Matt Puckett
Executive Vice President and Chief Financial Officer at VF
Thank you, Bracken. Before I get into the financial update, let me take a minute to reflect on my time at VF. I've lived and loved VF for over two decades and my time with this great company has provided me with many enriching and fulfilling experiences across our business and across the world. I'm thankful for those many opportunities and more importantly for the great friendships and relationships that have come from it. However, there always comes a time for change and Bracken and I are lying on this being the right time. While I'll be stepping down in the coming months, in the interim, I remain committed to helping pursue the transformation agenda, leading the finance organization and supporting the transition.
Now, turning to the quarter. Throughout Q3, we remained highly focused on strengthening both our business fundamentals and our balance sheet. At the same time, we are advancing our transformation program Reinvent with a sense of urgency and resolve to execute against and identify new and additional opportunities to reshape and improve VF.
Now I'll start with a review of the quarter, then provide an update on Reinvent and finish off with some thoughts on the year to go [Phonetic] period. Total revenue was down 17% for the quarter as both global Vans and the Americas results remain pressured as expected. On a global basis, wholesale led to decline at down 28% while DTC was down 9%. Excluding Vans, DTC was down 3%.
Before going into a review of the regions and brands, I'll spend a few minutes outlining some items which impacted the quarter. First, Q3 was impacted by the expected timing related shifts in wholesale, where on-time deliveries this year benefited Q2, while impacting Q3 relative to the prior year period. This had an overall impact of about 2.5 points on total revenue in the quarter and 5.5% across the global wholesale revenue. Second, as Bracken mentioned earlier, we took proactive measures to accelerate the Vans turnaround by introducing several reset actions at the brand in Q3, which impacted total VF revenue about 1.5% in the quarter and may have a further impact into Q4. These actions are largely focused on ensuring we have a clean marketplace with the right level of healthy inventory into which we can more effectively introduce upcoming newness, while positioning our partners and Vans for overall better sell-through and profitability, as well as delivering a more compelling brand presentation to consumers.
Finally, results were impacted by the cybersecurity incident in December, which briefly disrupted our ability to fulfill orders over the pre-holiday period. We estimate the overall impact to Q3 revenue was less than 2%. From an EPS standpoint, the estimated impact was approximately $0.04 to $0.05 on the quarter. This does not include any potential recovery from cyber insurance.
I'd like to take this opportunity to commend and thank our teams, particularly those in digital and technology, who worked tirelessly through the holidays, for the truly amazing effort that allowed us to quickly recover and return to servicing consumers and customers.
Moving to the operating review by region. Americas was down 25% in the quarter. As anticipated, we saw the most pressure in wholesale, which was down 35%. DTC down 16%, reflected softer sale-throughs throughout the holidays, particularly outside of promotional windows. In addition to weaker sell-through on cold weather and seasonal products, particularly in the outdoor segment. EMEA was down 12% excluding impact from the wholesale shipment timing, the decline would have been about 7%. We are seeing slowing consumer confidence and greater caution continuing in the wholesale channel. DTC was down 1% but up slightly excluding Vans, with The North Face up mid-single digits. Like the Americas, we also experienced a more challenged sell-through on cold weather seasonal products across Europe.
The APAC region continues its growth path and was up 3% in Q3. Aside from Vans and Dickies, all of our brands that operate in the region were growing, led again by strength in The North Face. Also to note, VF revenue was up 7% in Greater China.
Turning to the performance by brand, The North Face revenue was down 11% in the quarter. Excluding the wholesale shipment timing shift, The North Face revenue would have been down mid-single digits. The Americas region results were challenged and our performance fell short of our expectations. After a slow start to the fall winter season, momentum remained subdued and performance was choppy throughout the quarter. While core best selling lines continued to deliver strong sell through, we saw softness in cold weather items and some seasonal product offerings. The brand remained relatively stronger in international markets. In APAC, momentum continued in the quarter with the brand growing 28% in the region and more than 30% in Greater China.
In EMEA, Q3 was down 5%. However, DTC growth continued in the region and was up 6% this quarter. Overall, in EMEA, when looking across Q2 and Q3 combined to neutralize the impact of shipment timing across the quarters, the brand was up high-single digits within the region. Vans Q3 revenue was down 29% and down across all three regions, broadly in line with half one when accounting for the intentional reset actions we took in the quarter to clean up the marketplace and reposition our wholesale channel. These negatively impacted global revenue by about 5 points in Q3 and may have a further impact in Q4 as we complete the work.
Timberland was down 22%, driven largely by the Americas region where channel inventory and retailer caution remained a headwind and specific to the brand's assortment, boots and other seasonal products have been challenged this season. Internationally, the business performed relatively better, highlighted by low-single digit growth in APAC. Dickies results continued to be pressured with revenue down 17% in the quarter. Americas again experienced declines with softer sellout trends in a core work business and specifically in the value-oriented distribution.
International markets were impacted by the results in Europe, which were down as a result of wholesale timing shifts into Q2. However, the underlying business continues to be good and the APAC market continued its reset. Supreme saw its positive momentum from last quarter continue with broad-based growth across regions and benefited from entry into Korea with the ongoing strong performance in the new store in this market that opened in August. Overall, strong sell-through across product categories led to improving profitability.
