show you this one because many of you haven't seen it, which had a very strong debut and has sold out in most sizes and the CrossPathXC, which has had a very strong launch.

Within existing styles and icons, we're also beginning to realize the impact of elevation, innovation and newness. For example, the Authentic is up globally as a franchise, helped by the halo effect of the Valentino co-lab, which drove positive search trends in key markets.

Within the Old Skool franchise, newness has driven higher sales of women's styles. And just last week at ComplexCon, the largest event for young shoe dogs in the world, I think, mostly guys, by the way, it's in Las Vegas. In that event, Vance had 1 of the longest, if not the longest line of people waiting for the paralyzed Old Skool shoe relaunch there. This is just the start. More newness is coming as we head into holiday and into spring of 2026.

In the meantime, our shift in marketing strategy starting to yield results. Digital traffic trends improved in the Americas and EMEA, particularly during relevant consumer moments like back-to-school when digital traffic was up in the Americas. And looking ahead, we're excited about the recently announced new partnership with Susa as the brand's first-ever artistic director. It's early days, but in coming season, she'll add her voice and her touch to product and marketing.

To wrap it up on bands, each quarter, we're making great progress. We took actions to clean up the marketplace and set the stage for a very exciting product pipeline that started to roll in and is delivering early results. I'm as confident as ever in Sun and her team leading us to return to growth at Vans. Looking ahead, we're making progress in the turnaround of VF, and I'm super confident in our ability to deliver both our near term and our medium-term targets. Our teams are energized for the upcoming holiday seasons -- season. I'll now hand it over to Paul, who will dive in deeper into the numbers. Paul?

Great. Thanks, Bracken. Let me first by building on Bracken's comments about Dickies. As he mentioned, this is just a great opportunity for the company. While we are big fans of Dickies, we believe this divestiture will help further accelerate the transformation of VF back to being a growth company while also further enabling us to pay down our debt. We believe this will create increased and faster shareholder value. Dickies is a great asset, and we know the work we have done to date sets the brand up for return to profitable growth. In fact, is the work we've put in that has created an environment for others to be interested in the asset. With that in mind, the offer we received the $600 million is incredibly attractive.

Based on fiscal 2016 estimates, this equates to an EBITDA sales multiple of 1.2x and an EV/EBITDA multiple of over 20x. Going a little deeper into the transaction, we will incur deal-related expenses as well as the small tax considerations but we will also save on future planned capital expenditures as well as the reduction in our net interest expense.

After considering all of these moving parts, we expect the overall cash benefit of VF to be greater than $600 million. Importantly, the Dickie sell will help us strengthen the balance sheet and bring us closer towards our medium-term leverage targets. It will also help us focus time, energy and resources on our brands as we continue to make progress towards a return to growth.

Now let's turn to the review of the second quarter. We are pleased with our results in the second quarter. Revenue finished slightly ahead of our guidance, while our operating profit outperformed nicely. Back-to-school was encouraging across our key brands. Q2 revenue was $2.8 billion, up 2% on a reported basis. On a constant dollar basis, revenue was down 1% year-over-year, a little bit better than our guidance.

By brand, the North Face grew 4% led by growth in both DTC and wholesale. Vans revenue in the quarter was down 11%, a little better than we expected, but still reflecting the impact of channel rationalization actions, which accounted for more than 20% of the reported decline. And finally, Timberland continued to see good momentum with revenue up 4%, reflecting growth across all channels, in particular, DTC.

By region, the Americas region was down 1%, EMEA region was flat and APAC was down 2%. And lastly, by channel, DTC was down 2%, while wholesale was flat. Our adjusted gross margin for the quarter was flat versus last year as the benefit from fewer discounts was offset by FX headwinds. And there's minimal impact in our P&L from tariffs in the quarter. Our gross profit dollars were higher than expected on the back of revenue coming in ahead of guidance.

SG&A dollars were up 1% year-over-year but are down 1% in constant dollars. In the quarter, we increased back-to-school marketing year-on-year, which was mostly offset by cost savings across the business. Overall, SG&A was a little bit lower than expected.

Our adjusted operating margin for the quarter was 11.8%, up 40 basis points year-over-year and both interest and tax were up versus last year as per guidance. And finally, our adjusted earnings per share was $0.52 versus $0.60 in Q2 of last year.

Now moving on to the balance sheet. Inventories were down 4% or $86 million at the end of the quarter, excluding Dickie's from both periods. Excluding the impact of FX, inventories were down 5%. Overall levels are down year-on-year as we continue to improve the quality of our inventories.

Free cash flow through Q2 was negative $453 million, in line with our expectations for the year. And as a reminder, given the seasonality and working capital needs of our business, we typically start generating cash in Q3. It is also worth highlighting that first half cash flow includes the payments of roughly $60 million of incremental tariffs in addition to the usual seasonal increase in inventory at this time of year.

Overall, we are right where we expected to be for free cash flow. Net debt, including lease liabilities, was down $1.5 billion versus last year or down 21%. Turning to the outlook for the third quarter. Now note, this excludes Dickies in both this year and last year. We expect Q3 revenue to be down 1% to down 3% on a constant dollar basis. We are well positioned across our brands heading into the peak holiday period.

Moving down the P&L. We expect Q3 operating income to be in the range of $275 million to $305 million. For reference, last year, Dickies adjusted operating income was approximately $5 million in Q3. Gross margin will be down versus last year, reflecting the initial impact from tariffs, which are partially offset from lower discounts. While we have taken some initial pricing actions, the majority of these will be reflected starting in Q4.

Reported SG&A dollars are expected to be slightly up versus last year. However, on a constant dollar basis, SG&A is expected to be broadly flat versus last year. Finally, we expect Q3 interest of approximately $40 million and an effective tax expense that is approximately double the prior year. This is in line with my recent comments about the increasing trend in our tax rate over the next 1 to 2 years. and quarterly fluctuations as a result of the changes in global tax rates and in our geographical mix. As a reminder, this higher tax rate will have minimal impact on cash taxes.

Now moving to fiscal '26. We continue to see operating income up versus last year for the year as a whole, inclusive of all known anticipated tariffs. And second, on cash flow, we continue to expect operating cash flow and free cash flow, excluding the sale of noncore assets to be up year-on-year this includes all expected tariffs and after the negative impact from the sale of Dickies, which we estimate to be $35 million.

As I said last quarter, we are working on a number of initiatives that are expected to improve our free cash flow throughout the year, which gives me confidence we will achieve our guidance. And last, we are progressing towards our medium-term targets of $500 million to $600 million of operating income expansion in fiscal '28 and a leverage ratio of 2.5x or below by fiscal '28 that we introduced a year ago.

