Matt Puckett
Executive Vice President and Chief Financial Officer at VF
Thanks, Kevin. Good afternoon, everyone. We're happy to report on the year in which we delivered on our outlook from the beginning of the year and our strategy, despite facing unusual and unprecedented circumstances and challenges. To echo Steve's comments at the top of the call, I am incredibly proud of what our teams have achieved and how they to continue to adapt. Our brands are continuing to strengthen, while pursuing their growth plans, enabling VF to become an even more balanced and resilient business.
Let's start with a few key highlights of fiscal 2022 and of Q4. During fiscal '22, we grew revenue by 27% and earnings by 143%, achieving a better outcome on both the top and bottom line than what we had expected at the beginning of the year despite facing new challenges and headwinds we had not anticipated at the outset. This represents high single-digit organic top line growth relative to pre-pandemic levels, in line with VF's long-range plan target despite this disruptive environment.
We delivered a strong increase in gross margins, which came in at nearly 55%, despite absorbing about $160 million in additional airfreight cost. Excluding that impact, gross margin would have been above pre-pandemic levels. We maintain tight cost discipline over SG&A while ensuring continued investment toward our brand's highest growth opportunities and to drive behind our strategies and continue our digital transformation. Together, these allowed us to increase our operating margin by 510 basis points to 13.1%.
We grew revenue by 12% in constant dollars in the fourth quarter to $2.8 billion, reflecting continued double-digit growth in the Americas and in EMEA, while Asia Pacific was down, reflecting the impact of COVID-related lockdowns introduced in China during the period. Adjusted gross margin was down 50 basis points to 52.2%, while operating margin increased 120 basis point leading to adjusted EPS growth of 67% to $0.45.
Now, let me say a few words about the supply chain. I'm proud of what our global supply chain teams have been able to achieve during the year as we continue to use our scale and sophistication to adjust to today's ongoing challenges. Since we last updated you in January, increasing inflationary pressures and ongoing disruption primarily from COVID lockdowns in China have led to continued cost and delivery challenges across the supply chain. While we continue to see higher than normal levels of congestion and disruption from labor shortages and equipment constraints across the logistics network, the overall picture has improved in the last few months.
We continue to proactively address these challenges. As outlined back in January, we've taken pricing action across our brands to offset the inflationary pressures. We're procuring our supplies earlier, anticipating order book collection and overall continuing to invest in technology to create efficiencies and reduce lead times. We're expanding our local-for-local sourcing strategy servicing an increasing portion of regional demand with locally manufactured product. We've made strides in logistics where we secured additional capacity by doubling the number of ports of entry and ocean carriers relative to pre-pandemic levels, while using alternate origin routings and other methods to diversify our network.
We ended the year with inventory in a healthy state and are well positioned to service our order books and support our growth plans. I'm confident that our supply chain is truly best-in-class and this capability which is central to our enterprise strategy will continue to support consistent and sustainable growth across our family of brands. As Steve mentioned at the top of the call, we generated broad-based growth with five of our brands achieving record sales results for the year, including Vans, The North Face and Dickies.
The North Face, our second largest brand had an outstanding year with full year sales up 32% to $3.3 billion and reflecting broad-based strength and double-digit growth in all regions every quarter of the year, including fourth quarter momentum, which saw a strong acceleration to up 35% in the Americas and sustained elevated momentum internationally. Europe was up 18% and Asia Pacific, 22% in the quarter. These strong top line results led to meaningful improvement in profitability for the brand.
At Timberland, Q4 sales were up 12%. The brand achieved 20% sales growth for the full year, which was characterized by strong double-digit growth in both the Americas and in Europe, but was partially offset by a decline of 13% in Asia Pacific. In the Americas, in Q4, the brand grew 20% due to continued strength in wholesale, up 33% driven by a strong sell-in and sell-through performance across key accounts and elevated Timberland PRO demand.
Globally for the year, the brand significantly expanded profitability, reflecting higher gross margins, achieved primarily through better sell-through and higher quality sales with operating expense leverage offsetting the impact of airfreight and headwinds in Asia. It's worth noting that Timberland's strong performance has been delivered despite the brand suffering some of the more elevated impacts from supply chain disruption within our portfolio.
