VFC - NYSE

Ladies and gentlemen, thank you for standing by. My name is Krista, and I will be your conference operator today. At this time, I would like to welcome everyone to the V.F. Corporation First Quarter Fiscal Year 2026 Earnings Conference Call. [Operator Instructions] And I would now like to turn the conference over to Allegra Perry, Vice President of Investor Relations. Allegra, you may begin.

Thank you. Hello, and welcome to V.F. Corporation's First Quarter Fiscal 2026 Conference Call. Participants on today's call will make forward-looking statements. These statements are based on current expectations and are subject to uncertainties that could cause actual results to differ materially. These uncertainties are detailed in documents filed regularly with the SEC. Unless otherwise noted, amounts referred to on today's call will be on an adjusted constant dollar and continuing operations basis, which we've defined in the presentation that was posted this morning on our Investor Relations website and which we use as lead numbers in our discussion because we believe they more accurately represent the true operational performance and underlying results of our business. You may also hear us refer to reported amounts, which are in accordance with U.S. GAAP. Reconciliations of GAAP measures to adjusted amounts can be found in the supplemental financial tables included in the presentation, which identify and quantify all excluded items and provide management's view of why this information is useful to investors. Joining me on the call will be V.F.'s President and Chief Executive Officer, Bracken Darrell; and EVP and Chief Financial Officer, Paul Vogel. Following our prepared remarks, we'll open the call for questions. I'll now hand over to Bracken.

