Greetings, welcome to the VF Corporation first quarter fiscal 2019 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Joe Alkire, Vice President of Investor Relations for VF Corporation. Please go ahead, sir.
Good morning, welcome to VF Corporation's first quarter fiscal 2019 earnings 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 basis, which we define in the press release that was issued this morning. We use adjusted amounts 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 press release, which identify and quantify all excluded items and provide management's view of why this information is useful to investors. During the first quarter of fiscal 2019, the company completed the sale of its Nautica brand business. Accordingly, the company has classified the assets and liabilities of the Nautica brand business as held for sale through the date of sale and included the operating results of this business with discontinued operations for all periods presented. During the first quarter of fiscal 2018, the company completed the sale of its Licensed Sports Group, or LSG business. In conjunction with the LSG divestiture, VF executed its plan to exit the licensing business, which comprises the LSG and JanSport brand collegiate businesses.
Accordingly, the company has removed the assets and liabilities of the licensing business and included the operating results of this business in discontinued operations for all periods presented. Unless otherwise noted, results presented on today's call are based on continuing operations. Joining me on today's call will be VF's Chairman, President, and Chief Executive Officer, Steve Rendle, and Chief Financial Officer, Scott Roe. Following our prepared remarks, we'll open the call for questions. Steve.
Thank you, Joe. Good morning, everyone, and welcome to our first quarter 2019 earnings call. VF's results for the first quarter were stronger than expected, fueled by the continued broad-based acceleration in our core brands and platforms. Our growth was balanced across geographic regions and channels as consumers globally remain resilient despite increased geopolitical uncertainty. A year and a half into our 2021 plan, I'm pleased with the progress that we've made. We continue to deliver on our commitments and remain sharply focused on the foundation we're setting to position VF for sustainable long-term growth and value creation. Taking a look at the results for the quarter, revenue increased 12% on an organic basis as our strategic growth drivers continue to fuel results.
Our big three brands grew at a combined rate of 21%, with our Vans brand delivering another exceptional quarter, up 35%, with double-digit growth across all regions, channels, and product families. The Vans brand is clearly outperforming the long-term growth targets we laid out at our Investor Day in Boston a little more than a year ago. We look forward to updating you on Vans' vision for its next chapter of growth at the brand's upcoming Investor Day in September. Momentum in The North Face brand continues to build with 8% growth and, importantly, continued improvement in the quality of our business. The brand delivered strong growth in performance, women's, and lifestyle product. The brand's She Moves Mountains campaign, which focused on the next generation of female explorers, contributed to the strong performance of our women's business.
With the launch of the Renewed program, we are piloting a circular business model that will extend the reach of our brand to new consumers through an emerging new purchase model. On an organic basis, international increased 14%, led by more than 30% growth in China and 18% growth in Europe. Direct-to-consumer increased 16%, with more than 30% growth in digital. Our work segment increased 8%, driven by balanced growth across nearly all brands. Finally, jeans increased 3% as Wrangler delivered another solid quarter of growth. As a result of our strong performance in the quarter and our increased confidence in the full year, we are raising our revenue and earnings growth outlook. Scott will cover the details in a moment. A few other highlights from the quarter.
In May, we launched our corporate purpose and guiding principles to our 70,000 associates across the globe, the response has been overwhelming. VF's purpose is to power movements of sustainable and active lifestyles for the betterment of people and our planet. Fueled by the deep commitment of our employees, our purpose will help unlock new opportunities for our company while also empowering us to be a collective force for good. Together, driven by a shared purpose, we will positively impact our communities and the evolution of our business. We believe our purpose will help attract and retain the industry's best talent, as well as provide clarity to our decisions and actions. Reshaping our portfolio remains our top priority. We are committed to actively managing the shape of our business to align with our purpose and financial aspirations.
In early June, we formally welcomed Altra into the VF family and are working to leverage the brand's capabilities to strengthen our technical footwear platform. The integration processes for both Icebreaker and Williamson-Dickie remain on track, and we're excited about the long-term opportunity for these two high-quality growth assets. One quarter into our fiscal 2019 plan, I remain highly confident in our purpose-led, performance-driven strategy and our ability to execute and deliver on top quartile growth and value creation for our shareholders. With that, I'll pass it to Scott.
Thanks, Steve. Before reviewing the highlights of our first quarter, I'd like to quickly cover the change to our segment reporting. In light of recent portfolio actions and organizational realignments, we've changed our reporting segments. We believe these new segments provide greater transparency into the growth and profitability of our portfolio. Our new segments are Outdoor, Active, Work, and Jeans. We've outlined the brands included in each of our segments in the press release and accompanying earnings presentation posted on our website. We've also included restated historical information in our press release. My apologies once again to all of our modelers out there who are just recovering from our fiscal year-end change and portfolio actions. Moving now to first quarter results. Revenue was stronger than expected, driven by continued broad-based acceleration in our core brands and platforms.
