V F CORP 10-Q

ITEM 2 — MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. VF Corporation (together with its subsidiaries, collectively known as “VF” or the “Company”) uses a 52/53 week fiscal year ending on the Saturday closest to March 31 of each year. The Company's current fiscal year runs from March 31, 2024 through March 29, 2025 ("Fiscal 2025"). Accordingly, this Form 10-Q presents our second quarter of Fiscal 2025. For presentation purposes herein, all references to periods ended September 2024 and September 2023 relate to the fiscal periods ended on September 28, 2024 and September 30, 2023, respectively. References to March 2024 relate to information as of March 30, 2024. All per share amounts are presented on a diluted basis and all percentages shown in the tables below and the following discussion have been calculated using unrounded numbers. References to the three and six months ended September 2024 foreign currency amounts and impacts below reflect the changes in foreign exchange rates from the three and six months ended September 2023 when translating foreign currencies into U.S. dollars. VF’s most significant foreign currency exposure relates to business conducted in euro-based countries. Additionally, VF conducts business in other developed and emerging markets around the world with exposure to foreign currencies other than the euro. On July 16, 2024, VF entered into a definitive Stock and Asset Purchase Agreement (the "Purchase Agreement") with EssilorLuxottica S.A. to sell the Supreme ® brand business ("Supreme"). On October 1, 2024, VF completed the sale of Supreme. During the three months ended September 2024, the Company determined that Supreme met the held-for-sale and discontinued operations accounting criteria. Accordingly, b eginning in the second quarter of Fiscal 2025, VF has reported the results of Supreme and the related cash flows as discontinued operations in the Consolidated Statements of Operations and Consolidated Statements of Cash Flows, respectively. In addition, interest expense and the related interest rate swap impact for the delayed draw Term Loan ("DDTL") were reallocated to discontinued operations due to the requirement within the DDTL Agreement, as amended, that the DDTL be prepaid upon the receipt of the net cash proceeds from the sale of Supreme. The related held-for-sale assets and liabilities have been reported as assets and liabilities of discontinued operations in the Consolidated Balance Sheets. These changes have been applied to all periods presented. Refer to Note 4 to VF’s consolidated financial statements for additional information on discontinued operations. Unless otherwise noted, amounts, percentages and discussion for all periods included below reflect the results of operations and financial condition from VF’s continuing operations. RECENT DEVELOPMENTS Supreme Divestiture As noted above, VF completed the sale of Supreme on October 1, 2024. VF received proceeds of $1.5 billion , subject to post closing adjustments, and recognized an after-tax estimated loss on sale of Supreme of $124.8 million, which is included in the income (loss) from discontinue d operations, net of tax line item in the Consolidated Statements of Operations for the three and six months ended September 2024. VF used a portion of the net cash proceeds to prepay $1.0 billion of the DDTL on October 4, 2024, pursuant to the terms of the DDTL Agreement, as amended, which required repayment within ten business days of VF’s receipt of the net cash proceeds from the sale of Supreme. Reinvent On October 30, 2023, VF introduced Reinvent, a transformation program to enhance focus on brand-building and to improve operating performance and allow VF to achieve its full potential. The first announced steps in this transformation, which cover the following priorities: improve North America results, deliver the Vans ® turnaround, reduce costs and strengthen the balance sheet, are as follows: • Establish global commercial organization, inclusive of an Americas region: VF changed the operating model with the establishment of a global commercial structure. This included the creation of an Americas regional platform, modeled on the Company's successful operations in the Europe and Asia-Pacific regions. With this change, VF created the role of Chief Commercial Officer, with responsibility for go-to-market execution globally. • Sharpen brand presidents' focus on sustainable growth: A direct consequence and intent of the operating model change, which is particularly critical at this stage for the Vans ® brand, enables brand presidents to direct greater focus and attention to long-term brand-building, product innovation and growth strategies. • Appoint new Vans ® President : Sun Choe was appointed the new Global Brand President of Vans ® effective late July 2024. • Optimize cost structure to improve operating efficiency and profitability: Actions have been implemented in a large-scale cost reduction program, which is expected to deliver $300 million in annual fixed cost savings, by removing spend in non-strategic areas of the business, and simplifying and right-sizing VF's structure. • Reduce debt and leverage: In addition to improving operating performance, VF is committed to deleveraging the balance sheet. VF used a portion of the proceeds from the sale of Supreme to prepay the DDTL and the remaining proceeds will be applied to upcoming debt maturities. During the second quarter of Fiscal 2025, the Company initiated the next phase of Reinvent, which is focused on a return to growth and improvements to profitability. In doing so, the Company initiated a set of transformational workstreams focused on revenue growth, margin expansion and selling, general and administrative expense contraction. Reinvent restructuring charges in the three and six months ended September 2024 were $11.8 million and $25.4 million, respectively, and cumulative charges were $134.1 million since the inception of the program, which primarily included c osts associate d with severance and employee-related benefits and the impact of asset impairments and write-downs. VF Corporation Q2 FY25 Form 10-Q 28 Table of Contents SUMMARY OF THE SECOND QUARTER OF FISCAL 2025 • Revenues were down 6% to $2.8 billion compared to the three months ended September 2023. • Outdoor segment revenues decreased 3% to $1.7 billion compared to the three months ended September 2023, including a 1% favorable impact from foreign currency. • Active segment revenues decreased 9% to $879.8 million compared to the three months ended September 2023. • Work segment revenues decreased 8% to $219.5 million compared to the three months ended September 2023. • Wholesale revenues were down 4% compared to the three months ended September 2023, including a 1% favorable impact from foreign currency. • Direct-to-consumer revenues