Greetings. Welcome to the VF Corporation first quarter fiscal 2023 conference call. At this time, all participants are in a listen only mode. A Q&A session will follow the formal presentation. If at any time you require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Allegra Perry, Vice President of Investor Relations. Thank you. You may begin.
Good afternoon and welcome to VF Corporation's first quarter fiscal 2023 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 basis, which we've defined in the press release that was issued this afternoon 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 press release, which identify and quantify all excluded items and provide management's view of why this information is useful to investors. On June 28, 2021, the company completed the sale of its occupational Workwear business. Accordingly, the company has reported the operating results and cash flows of this business in discontinued operations for all periods through the date of the sale. Unless otherwise noted, results that on today's call are based on continuing operations. Joining me on the call will be VF's Chairman, President, and Chief Executive Officer, Steve Rendle, and EVP and Chief Financial Officer, Matt Puckett. This quarter's earnings presentation has been designed as a visual aid to our prepared remarks. You have the option to follow along via the slide window in the webcast portal.
The presentation is also available to download on our website. Following our prepared remarks, we'll open the call for questions. I'll now hand over to Steve.
Good afternoon, everyone, and thank you for joining our first quarter fiscal 2023 earnings call. I will take you through an operational update of our business, which will be followed by a review of our financial performance by our CFO, Matt Puckett. I want to start by addressing the evolution of the macro environment since we last met in mid-May. Excluding China, consumer health is generally good across our markets. Although I won't be the first person to point out that sentiment has softened, leading to changing behavior amongst consumers who are being forced to be more choiceful and cautious in their spending in the near term. From our point of view, we see this being largely confined to the value end of the marketplace where VF has very little exposure.
To date, we've seen limited impact on the mid to higher end consumer, where the majority of our brands are positioned in terms of demographic and distribution. We have a strong and resilient family of brands that are well positioned within their respective segments. Across the VF portfolio, we have a greater number of high-performing brands today than ever before. Our TAMs are healthy and maintain good momentum, and we remain under-penetrated in certain areas with the opportunity to gain further share in growing markets. We are continuing to invest in our brands, enabling the creation of innovative products and capabilities to drive enhanced consumer engagement and loyalty across all touch points. We're working closely with our retail partners to drive sell-through and ensure our family of brands remains at the forefront of consumers' minds.
Through our well-established strategic platforms and capabilities, we are mitigating headwinds faced across the marketplace and the persistent impact of COVID in China while reinforcing our competitive advantages. Amidst this backdrop, we delivered a healthy top-line performance in Q1, achieving revenue of $2.3 billion, up 7% on a constant dollar basis, ahead of our initial expectations. In fact, excluding China, the business grew low double digits. Our big four brands grew 6% in aggregate, led by The North Face and Timberland. The remainder of the portfolio grew 16%. Lastly, before I go into more details on the brands, I'd like to highlight that we remain committed to returning cash to shareholders with our dividend, which amounted to $194 million in the quarter. I'll start with Vans.
I'd like to take a minute to update you on the work underway, then go into the details of the brand's performance. Behind the scenes, our teams are diligently working to address the key headwinds we've identified. First, on China, which was largely in line with our cautious expectations, reflecting macro challenges and COVID disruption. Driving energy and engagement, Vans opened its first owned Taiwan store in June, along with a brand mobile app. We launched a new collaboration with Brain Dead, which sold out completely in the first hour. Our 618 shopping event was expanded onto the Douyin and Dewu platforms and rose by mid-single digits versus last year. Finally, we partnered with Tencent on 58 virtual products for phase I of our metaverse activation, and in four days achieved 43 million impressions. We remain confident of the long-term growth opportunity Vans has in China.
Second, we're seeing early signs of positive response from customers on our ongoing efforts to rebuild our core classic strategy and energy around our five icons. The Classic Since Forever campaign is showing improved ROI in the first two months, with over 25 million views globally. phase II of the campaign launched with support from Anderson Paak, Vans music influencer, including live in-store appearances in London stores and a live performance at our House of Vans venue. The first signature product drops on our U.S. online platform sold out in 24 hours. Brand heat has begun to show some bright spots. We saw nearly 8% growth in Vans Family members versus Q4, reaching nearly 24 million members globally, which represents a 41% increase versus last year. We also generated strong sell-through of Sailor Moon and Stranger Things collaborations, including exclusive online custom pre-releases.
Our Stranger Things collaboration was the second-biggest customs launch in Harry Potter, and the in-line product will launch in early September. We hosted pre-launch events for our new Pinnacle business unit at Paris Fashion Week, with top-tier accounts, including a sell in event and a Twitch live stream of the Brain Dead launch. The Joe Freshgoods Pinnacle collabs sold through quickly, with 3x average sales price in resale market. The second drop is coming in holiday. Finally, in our America's D2C business, we're working through a set of agile actions to capture and optimize traffic and drive higher conversion, such as front-of-store merchandising updates and quick floor set changes. We're seeing a positive initial response across key product styles. We continue to monitor our customer satisfaction levels, where we are scoring above the peer set. Vans Q1 sales declined by 4%.
Excluding China, global sales were up 4%. As mentioned, a number of targeted actions are being implemented at Vans under the leadership of Kevin Bailey. While our financial performance is not yet where we'd like it to be, we're encouraged by the work underway to reignite momentum. The brand is healthy, which is clearly evident when we launch truly innovative product, as indicated with the recent global collaborations, all of which resonated with our consumers and generated high rates of sell-through. We continue to see strong growth in our Vans Family membership, where members have higher frequency and rates of spend. Overall, we're encouraged with the early progress being made with actions underway and confident in the brand's long-term prospects to reignite growth. The North Face had another outstanding quarter, with sales up 37%, representing broad-based growth across regions and channels.