Dickies also achieved record sales, up 19% to $838 million for the year and up 8% in Q4. In the Americas, our largest region, which accounts for over 70% of global business, revenue was up nearly 40% for the year, driven by double-digit growth across both work and lifestyle products and strong wholesale demand, all of which drove record regional profit.
Our Q4 performance was up 16% in our home market. EMEA had its strongest quarter of the year in Q4 with sales up 16% and continues to see robust Work Inspired Lifestyle growth. Overall for the year, EMEA was down 13%, reflecting the repositioning of our work business in the region. In Asia Pacific, Q4 sales were down 20%, including a 33% decline in Greater China. Finally, as mentioned at the beginning of the call, Vans performance in fiscal '22 did not meet our expectation. Revenue grew 19% in the year and was up 2% in the quarter, impacted by the more difficult operating environment in China. Excluding China, Vans grew by 6% in Q4 versus fiscal year '21.
Now, turning back to VF as a whole. Gross margins expanded 150 basis points during the year to 54.8%, including a 20 basis point benefit from Supreme, despite absorbing about $160 million of expedited air freights above last year's levels. Relative to pre-pandemic levels, fiscal year '22 gross margins were impacted by about 200 basis points of expedited freight and FX transaction headwinds. Excluding these transitory headwinds, underlying organic gross margins expanded 130 basis points versus fiscal '20, a signal of the health of our brand in the marketplace.
For the fourth quarter, adjusted gross margin was down 50 basis points to 52.2%. On an underlying basis, excluding 170 basis point impact from expedited freight costs, margin was up 120 basis points. Our operating margins expanded by 510 basis points to reach 13.1% for the year. I'm proud to see the operating margin in line with pre-pandemic levels despite the significant headwinds from expedited freight.
We continue to invest in our brands and business strategies with an increase of 22% versus fiscal '21, and organic strategic investments, including some key initiatives such as digital investments like the new Vans e-commerce platform as well as ongoing demand creation spend across our portfolio. We did this while maintaining cost discipline across other areas and improving D2C profitability, which both contributed to SG&A leverage, which helped offset significant supply chain disruption and cost headwinds across the P&L.
We delivered EPS of $3.18 for the year, representing 143% earnings growth relative to last year or low-double digit organic EPS growth relative to pre-pandemic levels from an improved operating performance and as planned a lower tax rate, thanks to some timing benefits. We're pleased to have delivered a higher-than-planned level of earnings growth than our commitments from the outset of the year with our robust and flexible business model successfully overcoming a challenging environment and significant headwinds.
Finally, I'll say a few words on our balance sheet and cash evolution. We ended the year with approximately $1.3 billion in cash. This reflects adjusted free cash flow generation of $606 million and proceeds from the divestiture of Occupational Work of approximately $620 million. We returned over $1.1 billion to shareholders through dividends and share repurchases, including a further $50 million of share repurchases during the fourth quarter after $300 million during Q3. We delivered an average dividend yield of 2.7% for the year with our ongoing commitment to return cash to shareholders. This marks our 50th consecutive year of dividend increases and underscores our confidence in future growth.
Our year-end inventory ended at $1.4 billion, up 34% versus the prior year's depressed levels. However, when compared to fiscal '20, we're up about 10%. Our overall inventory is healthy and well positioned to support our growth plans. Our balance sheet is sound with liquidity exceeding $3.2 billion at year-end and our net leverage ratio improving to 2.6 times from approximately 4 times a year ago. Our return on invested capital reached 15.1%, up from 7.5% last year.
I wanted to give you a brief update on the ongoing tax case related to the timing of income inclusion from VF's acquisition of Timberland in 2011. On January 31, 2022, the court issued its opinion in favor of the IRS, which argues that all such income should have been immediately included in 2011 rather than recognized periodically as VF has done. While we intend to appeal, we anticipate that we will pay the 2011 taxes being disputed, which are estimated approximately $845 million for gross tax and interest. We're confident in our timing and treatment of income inclusion and we'll continue to defend our position.
Now, moving on to the outlook for fiscal '23 and beyond. First, I'll update you on the new guidance provided today for fiscal '23, which is on a constant dollar basis and which reflects the following. First, we've assumed no additional significant COVID-related lockdowns in any of our key commercial or production regions with current restrictions in China expected to ease from the beginning of June. Second, we've assumed no significant worsening in global inflation rates and consumer sentiment.