were down 8% co mpared to the three months ended September 2023. • International revenues decreased 2% compared to the three months ended September 2023, including a 1% favorable impact from foreign currency. • Revenues in the Americas region decreased 10% compared to the three months ended September 2023, including a 1% unfavorable impact from foreign currency. • G ross margin increased 120 basis points to 52.2% compared to the three months ended September 2023, primarily driven by lower product costs. • Earnings (loss) per share w as $0.52 compared to $(1.16) i n the 2023 period . Th e three months ended September 2023 included increased tax expense due to the unfavorable decision in the Timberland tax case, which negatively impacted earnings per share by $1.72. The thre e months ended September 2024 included Reinvent charges and lower profitability in the Outdoor and Active segments . ANALYSIS OF RESULTS OF OPERATIONS Consolidated Statements of Operations The following table presents a summary of the changes in net revenues for the three and six months ended September 2024 from the comparable periods in 2023: (In millions) Three Months Ended September Six Months Ended September Net revenues — 2023 $ 2,920.1 $ 4,888.2 Organic (173.7) (361.6) Impact of foreign currency 11.5 0.4 Net revenues — 2024 $ 2,757.9 $ 4,527.0 VF reported a 6% and 7% decrease in r evenues for the three and six months ended September 2024, respectively, compared to the 2023 periods. The revenue decrease in both the three and six months ended September 2024 was driven by declines across all segments. The revenue decrease in both the three and six months ended September 2024 was also due to declines across the Americas and Europe regions, with the most significant declines in the Americas region. Additional details on revenues are provided in the section titled “Information by Reportable Segment.” The following table presents the percentage relationship to net revenues for components of the Consolidated Statements of Operations: Three Months Ended September Six Months Ended September 2024 2023 2024 2023 Gross margin (net revenues less cost of goods sold) 52.2 % 51.0 % 51.8 % 51.5 % Selling, general and administrative expenses 42.3 39.0 48.5 44.9 Operating margin 9.9 % 12.0 % 3.3 % 6.6 % Gross margin increased 120 and 30 bas is po ints in the three and six months ended September 2024, respectively, compared to the 2023 periods. The increase in both periods was primarily driven by lower product costs. Selling, general and administrative expe nses as a percentage of total revenues increased 330 and 360 basis points during the three and six months ended September 2024, respectively, compared to the 2023 periods. Selling, general and administrative expenses in crea sed $27.3 million and decreased $2.3 million in the three and six months ended September 2024, resp ectively, compared to the 2023 periods. T he increase in the three months ended September 2024 wa s primarily due to Reinvent charges and higher compensation costs, including performance-based compensation, partially offset by cost savings from Reinvent and lower information technology costs and distribution expenses. Th e decrease in the six months ended Septem ber 2024 was primarily due to cost savings from Reinvent, lower distribution expenses and information technology costs and a gain recognized from a sale leaseback transaction, partially offset by Reinvent charges and higher 29 VF Corporation Q2 FY25 Form 10-Q Table of Contents compensation costs, including performance-based compensation. Net inter est expense increased $1.6 million and $6.9 million during the three and six months ended September 2024, respectively, compared to the 2023 periods. The increase in net interest expense in both the three and six months ended September 2024 was primarily due to changes in international rates and increased levels of short-term commercial paper borrowings at higher rates, partially offset by lower interest on long-term debt due to the repayment of €850.0 million ($907.1 million) of long-term notes in September 2023. Total outstanding debt averaged $6.2 billion in the six months ended September 2024 and $6.9 billion in the same period in 2023, with weighted average interest rates of 2.7% and 2.3% in the six months ended September 2024 and 2023, respectively. The effective income tax rate for the six months ended September 2024 wa s 22.5% compared to 316.1% in the 2023 period. The six months ended September 2024 included a net discrete tax benefit of $5.8 million , which was comprised primarily o f a $9.5 million net tax benefit related to unrecognized tax benefits and interest and a $5.3 million tax expense related to stock compensation. Excluding the $5.8 million net discrete tax benefit in the 2024 period, the effective income tax rate would have been 31.4%. The six months ended September 2023 included a net discrete tax expense of $703.3 million, primarily related to the tax effects of decisions in the Timberland tax case and Belgium excess profits ruling. Excluding the $703.3 million net discrete tax exp ense in the 2023 period, the effective income tax rate would have been 20.8%. Without discrete items, the effective income tax rate for the six months ended September 2024 increased by 10.6% c ompared with the 2023 period primarily due to disproportionate year-to-date losses in jurisdictions with no tax benefit, as well as the jurisdictional mix of earnings. As a result of the above, income (loss) from continuing operations in the three months ended September 2024 was $202.5 million ($0.52 per diluted share) compared to $(451.6) million ($(1.16) per diluted share) in the 2023 period, and income (loss) from continuing operations in the six months ended September 2024 was $50.5 million ($0.13 per diluted share) compared to $(514.6) million ($(1.33) per diluted share) in the 2023 period. Refer to additional discussion in the “Information by Reportable Segment” section below. Information by Reportable Segment VF's reportable segments are: Outdoor, Active and Work. The primary financial measures used by management to evaluate the financial results of VF's reportable segments are segment revenues and segment profit. Segment profit comprises the operating income and other income (expense), net line items of each segment. Refer to Note 14 to the consolidated financial statements for a summary of results of operations by segment, along with a reconciliation of segment profit to income from continuing operations before income taxes. The following tables present a summary of the changes in segment revenues and profit in the three and six months ended September 2024 from the comparable periods in 2023 and revenues by region for our Top 4 brands for the three and six months ended September 2024 and 2023: Segment Revenues: Three Months Ended September (In millions) Outdoor Active Work Total Segment revenues — 2023 $ 1,713.7 $ 968.2 $ 238.3 $ 2,920.1 Organic (65.9) (89.0) (18.8) (173.7) Impact of foreign currency 10.9 0.6 — 11.5 Segment revenues — 2024 $ 1,658.7 $ 879.8 $ 219.5 $ 2,757.9 Six Months Ended September (In millions) Outdoor Active Work Total Segment revenues — 2023 $ 2,543.4 $ 1,915.9 $ 428.9 $ 4,888.2 Organic (98.7) (229.2) (33.6) (361.6) Impact of foreign currency 4.2 (3.0) (0.8) 0.4 Segment revenues — 2024 $ 2,448.9 $ 1,683.7 $ 394.5 $ 4,527.0 VF Corporation Q2 FY25 Form 10-Q 30 Table of Contents Segment Profit: Three Months Ended September (In millions) Outdoor Active Work Total Segment profit — 2023 $ 296.8 $ 121.2 $ 8.5 $ 426.5 Organic (13.7) (18.2) 11.8 (20.1) Impact of foreign currency 4.3 0.7 0.1 5.1 Segment profit — 2024 $ 287.4 $ 103.7 $ 20.4 $ 411.5 Six Months Ended September (In millions) Outdoor Active Work Total Segment profit — 2023 $ 253.1 $ 222.3 $ 15.3 $ 490.8 Organic (52.6) (50.0) 10.3 (92.4) Impact of foreign currency 3.5 0.5 0.1 4.1 Segment profit — 2024 $ 204.0 $ 172.8 $ 25.7 $ 402.5 Note: Amounts may not sum due to rounding. Top Brand Revenues: Three Months Ended September 2024 (In millions) The North Face ® Vans ® Timberland ® (a) Dickies ® Total Americas $ 465.5 $ 405.2 $ 199.0 $ 103.0 $ 1,172.7 Europe 400.6 202.7 208.9 34.6 846.8 Asia-Pacific 225.3 59.5 67.5 14.7 367.0 Global $ 1,091.4 $ 667.4 $ 475.3 $ 152.4 $ 2,386.5 Three Months Ended September 2023 (In millions) The North Face ® Vans ® Timberland ® (a) Dickies ® Total Americas $ 539.5 $ 449.9 $ 207.0 $ 120.0 $ 1,316.4 Europe 401.7 217.8 216.2 33.9 869.6 Asia-Pacific 187.7 81.1 65.4 17.5 351.7 Global $ 1,128.8 $ 748.8 $ 488.6 $ 171.4 $ 2,537.6 Six Months Ended September 2024 (In millions) The North Face ® Vans ® Timberland ® (a) Dickies ® Total Americas $ 716.0 $ 753.5 $ 312.1 $ 189.5 $ 1,971.1 Europe 560.7 357.0 293.8 53.2 1,264.7 Asia-Pacific 338.9 138.8 98.9 26.5 603.1 Global $ 1,615.6 $ 1,249.3 $ 704.8 $ 269.2 $ 3,838.9 Six Months Ended September 2023 (In millions) The North Face ® Vans ® Timberland ® (a) Dickies ® Total Americas $ 819.4 $ 916.2 $ 318.3 $ 219.6 $ 2,273.5 Europe 572.8 377.0 316.9 52.9 1,319.6 Asia-Pacific 274.8 193.2 107.3 35.5 610.8 Global $ 1,667.0 $ 1,486.3 $ 742.5 $ 308.1 $ 4,203.9 (a) The global Timberland brand includes Timberland ® , reported within the Outdoor segment and Timberland PRO ® , reported within the Work segment. Note: Amounts may not sum due to rounding. 31 VF Corporation Q2 FY25 Form 10-Q Table of Contents The following sections discuss the changes in revenues and profitability by segment. For purposes of this analysis, royalty revenues have been included in the wholesale channel for all periods. Outdoor Three Months Ended September Six Months Ended September (Dollars in millions) 2024 2023 Percent Change 2024 2023 Percent Change Segment revenues $ 1,658.7 $ 1,713.7 (3.2) % $ 2,448.9 $ 2,543.4 (3.7) % Segment profit 287.4 296.8 (3.1) % 204.0 253.1 (19.4) % Operating margin 17.3 % 17.3 % 8.3 % 10.0 % The Outdoor segment includes the following brands: The North Face ® , Timberland ® , Smartwool ® , Altra ® and Icebreaker ® . Global revenues for Outdoor decreased 3% in the three months ended September 2024 compared to the 2023 period, including a 1% favorable impact from foreign currency. Revenues in the Americas region decreased 12%, including a 1% unfavorable impact from foreign currency. Revenues in the Europe region decreased 1%, including a 2% favorable impact from foreign currency. Revenues in the Asia-Pacific region increased 16%, including a 1% favorable impact from foreign currency and a 22% increase in Greater China (which includes Mainland China, Hong Kong and Taiwan), including a 1% favorable impact from foreign currency. Global revenues for Outdoor decreased 4% in the six months ended September 2024 compared to the 2023 period. Revenues in the Americas region decreased 10%. Revenues in the Europe region decreased 3%, including a 1% favorable impact from foreign currency. Revenues in the Asia-Pacific region increased 15%, including a 22% increase in Greater China with a 1% unfavorable impact from foreign currency. Global revenues for The North Face ® brand decreased 3% in both the three and six months ended September 2024 compared to the 2023 periods, including a 1% favorable impact from foreign currency in the three months ended September 2024. The decrease in both the three and six months ended September 2024 was driven by a decline in the Americas region, which decreased 14% and 13% in the three and six months ended September 2024, respectively, compared to the 2023 periods, including a 1% unfavorable impact from foreign currency in both periods. Revenues in the Europe region remained flat and decreased 2% in the three and six months ended September 2024, respectively, including a 2% favorable impact from foreign currency in both periods. Revenues in the Asia-Pacific region increased 20% and 23% in the three and six months ended September 2024, respectively, including a 1% favorable and a 1% unfavorable impact from foreign currency in the respective periods. Global revenues for the Timberland ® brand decreased 3% and 7% in the three and six months ended September 2024, respectively, compared to the 2023 periods, including a 1% favorable impact from foreign currency in the three months ended September 2024. Revenues in the Europe region decreased 3% and 7% in the three and six months ended September 2024, respectively, including a 2% and 1% favorable impact from foreign currency in the respective periods. Revenue in the Americas regi on decreased 6% and 5%, respectively, in the three and six months ended September 2024, including a 1% unfavorable impact from foreign currency in the three months ended September 2024. Revenues in the Asia-Pacific region increased 3% and decreased 8% in the three and six months ended September 2024, respectively, compared to the 2023 periods, including a 1% unfavorable imp act from foreign currency in the six months ended September 2024 Global direct-to-consumer revenues for Outdoor increased 4% and 3% in the three and six months ended September 2024, respectively, compared to the 2023 periods, including a 1% favorable and a 1% unfavorable i mpact from foreign currency in the respective periods. The increases were primarily due to The North Face ® brand in the Europe and Asia-Pacific regions. Global wholesale revenues decreased 6% and 7% in the three and six months ended September 2024, respectively, compared to the 2023 periods. The decreases were primarily driven by declines in The North Face ® brand in the Americas and Europe regions. Operating margin remained flat and decreased in th e three and six months ended September 2024, respectively, compared to the 2023 periods. The decrease in the six months ended September 2024 reflected increased