Overall, we've made meaningful progress on simplifying work to unlock creativity, building deep functional capabilities and resetting the culture across the organization. We are confident we will achieve our targets.

So in summary, this quarter marks another quarter of meaningful progress, the year in our turnaround are progressing according to plan. While we acknowledge the greater uncertainty in some of our markets as we head into our peak trading period, we are confident in our strategy and ability to execute in any environment. We remain focused on getting each of our brands back to sustainable and profitable growth, and continuing to make progress towards our medium-term goals. I will now hand it back to the operator to take your questions.

[Operator Instructions]

Your first question comes from the line of Jay Sole with UBS..

All right. All right. My question is about Vans. You talked about how you had some improvement in sell-through in the Americas wholesale channel in the full-price stores. Can you just talk about the path back to growth for Vans. I mean you said you have a lot of confidence in what Sun is doing, can you talk about the path back to growth and maybe within the second quarter guide. Just give us a sense of where you think Vans will be for revenue growth. .

Second quarter guide? Yes. Our expectation is, it's pretty much the same story we've been giving, which is we're going to increase the amount of newness. You started to see that coming in fact this quarter, Super LoPro as we said last quarter, it would did really well, continues to be very, very strong. In fact, I mentioned it in the script in the beginning, we're also starting to see some pickup even on the Old Skool with women, in particular, with our women's only styles. It grew strong double digits, I think, over 20%.

So our expectation is as we keep rolling in newer and newer product into the stores, we're going to see more and more performance. And we're obviously upgrading our marketing. If you're watching us on Instagram and TikTok, you're seeing it, if you're not pleased to, you'll see a shift away from the state-only marketing into really that plus a lot more. You'll see surfers, see a lot more product, we've got a lot more product to talk about, especially as we go into Q3 and into Q4 and into Q1 of next year.

So we're just going to keep paring it on. This is a fundamental business. You got to be in the right places with the right products with the right story, and we think we're really going to have that as we go forward.

Yes. And then on the numbers, if you look at Q2 down 11% in constant dollars, we talked about about 20% of that was related to the actions we've talked about around the value channel. So that would imply sort of a decline of high single digits for the quarter. I would expect Q3 of kind of a similar pace in Q3.

Also keep in mind, we mentioned that Q3 will be the last quarter where we really see this impact, so it will be in the quarter, not entirely, but most of that quarter. And then by Q4, the dynamic around the value channel has moderated mostly.

Yes. And I'll also add, I feel -- you can see in our -- we mentioned in the script that we're we had traffic up in the online during the back to school period, which is a good sign. It shows you we're executing better. We're starting to get the message out there. Winning in these commercial moments is really key for Vans, even more than the other brands.

Your next question comes from Jonathan Komp with Baird. .

Paul, I'm hoping maybe you could give a little bit more color on gross margin, some of the puts and takes in Q2. And then, if you could quantify either the tariffs or some of the positive offsets from less discounting, just any more of the pieces you see? And then maybe bigger picture around the cost discipline and shifting into Phase 2 of some of the savings. Can you share any updates on progress either broadly for the organization or even for Van specifically as you think about some of the next phase of cost savings? .

Yes, I'll start. So on the gross margin side, there wasn't really that much of note, a little negative impact from FX, a little bit positive impact from lower promotions. That was really most of the puts and takes when you think about the impact of -- on the quarter in terms of gross margin. In terms of -- the second part of the question was on just the long-term initiatives, the medium term issue? .

Yes, that's right, really shifting to Phase II and some of the expectations there. .

Yes. So we're making great progress. We'll hopefully give you guys a more detailed view of how we're doing on all the initiatives at year-end. We actually thought at trying to give some -- it's tough to give them out exactly in the middle of the year. But we're -- everything is on plan. As I said, we reiterated our guidance in terms of what we gave at the Investor Day a year ago in terms of our ability to hit those targets, whether it's our debt leverage or operating margin. So we're on track with all of that. So everything is on pace. Again, we're -- on the gross margin side, we've got the market on management and integrated business planning.

On the SG&A side, we've got things like store management and optimization and things on the technology side as well as the overall SG&A side. So we're making progress on everything. So we feel like we're on pace. And like I said, we'll give you more details as we get to year-end, exactly how we're trending at the end of this year and how we're tracking for fiscal '27 and '28.

Your next question comes from Brooke Roach with Goldman Sachs. .

I wanted to follow up on John's question to talk a little bit more about promotional recapture, particularly in the Americas business. Paul, can you give us a little bit of a sense of where you are in the promotional recapture journey and the plans for pricing and promos this holiday and the opportunity on a medium-term basis? .

Do you want to take it?

I can start. I think generally speaking, we're well on track. We had another good quarter, I think, of really having improvement from -- versus a year ago on our promotion levels, especially around the world. I think as we go forward, we're going to be aggressive, though. We're going to make sure if we have to give a little bit back in the Americas, in particular, we will, but generally speaking, we continue to think we can operate at a lower promotional environment than we have in the past, and that's our game plan.

Yes. I think we'll continue to see benefit for the rest of the year on the promotional side in terms of the cadence this year versus what we had last year, so that will be part of it. The pricing will kick in, in Q4 in terms of the impact for tariffs. And so you'll see some impact on gross margins more from the tariff side, not the promotional side in Q3. So we need to be clear about what we're going to see in Q3 there. But the promotional environment has -- year-over-year has gotten better, and you'll continue to see that throughout the rest of the year.

And as I mentioned kind of on one of the earlier questions, if you look at the gross margin in the quarter, promotional environment actually was a benefit to gross margin, but that was offset by FX, which impacted us negatively on the gross margin side.

I'll add 1 more comment, Brooke. I think on Vans in particular, we're benefiting, we're going to be in a better position from a promotional standpoint simply because we're not being aggressive in raising price to lower end price points. And so unless we see a requirement to do that, we're going to try to avoid that.

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

I was wondering if you could just dissect Asia a little bit more for us. The first time we've seen a negative number there in total in a little while. I'm wondering if there's any kind of a timing element there? Or maybe how do you think about that over the next few quarters, just to help us understand what you're seeing in that business. And then on -- Paul, I wanted to clarify, I think you said if I take out the 20% Vans from the actions you had in the value channel gets you down about high singles in 2Q as the underlying run rate and should be about the same in the third quarter. Is that an ex currency comment? And does that take into effect what I think you mentioned before was that some of those mitigation efforts start to wane a little bit in the third quarter before going away in forward part. Maybe you can just kind of help us that we understand kind of exactly what you're thinking on reported revenues should look like in the fourth quarter -- or sorry, in the third quarter.