Thanks, Allegra, and a good early morning to all of you from Vans headquarters on the West Coast. Welcome to our Q1 fiscal '26 earnings call. In spite of all the macro noise out there, we delivered above our guidance this quarter, a good start to the fiscal year. But the much more exciting thing happening is inside the company. You can feel how dramatically we're transforming the processes, teams, product engine and marketing approach, even the culture, almost everything. And that's all happening as we improved our top line trend to negative 2% in constant dollars and flat and reported. A year ago, only 10% of our business by revenue was growing. And today, that number is almost 60%. We also delivered a much stronger bottom line, a loss of $56 million in our seasonally low Q1, about $50 million ahead of the high end of our guidance and ahead of last year. Paul will cover the numbers in more detail, but in short, we're making solid progress towards our goals and are highly confident that we'll turn V.F. back into a growth company. Now let me summarize where we are in the V.F. turnaround as I passed the 2- year mark as CEO this month. I love transformation and we are transforming. We've assembled a great team at the top with some of the industry's best who we've either brought in from the outside or are promoting from the many leaders who grew up in V.F. and experienced it during a strong growth phase. We've dramatically improved our cost structure, reduced well over $300 million of cost and have another $500 million to $600 million of net operating income improvement in our sites. Even more importantly, for the long term, we're building a unified product and marketing engine across each brand globally and leveraging the strong standardized processes we've created. The architecture and organizational structure changes are now complete to deliver results. You'll see more powerful product and marketing as time flows. We prioritize strengthening our balance sheet. And in fiscal 2025, as you know, we reduced our leverage at full turn and have a clear path to below the 2.5x leverage, target that we initially set by fiscal 2028. That's just 2 years away despite the anticipated tariff impacts -- all the anticipated tariff impacts. Paul will talk more about that shortly. We continue to be focused on paying down our debt, but we're doing it as we invest in growth. So lower costs, improved margins, declining debt and a transformed organization. But what's all this leading to? Why are we doing this? Of course, it's all about one goal, growth. Turnarounds, by definition, start with declines. It's been 2 years of resetting the table and soon, we too will move to growth as we did in every turnaround I've been part of. That's the focus of every leader on my team and throughout the company right now. We're all here to grow. We have so many opportunities for growth. But today, let me focus on them by brand, starting with our top 3. First, we're going to bring Vans back to growth. We don't like the numbers on Vans any more than you, down 15% in Q1. About 40% of the decline can be attributed to channel rationalization actions, as you know. Excluding these, if you look at the underlying trends, Vans is running down high single digits, but we're seeing some bright spots. We'll get Vans back to flat and then to healthy growth as fast as we can. There are some out there who think this will never happen. I sort of love having that point of view out there. I get it. And it's our job to show you how wrong that point of view is. I'll come back to Vans and talk more in just a minute. Second, the North Face grew 5% this quarter, but our goal is to go from mid-single digits to high single digits and even to double-digit growth on a path to doubling revenue. That might sound ambitious today, but it's exactly what our brand president, Caroline Brown, laid out at Investor Day. We aren't promising to achieve those growth rates in the near term, but that's what we're focused on delivering. Our product innovation pipeline continues to build momentum for the brand. Footwear was up strong double digits again this quarter and is becoming a meaningful part of the business. In addition, our bags and packs business also grew strong double digits. But our biggest potential is actually in lifestyle apparel in general and spring and summer in particular. In fact, this is all to say we have many, many untapped growth opportunities in the North Face. Third, we're going to support the sustained momentum and growth of Timberland. The brand grew 9% this quarter with global momentum in the 6-inch boot and a growing business in the boat shoe. Our marketing strategy is working, enhancing the brand's visibility and further broadening its reach and relevance in warmer weather. As we've seen with its presence at events like the Met Gala and the NBA finals and just a lot of organic social media that we see and amplify. We're more confident than ever that the upside opportunity to break out of Timberland's historic revenue range is real, and we have the team in place to do it, led by Nina Flood. This is a business where the brand and the culture are much bigger than the business itself in size, and therein lies the potential. Finally, we'll fuel the other growth engines as they show their potential and truly turn V.F. into a multi-brand powerhouse. Let me point to Altra in this case, which had another strong quarter, up well over 20% and has grown from $60 million of revenue when we bought it to being on track to exceed $250 million this year. And that size with less than 10% awareness in the U.S. and much lower than that in the rest of the