direct-to-consumer expenses, partially offset by higher gross margin, primarily driven by lower product costs. VF Corporation Q2 FY25 Form 10-Q 32 Table of Contents Active Three Months Ended September Six Months Ended September (Dollars in millions) 2024 2023 Percent Change 2024 2023 Percent Change Segment revenues $ 879.8 $ 968.2 (9.1) % $ 1,683.7 $ 1,915.9 (12.1) % Segment profit 103.7 121.2 (14.5) % 172.8 222.3 (22.3) % Operating margin 11.8 % 12.5 % 10.3 % 11.6 % The Active segment includes the following brands: Vans ® , Kipling ® , Napapijri ® , Eastpak ® and JanSport ® . Global revenues for Active decreased 9% in the three months ended September 2024 compared to the 2023 period. Revenues in the Americas region decreased 8%, including a 1% unfavorable impact from foreign currency. Revenues in the Europe region decreased 8% including a 1% favorable impact from foreign currency. Revenues in the Asia-Pacific region decreased 20%, including a 30% decrease in Greater China with a 1% favorable impact from foreign currency. Global revenues for Active decreased 12% in the six months ended September 2024 compared to the 2023 period. Revenues in the Americas region decreased 13%. Revenues in the Asia-Pacific region decreased 23%, including a 1% unfavorable impact from foreign currency, and a 32% decrease in Greater China, including a 1% unfavorable impact from foreign currency. Revenues in the Europe region decreased 6% in the six months ended September 2024 compared to the 2023 period. Vans ® brand global reve nues decreased 11% and 16% in the three and six months ended September 2024, respectively, compared to the 2023 periods. The overall declines were most significantly impacted by a 10% and 18% decrease in the Americas region for the three and six months ended September 2024, respectively, including a 1% unfavorable impact from foreign currency in both periods. Revenues in the Asia-Pacific region decreased 27% and 28% in the three and six m onths ended September 2024, respectively, including a 1% unfavorable impact from foreign currency in both periods. Revenues in the Europe region decreased 7% and 5% in the three and six months ended September 2024, respectively, including a 1% favorable impact from foreign currency in both periods. Global direct-to-consumer revenues for Active decreased 18% and 21% in the three and six months ended September 2024, respectively, compared to the 2023 periods. The decreases were primarily driven by declines in the Americas region, which decreased 19% and 23% in t he three and six months ended September 2024, respectively, including a 1% unfavorable impact from foreign currency in the three months ended September 2024. Global wholesale rev enues increased 1% in the three months ended September 2024. The increase was primarily due to a 16% increase in the Americas region in the three months ended September 2024, including a 1% unfavorable imp act from foreign currency. The current year increase is in part the result of the deliberate actions taken to right-size inventories in the Americas wholesale channel in the second half of Fiscal 2024. Wholesale revenues in the Asia-Pacific region decreased 5% i n the three months ended September 2024 . W holesale revenues in the Europe regi on decreased 8% in the three months ended September 2024, including a 2% favorable impact from foreign currency. Global wholesale rev enues decreased 2% in the six months ended September 2024. The decrease was due to declines in the Europe and Asia-Pacific regions. Wholesale revenues in the Europe region decreased 4% in the six months ended September 2024, including a 1% favorable impact from foreign currency. Wholesale revenues in the Asia-Pacific region decreased 12% in the six months ended September 2024, including a 1% unfavorable impact from foreign currency. Wholesale revenues in the Americas region increased 2% in the six months ended September 2024, including a 1% unfavorable impact from foreign currency. O perating marg in decreased in bot h the three and six months ended September 2024 compared to the 2023 periods, primarily reflecting lower leverage of operating expenses due to decreased revenues. Work Three Months Ended September Six Months Ended September (Dollars in millions) 2024 2023 Percent Change 2024 2023 Percent Change Segment revenues $ 219.5 $ 238.3 (7.9) % $ 394.5 $ 428.9 (8.0) % Segment profit 20.4 8.5 139.7 % 25.7 15.3 67.7 % Operating margin 9.3 % 3.6 % 6.5 % 3.6 % The Work segment includes the following brands: Dickies ® and Timberland PRO ® . Global Work revenues decreased 8% in the three months ended September 2024 compared to the 2023 period. Revenues in the Americas region decreased 9%. Revenues in the Asia-Pacific region decreased 16%, including a 1% unfavorable impact from foreign currency. Revenues in the Europe region increased 2%, including a 1% favorable impact from foreign currency. Global Work revenues decreased 8% in the six months ended September 2024 compared to the 2023 period. Revenues in the Americas region decreased 8%, including a 1% unfavorable impact from foreign currency. Revenues in the Asia-Pacific region decreased 25%, including a 2% unfavorable impact from foreign currency. Revenues in the Europe region remained flat. 33 VF Corporation Q2 FY25 Form 10-Q Table of Contents Dickies ® brand global revenues decreased 11% and 13% in the three and six months ended September 2024, respectively, compared to the 2023 periods, including a 1% unfavorable impact from foreign currency in the six months ended September 2024. The declines in the three and six months ended September 2024 were primarily driven by a decrease in the Americas reg ion of 14% in both periods, reflecti ng lower inventory replenishment and weakness with certain key U.S. wholesale customer accounts. The declines were also attributed to a decrease in the Asia-Pacific region of 16% and 25% in the three and six months ended September 2024, respectively, including a 1% and 2% unfavorable im pact from foreign currency in the respective periods, primar ily due to broad-based weakness in Greater China. R evenues in the Europe regi on increased 2% and remained flat in t he three and six months ended September 2024, respectively, in cluding a 1% favorable i mpact from foreign currency in the three months ended September 2024. O perating margin increased in both the three and six months ended September 2024 compared to the 2023 periods, reflecting higher gross margin, primarily driven by lower inventory reserves. Reconciliation of Segment Profit to Income From Continuing Operations Before Income Taxes There are two types of costs necessary to reconcile total segment profit to consolidated income from continuing operations before income taxes. These costs are (i) corporate and other expenses, discussed below, and (ii) interest expense, net, which was discussed