We expect to grow revenue at least 7% on a constant dollar basis. This reflects continued broad-based growth across our portfolio in terms of brands, channels and regions, but also incorporates a cautious view on the macroeconomic environment given recent developments affecting some of our markets and consumer sentiment more broadly. By brand, we expect The North Face to grow low double-digits, continuing to build on a strong base achieved in fiscal '22. The brand's strong momentum in both on-mountain and off-mountain categories has led to healthy inventory levels and robust order books, supporting growth across regions in fiscal '23.
We expect Vans to generate mid single-digit growth with momentum building throughout the year as initiatives to reignite Classics and a recovery in China in particular start to have an impact. We're confident in the brand's health and longer-term opportunities and believe our plans to drive growth will start to have an impact from later this year.
At the Group level, we anticipate further gross margin expansion of approximately 50 basis points with pricing actions offsetting product cost increase, while benefiting from less reliance on air freight throughout the year. We remain focused on optimizing our SG&A spend to ensure ongoing investment in our brand and our strategy and overall deliver operating margin expansion to about 13.6%. The SG&A ratio is expected to be about flat as we continue to leverage most spend areas to fuel ongoing investment in demand creation, digital and technology and distribution expenses. This will drive operating income growth of at least 10%.
We are anticipating reaching an EPS range of $3.30 to $3.40, which includes an estimated $0.23 of unfavorable non-operating impacts, including first, an increase to a more normalized tax rate of about 16%, after having seen a more favorable rate achieved in fiscal '22. Second, FX from translation. Third, higher interest expense. And fourth, non-cash pension expense. Without these impacts, the EPS growth would be in the range of 11% to 14%.
Finally, we anticipate adjusted cash flow from operations to reach approximately $1.2 billion and to continue to support our strategic priorities across the business with CapEx expected to be about $250 million. There are no changes to our capital allocation priorities. We're focused on investing in our organic business, while continuously evaluating opportunities to optimize our brand portfolio. We remain committed to our strong dividend and we will opportunistically deploy share repurchases to return excess cash to shareholders.
I want to wrap up our fiscal '23 outlook with a few words on the first quarter, given there are some unique impacts from the current environment. For Q1, we anticipate mid single-digit revenue growth, reflecting the most challenging prior year compare in China. These headwinds, along with the non-operating impacts, I mentioned earlier, will also affect our operating profit and earnings for the quarter and we expect EPS to be in the range of $0.10 to $0.15.
By region, in Q1, we expect to see growth in both the Americas and EMEA, while Asia Pacific will be down. Specific to Asia Pacific, our performance outside of Greater China remains resilient. However, the environment in China continues to be challenging. 12% of our stores were closed at the end of Q4 and about 20% are currently closed and we're not anticipating that they will reopen before early June and will affect the majority of the quarter.
Digital traffic also continues to be impacted. As a result, we expect our business in China to be down approximately 35% in the first quarter with continued growth at The North Face not enough to offset declines anticipated across most of our portfolio. Beyond Q1, we expect a gradual recovery in China, reflecting an improving consumer environment as well as easier compares in half two with the market expected to generate growth for the year as a whole. We remain confident in the regions longer-term growth opportunity.
Looking beyond the first quarter, we are confident an acceleration throughout the remainder of the year as well supported driven by strong fall holiday order books across brands, improving momentum at Vans and diminished headwind from China. Having set the stage for the fiscal '23 outlook, I'll now spend a few moments on our long-range plan targets.
As we told you in January, we're committed to delivering the long-term algorithm for VF. Our performance in fiscal '22 and guidance for fiscal '23 clearly shows, we're largely delivering on our commitment to high-single-digit revenue growth and low double-digit operating earnings growth, despite underperformance in our Vans business, headwinds through the supply chain, and finally, new and pronounced market challenges in one of our key growth markets, China, as well as macro events leading to a significant increase in inflation globally. Our ability to overcome these significant headwinds is truly a testament to the power of the family of brands we have at VF and our action-oriented and execution-focused teams.
In summary, we're extremely proud of the work that has been done during fiscal '22 to deliver against our strategy and generate results exceeding our original guidance. Despite a macro environment that remains volatile and challenged in the near-term, over the longer-term, our brands are well positioned to continue to benefit from favorable consumer tailwinds in our TAMs. We're confident in VF's future and are well positioned to continue to drive sustainable, profitable growth.
We will now open the line and take your questions.
