Edited Transcript of VFC.N earnings conference call or presentation 15-May-20 12:30pm GMT

Joining me on today’s call will be VF’s Chairman, President and Chief Executive Officer, Steve Rendle; and Chief Financial Officer, Scott Roe. Following our prepared remarks, we’ll open the call for questions. Steve?

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Steven E. Rendle, V.F. Corporation – Executive Chairman, President & CEO [3]

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Thank you, Joe, and welcome, everyone. I hope my comments this morning find you and your family safe and healthy. Please bear with us today as we are all working from separate locations.

It is remarkable how quickly the world has changed since our last call just a few months ago. Through the first 10 months of the year, VF had a powerful momentum, tracking ahead of our long-range plan. And while COVID has profoundly impacted the world as well as our business for the last 2 months of our fiscal year, I’ve never been more confident in our people, our brands and our future. It’s times like these that serve as a purifying fire, separating the best companies from the rest.

We have prepared ourselves well for a time such as this. Our strong brands, our financial and supply chain disciplines, coupled with our fortress balance sheet, allows us to weather almost any storm. I’m confident that VF will emerge from this crisis in a position of strength, prepared to accelerate at a time when many are under tremendous financial strain and unable to adequately invest in their business.

And while COVID has appropriately been a dominant theme recently, let’s not forget that 2020 has been a year of significant accomplishments for VF. To name just a few: the move to Denver; the release of science-based targets in line with our commitment to sustainability; the successful spin-off of Kontoor Brands; and the announcement of our intent to sell the Occupational Workwear business.

Even with this exceptional activity, we were managing our way to a strong year. Through the first 3 quarters of fiscal ’20, we have delivered 9% organic revenue growth, more than 100 basis points of gross margin expansion and 19% organic earnings growth. Vans and The North Face, our 2 largest properties, were growing 17% and 9%, respectively, and our global D2C platform was growing at a double-digit rate, led by 20% digital growth.

So what’s giving me confidence about our future? First and foremost, our incredible community of associates: from our experienced leadership team actively managing this crisis, to our distribution center associates working tirelessly to enable our brands to continue serving their consumers. Words cannot fully express how thankful I am for the entire VF family and their infallible commitment to each other and our business.

Next, the nimbleness of our enterprise, which has demonstrated once again the ability to adapt and act with agility to protect our people, protect our enterprise and preserve liquidity and to quickly pivot to those priorities, which position us to emerge in an advantaged position. And I’m thankful that we have been aggressively transforming VF into a consumer-led, retail-centric, digitally focused enterprise.

This transformation, coupled with the renewed focus on the 3-lens approach to managing the portfolio, has honed our organizational focus and simplified our business model. Our ability to pivot in light of changing consumer and distribution environments through portfolio actions has been and will continue to be both a catalyst for growth as well as a hedge against risk. Our movement away from challenged distribution channels while focusing more deeply on the most attractive, addressable markets gives us a real advantage in an uncertain and fast-evolving world.

Finally, for the commitment across our organization to act as a purpose-led, performance-driven enterprise during a time of crisis. In addition to providing pay continuity to retail associates during the global lockdown and increasing hourly wages for our distribution center associates, VF has committed nearly $7 million in financial support and product donations across more than 20 different branded initiatives. And we’re in the process of producing up to 3.5 million pieces of urgently needed PPE for COVID-19 relief efforts.

Our most recent COVID-related actions are in addition to the ongoing efforts around our Made For Change initiatives, leading with science-based targets, focused on improving people’s lives and planet. Using the considerable scale and resources of VF for the betterment of both people and the planet are not just the right thing to do, it’s good business as we forge even deeper connections with our consumers during this time of crisis. Collectively, these characteristics position VF to not only weather this storm but to emerge as an even stronger, leaner, digitally oriented enterprise on the other side of the current pandemic.

In light of the current environment and the new world we find ourselves operating within, I’d like to spend a few minutes highlighting the key elements of how VF is managing the now as well as how we are approaching emergence from this crisis and how we intend to capitalize on the next.

Regarding the now, from the early days of the outbreak in China, we’ve taken a people-first approach in our COVID-19 response, prioritizing the health and safety of our people while also protecting their financial well-being. As my good friend and North Face athlete, Jimmy Chin told me, “All storms pass. It’s how you weather them that matters.” We have a bias for action and decisiveness to effectively manage this crisis, and I’m proud of the actions we’ve taken, guided by our values.

As we’ve implemented measures to care for and protect our people, we’ve also taken several key actions to advance our Enterprise Protection Strategy. These prudent actions have helped us preserve and enhance liquidity and given us more flexibility to manage our operations through a prolonged crisis. These actions have included: reducing discretionary spending and compensation across the VF senior leadership team and our Board; proactively executing a $3 billion bond offering to establish a significant cash buffer and ensure over $5 billion of near-term liquidity; implementing a thorough and rigorous review of current inventory and forward inventory commitments; suspending our share repurchase program; collaborating closely with our most important strategic partners across the value chain; and finally, proceeding with our previously announced divestiture of VF’s Occupational Workwear business as a potential source of additional cash.

One of VF’s greatest assets has always been our operational discipline and the rigor with which we manage our balance sheet. Today, that discipline and know-how are coming together to create a range of options for how we maintain and further bolster our position of strength, which Scott will cover shortly.

Turning to our brands, all of which remain focused on driving consumer connectivity and brand engagement during these unprecedented times. Our brand teams are, more than ever, using this unique opportunity to share best practices, key insights and learnings among our marketing and digital leaders to accelerate impact and efficiency. We have made a purposeful shift in our consumer engagement actions to employ greater empathy and compassion, connecting with consumers in the unique stay-at-home environment, we all find ourselves in. This strategic shift has resulted in stronger engagement and affinity, leading to higher consideration and conversion. I encourage you to explore our brand websites and social platforms to see this come to life: demonstrated in the North Face’s health care worker and first responder initiative, coupled with the “united to move the world” program; along with Vans’ Bouncing off the Walls campaign, shoebox challenge activation and Foot the Bill program; or Altra’s embrace space virtual workouts; and Timberland’s stay strong campaign. I’m proud of our brand’s ability to maintain strong emotional connectivity with our consumers despite this disruption in the world around us.

None of us knows exactly how the COVID-19 outbreak will change our world, but we’re already beginning to see signs of what is to come. Unfortunately, our brands and businesses are uniquely positioned to address certain evolutions in consumer behaviors and value systems. For example, we believe people will place greater value on exploring the outdoors after spending so much time in their homes. We believe there will be an increased commitment to personal well-being and active lifestyles with health becoming a major new priority. We believe people will have a greater appreciation for the frontline workers who keep others safe and the trades people who keep our world running. We believe there will be an elevated focus on environmental sustainability that will lead to a sharper focus on combating global climate change. And with online shopping serving as a lifeline for so many consumers around the world during the pandemic, we believe the proliferation of e-commerce will be significant.