Yes, I'll take the first one and Paul will take the second one. I think my experience with APAC in general, and especially China within APAC is you have these long periods of run up and then you kind of stabilize for a while and then you have the long period to start again. I think we're in one of those stabilizing periods. We've had a very long run long, strong run of growth in China, particularly in the North Face. And I think that's going to stabilize for a little while.

The good news is we have so much opportunity in the rest of the world, especially in the Americas. I mean I feel really lucky to be in a company right now where, honestly, one of our biggest growth opportunities longer term is the Americas. We're just underdeveloped in many of our brands. And in some of our channels, if I take Timberland, for example, we really are terribly under-distributed in the U.S., and yet we're growing very strongly. We've got good brand heat. So we're going to address that going forward.

And so overall, I feel good about where we're going to be from a global profile, but I think APAC, it wasn't going to grow that strongly forever. It will flatten out for a while and then probably come back.

Yes. And then just a couple of things. So one, just as, I guess, a blanket statement. All the numbers I quoted, they're almost always in constant dollars. So if it's not that, I will let you know. But it's -- yes, so it is constant dollars.

On the Vans side, down 11% in constant dollars. So -- and we -- what I said was about 20% of the decline is related to the actions we've been talking about around the value channel. So that gets you to -- and as well as store closures. That gets you to sort of a negative high single digit for the quarter in terms of an actual run rate.

The run rate we believe will be kind of similar in Q3 as well. What I also said was the impact from the value channel changes and the door closures will also impact us in Q3, not quite as much as it did in Q1 and Q2 because it starts to -- we start to annualize our anniversary it in Q3. And then by Q4, these impacts we've been talking about, for the most part, go away. So it won't be entirely but mostly a true underlying trend by the time we get to Q4. And hopefully, we'll get away from having to back anything out for you guys.

Your next question comes from the line of Ike Boruchow with Wells Fargo Securities.

Just curious on -- I know it's early in the holiday, but any initial signs from how retailers are behaving with orders or order books? Is there any difference by channel or region? Just kind of curious how your partners are kind of looking at the initial holiday season from an orders perspective and a demand perspective? .

It's a little too early for us to say. It's -- we also have a lot of direct-to-consumer too. So just a little too early to say. This is always the period when it's really, really exciting in this business because things start to ramp up. It starts to get cold. There's a lot of good things that happen between now and Thanksgiving. So it's a little too early for us to say, but we're really excited about it. We feel like we've got a good plan. We've got good products and yes. So we're optimistic, but it's too early to say how it's going to play out. There's a lot of -- as you said, there is uncertainty out there about the overall macro environment. There's the shutdown, et cetera. But I think I said in a conference a couple of months ago, the consumer has been stubbornly positive. And I'm hoping that will happen again.

Your next question comes from the line of Adrienne Yih with Barclays. [Operator Instructions]

Thank you so much. Okay. So Bracken and Paul, the 3-year long range plan was sort of anchored to FY '24. And so we've had 4 quarters -- consecutive quarters of op margin expansion, in this fifth quarter because of tariffs, we now have kind of a reversal of that trend.

So historically, you've always kind of talked us to look at half years and I guess a couple of questions. You talked about back-to-school being strong. Just wondering what you're seeing kind of on the exit of that. You talked about the consumer being still resilient. And then last quarter, you had mentioned sort of like how you think about philosophically demand elasticity.

We're going to start to see price increases, Paul, in the mid-single-digit range, low single-digit range. If you can help us out with that. And what are you thinking about with respect to kind of how the volume plays into that?

Yes. Why don't I take -- I think your first question was kind of what do we see coming, it's a little hard to answer. Maybe I'll go back to Timberland since it's an interesting one to talk about. I think Timberland, we probably have more growth potential than we're going to get, because we're -- you saw this quarter, 4% growth. I think for the rest of the year, you can expect kind of low single-digit growth. That's not because the brand heat is not out there. It's out there. We're just going to really control our expansion. And we're we're going to make sure that we're very deliberate about executing.

Right now, we have only, for example, only 6 full-price stores in the United States where there is very strong demand, we could go out and expand aggressively into our wholesale -- new wholesale, et cetera, but we're really not going to do that. We're going to very deliberately open new stores. It's going to start later in Q3 and into Q4, although they won't really kick in and be high performing until next year.

So we're really trying to think in terms of driving growth longer term, not just more we can do this holiday and in Q4 so that's our mindset on this whole business is really how do we -- I hope you're starting to get a feel for that. We're going to execute on the key commercial moments, but our real game plan is longer term than that.

We're going to put -- systematically put these building blocks in place, they're going to deliver for years and years to come.

Yes. And on the gross margins, I think I had the question. So on the gross margin side, so as you get to the next couple of quarters, so obviously, we've had some good gross margin expansion. We've lapped a lot of the work we've done to reset our inventories, get inventories in a better position. We've talked about a better promotional environment for us in terms of discounting. So that's all been productive. You get into Q3, you do have some impact, as I said, from the tariffs, which we won't really start to mitigate tariffs until Q4 from a pricing perspective. So you will have that.

You also are lapping all of the work we've done over the past year or so. So you've got -- you're starting to get tougher "comps" in terms of the gross margin improvement. We still think there's more there, obviously, and we've talked about getting to 55% or better in our longer-term targets. But we did make a lot of progress over the last year and a lot of the reset actions and cleanup we've done. So that will impact us in the next couple of quarters. And then there was one other part to that question.

Elasticity.

Elasticity, yes.

Single digit. How much will you raise.

Yes. We don't really get into the exact amount of pricing. You can think about it in a couple of ways. One is there's always going to be a part of this between working with our vendors, work with our wholesale partners and in pricing. So it's going to be a combination of all 3 of those things, which is probably not a surprise to any of you, will also be targeted and thoughtful by brand, right? So it's not going to be a uniform price increase across the board.

Each brand is going to take it differently in terms of product, in terms of how they do in terms of where they do it and we'll give them the flexibility to do that. And in some areas, as Bracken mentioned, excuse me, you've got places where were Vans where maybe it's not so much on the pricing side, but we've been much better on the discounting side, so that can have an effect of better pricing year-over-year just based on lower discounting.

Very helpful. .

Yes, if you wanted 1 headline on that, I'd say surgical. We're still assuming pretty normal elasticity, but we're very surgical in the pricing. .

And it's U.S. only, correct? Or is incorrect? .