On an organic basis, revenue increased 12% with balanced growth across brands, geographic regions, and channels. On a combined basis, our big three brands increased 21%, led by 35% growth in Vans and 8% growth in The North Face. The global momentum in our Vans business remains strong and growth is well diversified with double-digit growth in all regions, channels, and product families. Likewise, momentum in The North Face is building as the brand executes on its strategy and the quality of the brand's growth is improving, as evidenced by more than 20% growth in first quality wholesale in the Americas. While still early, we are confident that our efforts to elevate and reposition The North Face are beginning to pay off. Rounding out the big three, Timberland delivered modest growth led by strength in Timberland PRO and Europe.
In the Americas, the quality of our business is improving, and we're beginning to see better results in our core classics. On a regional basis, excluding the impact of acquisitions, growth was balanced, up several digits, both in the U.S. and internationally. Europe remains robust, delivering 18% growth, while Asia Pacific increased 14%, including more than 30% growth in China. Our organic D2C business increased 16% with 15% comps and more than 30% growth from digital. Lastly, wholesale increased 10% organically, led by more than 20% growth from our digital wholesale partners. Gross margin was 50.5%, up 90 basis points over last year. Organic gross margin increased 170 basis points, driven by higher margins in our core growth engines and our continued focus on fundamentals and quality growth. As a percentage of revenue, SG&A was 41.5%, down 110 basis points versus prior year.
On an organic basis, SG&A as a percentage of revenue declined 40 basis points. Investments in our strategic priorities increased at a double-digit rate. This was more than offset by strong leverage given the strength of the top line. For the full year, this algorithm continues. Strong investment in our strategic priorities offset by leverage elsewhere, resulting in an overall decline in our SG&A percentage. Pulling it all together, earnings per share was $0.43, including a $0.04 contribution from acquisition. That's up 62% versus last year. Given the strength of our first quarter and increased confidence in the trajectory of our business, we are raising our full-year outlook. Our fiscal 2019 outlook now includes the following. Revenue is expected to be in the range of about $13.6 billion-$13.7 billion, reflecting growth of 10%-11%. This includes organic growth of more than 5%.
Our updated revenue outlook also includes more than $150 million negative impact from unfavorable FX relative to the prior outlook. For the full year, we don't expect FX to have a material impact on our growth rate. By segment, outdoor is expected to increase 6%-8% or at a low double-digit rate on an organic basis, with mid-single-digit growth expected in the second half. Revenue for active is expected to increase 13%-14%. Work revenue is expected to increase more than 35% or at a mid-single-digit rate on an organic basis. Revenue for jeans is expected to be about flat compared to last year. Global Vans revenue is now expected to increase at least 15%, with more than 25% growth in the first half. There's no change to our outlook for The North Face or Timberland.
International revenue is now expected to increase between 12%-13% due to the negative FX impact just mentioned. Excluding FX, there's no change to our outlook for the international business. European revenue is expected to increase 12%-13%. Asia Pacific revenue is expected to increase 14%-15%, and revenue in the non-U.S. Americas region is expected to increase 9%-10%. Direct-to-consumer revenue is now expected to increase 11%-13%, with more than 30% growth in digital. Gross margin is still expected to approximate 51%, and operating margin is now expected to increase 70 basis points to about 13.4% due to improved SG&A leverage. Adjusted earnings per share is now expected to be in the range of $3.52-$3.57, reflecting growth of 12%-14%. Our updated outlook includes a $0.06 negative impact from unfavorable FX rates relative to the prior outlook.
For the full year, we don't expect FX to have a material impact on our earnings growth rate. Finally, cash flow from operations is now expected to exceed $1.7 billion, with CapEx of $275 million. To conclude, we are pleased with the strong start to the year. Our confidence is high. We're executing well against our strategic growth plan, and momentum continues to build across our core growth engines and platforms. We are focused on transforming VF into a purpose-led, performance-driven organization. We remain deeply committed to reshaping the portfolio and delivering superior returns to shareholders. With that, I'll turn it back to the operator and open the call for your questions.
Thank you. At this time, we'll be conducting a question and answer session. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. To allow for as many questions as possible, we request that you ask one question and one follow-up, and invite you to rejoin the queue. Our first question comes from the line of Matthew Boss with JP Morgan, please proceed with your question.
Great. Congrats on a nice quarter, guys.
Thanks, Matt.
Thank you.
On the expense front, can you speak to drivers of SG&A leverage in the quarter, maybe your confidence in the back half? Scott, any color on the front-end loaded investments that you've made and how best to think about the expense line, maybe now multi-year? I think that'd be really helpful.
Sure, Matthew. I guess the bottom line here is it's really no change from what we've been saying. Steve mentioned in his comments, we did a little better on the top line than expected in the quarter. Given that this is our smallest quarter of the year, a little bit of movement on the top has a probably disproportionate percentage impact on the ratios in the quarter. Really our algorithm and how you should model it thinking going forward is the same. We talked about double-digit investment in our strategic priorities. With that, leverage for the full year, and actually that leverage ticked up a couple of bips, I guess 20 bips, in our implied guidance for the year. It's really no change. You shouldn't look at this quarter and say something's fundamentally different.
We're really maybe just slightly better than what we thought, the big picture remains the same.