Growth during the quarter was fueled by our 365 product initiatives, with warm weather apparel and accessories, as well as rainwear, generating strong performances. Collaborations continue to drive brand heat, including the members-only Earth Day-inspired collaboration, which drove high digital sell-throughs in the U.S. and EMEA. Our return to travel lines also performed well, including bags and luggage, and we saw early positive performance for our packs business for back to school. Our marketing campaigns are clearly resonating with our consumers, starting with our Full Circle Everest expedition, which promoted access to the outdoors with over 5 billion impressions. Our Pride campaign was well-received and allowed us to broaden our reach and welcome new consumers to the brand. The North Face ranked number one in presale revenue for the outdoor category during the all-important 618 China shopping holiday.
We continue to see growth in our Explore Pass loyalty program as we celebrated its one-year anniversary with over 900,000 sign-ups, translating to 50% growth year-over-year. Finally, we're thrilled to have welcomed Nicole Otto as our new Brand President during the quarter, following a successful transition period. She brings with her a deep understanding of the consumer engagement strategies and a wealth of industry experience. As a proven innovator and future-focused leader, she steps in at an opportune time with strong product pipelines, positioning the team to further drive our strategies. The positive inflection at Timberland continued in Q1, with another quarter of double-digit sales growth up 14%, driven by strong performances in EMEA and Asia Pacific.
We're sharpening our consumer focus and accelerating a launch culture to attract new consumers to the Timberland brand, and it's paying off as we see success stories from the elevation of our iconic boat shoes globally with Generation Boat to the creation of a footwear design and innovation experience inside Fortnite. Our commitment to product innovation and craftsmanship continues to serve us well. Our Q1 growth was driven by men's footwear, led by outdoor across lifestyle hike, trekkers, and seasonal executions like trail-ready sandals. Apparel is also strong, especially lightweight outerwear and logo tees, with apparel as a whole accounting for 20% of quarterly sales. We continue to drive eco-innovation with a focus on circularity and building a greener future. On Earth Day, we introduced the Timberloop Trekker, our first footwear product that can be disassembled and recycled at the end of its journey.
We also expanded our Timberloop take-back program from the U.S. to include the U.K., France, Italy, and Germany. In PRO, we saw excitement around our first collaboration with Samuel Adams, with a limited edition work boot selling out in one week. Initiatives like these are key to connecting new and existing consumers from work to weekend. Across the board, we're excited about the trajectory of the Timberland brand and its opportunities for future growth. Finally, on Dickies. Global brand sales were down 13%, reflecting softer trends in the Americas value-end consumer and a more conservative inventory posture of our largest customer in the U.S. It's worth noting that excluding sales from this customer, revenue in the Americas and globally were up mid-single digits in Q1. In APAC, Dickies was impacted in China by lockdowns, but saw positive growth across other markets in the region.
Our reset European business has seen continued strong performance, with regional sales up 30%, driven by work lifestyle products. We kicked off our 100-year anniversary campaign, Made in Dickies, which drove higher traffic to and average order value on our e-com sites in the US and EMEA. We're generating solid growth globally across icons, women's and work lifestyle, while workwear has been soft, reflecting a larger exposure to the value end. Exciting collaborations such as with Supreme and New York Sunshine are generating momentum and energy while enabling Dickies to broaden its distribution into Tier Zero accounts. The underlying performance of Dickies remains positive. Outside the top four brands, the balance of the portfolio generated revenue growth of 16%. Starting with Supreme, the brand was broadly flat in the quarter and largely in line with our plan.
Our European stores performed well and benefited from the openings in Berlin and Milan in the prior year, where there continues to be a high level of energy and excitement for the brand. As we indicated in May, we are excited to be resuming enhancement and expansion of the store network in coming months. We've also returned to conducting in-person consumer engagement with recent events in Milan, New York, and Paris, which have received a positive response. We continue to be pleased with the performance of our outdoor emerging brands, which collectively grew 15%, driven by Altra, which was up 34%, maintaining its number one position in trail and capturing new consumers as it leverages its new products on the road. We continue to focus on product innovation and development and recently entered the space of speed shoes with the launch of the Vanish Carbon shoe.
We're seeing an improving performance of our packs business with stronger demand across the bag and travel category and our brands in the Americas and EMEA during the first quarter. Revenue was up more than 30% versus last year, a little ahead of schedule, driven by healthy order books, higher reorder rates, and anticipation of back-to-school shipments, where the season is off to a good start. Now let me take a minute to update you on the progress we're making on our purpose-led sustainability initiatives. As part of our roadmap to meet our science-based targets, VF has invested across a number of key regenerative materials. Through a collaboration between Vans, The North Face, and Timberland, we invested in the first regenerative rubber pilot in the world in Thailand with Terra Genesis International.
We continue to partner with New Zealand Merino to create the first regenerative wool platform in the world in collaboration with Smartwool and Icebreaker. These projects help deepen the understanding of these benefits to support farmers' regenerative journey and have been creating a captive supply of raw materials for use in our products. We continue to receive recognition for our efforts in transparency with Timberland and The North Face tied for second place and Vans taking third place on the Fashion Transparency Index. Finally, we remain committed to advancing our efforts on diversity and inclusion with the first all-Black Mount Everest climb sponsored by the VF Foundation, The North Face, and Smartwool. In summary, we delivered a solid top-line performance in Q1, ahead of our initial expectations amidst the softer consumer environment, and importantly, we're maintaining our operating outlook for fiscal 2023.