world. This is the kind of business that we can scale. It's already tied for the #1 shoe in trail running in the U.S. and one of the fastest-growing franchises in the road running business. Now let me return to Vans. As a management team, we know the impact of VS valuation, and we can see the focus around the timing of a turnaround. We get it. So let's talk about what we're seeing in thinking. First, we have a great leader, Sun Choe, and she and her team are executing on the plan laid out at Investor Day. I was just looking at more of our future lineup last week here in Costa Mesa, and things are really coming together. Each quarter, you'll see new entries. This team's freedom to innovate will be less and less constrained by the practicalities of the old product creation process as each quarter passes. So you'll see more and more ahead. But there are already positive signals in the Pinnacle side of the business. We had a 50% increase in appointment bookings at Paris Fashion Week in June, including new accounts and accounts who have delisted Vans in recent years coming back. And if you didn't notice, there was also a strong reaction to the sheer number of skate-inspired silhouettes featured by many luxury brands in Paris this year. These are the style centers and the taste makers. Trends start in the luxury market, as we saw in Fashion Week for Timberland with Louis Vuitton last June. I'm not suggesting that Vans will be growing 9% a year from now, but I am excited to see the tide turning on skate style shoes and luxury where trends start. Premium today is a small part of Vans, but this shows how sensitive this business is to new products. We don't have enough new products in the premium or the mainline yet, but Sun and the team, she is assembling our new product machines. New products are coming. With the recent changes in our supply chain, we're starting to accelerate our pace to market too. Meanwhile, Sun and her team are working away on increasing supply and variety in our latest products that already have strong interest, like the Super Lowpro, the Current Caples Skate and the latest from OTW, our Pinnacle offering. We're also seeing encouraging signs in one of our classics, the authentic. We have an exciting collaboration with Valentino and that shoe hitting the market this fall. Now what about the actions we're taking to make sure those new products? All of our products are in the right places with the right support for long-term growth and profitability. As we've discussed, we've taken deliberate actions to improve our channel mix to set us up for high-quality, sustained and profitable growth. These actions will continue to impact the Vans business through Q3. So as we exit the year, our channels should be at our future state. We're already seeing some solid results in wholesale. Americas sell-out trends continue to improve as non-value accounts grew again this quarter. In DTC, over the last 2 years, we closed about 140 stores, about 20% of our global network. While it's tough medicine affecting revenue, it's improved our profitability. We've also now reoriented about 90% of our full-price Americas stores to provide greater gender clarity and we'll continue to change the format to show more newness and footwear focus in our visual merchandising. In the pilot store on Fifth Avenue, we delivered positive comps in Q1, significantly outperforming the rest of the fleet. Over in Europe, the elevated London store generated a 15% better revenue performance than the rest of the EMEA fleet, driven by a significantly higher average selling price, 35% higher through a more premium product offering. Based on these early successes, we'll be rolling out our new retail playbook to improve assortment, curation and navigation to other regions. It's also worth mentioning that in EMEA, we've executed on a key city strategy we have elevated our merchandising and focus in those stores. And this is generating exciting early results in that region with those stores starting to perform better than the rest of the network. And finally, on marketing, our approach simply hasn't driven enough traffic. While the whole industry is affected by slower traffic right now, we don't accept that, and we're changing our marketing approach. I can't disclose too much now, but keep watching the space. An aspect of our marketing is that is powerful is the long-awaited return of the Vans work tour. And it's a restart year, we planned 3 locations, and we intended to sell 50,000 tickets in each location, which would be about twice any single work tour event in history. Then we sold out of all 3 events in hours. We added a lot more tickets and sold those out immediately, too. Sunday, I was at the second of these events in Long Beach. And over the 2 days, we had almost 170,000 people. That's surely the largest single collection of Vans footwear and apparel ever assembled in one place. Everyone was in Vans of all kinds. You could really feel the love for Vans. People came because they love music and they love Vans, and they're inseparable for many. 80, that's 8-0, different artists, 8 stages and just a huge boost for the brand. To wrap up on Vans, we're on track with the turnaround and could be more excited about what's coming next. Keep watching. We are well on our way to transforming V.F. and this quarter is another step in the right direction. Our powerful portfolio of brands and the sustainable growth model we're creating will help us accelerate growth and improve margins. We're on a path to achieve our targets and build a stronger V.F. Our focus is on growth. I'll now hand it over to Paul, who will go deeper into the numbers.