Yes, generally speaking. I mean, there's always some kind of pricing happening around the world, but certainly U.S.

Your next question comes from Anna Andreeva from Piper Sandler. [Operator Instructions] .

Apologies. Great. Thank you so much. We had a question on where are we with the number of doors. So you guys have closed own doors globally and also exited a number of wholesale doors in the U.S., but also added some doors, so are we now in a stable kind of a number of doors environment, both in wholesale and DTC.

Do you think there's an opportunity to further rain in own doors, especially Vans where I think you still have 600 doors or so globally. And then we had a follow-up. Did you quantify the earlier wholesale demand in 2Q?

I'll let Paul take the second one. On the number of doors, yes, I think we're pretty stable going in. We're going to increase the number of doors, especially in Timberland, but also in North. And there will be some continue to be churn on Vans. But as I've said before, but the biggest reduction is kind of in the past now, so -- and that will start to dissipate especially in Q4.

Our total number of doors, I think we're in the U.S. We're at about 580 globally, I think, about 480 in the U.S., which is consistent with what we said before, and about 90 in EMEA and not too many in APAC, although we have partner stores in APAC. So most of that looks like our door, even if it isn't technically.

Yes. And then I think just overall in the stores, so I think we're down about 5%, but it's the majority of that is Vans, we're actually growing in North Face and other areas? And then the second question was the question on the wholesale in Q2, how much that impacted the increased demand. Is that -- was that the question? .

Yes, if you want to pin that in back.

Yes. So it was probably about -- it was about 50, 60 basis points on the revenue side. So if you look at the revenue number and the outperformance relative to our guidance, there are really 2 main factors, call it, half of it or so that was that we had some orders where the demand came to ship in September versus October and the other was just some better DTC, particularly around back-to-school, did a little bit better. Those are the 2 big factors. .

Your next question comes from the line of Matthew Boss with JPMorgan. [Operator Instructions].

Great. Maybe 2 questions. Bracken, could you speak to health of the North Face brand and market share opportunity you see across the outdoor channel. And then just to circle back on Vans, underlying revenue is down high singles, excluding the reset actions. I mean what do you see still constraining the brand despite the product improvements that you've cited? .

Yes. So on T&F, I think the brand is very healthy. The key now is we just have to keep doing -- playing out the initiatives we've been talking about, which is not just playing in the winter quarters, but really playing year around, making sure we really getting to women, taking full advantage of these categories we're performing in like footwear, for example, where we had strong double-digit growth in this quarter around the world.

So really, we've just got opportunity. We just got to execute right through everything. So T&F, I feel I'm excited about. In terms of Vans, I think it really does come back to, you asked me to talk about something more than product, but I'll go back to product. It really is -- this is a product business. We've got to have a great product. And I'm excited about the Super low Pro. I think the Skate Lopes going to do well. You will see -- I see more and more. It's funny when you think you've got something originally, you realized you were actually right on a trend and you see it from especially the legacy segment, and we're seeing lowers come in across the luxury segment.

I remember when we were working on this, we were -- I thought, well, this is really original, and I kind of scratched my head and looked at Sun and said, "Sure, you want to do this. She said, "Oh, yes, it's going to work.' And -- and it did really well in very small quantities in the beginning, and we'll see how it does as we go through the holiday season on next year.

So it's about product, product, product and then making sure our marketing is relevant and powerful. And I think our marketing is getting stronger and will get stronger and stronger as we go through. We're more and more socially centered. I think Susa, both on the product side and the marketing side will be helpful. But getting right product out there for guys and women and kids as the game advance, and we're going to keep pouring it on.

Your next question comes from Janine Stichter with BTIG.

A question for Paul, just back on tariffs. I think you had talked about mitigating about 50% of the growth impact this year, now that you've been going through some initial pricing actions. Just any updated thoughts on that? And then I think you had spoken to offsetting tariffs in their entirety at some point in fiscal '27. Just if you could put a finer point on that, in terms of timing?

Yes. The -- on the -- we haven't really raised prices yet. There's very little in -- there's really nothing in Q2, very little in Q3, the pricing really comes in Q4. So I really don't have any -- really not much I can comment on in terms of the impact of pricing. We'll see it as it comes through. But like I said, we're going to have the impact of tariffs hit us the most in Q3 just from the standpoint of not having the offset of revenue or the offset will come in Q4.

And then, yes, we think we'll be able to offset tariffs within fiscal 2017. We haven't been more specific on that as we get to the end of '26, again, as we see some of the elasticity stuff, so the pricing and see where we end the year, we'll have probably more clarification at year-end. But again, nothing changed at all from the comments you made last quarter about the impact of tariffs, our ability to mitigate and the timing of when all this comes through.

Your final question comes from Trevor Tomkins with Bank of America. Trevor to unmute your line. All right. We will move on to John Kernan from TD Cowen. We will move on to Tom Nikic with Needham.

I want to ask about the ongoing debt deleveraging on the balance sheet. And you've now sold a couple of brands and you've divested some noncore assets, is it now just a function of fundamental improvement and growing to EBITDA? Or is there kind of anything else you can do from a kind of non-EBITDA perspective to bring the debt leverage down.

Well, let me make a quick comment and then I'll let Paul answer in a little more detail. Overall, we feel good about our ability to delever down to 2.5x. Now Paul and I have said, we like to be -- we'd like to be below 2.5x because neither one of us is a particular big fan of dad in general so - but 2.5x seems like a reasonable leverage ratio. And we're on the path where in '28, we will be there.

As you said, just executing our plan. You want to add anything.

No, I think a couple of things to be clear. One, we firmly believe we were able to get to our targets with or without the sale of Dickies. So the sale of Dickies will help speed that up will help us get there faster. But we 100% believe we would have gotten there on the fundamentals either way. So that's number one. Number 2 is, yes, I mean, a lot of it moving forward will be continued improvements in EBITDA, we will also continue to work on improvements in working capital, better inventory management, things that we can bring down. I think we can bring our inventory days down further.

I think we can probably improve our overall working capital management as well. So it will be mostly on the pure fundamentals of growing the business. But also, I think there's other things we can do that will help free up cash moving forward.

Okay. I guess that was our last question after a couple of extra innings here. Well, look, to close, it was a really good quarter, and we delivered on our commitments again as we tried to always do. We made further progress on the entire turnaround plan. Looking ahead, we're going to continue to generating value across our brands and returning the company to sustainable and profitable growth. So we're excited about the future. Looking forward to talking to many of you in meetings throughout the rest of this month and next month here and in Europe. And then again next quarter. Thanks again.

Thank you.

This concludes today's call. Thank you for attending. You may now disconnect.