This is a testament to the resiliency of our purpose-built family of brands, which is focused on the outdoor, streetwear, and active spaces that benefit from favorable consumer tailwinds. I remain impressed by and proud of our teams whose passion, perseverance, and execution continue to drive our success. Looking forward, while uncertainty persists across geographies and marketplaces from ongoing macroeconomic headwinds, we are confident in our strategies. We remain focused on the things that we can control and will continue our strategic investments to ensure long-term sustainable and profit growth. With that, I will hand over to Matt and take you through the financials. Matt?
Thanks, Steve, and good afternoon, everyone. As Steve mentioned, we delivered a top-line performance in the quarter that was better than our initial expectation and was achieved amidst the softening consumer environment. Revenue was up 7% in constant dollar terms and up low double digits excluding China. Including the negative FX translational impact of nearly $100 million, sales were up by 3% on a reported basis. Our EPS was $0.09, down 68% on a reported dollar basis and down 59% in constant dollars, largely in line with our expectations. However, we incurred about $0.05 of non-controllable impacts relative to our plans, primarily driven by FX. Before I unpack the P&L, let me talk about the operating environment across our primary geographies.
Globally, today we are open for business from a COVID standpoint across the value chain, although we are still feeling the effects of isolated impacts from COVID-related lockdowns in China during Q1. Revenue in the Americas was up 7%. Our performance has overall been resilient considering the softer macro backdrop and subdued traffic levels in our DTC network. While the outdoor segment has been the key driver, Vans also generated growth with regional revenue up 3% for the brand. The consumer remains solid at the higher end, but the value end has been more impacted and we've seen certain retailers begin to take a more cautious approach to open to buy generally. However, we continue to see the strength of our brands position us to take advantage of opportunities in the marketplace as they arise.
In the quarter, EMEA was our strongest performing region with revenue up 24%. All markets were up, driven by Italy and France. This was achieved despite softer consumer confidence, which continues to impact traffic levels. All brands recorded growth with particularly strong performances generated by The North Face, Timberland, Vans, Smartwool, and Dickies. Importantly, both direct-to-consumer and wholesale grew by double digits. APAC was down 15% with Q1 being a tale of two stories. First, China. We experienced meaningful impacts from rolling lockdowns across the quarter, with overall sales down 37% on the mainland, in line with our expectations. Consumer spending post-lockdown has been soft to date, as expected. It is worth noting that the outdoor segment continues to grow strongly, with The North Face generating double-digit growth in the market during Q1. Overall, the business has seen a progressive improvement throughout each month of the quarter.
Second, in the rest of Asia, our business is recovering nicely with high-teens growth being seen across markets. Turning now to gross margin, we were adversely impacted by a number of factors in the quarter. Our adjusted gross margin was down 260 basis points, largely in line with our plan, excluding transactional currency impacts. As anticipated, this was driven primarily by mix, particularly reflecting the evolution of channels and brands, which together impacted margins by 160 basis points, and higher freight costs, which were partially offset by price increases. We maintain a relatively low level of promotional activity, which remains in line with last year. Let me take a moment and update you on the supply chain environment. This is a competitive advantage for VF, and we continue to use our scale and diversification to mitigate headwinds.
Relative to the last time we updated you, we're starting to see the level of supply chain disruption ease, albeit nowhere near the pre-pandemic normal. In terms of sourcing, our supply base is fully operational as we step into Q2, and we continue to work to move production closer to consumption where it makes sense for us to do so. The eight weeks of lockdown in China during the quarter will take some time to flow through the system and overcome, but we are well-placed to recover from this relatively quickly. In terms of logistics, we're seeing improved transit times across the water, reflecting a slight ease in congestion and shortened dwell times in port. This is leading to overall better predictability and reliability. From a cost standpoint, there is some abatement in spot rates, both ocean and air, albeit these remain high relative to historic levels.
I'd like to thank our supply chain teams for their continued hard work, perseverance, and performance in this disrupted environment. Moving on to inventory. There are a couple of things to unpack here relative to the headline number. First, we've implemented a supply chain financing program with the majority of our finished goods suppliers. In connection with the rollout of this program, we began taking ownership of inventory from these suppliers at the point of shipment in Q1, different from the past when we generally took ownership at the destination point. This results in VF owning the inventory an additional month or so. Although we are taking ownership of the inventory sooner, there is no impact on cash flow since the point at which payment is due to the supplier did not change.
Accordingly, the increase in inventory is offset by an increase in accounts payable, which was up 91% in the quarter. Now that the supply chain financing program has been established, effective on purchase orders issued from September 1st, VF will be increasing payment terms with the majority of its finished goods suppliers. This change will improve VF's overall cash flow while at the same time benefiting the supplier base. This impact is contemplated in our operating cash flow outlook. Second, the on-hand inventory, excluding in-transit, grows by about 50% as planned. On a two-year organic basis, excluding in transit, which is a better comparison considering last year's unusually low levels, inventories were up 26%. This planned increase reflects anticipated deliveries to support on-time shipping of complete assortments.
We feel good about our inventory levels, although we are closely monitoring our own and channel inventories in light of the softer consumer environment and ensuring we maintain a controlled promotional strategy. Finally, adjusted operating margin was down by 340 basis points, largely in line with our plan, reflecting the lower gross margins and the targeted investments we continue to make in our strategic priorities. Our strategic investments increased by 7% in the quarter, primarily reflecting initiatives in the digital and technology space. On a constant dollar basis, SG&A was up 8% in our smallest quarter of the year, broadly in line with our revenue growth, reflecting our continued focus on managing the P&L and maintaining cost discipline. We'll continue with a very thoughtful and purposeful approach to managing costs across the business.