Regardless of whether these changes are subtle or seismic, our brand teams are already working to connect even more intimately and meaningfully with consumers in a post-COVID world. Today, we’re preparing for this new future and positioning our brands to set the standard for what’s next.

The long-term strategy we’ve introduced in 2017 has repeatedly proven that we’re activating a powerful plan capable of delivering sustainable, high-quality growth and top-quartile returns, and I strongly believe that our strategy will be even more relevant in the years ahead. We’ve evolved and focused our strategy since it was introduced, but the key choices at the heart of it remain the same: driving and optimizing the portfolio; distorting investments toward Asia with a heightened focus on China; elevating D2C and digital; and finally, underpinning our strategy is the steady transformation of our business model to make VF more consumer-minded, retail-centric and hyper-digital in everything we do.

As we prepare for the next, our work is focused, amongst other things, on evolving our systems landscape and building better capabilities and tools to power our brands forward. It is focused on leveraging enterprise data and analytics with an emphasis on critical end-to-end data and digital capabilities to drive consumer engagement and loyalty. This will take on a new level of importance as digital activity and engagement continues to rise in a post-COVID world. We’re also working to become increasingly agile in how our teams work together, enabling us to move faster to seize opportunities whenever and wherever they exist. It will result in a more agile and efficient operating model and organization design through the lens of our consumer-minded, retail-centric, hyper-digital transformation.

Before passing the call over to Scott, I want to reiterate the deep gratitude I have for the incredible effort each of our 50,000 associates put in during this past year. Fiscal ’20 was an unprecedented year for many of our teams even before the pandemic hit. Spinning off Jeans business, relocating associates and their families to different cities and countries and now managing through the disruption of COVID-19 has been an extraordinary ask. Our associates have been tested to the extreme, and they’ve responded just as you would expect, with determination and a sharp focus on getting the job done.

But they did more than that. I’m so proud of the way our associates have rallied to help others in this time of great need, living out our purpose in a very real and meaningful way. It’s been truly humbling to see how our teams have answered the call in our communities, and it gives me great hope in our collective ability to overcome this moment together, driven by the power of human spirit.

It also gives me even greater confidence that VF corporation will be better on the other side of the COVID-19 crisis. I believe that truly purpose-led brands and companies will fare better than others when this situation is over because their decisions will be principled and based on values that consumers share. By continuing to foster a sense of community with our consumers during these trying times, we are positioning VF and our brands for a bright future.

And with that, I’ll turn it over to Scott.

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Scott A. Roe, V.F. Corporation – Executive VP & CFO [4]

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Thanks, Steve, and good morning, everyone. I’d like to start by echoing Steve’s comments as I, too, share a deep sense of gratitude for the leadership team and community of associates around the globe. Both Steve and I have been part of the VF family for more than 20 years. And while I have a deep understanding of the depth and unique capabilities resonant within VF, I am nonetheless humbled by the commitment and excellence that I’ve witnessed as this great company continues to rise to the occasion.

This exceptional group of people is taking actions to position VF to accelerate upon emergence from the crisis. The individual and collective efforts throughout every region, brand and function are nothing short of amazing. A sincere thank you to each one of you. It’s not just what you’re doing but how you’re doing it that inspires me personally. The commitment of our associates to each other and to the broader communities in which they work, while continuing to drive our business forward, embodies the core DNA of VF as a purpose-led, performance-driven enterprise.

Last fall, at our Investor Day in Beaver Creek, we introduced the topic of portfolio resiliency and specifically highlighted balance sheet and supply chain flexibility, fiscal discipline, diversification and investment optionality as core tenets. It received less focus at the time given the growth trajectory of our business and the economic backdrop at large. However, portfolio resiliency could not be more relevant for where we are today as we manage through what Steve referred to as the now. So I’d like to spend a few minutes providing insight and context for how we’re navigating the current environment.

Let’s start with balance sheet flexibility and fiscal discipline, a bedrock of VF’s 121-year-old legacy. VF entered this crisis with a fortress balance sheet and strong liquidity. Prior to the outbreak, our leverage was below 2x. We were on track to returning close to $2 billion to shareholders in fiscal 2020 through share repurchases and dividends, and we had significant dry powder to execute our M&A agenda. In year 1 of our long-range plan, we were tracking well against the goal to generate more than $8 billion of free cash flow over the next 5 years.

Just a handful of months later, the whole world changed. Revenue across our sector froze overnight, resulting in high rates of cash burn and disruption across the retail landscape. The capital markets remained open, but there were growing concerns about the ability for even high-quality companies, such as VF, to access committed lines of credit.

These are uncertain times, but in this moment of turmoil, we demonstrated both our willingness and our ability to tangibly build excess liquidity to weather the disruption caused by COVID for a prolonged period. With this in mind, we elected to raise $3 billion of longer-dated debt last month and fully repay our revolver, providing VF with more than $5 billion of immediate liquidity. While our recent actions may ultimately prove conservative, given the current uncertainty surrounding the retail sector, our actions are a clear testament of VF’s balance sheet flexibility and financial strength.

Moving to the second dimension of our portfolio resiliency, supply chain flexibility and operational rigor. The sophistication and scale of our global supply chain, coupled with our operational discipline, are hallmarks of VF and a source of competitive advantage, particularly during times of uncertainty and marketplace disruption. As the pandemic began to scale globally, our operational leaders mobilized quickly to thoroughly assess inventory on hand and in process, assess inventory positions of key retail partners and meaningfully reduce forward inventory purchase commitments through a rigorous and thoughtful demand-supply matching process. We maintain an active and transparent dialogue with our key partners and strategic suppliers as we work together on forward purchase commitments and product assortments. We also remain in active conversations with our key retail partners as we collaborate on a thoughtful plan to clear excess inventory moving forward and the appropriate level of future inventory purchases considering the current environment.

Throughout these conversations, our focus is undeniably on the long-term health and sustainability of VF, our brands and our partners. And while many of these conversations are difficult, we have not strayed from our core values, approaching each discussion with honesty, transparency and integrity. Yet another example of how our enterprise-scale, supply chain flexibility, fiscal discipline and financial capacity, coupled with our deep-rooted history of treating each stakeholder ethically, can position VF to emerge from this crisis in an advantaged position.

