Can VF Corp. reset its path to profitable growth amid escalating promotions?
Facing a heightened promotional environment amid elevated inventories in the marketplace, VF Corp. has rejiggered its near-term plans to drive higher revenue and profit in the second half of its fiscal year ending March 2023.
VF’s four core brands are Vans, The North Face, Timberland and Dickie’s. Its smaller brands include Supreme, Altra, SmartWool and Jansport.
“We’re taking a more cautious approach in planning profitability for the balance of our fiscal year,” said Matt Puckett, EVP and CFO, last week on VF’s second-quarter analyst call. “That said, we are proactively taking near-term actions to drive higher revenue and profit in our half two amidst the difficult and highly promotional environment.”
The steps include:
- Shared practices: Leveraging its roster of brands, VF is “sharing learnings across the organization” with a focus on amplifying digital marketing tactics to drive e-commerce. For instance, a key digital expert at The North Face, which is seeing strong growth, has been reassigned to lead digital at Vans, which has been struggling.
- Clearance through owned channels: VF will rebalance its own inventories through its own channels first, followed by “important strategic partners.” While VF sees inventories only higher-than-desired at Vans and Dickie’s, they are scaling them back across brands as a precaution against the worsening macroeconomic outlook.
- Early spring resets: For some outperforming brands, spring floor sets will be set earlier than normal to drive incremental revenue.
- Cost containment: VF will reduce all non-strategic controllable spend. In late August, the company eliminated about 600 office-based positions.
- Price increases: VF has also been raising prices to offset higher product costs.
VF maintained its sales guidance on a constant-dollar basis for the fiscal year but lowered its earnings per share guidance for the second time in a month and now projects adjusted operating margins to be approximately 11 percent, its lowest level in the last decade.
Mr. Puckett says he remains confident VF will reach its goal of a 15 percent operating margin by 2027, believing many current impacts, including promotional pressures tied to inventory imbalances, higher freight and storage costs tied to supply chain disruption and negative foreign currency headwinds are “transitory.”
- VF Corporation Reports Balanced Performance in Second Quarter and Revises Full Year Fiscal 2023 Outlook – VF Corp
- VF Corp. Q223 Transcript – VF Corp
DISCUSSION QUESTIONS: What do you think is key to preserving profitability in an environment marked by elevated promotions and inventories? Which of the actions VF is taking to drive profitable growth in coming quarters will likely be most beneficial?