Thank you, Bracken. Before I start, let me build on what Bracken said and remind you of where we are going. We committed to a 55% gross margin and a 45% SG&A to sales ratio in fiscal '28. And the first quarter of this fiscal year, we are continuing to show progress toward those goals. Our quarterly 2-year stack trends have shown gross margins up roughly 200 basis points with SG&A down 5% over that same time period. We have done all of this without any growth. But as we said at the time -- as we said time and time again that's not what we're here for. We are here for growth, and our whole organization is focused on the next stage, which is about growth. So now let me turn to a review of the first quarter. Our first quarter was solid and our operating results came in above guidance, the guidance we provided. We feel particularly good about the improved progress towards our stated medium-term goals. As a quick FYI, before I get into the numbers, currency movements in the quarter were significant, positively impacting reported revenue by 200 basis points. These FX changes also had a positive effect on gross margin with a negative impact on SG&A. The net of these effects had a negligible impact on our operating income. Q1 revenue was $1.8 billion, flat on a reported basis and down 2% year-over-year in constant dollars. This compares to our guidance of down 3% to down 5%. Excluding Vans revenue was up 5%. Total revenue in the quarter did benefit from a wholesale timing shift, which landed in Q1 rather than Q2. Excluding this benefit, revenue would have been down roughly 3% at the top end of our guidance range. By brand, the North Face grew 5% led by growth in both DTC and wholesale. Vans revenue in the quarter was down 15%, similar to last quarter, the impact of the direct actions we are taking in the value channel and our own stores was about 40% of the reported decline. And finally, Timberlands momentum continued with revenue up 9%, reflecting growth across all regions -- sorry, across all channels. By region, the APAC region grew 4%, while the Americas and EMEA regions were down 3% and down 2%, respectively. Excluding Vans, the America region was up 3% versus last year. And lastly, by channel, DTC was down 4%, while wholesale was flat. Adjusted gross margin in the quarter was up 200 basis points to 54.1%, driven primarily by higher quality inventory, lower discounts and FX. This reflects our transformation efforts to make us a structurally higher margin business. SG&A dollars were flat year-over-year as we continue to realize cost savings across the business. Our adjusted operating margin for the quarter was negative 3.2%, up 270 basis points year-over-year. We're continuing to make fundamental margin and profitability improvements by reshaping and strengthening the foundation of our business. Finally, adjusted loss per share was $0.24 versus $0.35 in Q1 of last year. Moving on to our balance sheet. Inventories were up 4% or $76 million at the end of the quarter, excluding the impact of FX, inventories were up 1%. Importantly, we improved the quality of our inventories, which is driving stronger gross margins and our inventory days are down 4% year-on-year. Net debt was down $1.4 billion versus last year or down 20%. Let's now turn to the outlook for the second quarter. We expect Q2 revenues to be down 2% to down 4% on a constant dollar basis. As a reminder, Q1 did benefit by roughly 1 point of growth from a timing shift in wholesale, which will conversely negatively impact Q2 growth by 1%. Taking Q1 and Q2 together, our first half performance is expected to be in line with the comments we provided on our last earnings call in May. Moving down the P&L. We expect Q2 operating income to be in the range of $260 million to $290 million, gross margins will be broadly flat as we continue to benefit from fewer discounts and healthier inventory, but we'll lap the tailwinds from last year's inventory actions. SG&A dollars are expected to be up slightly versus last year mainly due to our decision to invest more into marketing ahead of back-to-school as well as a negative FX impact. On a constant dollar basis, SG&A is expected to be broadly flat versus last year. And finally, we expect Q2 interest of approximately $50 million in an effective tax rate in the range of 30% to 33%, which is higher than last year's reported tax rate. And in line with my comments last quarter about increasing trend in our tax rate over the next 1 to 2 years and quarterly fluctuations as a result of the change in the global tax rates and in our geographical mix. As a reminder, this higher tax rate will have a minimal impact on cash taxes. Now let me give you a quick update on tariffs as things have moved since we last updated you. When we spoke in May, we quantified the annualized unmitigated impact from the 10% incremental tariff on goods coming into the U.S. as $150 million. Based on what had been agreed at the time in terms of the timing of implementation, we estimated 65% of the impact would hit in fiscal '26, and then we'll start to see the impact flow through in Q3. Based on the latest information has become public, we estimate an incremental annualized tariff impact of $100 million to $120 million, bringing the total annualized amount to $250 million to $270 million. We expect 50% of this total to flow through in fiscal '26 based on the timing of the expected tariff increases. As we communicated, we have actions in place to mitigate the tariff impact through sourcing savings and pricing actions that will take effect later this year. From a timing perspective, we will begin seeing the impact of tariffs in the P&L before we realize the full offsets from the mitigating actions. Therefore, we expect a negative net impact to gross profit of $60 million to $70 million due to tariffs in fiscal '26. We remain confident we will be able to fully mitigate all currently anticipated tariffs in fiscal '27. On the back of these developments, I also want to update you on the directional year-over-year guidance for operating income and free cash flow in fiscal '26. First, we continue to see operating income up versus last year in fiscal '26. This is inclusive of all expected tariffs that we believe to be on the table at this point as outlined earlier and as we continue to make progress towards our medium-term targets. Second, on cash flow. We continue to expect operating cash flow and free cash flow, excluding the sale of noncore assets to be up year-on-year, also including all expected tariffs at this point. So let me repeat, free cash flow for the year will be up versus last year, even after we account for tariffs. We are working on a number of initiatives that are expected to improve our free cash flow throughout the year, which gives me a confidence that we are well positioned to achieve our guidance. And we anticipate that our leverage will decline at year-end of fiscal '26. In addition to improving our cash flow, we remain vigilant about lowering our debt. As many of you are aware, we utilized our revolving credit facility to manage fluctuating working capital needs throughout the year to ensure we maintain a strong liquidity position moving forward we're in the final stages of executing a $1.5 billion asset-backed revolving loan. This will replace the current revolver we have in place. We are pursuing this option as we believe the ABL gives us more flexibility, more certainty and eliminates the majority of covenants associated with our current borrowing. It also aligns with the puts and takes associated with the cadence of quarterly working capital needs. So to be clear, we are on track to meet our guidance to reduce leverage to 2.5x by fiscal 2028. Before we close, I want to highlight changes we've made to our segment reporting as well as post quarter and update to our financing structure. First, in Q1 fiscal '26, we have changed our segment reporting to make it easier for investors to track our key areas of focus across brands and segments. We will continue to disclose revenue for our top 3 brands, the North Face, Vans and Timberland, and as for segments, here's what has changed. We have combined Timberland Tree and Timberland PRO into one operating segment. This combined Timberland along with North Face now constitutes our Outdoor segment. Vans and Packs make up the active segment, while Dickies Altra Smartwool, Icebreaker and Napa are reported in all other category. While we will no longer disclose Dickies as a stand-alone brand, we continue to be excited about and committed to growing the Dickies brand. Our new brand President, Chris Goble, has made an excellent start to restating the brand since joining last October and is already executing on the strategy we introduced at Investor Day in March, the leadership team being rebuilt. We believe the brand has significant growth potential under Chris' leadership. By the way, even though we are no longer disclosing separately, Dickies' decline versus last year moderated significantly this quarter. So in closing, we are pleased with our results in the first quarter of fiscal '26, as Bracken said, we are focused now on getting each of our brands growing and getting stronger and stronger. I'll now hand it back to the operator to take your questions.