Turning to the third dimension of portfolio resiliency, investment optionality. Optionality applies to both capital allocation as well as investment spending, both capital and expense. Our short-term capital allocation priorities have changed. While share repurchases remain a key element of our long-term plan, we are taking actions to preserve liquidity and have decided to suspend our share repo program for the time being. We do, however, remain committed to our dividend, of course, subject to Board approval. Our dividend has and will remain an integral part of our TSR algorithm over the long-term, and the recent actions we’ve taken to shore up liquidity give testament to our ability to continue to support the dividend.

Regarding investment spending, we have selectively reduced discretionary spending and CapEx in light of the current environment. We have focused our remaining investments on the aspects of our strategy that we believe will be even more important growth drivers in a post-COVID world: specifically D2C and digital, including digitally focused demand creation and technology. And while it’s still very early days, our April results support the general belief that digital commerce will only increase in importance.

And finally, we are reexamining all structural overhead in light of a rapidly changing world. Historical analog support structures are being reimagined in a hyper-digital future. These actions will simplify the business model and increase agility, necessary traits in this fast-evolving marketplace.

So wrapping up the concept of optionality, I will front run a topic I know is on any of your minds, M&A. First, with regard to our Occupational Work business, we’re proceeding with our sale process. As I’m sure you’ve noticed in our release, this business has qualified for held-for-sale, discontinued operations accounting treatment. We remain in active conversations with prospective buyers and are confident we have a transaction completed during this fiscal year. We will keep you apprised as the process unfolds in the coming months.

With that said, while the strategic rationale for the divestiture is unchanged. There is no urgency to sell these assets from a financial standpoint. As is always the case, a material deterioration in market conditions could impact the ultimate timing of a transaction.

As it relates to potential acquisitions, we continue to actively assess strategic opportunities and believe the disruption caused by COVID could lead to an increase in M&A activity and the availability of attractive assets. While our first priority remains stabilizing our organic business, we are well positioned from a liquidity standpoint to pivot to an offensive posture when prudent.

M&A remains our top capital allocation and strategic priority on a medium to long-term basis. The disruption underway across our sector will undoubtedly provide ample opportunities for strong companies with demonstrated M&A capabilities to create significant shareholder value through inorganic growth.

The final element of portfolio resiliency I’d like to highlight is that of diversification. As companies across the globe report earnings, we are reminded of the advantage of running a global enterprise during this crisis. The ability to extract learnings from reopening protocols, traffic trends and consumer behaviors in our APAC region allows us to be more informed in planning for the ensuing recovery across other regions. It also gives us a several-month head start compared to mono-geography companies.

Our diversified channel footprint has also been critical, most notably our digital business. While our owned D2C digital platform is about 12% of revenue today, our total digital footprint, including digital wholesale, is closer to 20% of the business. The ability to keep these channels open during this lockdown period has been critical in our ability to continually engage with our consumers. And recent trends suggest significant growth in the digital channels are likely to mitigate some of the brick-and-mortar short calls, although it’s too early to understand fully how this will evolve.

I want to conclude my comments on diversification by directly addressing our wholesale footprint in light of the heightened disruption we see underway in certain segments of the distribution landscape. Considering our digital wholesale and international partnership stores, roughly half of our business today is D2C and consumer facing. Of the remaining wholesale business, roughly half is through international wholesale, which was healthy and growing heading into the crisis and remains well positioned. In U.S. wholesale, which represents about 25% of total revenue, we have dramatically reduced exposure to the more structurally challenged mid-tier and department store channels, which now represent less than 5% of VF revenue in fiscal ’20. The largest portion of our U.S. brick-and-mortar wholesale business sits in what we call specialty, which is primarily comprised of differentiated, healthy outdoor, active and athletic retailers. Most of these retailers have healthy and growing digital businesses of their own. Our key accounts entered this crisis strong, and we are actively working with our partners to emerge from this crisis stronger together.

So to summarize, I’m confident that our balance sheet and liquidity positioning, investment optionality, supply chain flexibility and portfolio diversification position VF with the capacity to navigate the current environment and provide us with the ammunition to drive accelerated growth and returns as we begin to emerge from COVID. Our diversified TSR model with a strong commitment to the dividend, coupled with both organic and inorganic optionality delivers a unique and balanced value creation model.

So now moving on to our fundamentals and recent business performance. Our business was showing strong momentum heading into the final months of our fiscal year as evidenced by 9% organic revenue growth and 19% organic earnings growth during the first 3 quarters of fiscal 2020. The fourth quarter, however, marked a profound change in conditions. Our Asia business was essentially shut down for 2 weeks, our European business was closed anywhere from 2 to 3 weeks, and our North American business was closed the final 2 weeks of the quarter. Unsurprisingly, our results for the fourth quarter reflect the operational impacts of the disruption just outlined.

Despite this disruption, we’re encouraged by the trends we experienced in our digital business during the quarter, which remained operational in all 3 regions. On a global basis, Vans, The North face, Dickies and our emerging brands grew — all grew double digits. EMEA generated low-teen digital growth led by more than 40% growth at The North Face. EMEA’s digital business declined over 20% in the month of March, but reaccelerated to high-teens growth in April, led by triple-digit growth in The North Face.

The APAC region generated 19% digital growth, led by more than 20% growth in China, driven by strength at Vans and Dickies. Our digital trends in APAC were essentially a month ahead of EMEA with a significant decline in February, followed by a sharp rebound in March. With growth of more than 30%, led by vans and dickies. In April, digital normalized somewhat with growth in the high teens. The digital business in Americas grew at a low single-digit rate during Q4 as strength in Vans was offset by softer trends at The North Face. Following modest declines in February and March, we’ve experienced a sharp recovery in April, which has continued into May, with triple-digit growth, driven by broad-based strength across the Big 4 brands. And while it’s too early to draw strong conclusions from our quarter-to-date performance, we are encouraged by the relative consistent phasing of the recovery curves across regions to date.

As you saw in the release this morning, due to the current marketplace uncertainties, we’re not providing a formal fiscal 2021 outlook at this time. However, I can share with you how we expect our business to evolve over the course of the coming year across our 3 geographic regions and the approach we’re taking to planning our business.

Through the remainder of the first quarter, we expect North America and EMEA to begin to reopen, and we expect continued steady improvement in the APAC region. We anticipate disruption across the distribution landscape, resulting in a highly promotional marketplace. We expect high-teen inventory growth in the first quarter followed by lower inventory levels on a year-over-year basis as we move through the balance of the year.

