Well, without further ado, I would like to welcome and I'm truly honored to welcome the president and CEO of VF Corp, Mr. Bracken Darrell. Thank you so much for joining us today.
Thank you, Tom. Thank you very much, Rob. Well, announcement. I felt like the Chicago Bulls opening when Michael Jordan was there.
Company. Very well. VF Corp has major incredible brands. Vans, North Face, Timberland, Dickies, and a lot more. Mr. Darrell will speak with us about that, but I do know that you're on a timeline, so I want to get right down to some of the questions and give our investors as much valuable information as we can. We've heard your quarterly earnings call. Congratulations on a great quarter, by the way. The turnaround is going along exactly as you promised when you took the helm just a couple short years ago. One of the core things I'm going to start with compensation and most management would say, uh-oh, here we go. But it's just the opposite. We're really excited about how VF Corp has set this up. And one of the core things we look for in potential investments is the overall alignment of management with shareholders. Are they acting like owners and do they respect shareholder equity? Since joining VF Corp in 2023, you have personally written over $3 million worth of checks from your own pocket to purchase stock. And several other board members and executives have made material open market buys. You have a policy requiring significant share ownership over a 5-year period, ranging from 2x to 6x current annual base salary with credit given only for direct holdings. On top of that, 90% of your compensation is tied to financial targets, including revenue, operating income, gross margins, with 50% of stock option awards linked to long-term performance goals. The rest of the executive team has similar performance-based compensation. Can you speak to how you and the board think about alignment with shareholders and why you believe this culture is so important for the VF Corp turnaround?
You know, I don't know if most people are as financially motivated as a lot of investors might think, but certainly some people are. But in my experience, good boards and good leaders understand that the scorecard for winning is about increasing shareholder value dramatically. And so whether they're there because they want to make a ton of money or they're there because they want to be viewed as a big winner, both of those arrive at the same place, which is you should absolutely have the performance tied to the performance of stock. And I couldn't feel any more strongly that especially the CEOs but also the rest of the management team should be very directly tied to that, and we are, and I think every company really ought to be.
Yeah, I agree and I'm really happy to hear you say that. You know, when I got involved in the stock, you know, pre kind of tariff fears, I was just sharing with your colleagues that we've got a pretty low basis, $13 and change across the board and we saw you start to implement the turnaround plan and the stock ran up from 13 to 28 and then there were some fears about tariffs and it got knocked down. When I originally wrote this and I wrote a personal check and I wrote big checks for my clients to buy stock, my basis and by the way my nickname on Wall Street is Turnaround Tom. So we do have something in common as you're a turnaround specialist as well. You know, I had originally underwrote this. I said look, the number one thing with a turnaround is take solvency risk off the table. So I underwrite for that first. If they do that you get a double. If they actually stabilize the business, you get more than that. And if they execute and grow and turn it around, you can get upside. But my initial underwriting was, you know, $40-$50 stock. Okay? And as I've listened to you over the quarters and seen what you said you were going to do and see what you've done, leaving aside the short-term liberation noise and all that stuff that you're going to work through just fine. I've taken my internal underwriting up from that $40-$50 because you've already taken solvency risk off the table. You're already stabilizing and growing most of the brands to I think over, I can't tell you if it's going to be three, four, five, six years, but generally three to five years. I think this stock could work its way back to new highs. And I know you can't guide on any of that. A little bit of curveball here when you forget about the guidance. Forget about you're an individual investor. You wrote $3 million worth of your own money into stock. Did you have a similar view to me or do you think I'm too optimistic?