Turning to our fiscal 2023 outlook, I'm pleased to confirm that we're maintaining our currency-adjusted fiscal 2023 outlook while revising our earnings outlook on a reported dollar basis to reflect ongoing negative impacts from foreign currency fluctuations. We expect total revenue to be up at least 7% in constant dollars, unchanged from our prior outlook. We now expect adjusted earnings per share of $3.05-$3.15, implying 4%-7% growth versus the prior year on a constant dollar basis. This reflects the significant strengthening of the U.S. dollar across most most major global currencies and contemplates current FX rates through the balance of the fiscal year. As a result of, and to account for this currency impact, we now expect gross and operating margin to be up slightly versus last year.
Our operating profit guidance implies growth of about 10% on a constant dollar basis. Finally, I'd like to give you a short update on the Timberland tax case. A judge ruling issued on July fourteenth formalized the decision and started the appeals clock. We expect to make the deposit during our third quarter of this fiscal year. We remain confident in our strategy and in the strength of our family of brands that benefit from favorable consumer tailwinds in our TAMs to drive sustainable and profitable growth despite a softening consumer environment and continued elevated uncertainty. To round out my remarks, I'd just like to add that I'm proud of the great work of our teams that has enabled VF to continue to deliver against our strategy. With that, we'll now open the line and take your questions.
Thank you.
At this time, we will be conducting a Q&A 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. We ask that you please limit to one question. Our first question comes from the line of Laurent Vasilescu with BNP Paribas. Please proceed with your question.
Good afternoon. Thanks for taking my question. Steve, I wanted to follow up on your prepared remarks and ask about the general health of the consumer and what you're seeing from a macro and market standpoint. We've seen a number of retailers and brands actually pre-announce, which typically don't pre-announce. Most notably a German brand just two days ago. With The North Face up 37%, likely outperforming this year. How can we glean anything on the state of the sporting goods channel versus other channels?
Yeah, Laurent. Appreciate you. You know, this is an interesting question. It's one we spend quite a bit of time on, you know, looking at not only our own data, you know, but broader market data. As I said, you know, the consumer health from our vantage point is generally good across all markets. China's certainly lagging as, you know, the impact of the lockdowns has had an impact. Sentiment is softening, and there's a lot of data out there that would support that. Certainly consumer behavior is changing. Consumers are becoming more choiceful as household expenses are up and, in some cases, you know, up significantly. As we look at it and as we reflect it over our business, you know, we see it primarily in that value end, you know, consumer.
That's the part of the market, as you know, over the last five years, we've done quite a bit of work to mitigate our exposure. Then we really only have one brand, and it's just a small percent of their total revenue. Where we see, you know, for our market and in our consumer, there's limited impact on that mid to higher end consumer. I think where you're going, you know, the macro trends of outdoor, certainly health and wellness for us, continue to support, you know, solid sell-through. Where we're positioned with our own stores and our own digital and our key accounts, we continue to see good sell-through.
We're very attentive to, you know, the right product in the right environments, at the right time to the best of our ability with the current supply chain. Really managing closely to ensure we've got, you know, the products that are selling and where they're not, you know, moving quickly to place the right products in place. I can speak for us, Laurent. You know, we're well positioned. The energy you see in The North Face, the energy we see at Timberland in our emerging brands, you know, specifically Altra, Smartwool, continue to give us a lot of confidence that, you know, the work we've done, you know, the strategies in place, but most importantly, with the people we have working across these brands continue to keep us well positioned.
Very helpful. Steve, last quarter you talked about Vans sequential improvement over the quarters. How do we still think about that? With regards to there were some channel dynamics between DTC and wholesale for Vans overall, how do we think about that? Matt, just quick question, just, a modeling question. I think last quarter you talked about $0.23 of unfavorable non-operating impacts, three items. With the $0.25 adjustment this quarter, was that just largely FX, were there other factors to consider? Thank you.
To the first part of your question, let me first say, I think it's important. You know, we're not meeting our expectations in Vans. While we're not, we're still confident. You know, we've got the right leader. You heard from Kevin in our last meeting. The strategies that are in place, but most importantly, the actions, you know, that he's driving across the, you know, the business, absolutely, are showing benefit and giving us confidence that we, you know, we're on the right track. From a quarter standpoint, I guess to your sequential, you know, question. Q1, you know, we missed, you know, really based on our lower D2C traffic and, comping a strong year last year. There was slightly lower revenue in China, you know, than planned.
On the positive side, our European business continues to do well and was above expectation. As we think sequentially, our focus on our own D2C, you know, where we can control that narrative, where we can, you know, really drive that experience. We think about, you know, the classics campaign that we have in place, while also staying mindful of the progression side of the product offer. You know, we've seen continued double-digit growth with Altra. Our Sk8-Hi continues to grow at a double-digit rate. We see, you know, sequential, you know, improvement as we go across the year. I guess what gives us confidence in that is where we drop new products with new innovation and new innovative partners.
To the comments in our remarks around Stranger Things, the Sailor Moon collab, and Brain Dead. We're seeing good sell-through. There is risk in this business. I don't want to at all, you know, say that there's not, but we have a really good understanding of where it is and, mitigating actions in place to make sure that we continue to move against that long-term strategy, because there's every evidence on our side that this is a strong brand. It has enjoyed significant growth in the past, and it remains very relevant. This tremendous, you know, number of consumers still, you know, coming in, engaging and joining our loyalty program, you know, just kinda reinforces the confidence that we have in the trajectory we know we have in the future.