Moving into our second quarter, we expect to see sequential improvement in North America and EMEA but expect both regions to decline significantly on a year-over-year basis. We expect our APAC region to continue to accelerate. We believe promotional activity will likely remain elevated and expect disruption across the distribution landscape to continue. By the third quarter, we believe our APAC business will begin to return to a more normalized growth alongside a stabilizing North America and European marketplace as we enter the fall holiday season. We believe continued promotional activity is likely. We expect our North America and EMEA businesses to return to modest growth by the end of our fiscal year with APAC returning to more normalized growth. We believe the promotional environment will begin to moderate as the impacts of excess inventory and retail consolidation begin to stabilize.

Underlying the expected evolution of our business just outlined is an acceleration of our hyper-digital transformation. As we look ahead, digital will become even more central to VF’s growth and success. Our fiscal ’21 investments in digital transformation, which represent about 80% of all planned strategic investment for the fiscal year, offer a springboard of how we will leap into a more advantaged future. I look forward to sharing more details as the year unfolds.

Given the recovery expectations just outlined and the visibility we have into the current quarter, we expect revenue in the first quarter of fiscal 2021 to be down slightly more than 50%. For the full year, we expect to deliver at least $600 million of free cash flow through a combination of operating earnings, working capital management and lower CapEx. I we believe this supports a year-end liquidity position of at least $5 billion with over $3 billion of cash on hand and a net leverage ratio below 3x. These numbers exclude the potential proceeds from our Occupational Work divestiture, which could provide an additional source of liquidity.

So in closing, VF has navigated many crises over our 121-year history and have demonstrated willingness and ability to evolve our portfolio and strategy to stay relevant as consumer behaviors and the marketplace evolve. There is no question that the COVID-19 disruption will have lasting impacts on our sector. There will be retail casualties. This will accelerate industry consolidation. This will likely accelerate category trends, which we believe will benefit from activity-based lifestyle brands. We are witnessing the acceleration of digital commerce and the critical importance of direct consumer engagement. We also believe this environment will shine an even brighter light on corporate values and highlight the importance of purpose-led enterprises.

Ultimately, we believe what we’re witnessing right now is an acceleration of underlying trends, which were forming before the crisis hit; further supporting our consumer-minded, retail-centric, hyper-digital strategy; further supporting our portfolio reshaping efforts from the past 3 years; and further supporting our portfolio focus towards activity-based lifestyle brands in large, growing and structurally attractive addressable markets. The building blocks of our long-term, strategic plan are unchanged, but the pace of market and consumer evolution will undoubtedly accelerate.

Fortunately, we’ve been moving down a path to transformation to this new reality for several years using portfolio moves as a catalyst. We will continue to focus our key, strategic choices around the transformation to our retail-centric, digitally led enterprise. The combination of all these levers, coupled with a diversified TSR model, will place VF in an advantaged position.

So with that, we’ll turn the call back to the operator and take your questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question today is coming from Robert Drbul from Guggenheim Securities.

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Robert Scott Drbul, Guggenheim Securities, LLC, Research Division – Senior MD [2]

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I guess just I was wondering if you could spend a little more time on inventory levels, I guess, by brand. And I was just wondering if you could maybe explain a little better in terms of your plans of, through the promotional environment, whether you would pack stuff away, maybe use of off-price. Just the different approaches you might take in terms of the level of promotion to sort of get the supply-demand imbalance in the coming quarters.

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Scott A. Roe, V.F. Corporation – Executive VP & CFO [3]

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Sure, Bob. Scott, speaking. I’ll take that one. So we’ve gone through, as you can imagine, a really rigorous process, demand and supply match. And as we’ve looked at forward demand signals, order books — and this varies a bit depending on the brand and the geography. But in general, we’re seeing forward order books, fall, winter, that are down in that 20% to 30% range, excluding APAC, which, of course, is ahead from a recovery standpoint. And so what we’ve done is we’ve — even from a buy standpoint, gone even a little more aggressive than that, below that. Because our goal here, Bob, is to both make sure we have the right assortments and enough newness on the floor as we go through ’20 — I’m sorry, fiscal ’21. But more importantly, we want to exit this year in a point of equilibrium from an inventory standpoint. And that means both our own inventory and inventory at retail.

So as a result, what we’re doing is we’re looking at the inventory that we own. We’re aggressively taking, I would say, market-appropriate discounting to try to clear excess inventory, and we expect that to continue through the balance of the year. But we’re also looking at building assortments that ensure we have enough newness, and at the same time, being a little more aggressive on the carryover side of the business in order to make sure that as we exit this year, our inventories are back in line.

That varies by brands. If you think about our largest brand, Vans, we have relatively less seasonal goods. As you think about The North Face, there’s relatively more. So in some cases, we’re looking at holding inventory and building those assortments and reducing forward buys. This is also where our outlets really come into play. We reduce our forward buys for outlets and use the goods that we have on hand from a merchandising standpoint. So hopefully, that gives you some shape of how we’re thinking about inventory in the situation.

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Operator [4]

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(Operator Instructions) Our next question today is coming from Omar Saad from Evercore ISI.

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Omar Regis Saad, Evercore ISI Institutional Equities, Research Division – Senior MD and Head of Softlines, Luxury & Department Stores Team [5]

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I would love more detail on the digital platform you’re building. I know you’re talking a lot about e-commerce and digital, and the information you provided around penetration rates is also really helpful. But specifically, where are you on apps, loyalty programs, data analytical capabilities and also on omnichannel BOPUS. If we remain — even if stores open, if we remain in a subdued traffic environment, being able to offer the consumer inventory across channels and touch points that maybe they don’t want to go and spend the time in a store shopping, where are you on your capabilities for kind of omnichannel inventory management and, broadly speaking on digital. I know it’s a focus, but dive in a little bit deeper there for us.

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Steven E. Rendle, V.F. Corporation – Executive Chairman, President & CEO [6]

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Omar, this is Steve. I’ll start. I’d tell you, the one thing that we’re — one of the things we’re most happy about is this transformation that we’ve been putting in place the last 2 years and really increasing our focus on our digital platform, our digital capabilities and our consumer-facing information around our data platform. So where we are is a strong position, and we’re continuing to invest in our digital platform, specifically just ease of shopping, different purchase and checkout capabilities, doubling down on our mobile and, to your point, on apps. It’s an area of great opportunity for us, and you can see both Vans and North Face do use those to some degree. But that’s an area where we’re going to double down and invest.

Our loyalty program, our Vans business, is now up over 12 million. And our North Face business is somewhere in the, I think, 7 million to 8 million consumers in their loyalty program. And it’s that level of information that’s giving us insights into where our consumers are, what they’re expecting and how should we be engaging with them. And we’ll continue to build our consumer data platform and analytics capability to be able to really get closer, build greater engagement and affinity.