Great. Just to follow up on the gross margin, any change in the outlook for 40 to 50 basis points annual mix benefit? I guess with the model approaching the five-year plan, the 51.5%, just any structural feeling on gross margin as we think multi-year?
Yeah. Obviously two years in, it's better to be ahead than behind. I just make that comment. Yes, we have confidence in the gross margin that we laid out, but we haven't changed that algorithm. This year, the way you should think about that, it's about 50 basis points of mix, when you take in the impact of acquisitions, that's about a 20 bip negative, that gets you to the 30 bips. That takes you to the 51% that we referenced in the guidance. That's kind of right in line with what we've said. Listen, I think if we do a little better on gross margin, that is a key focus for our business. We talk about, it's kind of almost a joke internally because it comes up in every discussion that we have, and that's our checkbook for investment.
As we see those margins, if they do get a little bit better, does that give us a chance to move even a little faster against our strategic priorities? It might, but it doesn't change our commitment to our earnings growth pattern. That 16% long-term operating margin is dead in our sights, could it evolve a little differently? It might. I think the takeaway here is, we're feeling good about our gross margins.
Congrats again. Best of luck.
Yeah. Thank you.
Thank you.
Thank you. Our next question comes from the line of Erinn Murphy with Piper Jaffray. Please proceed with your question.
Great. Thanks. Good morning. I guess Steve, for you, just bigger picture. In your prepared remarks, you talked about the consumer being resilient. Can you just expound upon this comment and how you're feeling about the health of the consumer as we get into the back half and into 2019? Maybe just starting here with North America.
Sure. I think we all see that the U.S. consumer continues to be open to and motivated to interact with powerful brands. Brands that they connect with. Brands that provide products and experiences that are relevant to who they are. I don't think we're sitting here saying that this is easy and that everywhere we look, that there's resilient consumers. But what we are seeing is where we have a clarity of focus on what our brand stands for, that we're bringing the best product. More importantly, the big learnings over the last couple years is really elevating the brand experience and connecting more emotionally with our consumers. We're able to stay at the forefront of the decisions that they have and where they choose to spend their time and money.
We see the same to be true in Europe, we see the same being very true in Asia. I think as we really focus our attention against those key drivers and platforms within our portfolio, we'll continue to see our opportunity to connect and maintain those long-term loyal relationships.
Okay. Thank you. Just on The North Face, would love to just better understand the North American growth for the quarter. I know it was flat, but it sounds like you're pretty pleased with the quality. Maybe just expound upon kind of the confidence as you get into the back half and just a little bit more second-half weighted. In that, if you could speak about the new circular business model you referenced in your prepared remarks, what does that entail for the brand?
Yeah, that's great. I'm glad you picked up on that, Erinn. Yeah. The North Face for this quarter, as we mentioned, the business was flat, right where we thought it would be. What's giving us so much confidence is the quality of our sales. First quality wholesale being up such a good 20% is just validation that the work we've been doing over the last 18-24 months is paying off. Inventories are clean. Retailers have open to buy that they're able to commit to us, commit to the new programs. As the brand continues to evolve and improve the product offer across mountain sports, Urban Exploration, the performance piece, specifically with women's. We're just getting the opportunity to put our best products on the floor, and we're seeing really good sell-through that's giving us confidence as we move into the second half.
In the second half, Erinn, just how you think about The North Face through its mountain sports focus on consumer and the Urban Exploration focus to the consumer. In each case, the work that we're doing on the top end of those product offers in mountain sports, the Summit Series and Steep Series collections continue to evolve, continue to get stronger. We're getting really good placement in all of the right dealers, including how we represent within our own stores and online. It's giving us really good confidence. The evolution of Urban Exploration, bringing in some of those European products that we've seen work so well under Arne's leadership here. We're seeing those resonate here in the U.S., continue strong placement and sell-through in Europe as well as Asia.
To your question on the Renewed program, we all see consumers are changing the way that they're buying footwear and apparel, and we think that they're valuing quality over quantity, and they're looking for access potentially over ownership. With our desire to connect with our consumers and really stay at the forefront and focus on agile experimentation, we are piloting a number of different circular business model tests. In the case of Renewed, that is about refurbishing clothing that has either been worn, damaged, or returned to us. We inspect it, we wash it, and we tune it up, get it back to the quality that was initially there when we sold it the first time around. You have the same quality, but the big difference is much less impact on the Earth. We're piloting these programs. They do not have significant impact on our results.
What they are doing for us is giving us an understanding of, is our consumer interested in our brands working in this way? Is this a new growth vector that we should be exploring for future? I think the teams that are working across the brands with our corporate leadership to really explore these new business models, we think there's something very interesting here and very much in line in our journey to transform.
Great.
I'd just like to add on. Yeah, Erinn, sorry to add on. Just put some numbers around the first part of your question on The North Face confidence. First of all, the demand is really showing through. If you look at D2C at +12% and digital, I think +30% in the quarter, you can see that the interest and the strength of the brand is there. Also, when our price is down and the quality is up, like Steve said, +20% first quality. When we look at the full year wholesale that's growing for this brand, we have visibility to the order book. All those things together give us confidence in the full year outlook, just to put some numbers behind that.