[Operator Instructions] And your first question comes from the line of Adrienne Yih with Barclays.

Great. And nice to see the progress and congratulations on that. Bracken, I guess, I'm going to start with sort of the Warped Tour. So what did you expect to see? I mean, obviously, you gave us some of the metrics, but what did you expect in terms of mind share, market share kind of before the event? And what metrics kind of suggest to you that you've engaged other than selling the tickets in terms of kind of feedback, et cetera? And then Paul, can you talk about the $60 million to $70 million of gross profit impact? Obviously, given the guidance that you had for the first half of the year, all of that is coming in the back half. Are you able to offset this through the SG&A? Can you talk about some of the other parts of the P&L that can offset that? And I'm assuming that, that does not include the price actions that you would be taking? Or just some clarity on how much of that includes forward Price actions?

Okay. Let me jump on the first question. What expectations we have for the Warped Tour? Well, as I said earlier, our expectations were -- first of all, realize the Warped Tour hasn't been around since 2018. And we made the decision actually within the first few weeks that I got here to go ahead and restart it. And Kevin Lyman, I should -- we should make sure to give credit, especially Steve Van Doren really ran with it, and they've recreated the Warped Tour. We only planned 3 events. So we expected a pretty modest impact, although social media is a magical thing. And those 3 locations feel like it's happening all over the United States now. We sold 50,000 tickets. Our plan was to sell -- make the events much bigger than they've ever been before. So from 25,000 was the peak size of any event in the past. We planned to sell 50,000 tickets. We sold out of those, I think, in 1.5 hours or something. So we added another 35,000 tickets. We sold out of those just as fast. And so the demand was just enormous. And you probably -- if you followed it at all in social media, you see how much activity there was. In terms of the impact on the business, in year 1, we're only doing 3 cities, and it's the first time back, so we'll see. But we sold -- I would just say we sold a lot of merchandising. And if you stack on top of that, all the merchandising was sold by us, the event -- the event manager, the different bands around it, you can see how powerful this is as a driver of product. And that's physically at the event. We expect that to continue, especially as we go into year 2 of this event. So it's a super, super powerful event for us. It's a fan fest. It's a flat out, all out, huge fan fest. And I wish we could have had every investor standing in the middle of that monstrous crowd that I was on Sunday, and you would have felt it. Come to Orlando in November.

Bracken was very excited with his Warped Tour experience. The -- so just to be -- I guess, to clarify the question. So the $60 million to $70 million we talked about, you're right, it's mostly the back half of the year, and that's the net number when you sort of account for everything that's in play right now between how much flows through this fiscal year, what we believe we can offset between pricing and other actions but also keep in mind a couple of things. We've been working to improve gross margins anyway throughout the year. So obviously, this has an impact on gross margins, but it's not in a steady state or static environment in terms of gross margins. And so -- and we'll continue to work sort of on the gross margin improvements outside of tariffs. And then yes, obviously, we'll continue to be very diligent on our other cost initiatives, which we've talked about.

And just to be clear, it's 20% Indonesia and -- sorry, 19% Indonesia and 20% Vietnam. Is that the incremental?

Yes. I mean that's what we're going Yes. So again, I guess, to level set on that as well. everything that we've put in now is what we see as well from the public -- from what's been made public by the administration or others. So we don't really know anything more than anyone else in terms of expectations. So we've modeled what we believe is the most likely outcome based on what we've seen from public information as well.

But think of that as another 9 or 10 points in Southeast Asia and something comparable around the world.

Your next question comes from the line of Lorraine Hutchinson with Bank of America.

I just wanted to get your longer-term views on gross margin. Clearly, we'll have some pressure through the rest of the year from tariffs. But as you step back and you look at the gross margins of each of your brands, where do you see the most opportunity to improve those going forward?

Yes. We kind of -- in our Investor Day, we laid out I think Investor Day 1, we actually -- and we reiterated in #2, we set our gross margin target over the next few years to get to 55% stay there and potentially go beyond that. And we continue to feel very strongly about that when we look at our overall business. In terms of gross margin improvement, we've got really gross margin opportunities across every brand. It's just a question of how much we try to exploit that. I mean, I think in the North Face, we have premiumization opportunities across the board and mix opportunities. If you really -- I don't want to go down in the mix of our gross margin by brand, it will get really complex if we do that. But I would just say where we see the growth opportunities long term, the gross margins are better. If you look at Vans, I think we talked premiumization today. We talked about the Fifth Avenue store. We're selling 35% more premium mix in the Fifth Avenue store. It tells you how much upside there is. This is like all of our brands, I think, Vans is a brand that has the ability to stretch across such a wide range of price points. And generally speaking, as you go up in price points, you have higher gross margins. And we're barely touching the tip of the iceberg in terms of the premium mix that we can sell. So I think across all of our brands, we have opportunities. And I'm -- I think I can safely say that Paul and I are gross margin fanatics. I mean, we're really focused on that. I've learned in my career and so as Paul, gross margin is where the action is. If you get gross margin right, everything else flows. It's also a great reflection of the strength of the brand and the strength of the business as long as you've got growth, and we will get growth. So we're going to get better gross margin.