We’ve pivoted quite a bit on our kind of buy online, pick up in store, how we’re thinking about buy online, return to store. And then this new notion of buy online, pick up at curb. That was not something we had in our toolkit a month ago. And in the next 2 weeks, we’ll be standing that up, not only here in North America, but in Europe. So the one thing that gives me so much confidence is the agility that our organization is showing, our digital and technology team. Where we’ve made significant investment in people and capabilities is strengthening us in this time where consumers are pivoted so strongly towards engaging with brands online, not just on the content, but as we’ve seen, significant growth in our online sales, April and month-to-date. We’re in a really good position, and I couldn’t be happier with our decision 3 years ago to make this pivot to be more consumer-minded, retail-centric and hyper-digital in everything we do.

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Omar Regis Saad, Evercore ISI Institutional Equities, Research Division – Senior MD and Head of Softlines, Luxury & Department Stores Team [7]

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And then one quick follow-up, Steve.

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Scott A. Roe, V.F. Corporation – Executive VP & CFO [8]

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Yes, I know. But just real quick. Can you hear me?

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Omar Regis Saad, Evercore ISI Institutional Equities, Research Division – Senior MD and Head of Softlines, Luxury & Department Stores Team [9]

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Sure, Scott.

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Scott A. Roe, V.F. Corporation – Executive VP & CFO [10]

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Yes. So I just wanted to say — just to reiterate what Steve said, we talked about focused investments. This is an area where we’re not pulling back, right? We’re continuing to prioritize on our investments here. So could we see more short-term profitability by cutting expenses such as this? Yes, we could. But this is an area where we’re maintaining our investment, doubling down.

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Omar Regis Saad, Evercore ISI Institutional Equities, Research Division – Senior MD and Head of Softlines, Luxury & Department Stores Team [11]

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One quick follow-up. Where do you — have you said where you see that kind of 20% overall penetration could go? And then is your digital capability, is that important when you’re in discussion with potential acquisition candidates, the digital prowess you can bring to their brand franchises?

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Steven E. Rendle, V.F. Corporation – Executive Chairman, President & CEO [12]

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Remind me, Joe, I don’t think we’ve stated where we think it will go. That 20% is not — is both our own as well as our wholesale digital partners. But that is where all of the energy is certainly pivoting from a consumer standpoint, and we see that becoming a much more significant part of our go-to-market strategy.

When we think about acquisitions, certainly, brands that would have this capability within the addressable markets that we’ve talked about would be certainly an advantage that we would be looking for. But we’re also looking at partnerships that would bring enhanced skills, capabilities in the area of data and different parts of the analytics toolkit that we would like to get quicker time to value.

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Operator [13]

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Our next question today is coming from Michael Binetti from Crédit Suisse.

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Michael Charles Binetti, Crédit Suisse AG, Research Division – Research Analyst [14]

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I want to ask a little bit on the detail on some of the slides around Vans in the D2C trends you laid out for the business in total here. I guess on the — for the Americas D2C number in February, I know the month was warm. I know you have a lot of cold weather businesses. Could you speak to how much of the D2C comps you saw there were due to mix of North Face and Timberland? And then maybe just a little bit of color on how Vans D2C is trending in the Americas as we start to emerge here in this quarter.

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Steven E. Rendle, V.F. Corporation – Executive Chairman, President & CEO [15]

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Yes. Scott, you want to grab that?

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Scott A. Roe, V.F. Corporation – Executive VP & CFO [16]

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Yes, sure. So I guess the last part of your question first, Michael. The trends have been very strong. And we laid that out in some of the pre materials that we released. Particularly in April, we’ve seen a big surge in our online business. In fact, we’re seeing triple digits across several of our brands in different regions. So whether this trend continues, don’t know. But it’s very encouraging to see that — the significant uptick.

And I guess, Michael, help me with your question around Vans specifically.

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Michael Charles Binetti, Crédit Suisse AG, Research Division – Research Analyst [17]

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Yes. Well, I know Vans had some — was growing at extremely high-growth rates for a few years. It slowed a bit in the December quarter. And then we don’t have specific Vans pieces to look at here through January and February. But the Vans — I’m sorry, the total comps you provided in North America in February, I’m wondering how much that was impacted by some of the weather brands? See, I know it was a warm month. I’m trying to figure out how to think about what Vans is doing before February.

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Scott A. Roe, V.F. Corporation – Executive VP & CFO [18]

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Yes, I understand it. I understand your question. So one thing is, remember, one thing we look in our owned business is the multiyear stack, and you’re up against massive numbers in Vans a year ago. And we also talked about the soft landing of Vans. So while it’s still impressive, it has moderated, I would say, but more to a level that’s in line with our long-term expectations. But you’re right in what you’re probing at. As we look at the colder weather brands, you’re seeing a bit of a drag there.

And for the issues that we talked about, remember, coming into — or leaving Q3 and coming into the fall holiday, we said, as a general statement, we were a little late and not as deep from a promotional standpoint. And our intention was to increase. We were losing some business in our own dot-com based on more attractive pricing for similar products and other — in competing channels. And so we did address that, and we did see that trend, in a pre-COVID basis, start to really accelerate as we both became more competitive and also, were moving a lot of inventory, frankly, through the channel from a pre-COVID standpoint. And then once COVID hit, of course, all the numbers get a little difficult.

But the encouraging thing to us is all brands, cold weather, Vans, all of them, we’ve seen a material acceleration in the month of April and so far, continuing into May. Again, I’m always cautious to say early days, let’s see where this goes. But the green shoots we’re seeing there are encouraging.

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Steven E. Rendle, V.F. Corporation – Executive Chairman, President & CEO [19]

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And Michael, I would add real — I’d add just a couple of things real quick. As we — Vans had a good quarter, but what’s really — and kind of giving us greater confidence is where we stand April and May. And I know you guys watch quite a bit of what goes on with our brands online. But we’ve spent a lot of time shifting our message to our consumers, getting much more empathetic and really trying to meet our consumers with where they are in this stay-at-home environment that we’re all living in and really changing our messaging, much more purpose-led. In case of Vans, they’ve really upped the content around creativity. I don’t know if you’ve seen anything about the shoebox challenge, but the submits coming in from our consumers, the user-generated content that we’re able to grab from this. But really, that greater connectivity and affinity. Our April and May digital results are up really, really strong and giving us confidence that this will be a continued growth vector for Vans as we wait for our stores to come back online in the coming months.

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Michael Charles Binetti, Crédit Suisse AG, Research Division – Research Analyst [20]

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I guess, if I could just get one more in there. As we — I know we’ve talked about before COVID, Vans margins were obviously, very, very good. Lower mid-20s is I think the way you guys have talked about them at the Analyst Day for Vans a few years ago. How did e-commerce margins compare to the overall brand margin since that’s going to be a bigger focus going forward? And maybe how do the lower volumes impact the Vans D2C EBIT margins?

