VF (VFC) Q1 Gross Margin Jumps 2.9%

Key Points

• Earnings per share (non-GAAP) of ($0.24) beat analyst expectations by $0.01, and revenue slightly exceeded forecasts.

• Gross margin (non-GAAP) rose to 54.1%, up 2.9 percentage points year over year, reflecting effective cost improvements.

• Net debt decreased 20%, showing substantial progress in lowering leverage and strengthening the balance sheet.

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VF (NYSE:VFC), the global apparel company behind brands like The North Face, Vans, and Timberland, released its results on July 30, 2025. The most notable news was that both revenue (GAAP) and earnings (non-GAAP EPS) outpaced analyst expectations, albeit by small margins. VF posted a non-GAAP loss per share of ($0.24), performing better than consensus estimates of ($0.25) non-GAAP EPS. Revenue (GAAP) came in at $1.76 billion, just above the expected $1.75 billion (GAAP). While the top line (GAAP revenue) was essentially flat compared to a year ago, the company showed meaningful improvements in gross margin and sharply reduced its net debt. Margin and bottom-line improvements highlighted the effectiveness of ongoing cost and inventory strategies, though sales (GAAP) remained flat year-over-year and the Vans footwear brand continues to struggle. Overall, the quarter reflected operational progress, but the top line has yet to return to consistent growth, especially as some brands still post sales declines.

Source: Analyst estimates provided by FactSet. Management expectations based on management's guidance, as provided in Q4 2025 earnings report.

Inside VF's Business and Key Areas of Focus

VF manages a portfolio of branded apparel, footwear, and accessories spanning Outdoor, Active, and Work segments. Its best-known brands include The North Face, which focuses on technical and lifestyle outerwear and footwear; Vans, known for casual and skate footwear and apparel; Timberland, which specializes in outdoor footwear and apparel; and Dickies, focused on workwear. These brands target distinct markets but share global reach and strong recognition.

Recent business strategy has emphasized cost control, supply chain efficiency, and strengthening of the core brands. The company highlights brand portfolio management, direct-to-consumer (DTC) expansion, and international growth as critical levers. It views innovation in footwear and apparel, digital engagement, and geographic reach as core to its long-term vision. Transformation programs aimed at boosting profitability and cash flow, especially in response to persistent weakness at Vans, have remained a central focus.

What Happened in the Quarter: Financial and Strategic Developments

VF exceeded its own guidance on both adjusted earnings per share and GAAP revenue—though only by thin margins. Management called out improving our top-line trend versus last year to flat (-2% constant currency) while delivering a much stronger bottom line. The actual non-GAAP operating loss was ($56 million), and significantly better than the company's earlier internal adjusted estimate range of ($125 million) to ($110 million). The margin recovery was attributed to cost-saving actions, higher-quality inventory, and fewer product discounts.

Gross margin (non-GAAP) increased to 54.1%, up from 51.2% a year ago, a notable improvement. Management attributed these gains in gross margin to improved inventory management—meaning there was less unsold or discounted stock—and reduced promotional activity. The company’s transformation program, called Reinvent, contributed to more disciplined supply chain and cost controls, which were seen across most brands.

Looking at brand performance, The North Face (technical and lifestyle outerwear and footwear) posted a 6% revenue increase, with The North Face® direct-to-consumer sales were up 7% year-over-year. Timberland (outdoor footwear and apparel) revenue rose 11% (GAAP), with particular momentum in the Americas. Vans (casual and skate footwear and apparel) revenue dropped 14%, remaining a significant drag on the consolidated figures due to ongoing channel rationalization—a process that included store closures and reduced low-margin sales in the value segment. Newer Vans products like the Super Low Pro (skate shoe) had some success among women and youth, but overall, the brand is still in turnaround mode. Other Brands collectively grew 4% year-over-year on a GAAP basis.

Channel performance was mixed. Direct-to-consumer revenue fell 3%. VF's global store count was 1,113 as of June 2025, down 4% from June 2024, reflecting an effort to streamline the store base and focus on more productive outlets. Digital revenue, which covers online apparel and footwear sales, was also down. In contrast, Wholesale channel sales rose 1%, aided partly by timing shifts of orders from the second to the first quarter.

Geographically, sales in the Americas fell 4% (GAAP), while Europe, Middle East, and Africa revenue gained 4% in dollar terms but fell slightly when adjusted for currency changes. Asia-Pacific revenue grew 4%. Robust international results for The North Face and Timberland balanced continued pressure at Vans in the United States.

On the balance sheet, net debt dropped to $5.3 billion, a $1.4 billion reduction, showing progress toward the company’s medium-term leverage target of 2.5x by FY2028. Capital spending was $28 million, while $35 million in cash dividends were paid to shareholders, holding the dividend steady at $0.09 per share.

Apart from the continued effects of ongoing business transformation and the tail effects of store closures and inventory actions at Vans, no additional change to dividend policy was announced, and VF noted the dividend remains under review for future periods as the company focuses on further deleveraging.

Looking Ahead: Guidance and Trends to Watch

For the current quarter and the rest of fiscal 2026, management projects continued revenue contraction: Revenue for Q2 FY2026 is expected to be down between 4% and 2% in constant currency terms versus the prior year. Adjusted operating income is forecast in a range of $260 million to $290 million for Q2 FY2026, suggesting sequential improvement. The outlook for FY2026 calls for positive free cash flow, adjusted operating income, and operating cash flow, with current assumptions reflecting the impact of recent and anticipated global tariffs on sourcing apparel and footwear.

Management did not provide a clear profit guidance for the full year, but it reaffirmed targets around free cash flow and further debt reduction, indicating that operational improvements and cost initiatives are expected to continue supporting the bottom line. However, the company still faces risks tied to weak traffic in its DTC channel, further need for stabilization in Vans, and potential fallout from global trade policies. The quarterly dividend remains at $0.09 per share.

Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.

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