VF(VFC)2023-05-24 16:00Financial Performance - VF reported a 2% decrease in revenues to $11.6 billion for Fiscal 2023 compared to $11.8 billion in Fiscal 2022, with a 5% unfavorable impact from foreign currency[240][241]. - The Outdoor segment revenues increased by 6% to $5.6 billion, while the Active segment revenues decreased by 9% to $4.9 billion, and the Work segment revenues decreased by 6% to $1.1 billion[241]. - Earnings per share decreased to $0.31 in Fiscal 2023 from $3.10 in Fiscal 2022, significantly impacted by impairment charges totaling $735 million related to the Supreme reporting unit[241][245]. - Income from continuing operations in Fiscal 2023 was $118.6 million ($0.31 per diluted share), down from $1.2 billion ($3.10 per diluted share) in Fiscal 2022[250]. - Other income (expense) netted to $(119.8) million in Fiscal 2023, compared to $26.2 million in Fiscal 2022, including a $91.8 million pension settlement charge[248]. Cost and Expenses - Gross margin decreased by 200 basis points to 52.5% in Fiscal 2023, primarily due to higher promotional activity and increased material and labor costs[242][243]. - Selling, general and administrative expenses increased by $210.7 million in Fiscal 2023, with a notable impact from higher corporate restructuring charges and IT investments[244]. - Net interest expense increased by $33.2 million to $164.6 million in Fiscal 2023, primarily due to higher borrowing rates and increased short-term borrowings[246]. - Corporate and other expenses increased by $308.0 million in Fiscal 2023, driven by corporate restructuring charges of $61.0 million and a pension settlement charge of $91.8 million[276]. Revenue Sources - Direct-to-consumer revenues accounted for 45% of total revenues in Fiscal 2023, with a 3% decrease compared to the previous year[241]. - International revenues represented 48% of total revenues in Fiscal 2023, with a 2% decrease compared to Fiscal 2022, including a 10% unfavorable impact from foreign currency[241]. - Global revenues for The North Face brand increased by 11% in Fiscal 2023, while Timberland brand revenues decreased by 5%[259][260]. - Global direct-to-consumer revenues for Outdoor increased by 7% in Fiscal 2023, driven by strength in The North Face brand and e-commerce growth[261]. Dividends and Shareholder Returns - The Board declared a quarterly dividend of $0.30 per share, a 41% reduction from the previous quarter's dividend of $0.51 per share, to strengthen the financial position[232]. - Cash dividends totaled $1.81 per share in Fiscal 2023, with a dividend payout ratio of 592.8% of diluted earnings per share[306]. Debt and Liquidity - VF's long-term debt at the end of March 2023 was $6.682 billion, with total contractual obligations amounting to $11.661 billion[309]. - Cash provided by operating activities was $(655.8) million in Fiscal 2023, a decrease from $858.2 million in Fiscal 2022[287]. - VF issued €1.0 billion in euro-denominated fixed-rate notes in Fiscal 2023 to enhance liquidity[290]. - VF completed two draws under the DDTL Agreement totaling $1.0 billion, with a weighted average interest rate of 5.73%[301]. Impairment and Goodwill - Impairment of goodwill and indefinite-lived intangible assets amounted to $735.0 million in Fiscal 2023, compared to no impairment in Fiscal 2022[272]. - VF recorded impairment charges of $229.0 million for the Supreme reporting unit goodwill and $192.9 million for the indefinite-lived trademark intangible asset in the year ended March 2023[357]. - The estimated fair value of the Supreme trademark was determined to be $1.20 billion using the relief-from-royalty method[338]. Taxation - The effective income tax rate was (174.0)% in Fiscal 2023, significantly impacted by a net discrete tax benefit of $96.8 million[249]. - VF paid $875.7 million related to a tax dispute with the IRS regarding the timing of income inclusion associated with the acquisition of The Timberland Company, which is recorded as an income tax receivable[387]. - The net impact to tax expense from the IRS dispute could be up to $730.0 million, plus the reversal of approximately $12.0 million in interest income accrued on the payment as of March 2023[387]. Macroeconomic Environment - VF is navigating a challenging macroeconomic environment characterized by inflationary pressures, weakening consumer sentiment, and increased borrowing costs[233]. - A hypothetical 1% increase in interest rates would decrease reported net income by approximately $8.9 million[320]. - Approximately 48% of VF's revenues in the year ended March 2023 were generated in international markets, exposing the company to foreign currency exchange rate risks[321]. Foreign Currency Exposure - VF hedges up to 80% of foreign currency exposures for periods of up to 24 months using foreign exchange forward contracts[323]. - A hypothetical 10% decrease in foreign currency exchange rates would result in an unrealized net gain increase of approximately $39.7 million, while a 10% increase would decrease the unrealized net gain by approximately $32.3 million[325]. Pension Plans - VF's defined benefit pension plans were overfunded by $90.4 million at the end of Fiscal 2023[315]. - VF entered into an agreement with Prudential to purchase an irrevocable group annuity contract for approximately $330 million related to U.S. qualified defined benefit pension plan obligations[324].