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Scott A. Roe, V.F. Corporation – Executive VP & CFO [21]

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Yes. So as we, I think, said fairly consistently, Michael, the margins, both gross margins are going to be similar to what we see in our D2C channel. But without the 4-wall costs and just the lock approach to that, at least in our business, that dilution not really being a significant factor. It’s our most profitable channel. So as we see the move to digital, that’s a good thing from a mix standpoint, from a profitability standpoint.

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Operator [22]

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Our next question is coming from Jonathan Komp from Baird.

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Jonathan Robert Komp, Robert W. Baird & Co. Incorporated, Research Division – Senior Research Analyst [23]

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A bit of a follow-up question, but I want to just understand. All the detail of how you see the geographies recovering was very helpful. I’m curious at least maybe directionally, how you think about that across your brand and just thinking differences of a Vans, which has been strong and lots of momentum, versus a Timberland, which has been the opposite side of the spectrum. Any thoughts you’re willing to share kind of looking forward on a relative basis?

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Scott A. Roe, V.F. Corporation – Executive VP & CFO [24]

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So Jonathan, sorry…

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Steven E. Rendle, V.F. Corporation – Executive Chairman, President & CEO [25]

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Yes. Go ahead, Scott.

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Scott A. Roe, V.F. Corporation – Executive VP & CFO [26]

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I was just going to clarify your question. So you’re talking about anything different by brand, by geography, anything unique. Is that — I just wanted to understand the question.

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Jonathan Robert Komp, Robert W. Baird & Co. Incorporated, Research Division – Senior Research Analyst [27]

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Yes, not quite that broad but more trying to understand how you’re thinking about the ability for the various brands to recover in a similar scenario that you laid out from a geographic standpoint, just thinking about the big brands, how you’re looking as you go ahead.

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Scott A. Roe, V.F. Corporation – Executive VP & CFO [28]

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Got you. Got you.

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Steven E. Rendle, V.F. Corporation – Executive Chairman, President & CEO [29]

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Sure. So I’ll start, Scott. I think as you see, our Asia business is back up and running. All of our stores are open. Our partnership stores are open. And our digital business is performing extremely well. We are seeing consumer traffic improve week over week, but it is down over last year. But the results we see really are across each of our brands, finding unique ways to connect with consumers, be it online. We’re doing virtual shopping events. Our Dickies brand has been real innovative in how they’re thinking about connecting the virtual to the store. Those learnings are helping us understand how to activate in Europe and America as these markets come back on and we’re back up with about 40% of our stores in Europe today. We have had our digital wholesale partners working with us since the onset of the COVID crisis continue to see really solid growth with them across our full brand portfolio, so really not one brand overachieving. I would tell you, our North Face business is probably the strongest in their online connectivity. And here in the Americas, we are preparing to open our stores and expect to have stores open in 5 states next week. And our D2C brands, specifically Vans, North Face, Timberland, to a lesser degree, will benefit from that.

But what’s interesting, to my earlier point on the pivot on how we’ve shifted our marketing and the messaging and our connectivity. Our Timberland business has seen exceptional growth through April and month-to-date here online. And we find that actually extremely positive as we now — we do know the consumers are engaged with us. They’re extremely interested in the messaging as well as the products that we’re offering. And I think we see really a universal growth across our portfolio as we have much more sharing and collaboration on the different approaches, different tactics that have worked first in China, and we’ll bring that across each of the other regions.

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Scott A. Roe, V.F. Corporation – Executive VP & CFO [30]

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Yes. I’d just add, Jonathan, as you think about China, we said it in our prepared remarks, we had the advantage of a couple of months’ head start to see how consumers are reacting and what emergence looks like. And as we looked at our China business returning to growth, very broad-based and widespread across the month of April. So really encouraging sign, and that’s really the basis for how we’re trying to understand what this progression looks like as we think about the Europe and North American regions as well.

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Jonathan Robert Komp, Robert W. Baird & Co. Incorporated, Research Division – Senior Research Analyst [31]

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Okay. And maybe just one follow-up on more of the expense side and protecting margin. I understand the thoughtful and unique approach that you’re taking, protecting the state of the organization. I guess I just want to understand, if we think about the next several quarters still having pretty significant top line pressure, any thoughts on how kind of the downside flow through on the EBIT line might look relative to what you had in the March quarter here?

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Scott A. Roe, V.F. Corporation – Executive VP & CFO [32]

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Again, I’m not giving specific guidance, but a couple of things I can say. So as you think about gross margin, in particular, I think I mentioned earlier, we will see some promotional activity as we work on moving through the inventory in the channel. So you think about the puts and takes, the structural mix benefit we think will be there for the long term and for next year, remember, we have — from an FX standpoint, the benefit we saw from a hedging standpoint rolls off next year. So you’ve got to put a take there. And then promotional activity, as we saw in that evolution, will be elevated we think pretty much through the balance of the year. So that’s got a little bit of pressure from a gross margin standpoint as you think about next year, not structural, not ongoing. This is more episodic as we deal through this issue. But in the next quarters, we would expect some pressure from that standpoint.

And as you think about earnings, again, we gave you a little bit of shape of how the evolution looks, especially from a top line standpoint. I’d just remind you of a couple of things. We talked about more than $600 million of free cash flow in — as you looked at that cash evolution walk in the materials. We also mentioned reduced CapEx. And just a reference point, we’ve talked about maintenance CapEx being in that 2% range, 2% of sales. We’ve talked about aggressive inventory management, which you can assume means that from a working capital standpoint, we should see some benefit. And the remainder of that, of course, is earnings. So that doesn’t give you everything, but that will at least get you in the ZIP code as you think about how we are viewing the flow through.

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Operator [33]

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Our next question is coming from Jim Duffy from Stifel.

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James Vincent Duffy, Stifel, Nicolaus & Company, Incorporated, Research Division – MD [34]

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Difficult times, no doubt, but clearly, the strategy from 8 months ago seems even more relevant today. I have a few questions on the digital business. First, can you speak about the changing economics you’re seeing with digital demand creation? What are the changes you’re seeing in ad rates and conversion rates with store closed? And then the triple-digit North American digital growth seems to be outpacing the digital growth in other regions. Are there things that are more evolved in the North American digital business that can be accelerated in EMEA and APAC?

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Steven E. Rendle, V.F. Corporation – Executive Chairman, President & CEO [35]

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Yes, I’ll go ahead and — I don’t think we have the — our ad rates, but let me just start real high level, Jim. We’ve pivoted our marketing and used a zero-based budgeting approach to how we deploy our ad dollars and pivoted all of the dollars towards more digital tactics. And clearly, that’s having significant benefits to our e-commerce trend at this point.