Well, I you know since I can't talk about, I could but it'd be naive of me to go out and start predicting stock prices like that. Yeah, fair point. I can't really respond directly to that comment to your question, Tom, but I'll talk about why did I invest? I invested for a couple of reasons. First, I think, you know, I wouldn't be here. First of all, you deserve the name Turnaround Tom because you've invested in turnarounds serially and they've worked. I don't think I deserve the name. I'm not Turnaround Bracken because I really never go into any of these with that first objective, that double objective. That is not my objective. In fact, I just view that as like if you're on a stairway, the turnaround part of it is the first two or three steps. That's just a path that's just part of the pathway to what I really want to do. I love creating long-term growth businesses. I mean, that's my game. That's all I'm here for. That's all I ever cared about in my life from a career standpoint. I love to grow people. I love to grow businesses. I love to grow brands. I love to create great things, great products. So that's why I came here. It wasn't to do the turnaround. The turnaround is just a step along the way. So that's my starting point. My second one is in terms of the investment itself, I would say, as a result, I think we're a tremendous investment or I wouldn't put my own money in. I also wouldn't be here if I didn't feel that way. So I feel like it's a tremendous investment as you said. We're trading at not historic lows, but at pretty low prices relative to even four or five years ago. And the brands are fantastic. I mean, we really have tremendous brands. So that's about all you need. The rest is really leadership, getting the right team in place, and then putting the process in place and executing. And I think I know how to do that. The most important one is getting the right people here. And we definitely have, at least at the top, now I've really got a fantastic team.
Right. We're going to get to that here. Something we always prioritize at Great Hill Capital is investing in companies with high quality sound management, what we call betting on the jockey. And that's exactly how we view VF Corp because by all means Bracken, you're a turnaround specialist. Whether you want to call yourself that or not, Turnaround Darrell, let's leave that aside. For the, we're going to call you Growth Company Darrell. But for those in the audience who may be less familiar, Bracken's first major turnaround was Old Spice where he tripled market share in two years, creating one of the most successful turnarounds in P&G history. Then he took over Logitech in 2013 when the stock was down 82%. Sales were declining, operating margins had collapsed. Over the next eight years, the stock went from $5 to $133, delivering a 26 bagger. The setup sounds very familiar to what you faced when you joined VF Corp, a stock that had fallen 85% with declining sales and operating margins cut in half. Could you first discuss what you've learned from your track record of successful turnarounds and now that you're approaching the 2-year mark at VF Corp? Compare and contrast your plan execution results and results to date and expected outcome between Logitech and VF Corp to date. Logitech being a 26x because of you. Maybe kind of draw some comparisons if you see any.
Well, the most important, what have I learned today? What have I learned in my experience? The most important thing is, you know, if I've learned anything and I've been very lucky to work around great people, and I had great people at Logitech and I built that team over probably five or six years to really get it to where it was. The team that really had that kind of performance. It didn't take five or six years to perform, but it took five or six years to get there, and it probably didn't need to take as long as it did, but that's just intuitively how I felt like the timing that made sense here. I've gone much faster on the people side. I'd say it's taken me really a year and a half to get to the same kind of caliber team. And that super team is still over there at Logitech and I've got a super team here now. So I feel really good about that. So those two things are very parallel in terms of what I've done we've done so far. The second thing is it ends up being all about, you know, if you think about it, the requirement to be financially disciplined aside, we'll park that for a second because that's a given. If you think about, we only do two things. We create products that ideally make people feel better about themselves and are preferred to other people's products. And we help build brands that people want to join, want to be part of. And those are the two things we have to do exceptionally well. And so to do that, you've got to have a great product machine. So one of the first things we really worked on here is, first of all, we didn't have this problem launching, let's get to one product process. It's as if we had 13 different factors or 32 different factors for creating products. They were all doing it differently. We've gone to one now. That's still not fully implemented because it takes a little while to cross over and get to that common practice, but it's a best practice. It's a best industry practice. And so by the time we get to over the next six to 12 months, we'll be on that one common best-in-class process of ideating and creating product and bringing it to market. That's the most important step from a process standpoint you can do in this company. And I feel super good about that. Now, we're going to do that for every major process in this company. We are. So think about that like you open your phone and you've got apps on the phone. Once you've got one really good process, it's like an app. And so every time there's an improvement to that process, you can update all the different brands' apps or processes at the same time. So that's where we're headed and that's really going to be a good best practice. I dreamed of doing this before when I was back at P&G a long time ago and P&G generally had one good strong process. Ever since I experienced that, I wanted that in every company I was in. Logitech, we didn't have that problem because we were on one process. Here we weren't. So we've done that. So first people, second processes, the third is functional excellence, really bringing in people who are the best in class at what they do and making sure that we're constantly pulsing the industry and outside our industry in areas. Let's say for example AI today where the best things that are happening we're bringing them in, learning them, and then becoming functionally excellent at them. Those three things are super critical and we're well downstream on all three of them. I would say all three of those were really critical to the performance at Logitech. The second one was easier to do because we were already on one process. We just had to improve it. And then the people side and the functional excellence side took years to develop and that's exactly what we're doing here.