Great. Love the numbers. Thank you, guys, and congrats.
Thanks, Erinn.
Thanks, Erinn.
Thank you. Our next question comes from the line of Omar Saad with Evercore ISI. Please proceed with your question.
Thanks, guys. Good morning. I'll add my congrats, too. Great quarter.
Thanks.
It's interesting to see you guys kind of raising the full year guidance after the first quarter. I'd love to kind of hear you talk about parsing out what the strength you're seeing in your business is macro versus fundamental. Obviously, there's been a broad-based re-acceleration for you guys. Vans is a key example of that. You're also using digital technologies and consumer engagement really effectively, and maybe you could help us think about or understand how you think about what's driving your business in terms of broad macro consumer confidence as opposed to what you're doing in your brands using digital and creating stronger connections with consumers and greater excitement around the products, et cetera. Is there a way for you to kind of discern between the two?
Yeah. I'll take a first shot at this, Omar. Scott here. I would say this is really much more about our brands and less about macro. From what we have seen, macro, the conditions have not really changed that much over the last 18 months as it relates to our consumer. Obviously, there's many things going on in the macro level that we're keeping an eye on, but as it relates to our consumers, we really haven't seen that much of a change. We're keeping an eye on some of the things happening geopolitically, but so far, it hasn't leaked into our business, and so far, we haven't really seen either an upside or a downside. What I think you are seeing is a multi-year payoff of some of the focus on fundamentals and going back to basics, in a sense, in our big franchises.
Yeah.
What's happening in Vans has been a longstanding pattern. The TNF, we've been talking about for a couple of years, we're seeing the payoff. I think it's just that focus on fundamentals that's paying off more than anything that's happened on a broader basis.
Omar, let me add to that. I think last year, when we spoke to everybody in Boston, we talked about the work we'd done on what we like to call the forces of change, really diving into the changing consumer mindset and how should we be thinking as a portfolio of brands. It's really putting the consumer even further forward in our thinking in every aspect of our company. The integrated strategy that we rolled out in March that we continue to talk about, guiding our decisions. We've narrowed our focus on those things that we see being most important to putting our brands at the forefront of the consumer's mind. As we've continued to reshape our portfolio, we're focusing our portfolio on those brands that we can drive and are most connected to the consumer for us on this long-term journey.
I think it's intense focus on a very focused set of choices, building stronger capabilities within our brands, and even more deeply connecting our corporate functions to service and help enable the growth of our brands as you're starting to see the momentum build based on that focus.
Yeah. Omar, just one other factor I think that's relevant here is the portfolio actions that we've taken. In terms of bringing in and focusing on new growth vectors, such as work, such as our Icebreaker Altra platforms. Moving away from some of the more disruptive parts of the market, where we saw a little bit tougher sledding. You're starting to see that mix and improved mix also shining through, I think, as you look at our performance.
Got it. To that end, guys, maybe you could also, as a follow-up, talk a little bit about what you're developing, technologies and capabilities you're developing that are scalable across the portfolio. Historically, I think the company was very focused on keeping the brands separate and having kind of unique functionality, especially on the consumer-facing side of the business. As the business evolves, are you seeing more scalable opportunities in consumer-facing areas that you can leverage across multiple brands in the portfolio? Is that the right way to think about it?
Yeah. No, Omar, I think that is the right way to think about it. I think V.F. has always been focused on looking for those leverageable capabilities that we could bring to our brands. Through this integrated strategy focus, a couple examples certainly would be our digital platform and the advancements that we're making there on how to use that technology more productively, how to begin to use the consumer data files that we have to more thoughtfully connect with consumers to drive that one-to-one relationship that is so important, and you see that really coming to life in the Vans results. Part of our strategy we don't talk a lot about is the act vertical work that we're doing in really tearing down our go-to-market processes and product creation, and with the expectation of improving speed, improving quality through lesser SKUs and more focused merchandising.
That work is going on within The North Face and Timberland, you're starting to see the results come to life there. I think the capabilities that we're bringing into our portfolio, the Icebreaker acquisition was very intentional. That was a purpose-led acquisition to bring in natural fiber expertise that we can scale beyond just Icebreaker and Smartwool across multiple brands in our portfolio with an even stronger connection with our consumers. The last one is our increased attention on insights and analytics. Taking what has been a strong consumer insights capability and now marrying that to an analytics capability for better decision-making, not just on the consumer-facing side, but on merchandising and supply chain decision-making to just improve the quality and efficiency of the work we do.
I think.
Thank you.
Omar, the economics around that are these are the big, we call them enterprise-wide initiatives that were outlined in our strategy, those are leverageable across the entire portfolio. We're distorting investment in those directions. On the rest of the business, that's where we see leverage and where we drive leverage into the model. That's the way that algorithm works.
Great job. Thank you.
Thanks, Omar.
Thank you. Our next question comes from the line of Laurent Vasilescu with Macquarie Group. Please proceed with your question.