We’ve seen traffic up but what we’ve seen even more so is conversion. As we are engaging consumers, great examples are — is just the level of dwell that we see our Vans business with the shoebox challenge, the people coming online to create a pair of custom shoes to contribute back to Foot the Bill program that they have to support their specialty. So really looking at very different ways, improving content, improving just different programs, things to entice consumers in to participate with us.

Our North Face business, where we’ve probably seen the most exceptional growth over the last 3, 4 weeks, their program to support the frontline workers, specifically medical workers, has brought a tremendous increase in traffic. I think we have something like 89% of our traffic are new consumers and a very high concentration of females. Giving the brand just additional people to speak to, connect to. And really, we’re not driving transaction as much as we’re driving connection, engagement and affinity and bringing you through that funnel, when and if you’re available, but really focused on building that much, much stronger engagement for a longer-term benefit.

Our growth here in the U.S. is stronger, that’s true. But our growth in Europe and Asia is right in line with where we would expect to be, and we are deploying the same tactics that we’re using here and seeing that strong engagement and really looking to build that long-term affinity and continue to draw consumers into our different digital platforms.

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Operator [36]

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Our next question is coming from Erinn Murphy from Piper Sandler.

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Erinn Elisabeth Murphy, Piper Sandler & Co., Research Division – MD & Senior Research Analyst [37]

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Just 2 for me. As you guys reopen stores, I’m curious if there’s added costs that you need within your own stores just to ensure that the shopping experience is safe. And then what do you expect — or how do you expect your staffing requirements to change within stores? And then the second question around product launches for fiscal 2021, I’m just curious if you’ve had to make any shift this year or in connect, just given the current environment?

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Steven E. Rendle, V.F. Corporation – Executive Chairman, President & CEO [38]

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Yes. Erinn, I’ll start. Scott can certainly fill in the blanks here. We are very ready to begin to open our stores. As I mentioned, our stores are open in China. We’ve begun to open stores in Europe, and we’re preparing here in the United States. Our playbook that we’ve been able to develop in China over the last 4 or 5 weeks is giving us a really good understanding of just what we need to be doing to assure consumers are comfortable. But equally important is that our staff feels comfortable in this new environment.

So there are some increased costs associated with bringing that security around, proper sanitation, the proper PPE for people to be using. We have remerchandised our stores to get that proper social distancing. And we’re not — our traffic is not what it normally is, so our staffing levels are adjusting accordingly to make sure we’ve got the right people, right level of service and really providing that personal one-to-one engagement. And what’s really, really gratifying is the feedback we’re getting from our consumers as we open is just a high degree of confidence. And they’re really thankful that we’re there and enjoying the opportunity to get out and engage in a very safe environment.

And the second half of your question, Erinn, if you could repeat that for me?

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Scott A. Roe, V.F. Corporation – Executive VP & CFO [39]

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It was around product…

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Erinn Elisabeth Murphy, Piper Sandler & Co., Research Division – MD & Senior Research Analyst [40]

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It was just on innovation, just product launches, yes.

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Steven E. Rendle, V.F. Corporation – Executive Chairman, President & CEO [41]

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Product launches?

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Erinn Elisabeth Murphy, Piper Sandler & Co., Research Division – MD & Senior Research Analyst [42]

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Just so has there been any change? Have you had to change your forecast in terms of when you’re launching products this year just given COVID-19 and some of the impact it’s had on your inventory buys?

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Steven E. Rendle, V.F. Corporation – Executive Chairman, President & CEO [43]

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Yes. No. Thank you. No, really, if anything, it’s heightened the need to be much more retail-centric in how we think and operate our stores. And this is a big part of our transformation, the level of newness and the frequency of new reasons to engage, be it in store, online. I mentioned some of the virtual shopping tests that our Dickie’s team has been doing in China, looking really for weekly reasons to engage with us. So our product offer, our new product release and collab schedules stay very much intact. And to Scott’s earlier comment around the thoughtful management of forward buys and looking at our on-hand inventory, that has been done with the same eye to assuring that we have open to buy available for the right level of newness flowing into each of our brands, be it through our own D2C or with our wholesale partners as that begins to open as well.

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Scott A. Roe, V.F. Corporation – Executive VP & CFO [44]

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Can I just add one thing, Erinn, that Steve asked every day, what — do we have enough newness. There’s an intense focus on newness. There’s another good by-product of this process that we’re going through as we’re transforming the retail-centric, retail-first mindset, is also the reduction in SKUs. The offers are tighter very much from a perspective of our own retail stores, our own digital environment and how that then applies to our wholesale partners. So a lot of the rigor and discipline and focus has been on both newness and ensuring that we have a very tight assortment that makes sense from a retail environment. So there’s actually a good by-product of the added discipline that comes with this constrained environment.

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Operator [45]

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Our next question today is coming from Adrienne Yih from Barclays.

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Adrienne Eugenia Yih-Tennant, Barclays Bank PLC, Research Division – MD, Senior eCommerce & Brand Retailing Analyst [46]

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Great. Steve, I guess my first question is really sort of like more big-picture thematic. Outside the obvious shift to digital, what are the other secular consumer behaviors that you’re seeing or foresee emerging post COVID? And then how does each of the 4-pillar brands stand to gain in that environment? And then, Scott, my follow-up, well, my follow-up will be on gross margin, actually.

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Steven E. Rendle, V.F. Corporation – Executive Chairman, President & CEO [47]

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So great question. Clearly, the comments, the conversations we’ve been having about the immediate uptick in digital demand and digital connectivity. In addition to that, things that we’re seeing through our analytics and conversations with consumers are some really interesting trends and trends that our portfolio is extremely well aligned against. I think one would be this appreciation for the outdoors. As people are staying at home, as people are less apt to be thinking about travel outside of their — be it their home city or home state, this connection with the outdoors and getting back into outdoor activity nearby the house is probably one of the most significant trends, coupled with health and well-being. And we’re seeing this coming out loud and clear in China with people just very focused on their individual health, the health of the climate. And clearly, our purpose-led vision and the focus of our portfolio is very strong there.

We see actually a lot of interest in supporting the frontline workers across the globe. And the work that our Dickies brand has been doing, the commitment of 3.5 million pieces of PPE for medical workers here in the states as well as supporting those workers that are keeping the infrastructure up and running. We’ve seen tremendous interest in supporting, and our Dickies business is reacting extremely well. So those trends across the outdoor, health and well-being, focus on the climate could not be more in line with our portfolio, the reshaping we’ve been doing the last 3 years. But also our deep commitment to being purpose-led, performance-driven as our way of creating value for our shareholders.