Thank you. Well, that's really helpful. I want to talk a little bit about the cleanup phase, which you've been going through the last 24 months. Probably the one you hear the most about and arguably the biggest piece. 24 months. Yeah. I think some investors feel like it's 24 years, but it's been 24 months. Exactly. It's been a very short time, but a lot accomplished in that short time. But the one you probably hear about most, the piece of the turnaround, biggest piece of the turnaround, and that's Vans. I now have five pairs, by the way. I picked up another pair at Vans by Talia in Laguna Beach this weekend with my girls. This is a brand VF acquired back in 2004 that went on to grow 10x over the next 15 years. So from starting in the early '60s and yet they were able to drive that growth, but it's been under real pressure since, as you know, revenues in the most recent fiscal year were more than 40% below their peak in fiscal year 2022. You've been open about what went wrong: that Vans lost touch with its core audience by chasing trends, became overexposed to value channels, which diluted the brand, and leaned too heavily on legacy franchises. Since you stepped in back in 2023, the focus has been on taking your medicine and cleaning things up from existing value channels and closing unprofitable stores to right-sizing inventories, all of which have helped to drive significant gross margin improvement. Could you speak to that initial phase of the Vans turnaround, what you prioritized, what you think needed fixing most urgently, and how you've approached setting the brand up for a comeback?
Yeah, you know, I think this happens a lot in very successful businesses. The thing that gets you there, you overdo it. It's like you get a really strong muscle and then you just keep going and going and going and suddenly one day you're so overdeveloped that the rest of your body's in trouble. And that's exactly what happened here. I think they did some really great things with the brand. I mean, the Warped Tour, just fantastic. They had fantastic products that were really appealing and they did really good things with them and then they just, again, it's so easy to be 20/20 in hindsight. I'm not critical of anybody who was here at the time because there but for the grace of God could have been me. But I think they just had a few things that were really working and rather than keep that innovation funnel filled where you're constantly putting in new ideas, product innovation ideas, marketing ideas, they had things that were working and they just poured more and more fuel into those and they took them broader and broader in distribution, for example, and deeper into the value channel and they just went deeper and deeper and broader and broader on some of the same styles and there wasn't something behind them. They had cut the spending or at least they hadn't increased spending on the innovation pipeline and the problem is at some point that music stops. So that's really what it was. And if that sounds overly simplistic, I don't think it is. The cool thing is the brand is as strong as ever. It's a fantastic brand. You really have a very hard time finding anybody who doesn't think the brand is really strong. That's a great sign. That's like a wonderful sign. The business is in trouble but the brand seems, consumers don't seem to realize that. Well, why is the business in trouble? The brand's good. I just don't see anything I want to buy right now. That's a good sign if you like to create products because it means we can come back. And then the marketing side is just trying to find your way into the cultural excitement that's happening in the moment. Trying to lean into that. I'm not a big believer that you can create big broad trends usually as a company. Sometimes I think people maybe they pull that off, but you can usually find them and then align your brand with them and then do things that consumers see as really fitting the moment. And so that's really what we're up to now and it's super exciting and fun.