Now moving down to P&L, Q3 gross margin expanded by 40 basis points to 55.3%, as tailwinds from channel and regional mix more than offset the impact of negative foreign currency transaction. Overall, promotions were about flat versus last year, reflecting the continued elevated levels of promotional activity across our markets, our ongoing efforts to reduce inventory, in particular leveraging our own outlets, as well as the impact of the Vans marketplace reset actions.
SG&A was down 5% in constant dollars during the quarter from lower distribution, administrative and marketing costs, offset partly by higher digital and technology spending. However, the larger revenue decline this quarter drove significant SG&A deleverage of 590 basis points. This more than offset the gross margin expansion, leading to an operating margin contraction of 560 basis points, which underlines the urgency we have in reducing fixed costs.
Diluted earnings per share of $0.57 reflects the lower volume and operating margin along with higher interest expense, all of which was partially offset by a lower tax rate in the quarter. Despite the difficult operating performance, we made progress on our number one financial priority to reduce debt and leverage.
In Q3, we delivered an approximate $640 million reduction in net debt relative to last year. This better-than-planned result was largely attributable to lower working capital and strong execution by our teams to maximize free cash flow. As a result, we achieved a larger than anticipated reduction in inventories, sequentially down over $330 million relative to Q2 and down over $440 million or 17% at the end of the quarter, relevant to the prior year. Our ability to meet near-term inventory objectives reflects the agility in the supply chain, a return to more effective sales and operations planning, and improved collaboration across the business. Liquidity at the end of the quarter stood at $2.8 billion and net debt was $5.2 billion, down from $5.9 billion in the prior year.
In the third quarter, the company initiated an in-depth strategic review of all brand assets within the portfolio to ensure we are focused on our greatest long-term value creating opportunities. We'll provide further updates when appropriate.
Now, moving on to Reinvent, where I want to expand on Bracken's update, first we made progress in executing our cost savings program as we worked towards our gross target of $300 million. The actions we've taken on Reinvent around streamlining the organization and optimizing our call structure have begun to bear fruit. In fiscal Q3, we booked approximately $50 million in charges, of which about $20 million were non-cash. These charges are included in our reported results, but excluded from adjusted operating earnings and earnings per share that I just reviewed.
The turnaround work remains in progress at Vans. During the quarter, we took actions to reset the wholesale channel to ensure the brand's market positioning and product assortments are aligned with the brand direction. The impact on revenue in the quarter was approximately $50 million. As part of our priority to reduce debt and leverage, we continued to work hard to right size our inventories. We expect a further reduction in inventories in Q4 across the broader portfolio. In addition to the cash generated from lower inventories and the previous reduction in the dividend, we have also continued an effort we began last year to monetize non-core physical assets across several areas. Notably, this work now includes the closure of the corporate aviation program.
We've begun the marketing process and expect to dispose of these assets over the next few quarters. To the extent the strategic review process results in the divestment of any brands, this would also support this objective. In summary, we're encouraged by the progress we're making on Reinvent. We have a lot more to accomplish, the impact of which will be increasingly visible in the coming quarters.
Finally, let me bring you back to the near-term with some thoughts on the year to go period. Our outlook on free cash flow for fiscal 2024 is unchanged and we expect to deliver about $600 million for the year. This is supported by the work we continue to do to reduce inventories, which we now expect to be down at least 10% at year end. Reflecting the additional progress we've made and compared to previous guidance of down mid-to-high single digits. We anticipate liquidity to be approximately $2.3 billion at year end and we continue to expect the second half gross margin for fiscal '24 to be up relative to last year.
While we're not providing any additional guidance today on fiscal '24 or fiscal '25, we expect impacts from the following areas for the next several quarters. Vans' turnaround actions as we take the steps necessary to reposition and reset the brand, continued caution from wholesalers in our key markets, translating to softer future order books globally, but with the greatest impact in the Americas. The North Face wholesale channel, particularly in the U.S., will remain challenged and finally a choppier Americas and European macro environment.
With respect to Reinvent and the actions underway, we expect actual gross savings within fiscal '24 to be at least $60 million, the majority of which is within SG&A and we continue to be on track to deliver the $300 million in annualized gross savings, with the vast majority of the savings in place on a forward run rate basis by the middle of next fiscal year. But keep in mind, in fiscal '25, while we will benefit from the incremental impact from Reinvent actions year-over-year, we will face headwinds from an expected increase in incentive compensation and a more normalized amount of inflation.
Looking at all this from a cash perspective, we continue to anticipate the cash costs associated with Reinvent actions to be largely offset by net proceeds from the sale of non-core physical assets that I referenced earlier in my comments. This will play out over the next several quarters.
Finally, in closing, while our financial results in Q3 were challenged, I am pleased that we were able to expand gross margin, reduce inventories and generate strong cash flow. And importantly, we are reiterating our fiscal '24 cash flow guidance despite the continued challenged earnings results. The actions we are implementing as part of Reinvent are substantial. We have moved from planning to execution across many initiatives, including our cost savings program, restructuring actions and operational improvements.
In addition, we've initiated a strategic review of the portfolio designed to ensure the brands within VF are aligned to both our strategic and financial objectives. While the impacts are not visible in our financial results yet, I'm confident these actions reset the business and enable us to stabilize and then grow revenue, improve profitability and reduce debt and leverage, positioning VF to deliver shareholder value creation.
With that, we will now take your questions.