in the “Consolidated Statements of Operations” section. Three Months Ended September Six Months Ended September (Dollars in millions) 2024 2023 Percent Change 2024 2023 Percent Change Corporate and other expenses $ 138.2 $ 78.1 77.0 % $ 253.8 $ 175.9 44.3 % Interest expense, net 42.7 41.1 3.8 % 83.6 76.7 9.1 % Corporate and other expenses are those that have not been allocated to the segments for internal management reporting, including (i) information systems and shared service costs, (ii) corporate headquarters costs, and (iii) certain other income and expenses. The increase in corporate and other expenses for both the three and six months ended September 2024 was primarily due to Reinvent charges and compensation costs, including performance-based compensation, partially offset by cost savings from Reinvent. International International revenues decreased 2% and 4% in the three and six months ended September 2024, respectively, compared to the 2023 periods. Foreign currency had a favorable impact of 1% on international revenues in the three months ended September 2024. Revenues in the Europe region decreased 3% and 4% in the three and six months ended September 2024, respectively, including a 2% and 1% favorable impact from foreign currency in the respective periods. Revenues in the Americas (non-U.S.) region decreased 11% and 9% in the three and six months ended September 2024, respectively, including a 5% and 3% unfavorable impa ct from foreign currency in the respective periods. In the Asia-Pacific region, revenues increased 6% and remained flat in the three and six months ended September 2024, respectively. Foreign currency had a favorable impact of 1% and an unfavorable impact of 1% on Asia-Pacific revenues in the three and six months ended September 2024, respectively. Revenue s in Greater C hina increased 10% and 5% in the three and six months ended September 2024, respectively, including a 1% favorable and 1% unfavorable impact from foreign currency in the respective periods. International revenues we re 57% and 55% of tot al revenues in the thre e-month periods ended September 2024 and 2023, respectively, and 55% and 53% o f total revenues in the six-month periods ended September 2024 and 2023, respectively. Direct-to-Consumer D irect-to-consumer revenues decreased 8% and 11% in the three and six months ended September 2024, respectively, compared to the 2023 periods, including a 1% unfavorable impact from foreign currency in the in the six months ended September 2024. VF's e-commerce business decreased 5% and 7% during the three and six months ended September 2024, respectively. The decreases were primarily driven by declines in the e-commerce business in the Americas and Asia-Pacific regions. Revenues from VF-operated r etail stores decreased 12% and 15% during the three and six months ended September 2024, respectively, including a 1% unfavorable impact from foreign currency in the six months ended September 2024. There wer e 1,160 VF -operated retail stores at September 2024 compared to 1,235 a t September 2023. Direct-to-consumer revenues were 33% and 34% of total revenues in the thre e-month periods ended September 2024 and 2023, respectively, and 37% and 38% of total revenues in the six-month periods ended September 2024 and 2023, respectively. VF Corporation Q2 FY25 Form 10-Q 34 Table of Contents Wholesale Wholesale revenues decreased 4% and 5% in the three and six months ended September 2024, respectively, compared to the 2023 periods, including a 1% favorable impact from foreign currency in both periods . The decreases were primarily driven by declines in the wholesale business in the Americas and Europe regions. Wholesale revenues were 67% and 66% of total revenues in the t hree-month periods ended September 2024 and 2023, respectively, an d 63% and 62% o f total revenues in the six-month periods ended September 2024 and 2023, respectively. ANALYSIS OF FINANCIAL CONDITION Consolidated Balance Sheets The following discussion refers to significant changes in balances at September 2024 compared to March 2024: • Increase in accounts receivable — primarily due to the seasonality of the business and the timing of collections. • Increase in inventories — primarily due to the seasonality of the business. • Increase in short-term borrowings — primarily due to an increase in commercial paper borrowings. • Increase in the current portion of long-term debt — due to the reclassification of $750.0 million of long-term notes due in April 2025. • Increase in accounts payable — primarily due to the timing of payments to vendors and seasonality of inventory purchases. • Increase in accrued liabilities — primarily due to higher accrued compensation and the timing of payments for other accruals. • Decrease in long-term debt — due to the reclassification of $750.0 million of long-term notes due in April 2025. The following discussion refers to significant changes in balances at September 2024 compared to September 2023: • Decrease in inventories — driven by VF reducing elevated inventory levels. • Decrease in property, plant and equipment, net — primarily due to asset disposals and write-downs. • Decrease in goodwill — primarily due to $507.6 million in impairment charges related to the Timberland, Dickies and Icebreaker reporting units recorded in the third and fourth quarters of Fiscal 2024. • Decrease in short-term borrowings — primarily due to a decrease in commercial paper borrowings. • Increase in the current portion of long-term debt — due to the reclassification of $750.0 million of long-term notes due in April 2025 and the reclassification of $1.0 billion of long-term debt due in December 2024 related to the DDTL. • Increase in accounts payable — primarily due to the timing of inventory shipments from and payments to vendors. • Decrease in long-term debt — due to the reclassification of $750.0 million of long-term notes due in April 2025 and the reclassification of $1.0 billion of long-term debt due in December 2024 related to the DDTL. Liquidity and Capital Resources We consider the following to be measures of our liquidity and capital resources: September March September (Dollars in millions) 2024 2024 2023 Working capital $33.2 $733.6 $1,657.1 Current ratio 1.0 to 1 1.2 to 1 1.5 to 1 Net debt to total capital 83.6% 80.1% 77.4% The decrease in working capital and the current ratio at September 2024 compared to both March 2024 and September 2023 was primarily due to a net increase in current liabilities driven by a higher current portion of long-term debt and higher accounts payable, as discussed in the "Consolidated Balance Sheets" section above. The decrease in working capital and the current ratio at September 2024 compared to March 2024 was partially offset by a net increase in current assets driven by higher accounts receivable and inventories for the