Yeah, I'll add one point on Vans in terms of just the sequentiality. Certainly, we performed a little below our expectations in the quarter, but we're not significantly off our plans. The brand did grow 4% ex China in the quarter against actually what's probably the toughest compare of the year from a quarterly perspective. You know, for everything Steve said, as well as kinda just looking at the numbers from a compare standpoint, and obviously expecting the China business to improve sequentially through the year as well. Yeah, we remain confident in how we see the brand position for the year. I love that you asked the question on non-operating impacts, Laurent. You got the details there. You're spot on. Let me answer.
Let me try to answer this and not confuse because it's easy to get confused, I believe. The $0.23 we talked about before, which we gave you all those pieces, the currency component of that was translation only, when we laid that out. That $0.23 has now become kind of $0.39, okay? Most things are unchanged. Currency translation is kind of $0.16, $0.17 cents worse, which is a piece of the $0.25 reduction, and the rest is transaction. Currency transaction is flowing through our P&L and primarily through our gross margin. That's how to think about. Kind of two-thirds translation, one-third transaction of that $0.25 reduction.
If you throw that translation against what we were talking about previously, which I think is appropriate, you kinda get right at $0.40 impact now year-over-year from a non-operating point of view.
Very helpful. Thank you very much. I'm looking forward to September.
Thank you, Laurent.
Yeah. Thanks, Laurent. See you soon.
Our next question comes from the line of Camilo Lyon with BTIG. Please proceed with your question.
Great. Hi, this is MacKenzie Boydston on for Camilo Lyon. Thanks for taking our questions. My first question is just on China. I'm just curious, you know, given the choppiness in that market, could you just talk about your opportunity there and how you're planning to manage inventory, just given kind of the choppiness there? Thanks.
Yeah. Yeah, let me start with that, maybe Steve will wanna talk about kind of the growth opportunity. Clearly we think long term. It remains a clear opportunity for growth. We are navigating short-term challenges. We guided the business to be down about 35% in the first quarter, and we kinda largely fell in line with that at down 37%. You know, if you look across the rest of the region, we actually saw really good growth. Importantly, the outdoor brands maintained momentum, aided by the kind of market tailwinds. It really coupled with consistent performance and execution of our brand teams there, particularly in The North Face. You know, I think we're navigating that in a way that we anticipated.
You know, a lot of what you saw occur in Q1 in terms of the results was us taking swift and aggressive actions with our retail partners to pull back on inventory levels and get our weeks of supply down, which is really what's happened. We do expect sequential improvement in the market moving forward, but we'll still be negative in Q2 is our expectation. Mid-teens to 20% is kind of the way to think about that. Returning to some level of growth as we move into the back half of the year.
Maybe to just kind of finish that out. You know, we continue to see long-term opportunity in China and remain very committed, you know, to the Chinese market and that Chinese consumer. There's significant distribution opportunity and significant brand awareness opportunities. I think what's interesting, you know, when you look at the consumer trends, you know, within the Chinese market, our portfolio is extremely well suited for long-term growth, and you certainly see that in The North Face business. We've established a structure in Shanghai, developing our local teams, strengthening that local knowledge, but most importantly, really connecting closely to serving the health and wellbeing of the Chinese consumer. You know, we think that will serve us extremely well on the long term.
That's great. Thanks for that. I think you kinda touched on this in the prepared remarks, but just some more color on discussions that you're having with your wholesale partners for fall and holiday. You know, are you seeing any more incremental caution, any cancellations? Just maybe where the biggest cancellation risk might be from a timing perspective would be helpful.
Yeah, I'll take that one. I guess one thing important to recognize, I think, and really important for us is we've purposely pivoted our portfolio, you know, really away from those channels which generally are more challenged and more susceptible to higher levels of promotional activity and maybe more exposed to some of the impacts from an inflationary standpoint on that lower end consumer. You know, with that, we've got a higher penetration of both direct to consumer and international, which are less promotional. You know, specifically with the retail partners, which are, you know, are key strategic partners both in the U.S. and in Europe. You know, we generate high margins with our brands, and we remain a partner of choice for those retailers.
We've got strong brands. We've got great kind of connectedness to those businesses. A lot of transparency and frequent dialogue. Ultimately that allows us, I think, to work very closely together on issues and how we see that evolving over time. As it relates to cancellations, you know, at this stage, you know, our business model, we have, you know, we always have cancellations and, you know, it's something that's contemplated. When we look at where we are today, our sell-through remains good, our sales to stock ratios are well balanced, and really the overall inventory is healthy.
While we're watching this very closely, and we certainly will see some cancellations, we feel kind of balanced in terms of how we're viewing that, and certainly all of that's contemplated in our outlook.
Great. Thanks so much. Best of luck for the rest of the year.
Thank you.
Our next question comes from the line of Matthew Boss with JP Morgan. Please proceed with your question.
Great, thanks. Steve, could you speak to the energy that you cited at North Face and anything driving the sequential moderation that I think is embedded in the low double digit guide for the year? Just at the overall portfolio level, you held your top line guide, but any underlying changes by brand, maybe relative to 90 days ago that you'd cite in the top line outlook overall?
Yeah. I'll take the first half. On The North Face. The last call, Steve, I think did a great job really breaking down the broad-based strength across regions, channels, and product categories. That continued, you know, Matthew, as we went into Q1 here. You know, TNF is so well positioned in that outdoor marketplace where there is a good tailwind, and just the sheer authenticity of the brand and its relevance both on mountain and off mountain is helping, you know, the brand stay very, you know, much in front of its core consumers. I think where you see the real energy is in the product and marketing and what the teams are driving there from a real innovation and newness standpoint.