Good morning, everybody. Thanks for joining us for day 2 of the Wells Conference. It's my pleasure -- Ike Boruchow, softlines analyst at Wells. It's my pleasure to have VFC with us on stage. We have CEO, Bracken Darrell; Paul Vogel, CFO. Thank you, guys, for being here.

So I think Bracken, I'll start off with what's most topical. I mean there was a press release that hit this week, Dickies. I mean, I guess the simple question is kind of why now? I did kind of think the portfolio review was complete and you had kind of committed to certain brands within VFC. So I guess why selling the brand? Kind of what came about?

We -- first of all, in terms of portfolio review, we do it every year. So it's kind of a continuous thing. We're always doing that. But yes, we didn't have any plans to sell Dickies. I love the brand. I'm wearing it today. I wear it all the time. But honestly, we just -- we got an inbound from Bluestar, and it was just really attractive. And from our standpoint, we look at our portfolio, and we've got a lot of different brands to play with. And Dickies was always on the edge of what are strategically the brands that fit, but it did fit.

But we just felt like, okay, if we've got -- our priorities are, and I'll name them roughly in order, okay, Vans, North Face, Timberland, Altra, Dickies. And when you look at where you're really going to distort your attention and your investment, the Dickies was fifth in there. So I think it probably wasn't going to get the level of investment that it could have gotten over time. So all those things put together, it just made sense. And it lowers our -- it will improve our leverage ratio. It will enable us to pay down debt. So it's just a good story.

And I guess maybe to Paul or Bracken, back to you. Just -- I mean, any chance could you provide reassurances, there was no performance reasons behind the transaction, you're on track to achieve the fiscal year free cash guidance to meet your commitment to pay down debt. Just any commentary you can add there?

Yes, I mean -- why don't you go ahead...

Yes. I mean -- there's no change anything. I would say at a very high level, I mean, hopefully, you guys are starting to get to know us at this point. We would never do anything for a quarter or 2. It's just not how we think. It's not how we operate. Anything we do is going to be the right strategic long-term decision for the company. So there's nothing to do with anything going on this quarter, next quarter or currently at all. It's really, as Bracken said, if somebody gives you an inbound call, you have to listen. In this case, we thought it was something that made a lot of sense for us in terms of the eventual price we settle on as well as the focus on other areas of the business.

Yes. If I could add to that, I mean, we certainly weren't planning this. I mean if you look at -- we wouldn't have moved the headquarters to California. We wouldn't have changed our reporting. We certainly had -- even at that point, we hadn't had any discussions about this. It really came in and went so fast. We're looking forward to restating the model again. It's...

You guys keep us on our toes there. I guess given the sale proceeds can fully fund the next tranche of debt, I guess, what will you guys do with the funds that were previously planned to pay down the maturity with?

Yes, I just won't have to draw down on the ABL. So if you kind of take a step back and say, why do we do the ABL, it was really done just for security reasons, right? So it was -- my view in my role is I need to sort of always plan -- expect -- hope for the best and then plan for the worst. And so in my case was if things went sideways, if the economy, if tariff, if happened, I wanted to make sure I had access to capital.

I felt an ABL was -- it is more secure than the former credit facility that we had. And so that's why we went down that path, knowing we would never need to draw down on the $1.5 billion that we actually had, but it gave us the flexibility if we ever needed it. So in this case, we'll have all the proceeds from Dickies, which means we won't have to draw down really at all on the ABL. So it just saves us that incremental debt. It saves us that interest expense, those types of things.

Got it. So moving away from Dickies, maybe back to Bracken. Just more broadly, VFC as a whole, like the macro changes every day, how are we feeling about the U.S. consumer, the global consumer relative to the medium-term targets you guys have spoken about? How should we be -- how are you kind of perceiving that to be playing out?

Well, we -- in our medium-term targets, we said from the beginning, we're not going to be too dependent on whether it's a great economy, a good economy or an average economy or slightly below because we have so many things within our wheelhouse really we can work on. But I would say so far, the -- especially the American consumer has been stubbornly positive. I mean I think it's hard not to say that if you just look at what's going on.

And is the concept of tariffs, anything else to kind of share with us today, mitigation impacts, anything new that's worth kind of discussing?

No, we've been -- we said from the beginning, and we feel really strongly about it, we're going to offset all the tariff between cost reductions, very strategic pricing and a little bit on the plant relocations. But overall, we feel very good about that. And we're going to have probably a little bit in short term that we've got to manage. But by the time you get somewhere into next year, we'll have offset it all.

And remind us the mitigation strategies and what percent of that or however you can kind of comment on like how much is just kind of like-for-like pricing to offset versus other...

We've dodged that question effectively so far, and we'll keep it up here. I would say we -- I won't even try to size it. It's -- there is a pretty fair amount of cost in there. But we are taking strategic price actions. We've taken some of it. But it takes so long for a lot of the pricing to make its way through this industry because of the long supply chain. So I think you haven't seen some of the pricing coming through from us and others. But it's very strategic. So it's not like we're going to whipsaw pricing all over the place.

And it's maybe more of a broad question, not just for you, but when you think about the entire industry, like how should we be thinking about pricing in the context of elasticity in the consumer? And it feels like we're going to -- we're about to go through a period of some rising inflation within the softline space. How do you guys test that? How do you kind of think about units versus price? I'm just kind of curious if you could kind of -- how is that sausage made?

Yes. Well, we've certainly looked back at our sensitivity to price reduction and price increases and tried to gauge -- tried to give ourselves a little bit of a sense of guardrails on what pricing impacts could be. We also have done some select work on that beyond that. So we've really tried the best that we can to gauge what is the sensitivity of pricing. And then we've taken a fairly conservative view, I think. I mean our general view is it's kind of 1:1. If you took average pricing in the world when prices go up 1%, volume goes down 1%. If you just said, okay, that's normally in an environment where not everybody is raising price.

But I think we're in an industry where -- we're in a situation, which is very unusual, a little bit like currency swings in -- with the euro about 10 years ago, where it just affects everybody the same way. So it's a very, very equal hit. And so I think that probably will mute the price sensitivity a little bit, but we're not planning for that. Now that said, you never know. You could also have a recession on top of that. But as I said, we've got so many things to work on internally ourselves, and we really feel like we can improve the business, but I'm not even too worried about that.

Got it. Last tariff question. Do you guys have any exposure to de minimis?

No. I had to ask [ for it ] this morning at breakfast. So I know what it means, but I feel like we really...

I don't think I'd be asking...

It's so minimal, so de minimis. There you go.