Yes. I would just add, so just kind of refresh to in terms of what we said at the Investor Day, right? We mentioned the 3 big gross margin initiatives. We mentioned some of the 9 initiatives that we talked about that were going to help generate that incremental $500 million to $600 million of operating income. The 3 that we specifically called out in gross margin were product creation, integrated business planning and markdown management. Markdown management, you can think about is something that is more immediately actionable. The other 2 take a little bit of time right on product creation and integrated business planning. And so I think you'll start to see the impact of markdown management, you already have, right, in terms of where we've seen sort of better execution there in terms of overall markdown and then you'll see from the product creation and integrated business plan and that stuff that will start to benefit us but really get rolling over the next kind of year or 2.

Your next question comes from the line of Jay Sole with UBS.

I just want to ask another question about tariffs. It sounds like you're going to mitigate a whole lot of the $250 million to $275 million gross impact. What kind of impact do you expect on unit volumes as you raise prices and do some of the other actions to offset the tariff?

Nobody really knows. I mean this is a very unusual circumstance where the whole industry is affected kind of equally. And if you -- if our competitive assessment is right, I think everybody's kind of hit fairly equally in this industry, whether it's footwear or apparel on the tariffs. So it's a little hard to model. We've modeled different scenarios as you'd expect. So we're all the way down to a worst- case scenario and then the best case scenario, which we then ignore. And we focus kind of on an expected case and making sure we're protected against the downside case. Generally, I think we're -- I suspect we're modeling somewhere in the 1:1 or a little bit better given that the whole industry is raising. So we'll see. And then on top of that, you could have a macro impact. Do you want to add anything, Paul?

No, I would just say exactly that. I'd say, we -- as you can imagine, we have different scenarios around different elasticity curves. And so we'll just -- some of it's going to be a wait and see how things go. And then I think Bracken mentioned in a number of our brands, sort of where we are at the product. And I think some of them probably had some pricing opportunity with or without tariffs anyway. So we'll see how that works out.

Got it. So Bracken, I think you mentioned 1:1. Does that imply like sort of like an elasticity like raise price 1%, unit volumes go down 1%. Is that what that means?

Yes, roughly, although there's an argument, and we certainly think that's very possible that it could be a little better than that because of the nature of the tariff increase impact on everybody's costs. Now that might not show up right away. So it's kind of our expectation. It's going to take a while for that just to play out. I think one of the -- there's a lot of discussion about why is the economy so good? Why is the -- why the tariffs not shown up? I think it's because the tariffs really haven't shown up most people's costs yet. They're flowing through inventory or making their way into our cost and everybody else's. So it's a little hard to know. So we're just going to be flexible. One of the things I'm proudest of what we've done in the last year is we've built an ability to be a great response machine to what's happening. And so we'll react to whatever we need to from a pricing cost and factory relocation standpoint with a lot more agility than we could possibly have done before to whatever it is.

Your next question comes from the line of Michael Binetti with Evercore.

Congrats on a nice quarter. I guess North Face Americas, good to see the 5% growth rate on the global basis. North Face Americas, I know it's an unimportant quarter but down 3% in the summer. I know you mentioned that you're pretty excited about some of the lifestyle stuff coming in. Maybe just help us connect with the down 3% over the summer and what's on the common lifestyle. And then I guess -- just some thought on how we should expect to see North Face Americas trend into the fall and winter based on the order books? And then I know on Vans, Bracken, you mentioned a few times on public calls since you got back that you thought Europe was closer to a turn than the U.S. You mentioned it earlier in the year when you and I got together. Can you just help us connect that to the -- I think it was down 16% in the quarter, but you're saying some nice things about the store in London getting better. Maybe just help us understand where the brand sits in the EMEA today.

