Yahoo Finance’s Brian Sozzi speaks with VF Corp. CEO Rendle about the company's latest earnings and 2021 outlook.
ZACK GUZMAN: But first, earnings season continuing to roll on, and I want to spotlight the pressure that that latest report is putting on VF Corp., the parent company of North Face and Vann's-- shares down in today's session. Of course, VF Corp., you know them through their brands, but the retailer reported a 6% drop in revenue and $342.2 million in net income. That was down from $465 million last year.
For more on the quarter, though, I want to bring on the CEO of VF Corp., Steve Rendle joins us right now alongside Yahoo Finance's Brian Sozzi. And, Steve, appreciate you coming on here.
Just first, the reaction to what you saw play out in the quarter, because, obviously, a lot of retailers dealing with the COVID impact. But what did you make of it?
STEVE RENDLE: Well, I think, as we reported this morning, you know, what we printed today was ahead of our expectations, you know, the plans we put in place back in March and April at the very forefront of the pandemic. We are slightly ahead of those plans and seeing sequential improvement across our portfolio. Strong performance in digital, our China business continues to perform well, and we saw better than expected results from our North Face and Timberland business, all leading to, from our perspective, delivering better than expected results.
BRIAN SOZZI: Hey, Steve, Brian here, always good to speak with you here. On the stores in Europe and US, what percentage of the stores are open? and what percentage have closed because of the pandemic?
STEVE RENDLE: Right. Yeah, so, Brian, we've seen our stores kind of modulate from being 100% closed at the beginning to opening-- to a majority of our stores were open at the beginning of October. As we find ourselves today, about 60% of our stores are closed in Europe. So we've seen a constant oscillation of stores open, stores closed.
And that certainly is having an impact on our ability to serve consumers and ultimately drive revenue. But I think the good news here is we continue to drive our transformation and become a much more consumer-focused, retail-centric, hyper-digital operator, the investments we've made around our digital platform giving us really significant strength this year. When you look at our sales combined with our digital wholesale partners, about 30% of our revenue is coming from our digital penetration.
And that's helping us really navigate this situation. But also the investments we've made to bring services to our stores-- be it buy online, pick up in-store, reserve and pick up in-store, ship from store, curbside pick-up, something we weren't even thinking about back in January, February, is now a service available within a majority of our stores-- all of those investments are helping us service the consumer, you know, tapping into retail inventory even when those stores are not open to be able to service that demand.
AKIKO FUJITA: Steve, on the physical stores, how are you looking at that footprint post-COVID, especially when you consider how much of all of our activity has moved online? How big of a driver do you anticipate these bricks and mortar stores to be when so much of our behavior has shifted online?
STEVE RENDLE: It's a very good question. You know, we see stores still being a critical component to our go-to-market set of choices. They'll be different, certainly, than prepandemic situation, but we still see them as very important. And we've had a project underway this year really trying to think about and, you know, tap into consumer information to inform what stores look like in the future.
We see them evolving into more of a dynamic ecosystem-- so types of stores, the size of the store, the location of the store, the services of the store, the amount of digital technology that would make a more efficient interaction for consumers-- all of those will play a role in how stores look and function in the future. But it's very clear-- the consumers have pivoted very aggressively to digital engagements with brands like ours. We're well-positioned to continue to evolve our skills and capability. And we will bring that seamless connection between the physical and the virtual, with the intent here in creating frictionless consumer journeys.
BRIAN SOZZI: Steve, a little nugget that perhaps investors didn't pick up on the earnings call-- you mentioned that operating margins would be back to peak in fiscal 2022. What gets you there?
STEVE RENDLE: Right. So I think what we called out, Brian, is that we see a path through 2021 or our fiscal '22. We're offset by a quarter. We see a path to peak revenues in 2021, you know, perhaps by the middle of the year. Gross margins will return to peak pandemic levels. And you know, operating margin will follow-- be a little stickier because there's a lot of dynamics within our operating model, stores being a very important aspect there.
We don't see a light switch flipping and stores all of a sudden returning to pre-pandemic operating levels and contribution levels. It will take time. And as we right size our fleet, modify our approach, we see operating margins following. But it was really, you know, seeing the increase in revenue, the improvement in gross margin, continued thoughtful investment behind our transformation all contributing to eventually getting back to those pre-pandemic operating margins.
BRIAN SOZZI: So you just recently closed on your more than $2 billion deal with Supreme. I think Wall Street has really loved this transaction. They're expecting big things. What's your roadmap for it over the next 12 months? Are you going to be opening up more stores? I was surprised to learn that Supreme doesn't have many stores in operation.
STEVE RENDLE: Right. Yeah, Brian, we've been pretty forthright with our intentions here. First, you know, this was an acquisition conversation that had been going on for quite a while. You know, some of the moves we made early in the year around, you know, really assuring our position around liquidity, positioning ourselves to move on this transaction. You know, one of the things that gave us comfort doing it in a pandemic situation is the model and the resiliency of the Supreme business.
It's performing at a very high level. Its engagement with its consumers has continued to be exceptional. And our plans, as we've said, is to really just get to know this business, have them get to know VF. It's operating extremely well. There are capabilities that we think we can bring, you know, that they've already identified and how our supply chain-- helping them become potentially more efficient on certain product categories where there's opportunity, leveraging our regional platforms for regional expansion.
Stores are a very critical part of their model. About 40% of their revenue comes from the physical store. Balance comes from e-commerce. They have a plan that, you know, we've become very comfortable with through our diligence process. And I think the key for how Supreme uses stores is they enter a market, they begin to learn the community, they begin to connect with the community, they pull from that community of users to actually operate the store-- so they have a very authentic connection to those local consumers.
And we'll really enable their thoughtful approach to rolling out stores in those markets-- opportunity in Europe, there's opportunities in Asia, and there's still opportunities here in the North America market as well. But we'll be very methodical and a very thoughtful approach really tapping into the current Supreme strategy.
ZACK GUZMAN: All right, Steve Rendle, VF Corp. CEO alongside Yahoo Finance's Brian Sozzi, appreciate you joining us today. Be well, sir.
STEVE RENDLE: Yeah, thank you very much. You as well.