Okay. Let's turn to Vans. So you've emphasized the focus returning to growth. You got Sun is there. I know you're not going to provide brand level guidance, but the impact from strategic actions rolling off by the end of the fiscal year, all the work being done. Can you kind of walk us through the progression? I know you're not going to give us a specific time line on inflection, but just remind us how you're viewing the brand from where it is today versus what the opportunity is?

Yes. I mean those kind of really aggressive actions that we took throughout our distribution really finish up in Q3 and Q4, you're pretty clear of that. So that's really our view of where we're going. And I was with Sun and her team yesterday. And I'm going through kind of long-range plans, kind of long-range product plans. And it's coming together the way I expect it to. She's really a super product person, and she's got super product people working for us. So you'll just see more and more new product roll in as the quarters roll by, more in the holiday period, more in the spring. So it's -- and it's going to be fine. It really [ fine ]. And you can already see her fingerprints here and there. If you look at the decision we made with Susan, and you'll see more on the marketing side as we go forward. So she's in the middle of the action now.

Yes, I was going to ask, can you remind us just the influence that she's able to bring like on the current product for that just hit for back-to-school, anything in the upcoming season? I think you just alluded to some of that but just kind of curious.

Yes, I can. This is -- it is a long development chain, but she -- Super Lowpro, for example, she believed in that from the beginning. So we went into -- when we really filled really well back in the early spring, we just chased like crazy to get more from back-to-school. We have it. That's not a huge product, but it's going to be a good one. And I think she's -- that's kind of her hallmark. She has good intuition, but she also really trusts the data. So she's really using both. And I think the longer she's here, the more she's trusting her intuition, which is great.

Can you speak to some of the -- just the top-down impacts to Vans that seem to be taking place? On one hand, I think that there's been editorial about skate having a bit of a resurgence. On the other hand, we're going through a bottom cycle. We're going skinny to baggy, which I believe is more of a benefit to the Vans brand. Like can you kind of unpack that a little bit and how you think about Vans underneath that?

Yes. It's -- that could be a long discussion, and Sun would be -- probably have more fun talking about it than I will. I think the Super Lowpro is the opposite of the baggy. It's really flat. And we just didn't have a real play there. And I think when we came in there, it's a really good product. It's very comfortable, too, by the way, anybody shopping for the back-to-school still. So anyway -- so that's just a really great product. And I think that both from a comfort standpoint and an appearance standpoint, it's very on trend with one part of those trends that really sleek look. The baggy look, as you said, it's still here.

And the cool thing about right now is it's not like -- it used to be when we were growing up, when I was growing up, you'd have bell bottom jeans and like literally every single person would be wearing bell bottom jeans. And then that drove -- so the style was the best style. Today, there are cross currents going on. And you do have big trends, but you have counter trends. So I think those 2 trends are kind of operating at the same time right now. And that's why New Skool is now, I think our second biggest -- and on the other hand, slip-ons are also big. A lot of people don't realize, I think slip-on is either our second -- it's either our first or second largest in volume. So it's price lower, but it's another big segment. And all 3 of those are kind of operating at the same time.

Just back to the strategic actions, I think Bracken or Paul, just can you remind us what you've said about the headwinds and the rolling and the timing of it? Just -- I forget what you specifically told us, but can you share?

In terms of the tariffs?

No, no, sorry. The strategic actions at Vans weighing on.

Yes, yes. So I'm sorry. Yes, so we said it will impact Q2 pretty similar to Q1. It will be impacted again in Q3, maybe a little bit less. And then hopefully, by Q4, you've kind of anniversaried the actions we've taken.

Got it. We talked about marketing briefly, Bracken, just update with respect to those, the initiatives on the marketing side to drive traffic. You mentioned -- in July, I think it was you announced that Sza is the new artistic director. So how do we kind of align all of this to the vision? Sun is there. It's been a year or so time frame. So just a little bit more background on that partnership and how you think about the marketing spend for the brand.

Yes. I think the brand has a historical strength with guys. It grew up in skateboard and there were more boys skateboarding in the beginning, and it's kind of hung on to that for a very long time. Then it had a period where it kept that, but then it added a lot of women. That was during the real peak. And so Sun's strategy is she wants to fuel the guys and bring back the girls, and Sza is part of that. And so Sza is now in.

She -- we had a meeting with her this week, and I hope I'm not supposed -- maybe I'm not supposed to say this, but I wasn't there, but we had a great meeting with her this week where she's really excited about what we're doing. And she's helping us really think through how to define Off The Wall and then what that means both from a marketing standpoint and also from a product standpoint for -- especially for girls, but not just for girls, for a new generation. So she's going to be really, really helpful and powerful, I think.

And I'd just add that because Bracken and I was [ having ] breakfast. I mean she's someone who was wearing Vans. This is not someone who just, hey, we found someone who want to work with us, I guess someone who is passionate in wearing the product before we worked with her.

And our marketing will be more than Sza. So Sza is just -- she's the artistic director, but we're doing more. You'll see more. When we get into holiday, you'll see some interesting stuff.

And within marketing for the brand, is this -- are we thinking about an increase in dollars as a percent of the Vans' revenue? Is this just the mix of those dollars?

We think we're at the right level. The industry spending levels are pretty -- you can kind of open up everybody's annual reports. You'll see the rates that need to be spent. And those are pretty healthy levels. We wouldn't hesitate to distort if we felt like, okay, this is a place where we really should spend more. But we don't really feel like that's the -- that's really needed right now. We're going to -- but we're always keeping an eye on it. So we're unafraid to push money into one direction or another. By the way, I think the Dickies sale also helps us do that even better. But we're really in a position where we can distort where we need to, but we feel like we're at about the right rate.

I would just add to that, too. One of the things we've worked on over the last year or 2 on the marketing side is be more efficient with our marketing spend, right? So we used to spend probably more than we showed on sort of nonworking media, right? The costs that go into producing media, the costs that go into all the things and not enough of the marketing spend was actually spent on working media to actually drive action and conversion and awareness and those types of things.

And so we spent a lot of time over the last year or 2 to sort of work across all of our brands, not just Vans, but across all of our brands in terms of having a process that is sort of standardized across VF that allows them independence in each one of their brands on how to work. And so it's a way to actually, to Bracken's point, spend even more money on marketing that's actually going to add value without actually spending -- actually increasing the percentage you're spending, but the actual dollars and the usage of that and the efficiency of that has gone up.