You've heard us talk a lot about the 365-day initiative. You know, that came through really, you know, quite, you know, significantly here in Q1 with our warm weather products, as well as rainwear selling extremely well. As we've come in here towards back to school, we're starting to see backpacks pick up, also our travel product. I think it's the marketing, you know, that's really driving this. We carried that momentum out of the fall. This full circle Everest expedition that we mentioned in our prepared remarks. This is the first all-black expedition to Mount Everest. Really drives hard against this outdoor industry opportunity of building a stronger, more inclusive community.
Also the Pride campaign, you know, opening up to a broader set of consumers and inviting them also to be part of that outdoor community. It's just continuing to strengthen the brand, you know, leveraging that authenticity and setting it up really well for the balance of the year.
Yeah. Matt, relative to kind of the guide, you know, we've consistently shown now across, you know, multiple quarters last year, this quarter, you know, this purpose-built family of brands is performing well. It's able to deliver on our commitments at the VF level. In fact, in Q1, we actually did a little bit better than our initial expectations, with that revenue growth of 7%. Actually the top four brands combined grew 6%, and importantly, the rest of the portfolio grew 16%, you know, contributing in a creative way to VF results. You know, to answer your question about TNF and then kind of more broadly, the rest of the portfolio, we did not change any underlying outlooks.
You know, as we contemplate the puts and takes, and Steve referenced a little, you know, we probably do see a little more risk to Vans, but potentially certainly some offset to The North Face. You know, in our view, it's really early in the year and, you know, to change anything doesn't. We don't feel compelled to do so based on our kind of how we view the overall business and how we view each of the brands, by the way. You know, clearly, TNF had a strong quarter. The indicators kinda are flashing green at the moment, but remember, it's a small quarter. It's small for VF, and it's even smaller for The North Face.
You know, we did benefit from some wholesale shipment timing differences, which were planned, so that wasn't a surprise. We had some shipments that came into the quarter from last year. Importantly, we're shipping this year closer to on time, not perfectly on time by any stretch, but definitely in a better way in terms of shipping, you know, shipping out. Kind of more normal shipping patterns through the quarter helped us as well. Certainly, we feel good about where The North Face is and have a lot of confidence in the trajectory of the business overall.
That's great color. Then Matt, maybe just on the gross margin outlook. Was foreign exchange the entire driver of the full year revision? Or any change to the promotional forecast embedded within gross margin? Just anything to think about in terms of the cadence, if we're thinking of gross margin in the second quarter, maybe relative to the back half of the year.
Yeah, absolutely. The gross margin change, which, you know, we were up 50 before, it's up slightly. You know, you could kinda call that maybe around a 40 basis point change, something to that effect. You know, largely driven by currency FX, but also have modeled in and assuming a slightly more promotional environment across the business. I think the other thing to recognize there is, you know, we've got lots of levers in gross margin. There is a little bit of favorability in terms of our outlook relative to the use of air freight as we move through the balance of the year. A couple of puts and takes there.
We have, I think, importantly, assumed a modestly higher promotional environment as we move through the year implied in the guide. As it relates to the evolution, we certainly expect a sequential improvement in gross margin throughout the year. There's a few factors that really, I think, drive that. First, mix won't be the same negative as it was in Q1 based on China and kind of just how we see the mix evolving across channels and brands through the balance of the year. So there'll be still some negative impact, I think, in Q2. As we move through the balance of the year, that will start to right size and that will change.
The cost comps from a freight standpoint will not be as impactful. Q1 is far and away the toughest comp from a freight, both in terms of rates. Last year in Q1, the rates had not moved as aggressively as they did beyond that. Then, you know, from an air freight standpoint, you know, as we move through the year, that's gonna be a favorable kind of tailwind to us from a comparative standpoint. Then I think it's important to note, you know, we did see kind of pricing benefits in Q1, which were meaningful. That actually will increase as we move through the year, just based on the kind of timing of some of those price increases and when they hit the market.
In particular for The North Face and Timberland, with those brands that are more heavily weighted towards the fall and winter. Gross margin will still be negative in Q2. I think it's worth knowing that.
That's helpful. Best of luck.
Yeah. Thank you, Matt.
Thanks, Matt.
Our next question comes from the line of Bob Drbul with Guggenheim Securities. Please proceed with your question.
Hi. Good afternoon. Just a couple questions from me. First, the business is very strong in Europe, so I think you can talk about the state of the consumer in the U.S. What are your assumptions around what you expect out of Europe over the next few quarters? And then the second question is more on, you know, some of the volatility that you're seeing in your DTC business. Can you just talk about, you know, the assumptions around that piece, you know, of the business, how you're planning it, you know, I'm almost curious around inventory that you have around that. I follow up with some inventory questions as well.
Okay, Bob, I'll start with maybe the Europe part, and let Steve come in here on D2C a little bit. You know, clearly Europe continues to be a terrific performing market for us. You know, it's been and remains the fastest growing region. I think strong momentum of the integrated marketplace strategy that across brands there that's being applied really consistently, and the execution of that, I think just continues to deliver great results. We're not gonna grow 24% across the year necessarily, you know, quarter by quarter. You know, and certainly worth knowing that. We're really confident in what we're seeing because it's broad-based across markets, and it's broad-based across brands.
I mean, every brand grew in the region in the quarter, and we've said that more often than not of late. We saw double-digit growth, you know, across both direct to consumer and wholesale. We just got a lot of confidence in what we're doing, the strategies and really how the teams are bringing those strategies to life from a marketplace management standpoint in the region.
Bob, on the DTC question. You know, this is obviously one of those, you know, one of the key strategic pillars in the evolution of VF and certainly our brand portfolio. It remains a very important part of our long-term algorithm for sure. I guess, if you just take a step back, the one thing that I think you can see that we've done is in our two largest D2C businesses, The North Face, Vans, both of our leaders come with exceptional background, both from a brick-and-mortar and digital standpoint.