Good morning. Thanks for taking my question. Congrats on really solid results. I wanted to follow up on the Vans guide of 25% for 1H 2019, and then the full year guide of at least 15% growth for the year. That would suggest high single to low double-digit growth for 2H 2019. Is that the right way to think about it? For last year's Investor Day, I think you guys guided for Vans longer term to grow 8%-10% with wholesale guided to be a low single digit, but then D2C to grow high single. How do we think about those numbers, especially on the context of the channel mix, going forward?
Yeah. On the first part of your question, Laurent, you had it. High single digits is where the second half is. Again, I think as I've consistently said, hardest thing to predict in terms of the pace of this business. Honestly, we really haven't seen it slow down. We know we're comping really big numbers. A lot of this is digital and D2C. Essentially, half of the business go-to-market is in the D2C area. We know it will moderate at some point, and that's where we're at at this point, although frankly, we haven't seen that occur yet.
Yeah. Omar, Laurent, I'm sorry. What I'd say, what you see going on right now is, in our opinion, is Vans is seeking its natural level as a top provider of active lifestyle footwear. This growth, though exceptional, this brand has been growing in the teens since VF acquired it in 2004. They're focused on franchise management, bringing new products offers. We're seeing really good results with items like the UltraRange, some of the new apparel offer, as the brand expands and offers more choices to the consumers that have been with the brand for a very long time and the new consumers that are coming.
We're looking forward to our September meeting in Costa Mesa, where you all can meet Doug and his team more personally and hear from them on what is driving this growth and what we believe to be that reset of a long-term strategy that is very well founded in a strong understanding of their consumer and a very disciplined approach to managing that brand.
Very helpful. As a follow-up, Greater China, that was a key message at the Investor Day last year. It was up 45%, then I think 31% on an organic basis. I think you guys originally guided for Greater China to grow high teens for the fiscal year. Is that still the case? Anything changing within the Greater China market that we should consider with regards to this momentum?
Well, I guess what's changed is we're running a little ahead of our long-range guidance. At this point, Laurent, we're not updating that. We're really encouraged by the strength that we're seeing in China. We know that it's one of our declared strategic priorities, and so it's nice to see that performance. I wouldn't isolate on one quarter, though. Yes, it's encouraging, but at this point, we haven't updated that long-range outlook.
Yeah. Laurent, just one additional point. As we focus on becoming more retail centric in how we think, not just for our own store and web platforms, but for how we work with our wholesalers. That mentality, with our new leadership in Kevin Bailey as leader of our Asia platform, you're just seeing greater attention to thinking and acting like a retailer. Focusing on sell through and getting our very best products on the floor at the beginning of the season, and working dynamically to make sure those products are selling through and just keep the offer fresh, balanced with just better and better marketing. I think you're just seeing the proof of what is just early steps in a longer-term journey.
Thank you very much, and best of luck.
Thanks, Laurent.
Thank you. Our next question comes from the line of Michael Binetti with Credit Suisse. Please proceed with your question.
Hey, guys. Let me add my congrats here this morning. Scott, thanks for the opportunity to work on our model again. It's very helpful.
We got pretty deep into the call before somebody gathered.
You front end us a little bit. Just a couple of questions really quickly on the models and the housekeeping. A few moving parts. It seems like D2C and digital are driving more of the revenue growth than you expected for the year. You had really strong gross margins in the first quarter, maybe above the run rate you were expecting when you gave us the initial guide for the first half. Is there any new take from the gross margin in the year that keeps the annual at 51?
No, other than it's early. Yes, everything you said is right, although it's a relatively low retail quarter, and we got 90% of our earnings out of it. Early days. Is it encouraging? Yeah. Again, it's pretty small in the scheme of there's a lot of real estate ahead of us.
Okay. Would you mind reorienting us with the first half guidance you gave last time, given most of these metrics were above what we were thinking for first quarter? I think you said gross is up 20 in the first half, SG&A leveraging about, I think it was 70 for the first half.
Yeah. Well, I guess the bottom line is we really didn't reorient or we didn't give new first half, second half guidance at this point. What you have is the first quarter actuals and what we said about the year in general. The shape of the year is unchanged. With acceleration in the back half. Overall, you're going to see more leverage and margin expansion. Beyond that, we really haven't given any more detail on that, Michael.
Okay. Fair enough. I guess the more fun question is, as we think about the line of sight on Vans, I'm sure you guys spend a lot of your time answering these questions, obviously, as we look across our coverage, it seems like we're in a bit of a fashion cycle that would very naturally include brands like Vans. As we do look across our coverage, I'd say there's some brands that have been through a little less durable than Vans over past cycles that maybe we'd be worried about how they're going to comp to comp as they get into tougher compares. Can you help us think about how you look at managing one of your big brands that goes through a period of very strong growth like this?
We hear things from the channel that you guys are managing allocations into the channel pretty well. Is there a toolkit that you can tell us about that spoke to your confidence? You mentioned a little bit earlier about achieving its natural level here. Things that you say, these are the ways we know we're playing good defense, and this isn't just overcooking in a retro logo cycle or things like that give you confidence that, look, these are the right growth rates. These aren't retro cycle-driven growth rates that pose risk to those numbers as we get into the tough compares.