Let me double down on that point because it's an important one. I think the working, nonworking, which is the industry term for that, working means like you see it because you spent money to have it seen. Nonworking would be what you pay the agency, what you pay to produce something, all that stuff. That mix was out of whack for us, and it's much better now. It's still not quite where we want it to be. So we're going to -- we still have fuel in the tank for that.

The other piece is social media centric versus everything else today. And we've moved aggressively more and more social media. We're still not as aggressive as I think we will be over the next 6 to 12 months. So we've got more fuel in that tank. So I think we've got a couple of ways to keep driving increased investment in what people see, even without raising the absolute dollars.

And then on the DTC network, just to stick with Vans a few more. On the DTC network, I think you've closed about 20% of the door count over the last 2 years. Where are we in terms of that action? Are there more closures that we need to see? Or is the consolidation kind of complete?

I think we're pretty close to where we need to be. I mean it will probably drift a little bit down over time. We probably have a few more that economically don't make sense to stay open where they are. And those will drift away as the leases come up. It just doesn't make economic sense to close those. But generally speaking, I'd say we're about in the right place, but we'll be opening stores, too.

Would you wait for the Vans business to stabilize and inflect before you started to accelerate door growth there again?

Yes. We're not -- you're not going to see us aggressively open stores in the U.S. We've got plenty. It's just the net number would be. So the net number still probably drift slightly down.

Okay. Last one on Vans. Just of the overall gross margin, I believe 55% is the goal. How much of that is tied to the improvement that you guys need to see that you're outlining at Vans?

I mean I can answer that, do you want to answer it?

Yes. I mean it's not specifically tied to Vans. It's really across all the businesses. For us, it's really about kind of the big picture gross margin things we work on from a process standpoint, right? So markdown management and integrated business planning, which will help not just Vans but help all of our brands in terms of -- from a promotional standpoint, having a better promotional cadence, knowing when to mark down, knowing how to mark down, knowing what's the right way to do that.

And then hopefully, that sort of gives way to integrated business planning, which is sort of this kind of our new holistic way of planning out over a longer period of time, which should help us have the right product and the right stores at the right time as well, and that will all work. So Vans is obviously a big part of that along with Timberland and North Face. But the profitability of Vans is relative to sort of the declines that you'll see in the revenue has held up okay. We've done a pretty good job of managing that.

Yes, if I could add because I was literally just looking at this last night. Don't ask me why. But I think the impact of -- Vans is a little bit more profitable. And from a gross margin standpoint, the other business, it's got bigger direct-to-consumer business in the U.S. But the impact of that is not very significant, hence, on the overall business, not a big number.

Got it. So let's switch over to The North Face. I guess how do you think about the key drivers of the brand today? And then within that, how is the competitive landscape evolving for outdoor in general in your eyes over the near term or near to medium term?

I think we have had good competitors. We have really good competitors. I think that's a good thing. Generally speaking, that's what drive -- when you have good competition -- I mean one of the most painful things I had in my last job was I just didn't really have people investing in growing the category. So it was kind of frustrating because we had to do all the heavy lifting to get the category growth. Here, you do have a couple of competitors who are really spending, which is great. On the other hand, it also keeps you on your toes. You got to be better. So believe me, we're looking carefully at what everybody is doing from a retail standpoint, from an online standpoint, from a product standpoint.

And it is absolutely making us better. I was with Caroline yesterday, our President of The North Face looking at product for future seasons and then future seasons beyond that. And it's going to get better and better. So I'm really excited about it. I think you asked what are we up to there? I mean we're doing a lot of different things there. We've got -- on the one hand, North Face has a very, very strong performance heritage that -- where we kind of win consistently.

On the other hand, I think we have an opportunity to be more culturally relevant, more fashion, more beautiful and stylish more consistently. And that's really one of the areas where I see a lot of growth. Women in general, we can do better there. Spring and summer, we will do better there. So we've got a lot of areas of growth for The North Face. I think in general, our Americas business is not nearly as strong as it historically as it's been in Europe and APAC. And I kind of love that situation because, boy, we ought to go and fix this because most of us are sitting here. So...

Yes, I wanted to kind of go into that. So the brand in itself, but then if you kind of like dig in geographically, there's a little bit of a different story. So it looks like the Americas is a little bit different than the rest of the world. Why -- like why do you see the challenges in the U.S. versus Europe or Asia?

Well, I flip it around. I think it's actually because we -- it's that we really did really smart things in EMEA and APAC, where we went after a little more elevation in the product. If we have a good, better, best line globally, the Europeans and the APAC region tend to focus on the better and the best and the U.S. tend to focus on the good and better. And so we're -- the good news, not to overuse the 3 terms is that we have opportunity to push that up and there's pull from the rest of the world because they really want that better and best product. So we have the product. We just have to make it available and make sure that we can bring it to market and get it sold in to the right place to buy. So -- and we'll develop more and more good product over time.

So -- sorry, is the biggest issue in the U.S., just the pricing strategy that you guys had relative to other regions wasn't [indiscernible].

I wouldn't call it pricing. I'd call it the emphasis. We really emphasize the lower mix than we did in the other regions. So they were focused more on the kind of the better and best, and we are focused here more on the good area.

And so then how does that conversation go with your U.S. wholesale partners? Like how does that conversation develop in terms of discussing it that way?

Yes, I think everybody would like us to sell more in that better and best, including our wholesale partners. I think we've got to prove it. We've got to prove that we can sell at those price points at those higher-priced products will sell. And we're not at all going to walk away from what we got. We love it. We love where we are in this good range. So it's a really good, healthy profitable business, too.

What's the time -- like in terms of that, it seems simple, but I'm sure it's not. Like what's the time line to execute and get where you need to be?

I think it's like everything in this business kind of rolls through quarter after quarter, you make -- you keep making improvements. But you can't -- especially when it comes to something like that, you can't just flip the switch and say, okay, we're something going to do better and best, and we'll drop all that other stuff. We're not going to do that. So we're going to add more product into the better and the best. We're aligning with the rest of the world on what their offerings look like. We'll have more overlap -- probably in the next few seasons, we'll have more overlap between what the 3 regions of the world are buying than we've ever had, and it will keep getting -- it will keep going up for a while.

Understood. The last one on North Face. Just you guys have talked about opportunity to kind of create this as a 4-season brand. What's the progress there, moving the brand in that direction, time line to kind of get there? Like how are you guys thinking about it?

It's such a big opportunity, and we're so close to the starting line. I think we're -- we have made really good product, but we haven't had the courage to buy it. And I mean you look back in our history, and I think we're going to change that. So it really comes back to not gambling with hundreds of millions of dollars of inventory, really believing we can do it and then marketing behind it. And so obviously, now we're in the fall, so it's -- you're in the period. But as you go into the spring of next year and the summer of next year, you'll see us do better. And then -- and we'll do it -- will be even better the following year.