You know, the benefits of VF and our portfolio model and the sharing across our teams, as we work on our Vans business, as Nicole comes in and gets set into The North Face business, our ability to share, test, learn, and quickly scale, you know, the ideas that drive, you know, consumer engagement. You think about, you know, consumer acquisition from an omni standpoint, not just brick and mortar, but how we think about including stores to online. We're really you know we've got the right leaders in the right place to help us, you know, really continue to elevate our understanding and ability to engage consumers and, you know, pull them across our lifecycle, be it that digital or virtual or physical, and look to convert them.
Great. If I could just follow up on the inventory. I think at least the organic inventory, you know, that you have, there's a lot of moving pieces to the inventory generally, but when you look closely at the inventory, in terms of by brand or by region, you know, you said you're comfortable with it, but can you just maybe put some numbers around, you know, if there are any other, you know, pockets that you're concerned about, you know, with the absolute number around, you know, where that inventory level sits today?
Yeah. Sure, Bob. Happy to try to help you get there. Yeah, overall, you know, we feel good about where we are, certainly as we said. I think if we look across the different business units, yeah, there's areas where we're probably a little bit elevated. We were that way in China. We're kind of coming into a better position in China with the actions that we've taken in the quarter and have kind of planned, you know, moving forward. I think we feel pretty good about, you know, where we are there and quickly getting into a kind of better place and a healthy place.
You know, certainly the Dickies business is a brand where we're a little bit elevated at this stage, you know, given kind of how abruptly we've seen that business kind of change in the U.S. market with that lower end consumer. You know, we referenced in the prepared remarks kind of a softening of sell out, but also some inventory actions, right? Some pretty aggressive actions in terms of thinking about kind of model stocks and in-stock ratios and you know, kind of lowering the expectations in that regard, which kind of pushes some inventory, you know, back upstream pretty quickly. You know, we'll work our way through that. The good news is that's all core inventory, right?
We're a little bit elevated at this point, you know, in the Dickies brand, but not something we're not capable of managing through. I think the important thing is now that the inventories at retail are quickly in the right place with key partners. You know, if we see improving sell out, that'll generate incremental volume very quickly as well, just as we saw it kind of move the other direction. That's, I think, one thing. Then, you know, certainly across the rest of the brands, you know, Vans is a little high in a few places, you know, if I'm honest, but again, not something that's unmanageable and again, driven by core products. The North Face and Timberland are relatively well-positioned.
I think The North Face is, in some cases, still kind of missing some key things that we'd like to have. We're working really hard to continue to drive, you know, back into a better overall stock position from a The North Face standpoint. Hopefully that gives you a little more color.
No, definitely. Thank you.
Thank you, Bob.
Our next question comes from the line of Michael Binetti with Credit Suisse. Please proceed with your question.
Hey, guys. Thanks for taking all our questions here. Maybe just following up on an earlier question with a little help orienting the model, as we connect to 2Q here, how to think about growth for North Face in 2Q and Vans in 2Q. I guess, both in total and in China for Vans, I'm just curious with Matt's comments earlier on how you're thinking about the total company improvement in China going to mid-teens to 20% in the second quarter. Love to zero in on the brands a little bit there and you know, North Face, too, as we get into seasonally more important.
I guess just bigger picture, can you help us understand when we look at relative revenues relative to 2019, I know Europe's got a lot going on right now that's positive for the broader retail market, but Vans looks like it's up about 20% in Europe versus America's down 9%. I'm just trying to understand the difference in the consumer response to the brand in those two markets and, you know, what you see that's different from the consumer and how they're reacting to Vans in the US from Europe.
Thanks, Michael. I'll take the question here on the guide or on the outlook for Q2 and how to think about that a little bit by brand, try to shape that for you a bit. I think certainly The North Face, the outlook would not imply in a large quarter like Q2, we're gonna see the kind of growth that we saw in Q1. So you'll see some deceleration there, but we'll still see solid growth in The North Face as our expectation really across quarters as we look across the year. Certainly, Vans will see some sequential improvement is our expectation in Q2 into Q3 and then on to Q4. That's really driven by improvement in China.
In China's case, in Q2, it's kinda less negative. So that 15%-20% is kind of a down 15%-20%. I think you got that, but down 15%-20% in China for VF. That's, we haven't talked about it by brand, but you will see some sequential improvement in Vans driven by kind of the China implications as well as, you know, kind of modest improvements in the other parts of the business.
On the Vans revenue compare, you know, between EMEA and here in the U.S., I think the way I'd go at that, Michael, is let's talk about Europe specifically and what we've seen over there. You know, you were just with us, I think you saw the strength of our European platform. You know, the coordinated way that we go to market. Those key account relationships are really quite critical.
We look at those, you know, both from a physical environment, but also the, you know, those key digital retailers where we've been able to leverage the scale of VF to drive those season to season initiatives, putting ourselves in a place to really get in front of the consumers with the right product. I would tell you the integrated marketplace strategy that's used in Europe is, you know, really quite strong and a real deep understanding of that specialty consumer, the more, you know, lifestyle, you know, and some of those more sport inspired parts of the distribution and really thinking through where we're placing the products and driving icons on a kinda consistent season to season basis.
Our growth historically has come, you know, in those key markets of the U.K. and Germany. As we come into this year, we're starting to see really nice growth in France and Italy. I think you'd kinda combine that. You put together, you know, multiple quarters of very strong growth contrasted here in the U.S., where we have such a high concentration of own stores where we have seen, you know, the traffic compression, you know, as we continue to work to bring that back. To be honest with you, I think our integrated marketplace learnings from Europe are now coming here to the United States.