Michael, let me take a stab at that. As I mentioned earlier, Vans has been growing at a mid-teen rate since VF acquired it in 2004. This brand has been on a very strong, solid growth trajectory. Each year through its growth, as it gets more disciplined in how it manages its business, both financially and operationally, through what they've taken from our Vans or from our VF ownership, the strength and understanding of the consumer that the team has gained through our consumer insights and brand-building focus. They just have gotten stronger and stronger, more focused on who they are and, more importantly, who they are not. We are in an exceptional moment where we're seeing distorted growth. Some of that could very much be some level of trend.
Honestly, the way we look at it, we are resetting the rightful level of penetration that this brand has with the consumer and within the wholesale channel. As we do our channel checks, you can see the brand has just taken a larger footprint, both on the footwear wall, the tables in the footwear section. We're also now starting to place really relevant assortments of apparel. The better this brand understands its consumer, the more thoughtful we can be on placing the right products at the right time. The disciplined franchise management, channel management, segmentation just gets stronger and stronger, and it really is discipline of how that team operates. You'll see that when we host you in September. This isn't an exceptional moment of time that likely has a downward cycle on the back end.
This is just a reset of its rightful position as one of the top footwear brands in that active lifestyle component of the consumer's choice.
I really appreciate the help thinking it through. Congrats again on the quarter, guys.
Thanks.
Thank you. Our next question comes from the line of Camilo Lyon with Canaccord Genuity. Please proceed with your question.
Thanks, guys. I'll add my congrats to you on the fantastic start to the fiscal year. If we think about the big three brands kind of stacked together and the progression that we're seeing in all of them. Vans acceleration began last year. It seems that The North Face is starting to be on an accelerating path this year. Is it fair to think about Timberland beginning to show its acceleration next year? If so, what are the clues and the hints you're seeing now that would suggest that that is in fact the case? How do we think about that piece of the puzzle unfolding over the next 18 to 24 months?
Camilo, I think that's a really good way to characterize where we are on this journey. This is our diversified portfolio really showing itself, and the strength behind what we have. Today, our Vans business is doing exceptional. Our The North Face brand, we've been working on it for the last 24 months intensely on all the things that we've talked about from channel cleanup, better focus around core product categories, stronger leadership in all the key areas to just bring that discipline back to one of our most powerful brands. It's accelerating. Timberland is in the same journey. As we line this up over time, we just see a continued improvement brand by brand across each of these regions.
I guess I would leave you, just imagine what this portfolio will look like when all of these brands are functioning at their optimum level at the same time.
Great. Is there a way to maybe quantify how to think about the Timberland acceleration into next year that you'd be willing to speak to right now?
Well, I think we gave you the long-term growth algorithm, which is four to six mid-single digit, and we talked about acceleration. Beyond that, Camilo, we really haven't. You can expect sequential improvement as we go into next year. Beyond that, we haven't really shaped it.
Okay, that's fair. Just, I'd be remiss if I didn't ask about the tariff discussion, your manufacturing exposure to China, your ability to divert product to other countries. Where does this lie in kind of the rank order of concerns in your business? If it's not one of them, what is the chief concern that you are kind of contemplating?
Yeah. Scott, here I'll start. We would be asleep if we weren't concerned about it, right? We're watching this very carefully. The good news for us so far is in all of the guidance and insight that we've seen. So far, these are de minimis to us. There's some relatively extraneous categories, belts, some other accessories type things that have had a very small impact. We have a very diverse supply chain, once we know what the rules are, sometimes the hardest part is figuring out what the rules are. Once it's communicated, we can adapt pretty quickly. That's the beauty of the diversification of the supply chain and frankly, the competency of our supply chain. We're really good at this stuff. These men and women are awesome at optimizing around total landed cost once they know the rules.
As it goes to the forward, I think it's anybody's guess, right? Of course, we're watching it. It's an area of concern. It could become an issue for us in the future. It just depends on where the rhetoric goes versus, compared to what actually gets implemented.
Got it. Thanks a lot, guys, best of luck going forward.
Thanks, Camilo.
Thank you. Our next question comes from the line of Dana Telsey with Telsey Advisory Group. Please proceed with your question.
Good morning, everyone, and congratulations on the terrific performance. Can you talk a little bit about what you're seeing on Amazon, given some of the tests that you've put on there and how the brands that you've had on there, how they're performing and what you're seeing? Can you give us an update on wholesale, what you're seeing both overseas and in the Americas? Just any feeling on the jeans business, how Wrangler and Lee are performing, what you're seeing in this new fashion cycle. Thank you.
Hey, Dana, this is Steve. On the Amazon question, we're working closely with Amazon as a strategic partner for us both here and in Europe. We've talked in the past about dedicating a key account team. In fact, we're now placing people in Seattle. Just getting to deeper knowledge and understanding of how the Amazon platform works and how and where does it fit into our integrated marketplace decisions, what are the right assortments, how do we work with them on managing the marketplace, so we can have the very best representation of our brands within their environment. The tests that we've been working on are working well. We're pleased with the results. Our jeans businesses, Wrangler and Lee, are some of the best performing apparel brands within the Amazon platform.