Yes, I'll start with your questions on North Face. I think generally speaking, I am really excited about the ability to really go 4 real quarters for North Face. So I think we've really not done -- we've talked a lot about in the past. We've not really brought out enough product. And if we have brought our product, we haven't invested enough in it, in stores and through wholesale to see a difference in the spring and summer. As you said, this is a very light seasonal quarter for us. So I wouldn't draw too many conclusions. It's also early. I don't -- we really don't have enough spring and summer product out yet, but I can promise you that as a real focus of the team, and they're really working to get there. So I think as the -- as we get into the next spring and summer, you'll see more and then more and more. So I'm excited about that. In terms of -- we're really trying not to get into kind of forecasting where the business is going by brand. So I'm probably not going to do that now. But I want to talk briefly about your brands question for Europe. I think this business, in general, is when you're doing a turnaround, it's got ebbs and flows on its way out, hopefully or it's way less down at this point. And I think the same thing is true for Europe. I think we've got really great spots in Europe. We talked about the large city plan, where we're going into key cities and seeing a difference there. I think that's great. And then -- and basically, I don't think it's turned any faster than the U.S. I think it looks a lot like the U.S. I think the pattern is the same. So we expect to turn to happen at about the same pace.

Any comment on the forward order book for fall/winter for North Face?

No, we're really trying not to do that. We really don't want to get into any kind of forward-looking forecasting by brand.

Your next question comes from the line of Paul Lejuez with Citi.

It's Tracy Kogan filling in for Paul. I was wondering, are your quarter-to-date trends in line with your revenue guidance of down, I think, 2% to 4%? Or are you expecting trends to accelerate or decelerate from here. And then I thought at Vans, you expected a similar drag from your deliberate actions, as you saw in 4Q, but it seems like it was significantly less. And I was just wondering if you took fewer deliberate actions than you initially anticipated.

So on the first question, we're not really going to answer that. I think we'll just -- I say we put out our guidance for the quarter, I mean, that's obviously the expectation we have for the quarter, and so I'll leave it at that. And on the vans, no. I mean, it's roughly in line with expectations. We said it was roughly 50% last quarter, roughly 40% this quarter. It's just sort of how it impacts, I mean, it's really just math more than anything else. The overall initiatives are the same. The overall intent is the same. It's really just a question of how everything falls out where the math falls out. So to us, the 40%, 50%, it's roughly half plus or minus. Last quarter was a little bit more, this quarter is a little bit less. But we've talked about that and we've talked about that the impact would be felt most significantly Q4 of last year, Q1 and then Q2 as well this year. Hopefully, you start to see some moderation of that in Q3 and then a lot more in Q4.

Your next question comes from the line of Peter McGoldrick with Stifel.

So one of the call-outs was leaning into marketing for back-to-school. Is this entirely related to the Vans brand? And should we expect this to be a sustained area of investment for fiscal '26?

Yes. So back-to-school isn't only Vans -- is not -- definitely not only a Vans thing. And yes, we are absolutely leaning into back-to- school. School comes every year, and it's going to come this year. So we -- and I think we've got a good program for it. But yes, I would expect it to be -- this will be an annual thing. I don't think we did it as well as we could have last year in back-to-school. So we're more focused on that this year, and I think we'll -- especially in Vans. So we'll see how we do this year, but I'm optimistic about it.

Your next question comes from the line of Laurent Velasco with BNP Paribas.

I wanted to ask about the free cash flow for the first quarter. It was down $174 million. I think last quarter, Paul, you mentioned there was an intentional timing shift. So by my math, it looks like the free cash flow for the quarter was down maybe even more than $200 million. So I'm trying to understand the deterioration of free cash flow. And can you walk us through how do you get to over $500 million of free cash flow for the remaining quarters?

Yes. So the Q1, it's really around timing. It's around timing of working capital. It's around those types of dynamics. But when you sort of look at the components of free cash flow for the year, right, between our operating income, what we expect to spend on CapEx, how we're thinking about CapEx throughout the year and other movements in working capital, we're right on pace. It's why I don't guide free cash flow on a quarterly basis, but we try and give some idea on an annual basis because you can have a pretty big fluctuations sometimes with respect to timing in any one quarter. As I said, we do feel good about it. There is an incremental impact from the tariffs, which we talked about. We have some offsets that we think we're working on throughout the year to improve free cash flow. And it's a big focus on us. I mean I think Bracken mentioned before, there's a couple of things that we really focus on. Gross margin is one of them. And free cash flow is the other one for me, right? We're really committed to generating incremental free cash flow to paying down our debt, reducing our leverage and we expect free cash flow to be up this year. Again, there's lots of moving parts. There's lots of moving parts in every quarter. There's things that we're working on that will hopefully come through, that will impact our free cash flow throughout the year. And as that happens, we'll update you.