periods compared, as discussed in the "Consolidated Balance Sheets" section above. For the ratio of net debt to total capital, net debt is defined as short-term and long-term borrowings, in addition to operating lease liabilities, net of unrestricted cash. Total capital is defined as net debt plus stockholders’ equity. The increase in the net debt to total capital ratio at September 2024 compared to March 2024 was driven by an increase in net debt and a decrease in stockholders' equity for the periods compared. The increase in net debt was primarily driven by an increase in short-term borowings, as discussed in the "Consolidated Balance Sheet" section above, and lower cash and cash equivalents at September 2024 . The decrease in stockholders' equity at September 2024 compared to March 2024 was primarily driven by the net loss for the period and payments of dividends. The increase in the net debt to total capital ratio at September 2024 35 VF Corporation Q2 FY25 Form 10-Q Table of Contents compared to September 2023 was driven by a decrease in stockholders' equity, partially offset by a decrease in net debt for the periods compared. The decrease in stockholders' equity was primarily driven by the net loss for the period and payments of dividends. The decrease in net debt at September 2024 compared to September 2023 was driven by lower short-term borrowings, as discussed in the "Consolidated Balance Sheet" section above. VF’s primary source of liquidity is its expected annual cash flow from operating activities. Cash from operations is typically lower in the first half of the calendar year as inventory builds to support peak sales periods in the second half of the calendar year. Cash provided by operating activities in the second half of the calendar year is substantially higher as inventories are sold and accounts receivable are collected. Additionally, direct-to-consumer sales are highest in the fourth quarter of the calendar year. VF's additional sources of liquidity include available borrowing capacity against its Global Credit Facility, available cash balances and international lines of credit. In summary, our cash flows from continuing operations were as follows: Six Months Ended September (In thousands) 2024 2023 Cash used by operating activities $ (301,823) $ (60,720) Cash used by investing activities (16,421) (145,728) Cash provided (used) by financing activities 125,974 (125,901) Cash Used by Operating Activities Cash flows related to operating activities are dependent on income (loss) from continuing operations, adjustments to income (loss) from continuing operations and changes in working capital. The increase in cash used by operating activities in the six months ended September 2024 compared to September 2023 was primarily due to a decrease in income from continuing operations, excluding the write-off of income tax receivables and interest related to the Timberland tax case in the prior year, and an increase in net cash used by working capital. Cash Used by Investing Activities The decrease in cash used by investing activities in the six months ended September 2024 was primarily due to proceeds from the sale of assets of $76.7 million in the period, primarily related to a sale leaseback transaction of a distribution center, sale of a corporate-owned aircraft and sale of an aircraft hangar. The decrease was also due to a decrease in capital expenditures of $47.9 million and a decrease in software purchases of $15.4 million in the six months ended September 2024 compared to the 2023 period. Cash Provided (Used) by Financing Activities The increase in cash provided by financing activities during the six months ended September 2024 was primarily due to a $907.1 million payment of long-term debt in the six months ended September 2023 and a $163.1 million decrease in dividends paid for the periods compared. The increase was partially offset by a $818.6 million net decrease in short-term borrowings for the periods compared. Share Repurchases VF did not purchase shares of its Common Stock in the open market during the six months ended September 2024 or the six months ended September 2023 under the share repurchase program authorized by VF's Board of Directors. As of the end of September 2024, VF had $2.5 billion remaining for future repurchases under its share repurchase authorization. VF's capital deployment priorities in the near-to-medium term will be focused on reducing leverage and reinvesting a portion of cost savings to drive profitable and sustainable growth. Revolving Credit Facility, DDTL Agreement and Short-term Borrowings VF relies on its ability to generate cash flows to finance its ongoing operations. In addition, VF has significant liquidity from its available cash balances and credit facilities. VF maintains a $2.25 billion senior unsecured revolving line of credit (the “Global Credit Facility”) that expires in November 2026. VF may request an unlimited number of one-year extensions so long as each extension does not cause the remaining life of the Global Credit Facility to exceed five years, subject to stated terms and conditions; however, granting of any extension is at the discretion of the lenders. The Global Credit Facility may be used to borrow funds in U.S. dollars or any alternative currency (including euros and any other currency that is freely convertible into U.S. dollars, approved at the request of the Company by the lenders) and has a $75.0 million letter of credit sublimit. The Global Credit Facility supports VF’s global commercial paper program for short-term, seasonal working capital requirements and general corporate purposes. Outstanding short-term balances may vary from period to period depending on the level of corporate requirements. VF has restrictive covenants on its Global Credit Facility and DDTL Agreement, including a consolidated net indebtedness to consolidated net capitalization financial ratio covenant, as defined in the agreements as amended in August 2024 (effective for the first quarter of Fiscal 2025), starting at 70% with future step downs. The calculation of consolidated net indebtedness is net of unrestricted cash and the calculation of consolidated net capitalization permits certain addbacks, including non-cash impairment charges and material impacts resulting from adverse legal rulings, as defined in the amended agreements. The covenant calculation also excludes consolidated operating lease liabilities. Additionally, the amended agreements restrict the total amount of cash dividends and share repurchases to $500.0 million annually, on a calendar-year basis and require the repayment of the DDTL upon the completion of the Supreme sale. As of September 2024, VF was in compliance with all covenants. O n October 4, 2024, VF made an aggregate $1.0 billion prepayment of the DDTL using the net cash proceeds VF