Kevin will leverage those along with his team, and I think you'll start to see us really merchandise appropriately or differently to give consumers different views of the brand and a stronger use of our assortment to drive, you know, drive the revenue here in North America, taking those learnings, and that's one of the key benefits of our VF model in being able to look at, you know, those powerful strategic platforms internationally and share those learnings openly and take those learnings quickly and move them into positive results.
Thanks a lot for all the detail.
Our next question comes from the line of Brooke Roach with Goldman Sachs. Please proceed with your question.
Good afternoon, and thank you so much for taking our question. A lot of ground's been covered, but I wanted to follow up on the comments that you had made about VF's Vans own stores in the Americas. Can you quantify the store productivity of the Vans America brick and mortar fleet that you're seeing now versus pre-COVID levels? Perhaps what level of improvement is baked into the guide for second half, and the implications for fixed cost leverage and margin that you anticipate as you continue to roll out those additional brand campaigns? Thank you.
Hi, Brooke. I'll take that. Overall, today, we're kind of 85%-90% productivity from where we were pre-COVID. We've seen that kinda sequentially improve, but it didn't so much in Q1. That's been a kinda quarter to quarter improvement. In this quarter, which is obviously a smaller quarter from a store revenue standpoint, we didn't see the kind of improvement, and that was really, I think, tied to kinda traffic compares, which ended up being different than our expectation. As we move across the balance of the year, what we expect is kinda by the end of the year to be right at 100% productivity from where we were pre-pandemic.
That's kinda where we are, and what our modeling would assume. Clearly, you're right, there are some implications there on the P&L today in terms of, you know, kind of, absorbing the fixed costs associated with that store fleet. That said, it's a really highly profitable set of stores that we have, even operating at kind of a 90% productivity level. Super profitable. We generate a lot of four-wall profit and overall a lot of earnings at the EBIT line for the brand. But there is some overhang there that continues as those productivity levels are a little bit below where they had been historically, which were obviously extremely high.
Great. That's very helpful. If I could just ask one follow-up. Can you provide an update on your pricing actions? Are you seeing any pushback from partners or from the consumer from some of the early pricing that you've taken? And have there been any changes to your pricing plans for the next few seasons?
Yep. Yeah, by and large, no. I mean, we're right on track. Our average price increase on carryover product was somewhere between 3%-4% in the quarter, which is exactly what we expected it to be. I think one thing that's kind of a proof point there is Vans in our stores in the quarter. Our AUR was up 10%. By the way, our gross margins in our stores and online and then collectively at the channel level across brands were higher than they were last year and certainly in line where they have been historically. The prices themselves, and that's a clear example in Vans.
Everywhere we see it, we've not seen, you know, a meaningful impact from a pricing standpoint beyond what we would have expected. We feel pretty good. You're gonna see that impact, that 3%-4% I mentioned, will grow a little bit as we move into the back half of the year as some of the brands that were kinda lower impact in the first half or really in particular the first quarter related to spring product will start to weigh in there a little bit more.
Thank you so much. I'll pass it on.
Thank you, Brooke.
Thank you.
Our final question comes from the line of Ike Boruchow with Wells Fargo. Please proceed with your question.
Hey, guys. Thank you. Matt, just a couple follow-ups. Just on the inventory, thanks for all the color. Can you kinda help us think about what you're expecting three months from now, when you guys report Q2, on the balance sheet? Then, I think to Matt's question, the gross margin. I appreciate another decline in 2Q. Can you kinda give us the magnitude of decline that you're expecting? Then the last one is to Matt's question. I think you said a little bit of an elevated promo outlook versus three months ago. Is that broad-based, or is that, you know, specific to some to Vans or to any geographies or anything like that? Thank you.
Yeah. That's a lot there, Ike. Let me make sure I get it all. The inventory position three months from now will, you know, I'm not gonna give you a number, but, you know, we'll be kind of at where we plan to be, which is gonna be probably better positioned than where we were, you know, two years ago. I expect that we'll continue to see an increase versus the two-year compare. Clearly, we're gonna have for a period of time this impact of the in-transit inventory, which is kind of a new thing.
As we look forward and we look at kind of our days of supply, and by the way, our days when we ended Q1 were kind of in line with our expectations, we feel good about where we are. I think what we're focused on right now is making sure that we've got the right inventory to support what continues to be a strong sorta growth outlook across our brands, as we look through the balance of the year. You know, we're gonna manage very carefully in terms of you know as we think about you know the environment that we're operating in, for sure, but we feel good about where we're positioned there.
As it relates to gross margins in Q2, I would expect they'll be down about a point.
Great. Thank you.
Thanks, Ike.
Thank you. Ladies and gentlemen, we have reached the end of the Q&A session. I will now turn the call back over to Steve Rendle for closing remarks.
Hey, thank you, everybody, for your questions today. I'd love to leave you with three takeaways. As you heard, we're delivering against our revenue targets. You know, we've reaffirmed, you know, our outlook for the year, and we're generating healthy profit margins despite, you know, what is a softer consumer environment. This, I think, is a direct reflection of the resiliency and strength of the family of brands and certainly the hardworking, passionate teams that we have across our business. Second, we're going to remain focused on those things that we can control and absolutely be thoughtful about our investment, the approach to supporting our growth, and how we think about the long-term view of our portfolio. I think then lastly, we're confident about, you know, where VF is positioned, you know, to generate that long-term sustainable growth.
Our portfolio carried momentum. It continues to show that momentum, and we're really excited, you know, to host you here in Denver on September 28th and get you up to speed on how we look at the years here to come. Thank you for your time, and we look forward to seeing you here shortly.
This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.