Yeah, that's great. Well, thanks for commenting on that in the cleanup. I want to talk a little bit about growth. The focus seems to be on creating new products and returning the brand to its roots. In many ways, it reminds us a little bit of what New Balance pulled off in recent years, maybe Converse to a lesser extent. After 15 years of sales declines, they reinvented themselves, New Balance that is, by leaning into streetwear culture, influential partnerships, and high-profile collaborations. In terms of returning the brand to its roots, it doesn't get much clearer than bringing back the Vans Warped Tour. You sold out three events in a matter of hours and drew nearly 170,000 attendees in Long Beach, more than double the previous peak. You've also introduced new core franchises like the New School, now your number two global franchise and top growth driver along with sellouts like Super Low Pro. I have a pair by the way. I think I sent you a picture. And continue to successfully lean into the premium product space. On top of that, you've rolled out several high-profile collaborations, including the Lil Uzi partnership and continue to elevate the marketing approach. As we head into back to school and holiday seasons, what should investors expect to see from Vans as this brand work starts to materialize? Are there any early signs of traction you can point to? And how should we think about the early influence of Sun Cho as she begins shaping the brand's direction going forward?
Yeah, first of all, Tom, you've made the same mistake I did. It's Sun Chay. Sun Chay, excuse me. When I introduced Sun, she corrected me. I introduced her to whatever thousands of employees at Vans. And she said, 'You know, Bracken, I hope you realize it's Sun Chay.' I think she said, 'My name is Sun Chay.' And I said, 'Oh, no. I appreciate that. My name's actually Bracken Darrell, not Darrell Bracken.' We still laugh with it. You know, look, I think the New Balance example is fascinating. I think it's one of the most successful growth stories I've ever heard of. And I grew up with New Balance. I'm old enough to remember when New Balance was just a running shoe. And what they call a dad shoe today was never a shoe I actually ran in. But I remember the brand and it was a very narrowly targeted running shoe and they stayed that way for a very long time. I knew the prior CEO quite well and he left to run Purple I think, and the new CEO took over and it seemed like just miraculously it took off. So I studied that one with my team because we found it a fascinating example. But there are a lot of cool things about this industry. There are good examples of brands either getting their mojo back or creating mojo like On or Hoka. It's a cool industry where when you start to get things right, things really can take off. So it's another thing I love about this industry. People are interested enough that that can happen and we all spend enough marketing to help make that happen. So I can't comment directly on back to school but you asked for early signs. I mentioned this in our earnings call. We started here really trying to move things just like we did at Timberland at the top of the curve. So at Timberland, I'll use as a parallel. When I first got here, we started doing these, it was the 50th or 60th anniversary of the boot and we started doing collaborations with some of the best hot designers, not people you necessarily heard of, they're really known in the design community, the fashion community. So we did eight, I think, of those in a row. Month after month, we put them out there. It was our birthday. It was hip-hop's birthday. It was the boot's birthday. We did a little movie that very few people saw, but it's one of the coolest movies on the planet. So we did a few things there and that was really intended to seed the very top of the industry. And then, thank God for Pharrell and Louis Vuitton, they reached out to us and said, 'Hey, we'd really like to do something with you guys.' And that created the next wave in Paris. And then Maisy Willoughby, who's our brilliant CMO, working with Nina Flood, who's our brilliant president, Nina had this idea: 'Hey, what if we bought out all the billboards and put "Je t'aime" instead of "Tim"? If you don't speak French, "Je t'aime" is "I love you". "Je t'aime Tim" would be "I love Tim". So we bought out all the billboards in Paris all at the attempt to try to get our mojo back. And it worked. And then Timberland started to come up again. We're doing the same thing at Vans where we started with a subbrand called OTW, stands for Off The Wall. We brought cool collaborations. They all sell out immediately. And so we've been doing that now for a year and a half. And the cool thing is now in Paris this year at fashion week where a lot of the industry comes together, we had the tier zero, the top of the industry people who want to carry our OTW product. We were up 50% in bookings, 50% in meetings there, and we had people that had not carried us in years who came back and want to carry it now. So it's just a good sign. Like I mentioned in the earnings call, it's a good sign that things are happening now. That is a sliver of our business. It's not going to have any meaningful impact in absolute dollars volume profit on the Vans brand if we sell three times more of those, but the fact that they're interested, trends start at the top, they don't usually start at the bottom, so it's going to flow down. We believe we'll see proof of that.