Corporation Q2 FY25 Form 10-Q 36 Table of Contents from the sale of Supreme, pursuant to the terms of the DDTL Agreement, as amended. VF has a global commercial paper program that allows for borrowings of up to $2.25 billion to the extent that it has borrowing capacity under the Global Credit Facility. There were $450.0 million in U.S. commercial paper borrowings as of September 2024 . In addition to the U.S. commercial paper program, VF commenced a euro commercial paper borrowing program during the second quarter of Fiscal 2024. As of September 2024 , there were no outstanding euro commercial paper borrowings under this program. Standby letters of credit issued under the Global Credit Facility as of September 2024 were $0.6 million, leaving approximately $1.8 billion available for borrowing against the Global Credit Facility at September 2024, subject to applicable financial covenants. VF has $96.6 million of international lines of credit with various banks, which are uncommitted and may be terminated at any time by either VF or the banks. Total outstanding balances under these arrangements were $13.2 million at September 2024. Additionally, VF had $492.2 million of unrestricted cash and equivalents at September 2024. Supply Chain Financing Program VF facilitates a voluntary supply chain finance ("SCF") program that enables a significant portion of our inventory suppliers to leverage VF's credit rating to receive payment from participating financial institutions prior to the payment date specified in the terms between VF and the supplier. The SCF program is administered through third-party platforms that allow participating suppliers to track payments from VF and elect which receivables, if any, to sell to the financial institutions. The transactions are at the sole discretion of both the suppliers and financial institutions, and VF is not a party to the agreements and has no economic interest in the supplier's decision to sell a receivable. The terms between VF and the supplier, including the amount due and scheduled payment terms (which are generally within 90 days of the invoice date) are not impacted by a supplier's participation in the SCF program. All amounts due to suppliers that are eligible to participate in the SCF program are included in the accounts payable line item in VF's Consolidated Balance Sheets and VF payments made under the SCF program are reflected in cash flows from operating activities in VF's Consolidated Statements of Cash Flows. At September 2024, March 2024 and September 2023, the accounts payable line item in VF’s Consolidated Balance Sheets included total outstanding obligations of $804.9 million, $485.0 million and $688.0 million, respectively, due to suppliers that are eligible to participate in the SCF program. Rating Agencies At the end of September 2024, VF’s long-term debt ratings were ‘BBB-’ by Standard & Poor’s ("S&P") Global Ratings and ‘Ba1' by Moody’s Investors Service ("Moody's"), and U.S. commercial paper ratings by those rating agencies were ‘A-3’ and ‘NP’, respectively. The Moody's rating for VF's euro commercial paper was also 'NP'. Based on VF's current ratings, the market for U.S. commercial paper is limited and there is no active market for euro commercial paper. VF's credit rating outlook by S&P was 'negative' and Moody's was 'stable' at the end of September 2024. Further downgrades to VF's ratings would negatively impact borrowing costs. None of VF’s long-term debt agreements contain acceleration of maturity clauses based solely on changes in credit ratings. However, if there were a change in control of VF, and as a result of the change in control the notes were rated below investment grade by recognized rating agencies, then VF would be obligated to repurchase the notes at 101% of the aggregate principal amount, plus any accrued and unpaid interest, if required by the respective holders of the notes. The change of control provision applies to all notes, except for the notes due in 2033. Dividends The Company paid cash dividends of $0.09 and $0.18 per share during the three and six months ended September 2024, respectively, and the Company declared a cash dividend of $0.09 per share that is payable in the third quarter of Fiscal 2025. Subject to approval by its Board of Directors, VF intends to continue to pay quarterly dividends. Contractual Obligations Management’s Discussion and Analysis in the Fiscal 2024 Form 10-K provided a table summarizing VF’s material contractual obligations and commercial commitments at the end of Fiscal 2024 that would require the use of funds. As of September 2024, there have been no material changes in the amounts of unrecorded commitments disclosed in the Fiscal 2024 Form 10-K, except as noted below: • Contractual obligations and commercial commitments at the end of Fiscal 2024 included approximately $93.7 million of inventory obligations related to Supreme, which is now classified as discontinued operations. • Inventory purchase obligations decreased by approximately $944.0 million at the end of September 2024 primarily due to timing of inventory shipments and increased inventory levels. • VF entered into a contract with a consulting firm during the three months ended September 2024. Fees related to this contract could be up to $135.0 million, which includes $60.0 million of fixed fees and $75.0 million of contingent fees tied to increases in VF's stock price through June 2027. The total fair value of the contingent fees was $30.7 million as of September 2024. Management believes that VF has sufficient liquidity and flexibility to operate its business and meet its current and long-term obligations as they become due. Recent Accounting Pronouncements Refer to Note 2 to VF’s consolidated financial statements for information on recently issued and adopted accounting standards. 37 VF Corporation Q2 FY25 Form 10-Q Table of Contents Critical Accounting Policies and Estimates Management has chosen accounting policies it considers to be appropriate to accurately and fairly report VF’s operating results and financial position in conformity with generally accepted accounting principles in the United States of America. Our critical accounting policies are applied in a consistent manner. Significant accounting policies are summarized in Note 1 to the consolidated financial statements included in the Fiscal 2024 Form 10-K. There have been no material changes in VF's accounting policies from those disclosed in our Fiscal 2024 Form 10-K. The application of these accounting policies requires management to make estimates and assumptions about future events and apply judgments that affect the reported amounts of assets, liabilities, revenues, expenses, contingent assets and liabilities, and related disclosures. These estimates, assumptions and judgments are based on historical experience, current trends and