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Adrienne Eugenia Yih-Tennant, Barclays Bank PLC, Research Division – MD, Senior eCommerce & Brand Retailing Analyst [48]

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Great. That’s very helpful. So Scott, just to — kind of digging in a little bit deeper on the patterning of the gross margin. In which quarter — obviously, there’s pressure from promotions certainly once stores open. And then as the channel partners start to liquidate inventory in the fall season, I suppose, when do you see sort of the deepest hit to gross margin, which of those quarters? Is it the September quarter? It sounds like inventory gets a little bit better.

And then in what format does it take? I understand like at your own D2C, you’ll be competing on price at retail. But are you giving more vendor allowances? Are you giving lower cost on the outset as you forward book 6 months out?

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Scott A. Roe, V.F. Corporation – Executive VP & CFO [49]

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Yes. So in terms of the shaping — and you can get some of this in the prepared materials. We talked a little bit about the promotional environment. But for sure, in the first half, you’ll see more pressure, and you’ll see that start to moderate as you move through the year, although elevated for the full year, more pressure in the first half.

In terms of tactics, we’ve got a wide range of options. And I won’t go into too much specifics, but generally, it’s partnering with key accounts and looking at — from discounting, gross-to-net markdowns, et cetera. On a limited basis, generally, that’s how we tend to focus as opposed to wholesale returns or things like that. Those are more of the tactics we use.

But one of the best weapons that we have is our outlet network. And we learned some hard lessons in the past about dumping a bunch of goods into the off-price market, third-party off-price, and you won’t see us doing that. That’s not to say we don’t use these channels. They’re good partners and they’re effective ways, within reason, to clear goods. But the majority of this is going to be working with key accounts. It’s going to be in our own digital dot-com, and our biggest weapon, as I said, is our outlets. And that’s where, in a brand-appropriate way, we can dispose of a lot of inventory without causing channel conflicts or having things that boomerang back on us in the broader marketplace.

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Operator [50]

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Ladies and gentlemen, in the interest of time, our final question today comes from Camilo Lyon from BTIG.

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Camilo Russi Lyon, BTIG, LLC, Research Division – MD and Lifestyle Brands & Wellness Analyst [51]

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So just 2 questions for me. The first one, I think you mentioned in your — in the press release this morning that you had some supply chain impacts. I was wondering if you could just delve deeper into which brands are being hurt by some of the supply chain impacts and where that stands. And if they have been resolved? And if they haven’t been, when would you expect that supply chain to really resume kind of the flows that you’re used to?

And then the second question is, you spend a lot of time, and rightly so, on the influence of the digital and the spend and the overspend on this particular channel and the importance of it. I’m curious to know what’s your view? And has your view changed on what the right size, what’s the right store base size going forward? And if you’re anticipating closing some doors, whether as a result of maybe some mall lease rolling off, leases rolling off or just end-of-lease-life terms or anything of the sort with respect to active closures?

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Steven E. Rendle, V.F. Corporation – Executive Chairman, President & CEO [52]

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No, good. Scott, I’ll start. Camilo, there really are no material impacts to our supply chain. If anything, the connectivity with our key supply partners, both on the garment and footwear production, but also the materials side is where we’ve been spending a tremendous amount of time as we rightsized our forward purchases and really aligned our purchase and open to buy against the demand that we see today. And if those partnerships that we’ve built over the years that are allowing us to make these quick pivots and position ourselves to really meter, bring down our current on hand over the course of the year with the proper amount of newness. So really no impacts to any degree within our supply chain.

And then on the store base size, it’s an interesting question. And well, if there’s one thing we’re seeing as we reopen our stores in China and most recently in Europe, is that, that local community-based retail footprint, some people would call that hyperlocal, is proving to be extremely valuable. Consumers shopping closer to home in those communities or neighborhoods that they live in. And as we think about our footprint here in the United States across our Vans, North Face and Timberland businesses, that will be something to pay attention to. Our exposure to the malls is not significant. We have about 80% of our footprint are in the A malls, and then it really tapers off to B. And then the tail sits in the C and D. So we’re very well positioned where we’re located. But the changing consumer behavior will be a really interesting element of the go-forward strategy that we have. Like if — as consumers, are they going to be as comfortable coming into the store? Do they want to have a clienteling relationship where they can buy online and pick up at curb. We’re ready for this. Our teams have been doing quite a bit of preparation. Our D&T team is providing the technology to be able to do that.

But if there’s one thing we’ve learned in China is the store is important. The closer it is to where you live, seems to be a growing trend. And honestly, the footprint and the size and the way that our stores connect with consumers today is very well positioned with that trend if that continues.

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Scott A. Roe, V.F. Corporation – Executive VP & CFO [53]

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I’d just build on that too, Camilo. We talk about this quite a bit, but we pretty aggressively manage our lease terms. And at any point in time, essentially 1/4 of the fleet, 25% is up for renewal every year. So while we’re always constantly refining and updating what our footprint looks like, that also gives us a lot of opportunity as we understand better what retail evolves into, and nobody fully understands that today. We just know that it’s changing and that we’re continuing to adapt. Our ability to turn that fleet is pretty quick.

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Operator [54]

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We’ve reached the end of our question-and-answer session. I’d like to turn the floor back over to Steve for any further or closing comments.

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Steven E. Rendle, V.F. Corporation – Executive Chairman, President & CEO [55]

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Great. Thank you, everybody, for joining us and putting up with our conversation-from-home model here. I hope it worked for everybody. I’d just like to leave you with a couple of thoughts: VF and the strong, strong history that we have is absolutely built for and prepared to navigate the times that we are in today. The strengths that we have, both on operational and financial disciplines, that have guided us over our 120-year history put us in a very strong position to manage really the foundational elements of our business. Our iconic brands and the reshaping of our portfolio that we’ve taken over the last 3 years puts us in a very strong position to connect with consumers in these evolving consumer and market trends. And our investments over the past 2 years to transform VF to be a more consumer-minded, retail-centric, hyper-digital enterprise and our deep, deep commitment to elevating our D2C, digital and consumer engagement through our data platforms, all are proof points that the strategy we’ve been working on, the actions we’ve been taking position us extremely well to navigate and accelerate on the other side of this crisis. And I just would really encourage you to stay connected with our brands, watch what we’re doing online, the engagement strategy that we’re putting in place just to kind of reinforce and give you confidence in the work that we’re doing to drive our business and be prepared for acceleration on the other side. So again, thank you for joining us, and we look forward to talking to you in July.

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Operator [56]

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Thank you. That does conclude today’s teleconference. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.