Got it. I do want to touch on Timberland. I feel like the boot has been a very pleasant surprise, a strong growth in the last several quarters. I guess what is -- I mean, what is the driver there? Is that predominantly driven by the yellow boot? It seems like I see that a lot on social media and the media outlets. So how would you talk about what's going on at Timberland right now?

Yes. I think the 60th anniversary of the yellow boot and the 60th anniversary of hip hop coincided the year that I got here. And we had -- I think it was 10 different collaborations that were really creative. We put a movie out that nobody saw. I'd encourage you to try to find it on the Internet, if you can. It's a really good movie, by the way. If we can rebuy all the rights, we'll put it back out, at least for all of our investors and analysts. So you can see it's really, really good. But that sparked something at the very top of the, call it, Tier 0 at the really premium end of the industry where the cultural things move.

And it probably touched a lot of the key players in the industry that affect us, people like Louis Vuitton and Pharrell. And so that generated another wave of interest at that level. That combination of things, we believe, and then probably also just a fundamental trend line that goes through every industry has driven a resurgence in the interest in the yellow boot. And now that we're starting to see it in some other things, too. Our boat shoe has also done well. Our Euro Hiker is doing well. So we're seeing it start to cascade into other things. I don't want to overstate that yet. We're going to -- we're really trying to drive that.

We want that to -- we want to keep parlaying this and bring Timberland to a new level. And that is our fixation to make sure that it's bigger while we continue to fuel the yellow boot. So it's -- we've got things growing more -- beyond the yellow boot and the boots in general, but we're really trying to make sure we've got the fundamentals in place to drive that in a sustainable way. And that's the preoccupation of Nina Flood and our team at Timberland now.

Is it fair to say that of the 3 big brands that Timberland in the near term is where you have the most confidence?

I have lots of confidence in all 3 of them. Now if you ask where are they in their growth curve, I'd say, yes, Timberland is growing strongest right now. But I have total confidence in all 3 of them. And we didn't talk about Altra, which I wear just for you.

We're going to get there. The last thing on Timberland. So anything of what you guys have done to be so successful there of late that can be applied elsewhere in the portfolio, the learnings that you can kind of attach to other brands, especially on the smaller side?

Yes. I think you look at this whole kind of sparking the interest at the top of the market. We started that in Vans about a year -- a little over a year ago with OTW, which was kind of this Tier 0 kind of product. It's amazing product. It sells out immediately. Every time we do anything, whether it's a collaboration or our own product, we never make enough, and I'm always complaining about that. But we really are trying to create a strong interest. And now you're starting to see whether that's us or the cycle, I don't know, but you are seeing like in the June Fashion Week, you saw a lot of skate shoes coming from various competitors.

We just announced the Valentino set of products that are going to -- they're going to sell out superfast. So I think that same dynamic that [Audio Gap] in Timberland before is happening here. Now I'm not going to promise it's going to happen in the same time frame. We'll see. But certainly, I do see some of the same things. And I also think really getting back and defining really who you are is so important. And I think we did that in Timberland in that first few months I got here. It took us a little longer on Vans. But I think we're about there now. And I think you'll see it start to flow through.

I'd say one other thing I would add, too, is Timberland has really done a really good job on the marketing side, too. Bracken mentioned before, leaning into social, leaning into sort of where sort of the young people are these days. And they've done a really, really good job of amplifying all the things Bracken talked about through marketing, which I think the other brands are getting there, but Timberland has probably been the forefront of that.

And my Altra question now. Can you talk -- I feel like I've heard you guys talk a little bit more about the brand of late on calls. You even mentioned it earlier in our conversation. Just what -- can you give us some more detail of the growth rate of Altra? Like how big can this brand be over time? How are you thinking about that?

I think it was 20% last quarter. I mean I think it's got -- I don't want to create a big expectation out there. I want to deliver a big expectation, but I don't want to create one. But I'm really excited about Altra. I think they're very -- we're the #1 trail running shoe. We're tied for #1, I think. We're one of the fastest growing, one of the 2 fastest-growing road running shoes. And we're -- I think we're in the top 10 to maybe even #8 or something. And yet the awareness is 8%, I believe, so either it's 8% or 10%, which means nobody knows about it. I mean most people in this room, if you've ever heard about Altra is probably from us.

So if you know you know, so if you're a trail runner, you do know. And it really impressed me when I came to the company that some of the first calls I got were from friends of mine who said, "Oh my gosh, you've got such a great brand." I said, which one are you talking about? I thought they were talking about Timberland or North Face or Vans. Altra. I said, what? What is it? I never heard of it. So now I do wear Altras and I am a big fan. I was -- I share it left, right and center. And I think Altra really does have a lot of potential. But we're going to walk -- I should say, we're going to walk before we run. We're going to run before we [ go ] crazy and keep growing this brand systematically, and I do think it has strong potential.

Yes. No. Trail run, especially overseas, if you get the brand over in Asia, I mean, there seems like there's a lot of tailwind there. I guess my last question is just we were talking about packs a year ago. We still -- I mean, is that brand going to stay in the portfolio? Do you need all 3 of the brands to have a meaningful presence in the category? How should we think about that?

I mean I don't think you would need all 3 brands to have a presence in the category. They're quite different. Two of them are really backpack brands and the other one is really centered on backpack. And the third one is really centered on luggage and travel and so on. But they work well together, and they deliver a really nice business. When I first came here, we were really marketing -- trying to sell the Packs business. And I didn't stop that when I got here, but I was like, woo, why aren't we doing that? Because it looks like such a nice business. I mean it's relatively small, but it's got very consistent growth, very profitable, nice cash generator. It doesn't interrupt all the other businesses.

It operates very independently in its own way. So unlike some of the other brands, it really does operate in a way that we can kind of fuel it by itself. It's in a category that seems like it's got a lot of potential, a lot of elastic potential. When you think about it, so few people carry -- I don't know, I can't remember the last time I saw anybody carry a briefcase.

And even purses look a lot like backpacks to me and a lot of women are carrying backpacks instead of purses or backpacks and purses. So it just feels like there's a lot of potential there to elevate. There's a lot of potential there to expand the number. It's a cool, fashionable item if you do it right. I think we do it right some of the time. We can do it right more of the time. So I think it's a great category. I have no interest in leaving that one. Great.

I think we did the whole portfolio in 30 minutes. So I think we did a good job. All right. Thank you, Bracken. Thank you, Paul.

Thank you.