other factors believed to be reasonable under the circumstances. Management evaluates these estimates and assumptions, and may retain outside consultants to assist in the evaluation. If actual results ultimately differ from previous estimates, the revisions are included in results of operations in the period in which the actual amounts become known. The accounting policies that involve the most significant estimates, assumptions and management judgments used in preparation of the consolidated financial statements, or are the most sensitive to change from outside factors, are discussed in Management’s Discussion and Analysis in the Fiscal 2024 Form 10-K. Cautionary Statement on Forward-looking Statements From time to time, VF may make oral or written statements, including statements in this quarterly report, that constitute “forward-looking statements” within the meaning of the federal securities laws. You can identify these statements by the fact that they use words such as "will," "anticipate," "believe," "estimate," "expect," "should," and "may," and other words and terms of similar meaning or use of future dates. However, the absence of these words or similar expressions does not mean that a statement is not forward-looking. Forward-looking statements include statements concerning plans, objectives, projections and expectations relating to VF’s operations or economic performance and assumptions related thereto. Forward-looking statements are made based on management’s expectations and beliefs concerning future events impacting VF and therefore involve a number of risks and uncertainties. Forward-looking statements are not guarantees, and actual results could differ materially from those expressed or implied in the forward-looking statements. VF undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. Potential risks and uncertainties that could cause the actual results of operations or financial condition of VF to differ materially from those expressed or implied by forward-looking statements include, but are not limited to: the level of consumer demand for apparel and footwear; disruption to VF’s distribution system; changes in global economic conditions and the financial strength of VF’s consumers and customers, including as a result of current inflationary pressures; fluctuations in the price, availability and quality of raw materials and finished products; disruption and volatility in the global capital and credit markets; VF’s response to changing fashion trends, evolving consumer preferences and changing patterns of consumer behavior; VF's ability to maintain the image, health and equity of its brands, including through investment in brand building and product innovation; intense competition from online retailers and other direct-to-consumer business risks; increasing pressure on margins; retail industry changes and challenges; VF's ability to execute its Reinvent transformation program and other business priorities, including measures to streamline and right-size its cost base and strengthen the balance sheet while reducing leverage; VF’s ability to successfully establish a global commercial organization, and identify and capture efficiencies in its business model; any inability of VF or third parties on which it relies, to maintain the strength and security of information technology systems; the fact that VF’s facilities and systems, and those of third parties on which it relies, are frequent targets of cyber-attacks of varying levels of severity, and may in the future be vulnerable to such attacks, and any inability or failure by VF or such third parties to anticipate or detect data or information security breaches or other cyber-attacks, including the cyber incident that was reported by VF in December 2023, could result in data or financial loss, reputational harm, business disruption, damage to its relationships with customers, consumers, employees and third parties on which it relies, litigation, regulatory investigations, enforcement actions or other negative impacts; any inability by VF or third parties on which it relies to properly collect, use, manage and secure business, consumer and employee data and comply with privacy and security regulations; VF’s ability to adopt new technologies, including artificial intelligence, in a competitive and responsible manner; foreign currency fluctuations; stability of VF's vendors' manufacturing facilities and VF's ability to establish and maintain effective supply chain capabilities; continued use by VF’s suppliers of ethical business practices; VF’s ability to accurately forecast demand for products; actions of activist and other shareholders; VF's ability to recruit, develop or retain key executive or employee talent or successfully transition executives; continuity of members of VF’s management; changes in the availability and cost of labor; VF’s ability to protect trademarks and other intellectual property rights; possible goodwill and other asset impairment; maintenance by VF’s licensees and distributors of the value of VF’s brands; VF’s ability to execute acquisitions and dispositions, integrate acquisitions and manage its brand portfolio; VF's ability to realize benefits from the completed sale of the Supreme ® brand business; business resiliency in response to natural or man-made economic, public health, cyber, political or environmental disruptions; changes in tax laws and additional tax liabilities; legal, regulatory, political, economic, and geopolitical risks, including those related to the current conflicts in Ukraine and the Middle East and tensions between the U.S. and China; changes to laws and regulations; adverse or unexpected weather conditions, including any potential effects from climate change; VF's indebtedness and its ability to obtain financing on favorable terms, if needed, could prevent VF from fulfilling its financial obligations; VF's ability to pay and declare dividends or VF Corporation Q2 FY25 Form 10-Q 38 Table of Contents repurchase its stock in the future; climate change and increased focus on environmental, social and governance issues; VF's ability to execute on its sustainability strategy and achieve its sustainability-related goals and targets; risks arising from the widespread outbreak of an illness or any other communicable disease, or any other public health crisis; and tax risks associated with the spin-off of the Jeanswear business completed in 2019. More information on potential factors that could affect VF’s financial results is included from time to time in VF’s public reports filed with the Securities and Exchange Commission, including VF’s Annual Report on Form 10-K. ITEM 3 — QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. There have been no significant changes in VF’s market risk exposures from what was disclosed in Item 7A in the Fiscal 2024 Form 10-K.