Really are helping us understand a broad spectrum of how brands work with how do we see wholesale, not only here, but in all the regions.
Yes. Exactly. Order trends and by division. Thank you.
Sure. I think what we see here in the U.S., in the domestic wholesale market, is a channel that's much cleaner and more focused on putting stronger merchandise assortments in front of consumers. Working, I think, more effectively with us on how to drive demand and sell through. I think one channel that we've talked most about is the outdoor specialty channel. It's much cleaner than it has been. Our inventories are much more in check to the point where really it's our outlets that we're using to move our excesses. That just gives us so much more opportunity to place new, fresh, seasonal product in a more thoughtful flow to keep consumers interested. I think it's really in all aspects, we see each one of the sectors, each one of the business units, working better within the wholesale standpoint.
On jeans, you see an improving quarter by quarter result. I think this was Wrangler's fourth quarter.
Fourth consecutive quarter.
Fourth consecutive quarter of showing improvement. Is there a jean cycle going on out there? Maybe. I think what we see is, fundamentally, our bottoms business is working very well in our Wrangler brand. As we expand into some new categories, our outdoor category doing extremely well. As this brand really begins to think about itself as more of a global lifestyle brand, evolving all of the appropriate new products to round out that head to toe offer. We're starting to see really good results. Just slowly but surely, the brands continue to show strength, improving strength here domestically, but more importantly, in Europe, where we've seen really good growth and for our Lee business in Asia for sure.
Yeah. Just perspective on that. We're coming off If you go back a year or so, you think about de-stocking and some of the things that were going on more in the channel. Good news for us is we now see stabilization of the business and even we're seeing some modest growth. That just gives us confidence that we're coming through the end of that period and really on solid foundation as we look forward.
Thank you.
Thank you. Our next question comes from the line of Jay Sole with UBS. Please proceed with your question.
Great. Thanks so much. Could you talk about just the Williamson-Dickie integration, where you are in that process? Have you realized the SG&A synergies? And just if you could identify maybe some of the core sales drivers, whether it's work or some of the expansion into international and lifestyle, that'd be helpful. Thank you.
Well, I'll start at the end because you just nailed it. International, lifestyle are some of the key areas of growth that we see. In fact, frankly, probably even underestimated at the time of the acquisition. We are excited about some of the opportunities that we're seeing in Asia and internationally on the lifestyle piece as the former management team had done a nice job at setting up that business. When you put it into our model and our in-country know-how, we see this as a real interesting potential opportunity going forward. The first part of your question, Jay, was around the integration, and the short answer, it's going really well. Financially, we're a little slightly ahead of what we said, top and bottom line. Culturally, it's been a great fit and can't say enough about the quality of the WD organization.
It's just been a really positive experience, and we've been really impressed by their associates and we're feeling really good about where we're at on the Dickies integration at this point. No, it's not done, but it's going well. You mentioned SG&A synergies, and there are some SG&A synergies, but just to remind you, the majority of the synergies that we saw in this deal are on the margin side. As we get the scale and purchasing power and integration into some of the manufacturing and supply chain side of our business, that's where we saw, I think we said two-thirds to three-quarters of the benefit really comes on the margin side, gross margin.
Got it. Would you say, Scott, on those gross margin benefits, are those sort of implied in the guidance for the rest of the year that you've already been able to make those changes and improvements?
Yeah.
Is that something more still working on maybe for a next year type of situation?
Some are in it. Let me put it in another way. The guidance we have reflects what we see. We also said because a lot of these are in manufacturing supply chain, they sometimes take a while to get at. We said you would see these over a couple of year period, some of which you're seeing implied in the guidance right now, and then you'll see some continuing as we move forward. In rough numbers, we said we could double the margins of this business over a period of time, with the majority of that coming in the first two years.
Got it. Great. Thank you so much.
Yep.
Thank you. Our next question comes from the line of Ike Boruchow with Wells Fargo. Please proceed with your question.
Hi. Good morning, everyone. Let me add my congrats to a great quarter. I guess first question, probably for Scott. Going back to the jeans wear business, can you maybe just bigger picture talk about the U.S. wholesale business and the mass business specifically, just how you're feeling there with visibility, maybe relative to the prior six to 12 months?
Yeah. I think I mentioned in a previous comment, relative to one of the largest players there that has just gone through a de-stocking, at least in our categories, there may be others that are affected, but as it relates to us, we appear to be through the back end of that. We're really in favor of that. We think that was a good move and good for the consumer, good for the productivity of the inventory, and we work with them and applaud them on that move, and we think that sets that business and that experience up positively as you look forward on a positive base. Obviously, there's various winners and losers that are in that space. I think we are winning with the winning consumers.
When you look at our customers, and when you look at our forward guidance, we've been fairly, I think, realistic and somewhat conservative as we've looked forward, knowing that there will continue to be consolidations and store closures in some areas, and we're maximizing our relationship and our growth with those that are doing relatively better. We're also cautiously working with some that are not doing as well.