Wonderful. And then a follow-up here, Paul. Net debt actually increased this quarter, that might be due to seasonality, but obviously, just -- you have that target for the 5 years, but where do you think net debt goes? I know you have the $500 million bond that you're going to use. I guess are you still using the revolver for that. But where do you think net debt -- the leverage goes for this fiscal year?

Yes. So we expect leverage to decline. We haven't given a target for this year, we've given sort of the medium-term target, but we do expect it to continue to move down. We ended last year at 4.1x. So you can expect it to be below that at the end of the year and hopefully making reasonable progress to getting to the 2.5x that we've talked about. Yes. So -- and with respect to the $500 million maturity, so a couple of things. One is currency has negatively impacted us in terms of debt on the balance sheet. So that's been a little bit of a negative in terms of where the debt shows up given the currency moves. And then yes, we continue to expect to pay out the $500 million at the end of the year, and that would be mostly from free cash flow and then again, other short-term borrowing if we need, but we feel pretty reasonably confident we'll be -- that won't be any issue whatsoever.

Our next question comes from the line of Matthew Boss with JPMorgan.

So Bracken, on your reset actions across the portfolio, what remains or anything new that you anticipate relative to actions in place today? And just on your visibility for the portfolio to soon move to growth that you cited, is there any reason this would not happen in the second half of the year?

Other reset actions were, no, I think I really feel good about what we've done, and I think we're in a pretty good spot. Now don't get me wrong, there are always -- when you're in a company of our scale, there are always things you're going to be doing they'll be pruning and fixing things that pop up and that kind of stuff. But yes, basically, our reset actions -- the major reset actions, I think, are really behind us. We're nearly not guiding for the year, so we're not going to talk much about that, Matthew. But as we come through the year, I promise you, we'll be as transparent as we possibly can be.

And then Paul, are there any puts and takes to consider in the flat gross margin outlook for the second quarter that's constraining expansion on gross margin?

No, again, it's -- a little a couple of things. One is, obviously, we had some step-ups over last year as we lap some of our other initiatives. We still feel good about the gross margin progression. Again, you saw some of it in Q1. And so again, it's just -- again, sometimes there's ebbs and flows with every quarter, but it's flat year-on-year. We feel good about where the trajectory of gross margins have gone overall.

We have time for one more question, and that question comes from the line of Brooke Roach with Goldman Sachs.

Bracken, I was hoping you could talk about how your conversations with wholesale partners are trending as you've implemented some of these actions across all of your brands in North America, especially given a choppy macro backdrop, are you seeing any signs of hesitancy in taking additional inventory levels or orders into the holiday season? And is that being offset by some stronger product innovation and marketing given what you're doing across the brands?

I think around the world, you've got a little bit of hesitation by wholesalers to overextend themselves on inventory. So we're aware of that. I'm sure all of the -- everyone in the industry is. And the traffic has generally slowed a little bit as you've gone through the summer, especially during this period of real uncertainty around what's going to happen to tariffs. I do think it's kind of caused a bit of a just conservatism. And I think you can kind of see and feel it. But we're just as optimistic as we've been before. We feel like we laid the right bricks in terms of innovation, and we're going to keep investing in marketing as we've planned. And we're not letting up at all. So -- and yes, I mean, we're -- our whole game plan here is to keep getting stronger and stronger from a product portfolio standpoint, for a marketing execution standpoint and from an innovation standpoint. And our expectation is that's going to offset any of the headwinds that come from -- as long as they're reasonable, any of the headwinds that come from concern about the economy. Thank you, Brooke. Thanks a lot. And thanks to everyone. I guess I'll close by saying we're -- we started this -- this is the end of my first 2 years. So -- and it's been an incredibly exciting 2 years, but it's -- I think the next 2 years are going to be a lot more exciting. Everybody likes working more on growth than on cost and organization change. And I'm certainly in that camp, and so is my leadership team. We are really excited about the growth path we have ahead. And stay tuned. It will be fun to talk to you next quarter and the quarter after that and the quarter after that. And Orlando, the Warped Tour, if you want to go, I've got T-shirts right next to me that if we're in person, I'd be handing them out. And we'll see you in 3 months.