Got it. Just to switch gears to The North Face. Just kind of curious, it all makes total sense in it for the brand, the quality of sale initiatives, and improving the quality sell-through. I guess my question is, the U.S. wholesale in totality has been negative for a little while. Should that inflect at some point this year? Should we see the U.S. wholesale channel for The North Face stabilize at some point? What's embedded maybe in the six to eight for the year from a U.S. wholesale perspective? Just trying to understand when we, from a modeling perspective, should expect that channel to get back to positive territory.
You will see growth this year in wholesale. Again, what you will see reported is it going to be even better when you consider the quality of that growth. Another way to say that, as you reduce off price, obviously that puts pressure on your overall growth rate, but the underlying quality of that growth rate is better. When we grow low single digits, we have visibility to that from a wholesale standpoint given the order book we have. That would be an inflection point of what you have seen over the last several quarters. Remember our overall algorithm too. If you think about North America, this would be true with The North Face as well, we are actually expecting overall, big picture, wholesaling in the U.S. to be down from a brick and mortar standpoint.
We are growing with the digital wholesale partners, those like Amazon and others, as well as the click-through, the digital component of our retail customers. Again, I think we have a realistic view of the marketplace as you look forward. We are not ignoring the trends that we see out there, it is important to distinguish and remember, they are not all created equal. We see some very driving, solid customers and they are great partners to us, we are working really well with them, and we will grow our business with them over this period of time.
I would add, the focus at wholesale, specifically for The North Face, it is deeper focus on the key accounts, where we are able to really have strong in-store presentations. We are focusing on those specialty retailers that have particularly strong positions in specific communities. There continues to be ups and downs. I think we have found the right partners. We know the right partners, this is where we feel so confident about being able to place better assortments on a more frequent basis based on the lower excess inventory across those channels. The digital wholesale piece is very important on a global basis. Partners like Zalando in Europe, ASOS. We talk a lot about Amazon as an up and coming integrated marketplace option for our brands. You have key players like Dick's Sporting Goods and Nordstrom. You have the Moosejaw's that we focus on.
You also have a new strategic key account for us in Europe coming to the U.S. in JD Sports. We are excited to partner with them and find the right level of assortment to add value for our brand here in the U.S. marketplace. Really understanding who those key accounts are, understanding what the right assortments are is really the basis of that comment around just the improved product merchandising decision making and how that flows into an integrated marketplace set of decisions.
Really helpful. Thanks so much.
Thank you. Our final question for today comes from the line of Jonathan Komp with Robert W. Baird. Please proceed with your question.
Yeah. Hi, thank you. I want to first just big picture on the guidance, if I could. The organic revenue growth for the year looks to be in the mid single digits. I know if I look at the past few quarters, you were trending closer to the high single digits, and then in the first quarter accelerated to 10% organic growth. Outside of Vans, is there any more color on what you're embedding in the guidance for the year from an organic growth perspective?
Well, I think we've laid out all of our growth rates of the top brands so you can see what our assumptions are. Obviously, in the first half, our guidance implies relatively slower growth with acceleration in the second half. First quarter, Steve said it at the very beginning, we did a little bit better, albeit on a small quarter. Can we do a little better? We might. At this point, one quarter in and a small quarter at that, this is where we're at. I think what we said specifically is organic guidance or our organic top line is greater than 5%. You said mid single digits. You're in the zip code by probably at the top end of the mid single digits.
Okay, great. Maybe a broader question around the segment reclassification or regrouping. I want to ask big picture, how much is based on backward looking actions that you've already taken, and how much might be based on the forward vision for any additional portfolio reshaping? Especially since when I look at the Active Segment, there's seven brands included. Vans dominates that category, that segment today. Maybe there's a lack of traditional, more active or athletic brands within that grouping. Any color on the motivations forward looking versus backward looking what you've done?
Yeah. I'd caution you not to prognosticate too much based on our segments. The rules are pretty clear in the guidance. You could even argue whether they're always logical or not, but they are what they are. The justification for the new segments, I think, is pretty straightforward. Our outdoor action sports business has become so large that we felt it was good for you, the readers, to have more one click down, one more level of visibility rather than having that one giant segment, especially given some of the different financial characteristics of the two, as you can see, right? Really that's the driver in the guidance is companies with like characteristics are grouped together, and it's really no more or less than that.
Understood. Thank you.
Thank you.
Yeah.
Thank you. Ladies and gentlemen, at this time, we've come to the end of our time allowed for questions. I'll turn the floor back to Mr. Rendle for any closing comments.
Great. Thank you everybody for joining us. We're very proud of the quarter we just put up. Our growth is broad-based. We're seeing acceleration across core brands and platforms. I would just remind us all that this is just yet another quarter in a five-year journey. We're very happy and proud of where we are in that journey. We're confident with where we're going against our long-term vision to be a purpose-led, performance-driven enterprise that delivers top quartile value to our shareholders. We look forward to talking to you in the not too distant future. Thanks.
Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.