Interim President and Chief Executive Officer at V.F.
Hello, everyone. Since I stepped into my new interim role about two months ago, I have been fully immersed in the business. I have uncovered areas of strength and promise, but also gained a deeper understanding of where we must improve. And I have been impressed with our talent at all levels and their leadership and commitment to VF on which our future success is dependent.
Many of you know about my career history, which culminated in roles as CEO and Chair of the Clorox Company until my retirement from a full-time corporate career two years ago. This gave me the opportunity to lead a global, purpose-driven consumer portfolio company towards more profitable, sustained and responsible growth with financial discipline, a fully engaged organization, brands people love, consistently strong product innovation and a differentiated approach to the portfolio to maximize value.
You also know that I have served on the Board of the year for the last six years, including as lead Independent Director from July 2021 until December 2022. I believe that my deep insight into VF, my passion for the company, its people and brands, coupled with my prior career experience gives me a solid foundation for the Interim CEO role. And I do plan to use my time to make a positive difference to VF business and organization.. My overall theme for today is that VF will sharpen its near-term focus on the biggest consumer opportunities within our existing brand portfolio and on enhanced operational performance.
Consistent with this objective, we are shifting resources priorities across the company. This will include rightsizing our dividends, exploring the sale of non-core assets and cutting costs in lower-value areas to strengthen our execution, and to enable incremental targeted investments in our brands and the consumer.
With that, I'm pleased to speak with you today about four topics; VF's results in Q3, our near-term priorities to address performance, how we are taking prudent steps to build a stronger company for the future, and why I'm even more optimistic than I was two months ago about the long-term prospects for VF.
First, we overcame a very challenging environment in Q3 where our performance highlighted examples of success while also clearly showcasing areas to improve. Amidst the difficult geopolitical and economic backdrop we grew Q3 revenue 3% in constant dollars, and today we are reaffirming our revenue outlook at the low-end of our prior range and also the midpoint of our EPS outlook for fiscal year 2023.
Our EMEA business continues to be a bright spot. With Q3 revenue up 10%, our 7th consecutive quarter of double-digit growth, driven by broad-based strength, including The North Face of 13% and Vans up 7%.
Another strength in Q3 has been our consistent performance of the outdoor brands, led of course, by The North Face, where revenue was also up 13% globally with growth achieved in each region and channel. We also saw nice growth in Timberland. Up 6% in the quarter, with solid performance in EMEA and in wholesale globally. And our outdoor emerging brands continued to grow strongly, up 10%, highlighted by Ultra. Finally, in Asia, we saw a sequential improvement with Q3 revenue up 4%. This was driven by the beginning of what could be a return to stronger momentum in Greater China, which was close to flat at minus one.
Secondly, we are clear-eyed about performance barriers, which are predominantly operational in nature, and our near-term priority is to put aggressive plans in-place to improve our execution. We are not reaching our full potential as a company. The good news though is that doing so is largely within our control. We must consistently delight consumers with exciting products, engaging content delivered with effective marketing tools and with great shopping experiences in-store and online. Where we do this well, see The North Face and the broader portfolio in EMEA, our brands continue to thrive. Where we are inconsistent, with Vans being far the highest impact, but not the only example, we must improve our consumer execution to return to full strength.
We must also return to delivering products to our consumers and customers on-time and at lower-cost to VF. Supply-chain has long been a core competitive advantage of VF, but our recent performance also requires focus. So to improve execution, we have two near-term key priorities, which represent significant value-creation opportunities. First, turning around our Vans performance through improved consumer execution, and second, returning to supply-chain excellence across the company.
On Vans, we clearly have been challenged for some time now. This is predominantly a challenge in the Americas, and it is mostly executional in nature. For perspective, Vans Q3 revenue rose by 7% in EMEA, but declined by 13% in the Americas, which is primarily North-America and accounted for 90% of the global Vans Q3 revenue decline. While there are differences in EMEA compared to the North American market, the relatively stronger performance of Vans in EMEA also reflects the benefits of a clear growth strategy and stronger marketplace execution. We must do better with Vans in its home markets, and we will. Our action plan follows the four growth drivers laid out in our Investor Day last September, consumer, products, marketplace, and operating model.
Here are a few specific examples of actions. We will sharpen our view of the changing consumer landscape through a new consumer segmentation, which is underway and will inform the business's overall growth strategy and begin to influence direct-to-consumer plans as of summer this year. We need to delight consumers in ways that are relevant to their specific needs, and to do so we must be more intimately familiar with them.
We will also better turn data and insights into significant consumer opportunities available today. For example, a strong untapped opportunity exists with our UltraRange product-line. Here, awareness is very low at around 10% among all consumers, and at below 30% even among Vans loyalists. So we started to boost awareness, and this is starting to yield results. UltraRange revenue grew 34% in Q3, with much more growth to be had. The MTE and Half Cab product lines have similar potential, and going-forward, we will drive these and other promising platforms longer and more continuously.
We will significantly increase our investment in-product innovation, funded by a reduction in costs in lower-value areas, with actions including SG&A reduction and improving store profitability. Vans product development investment as a percentage of revenue lags well behind the company average. We will change that, starting with fiscal year '24. This will help us aggressively pursue new styles and make our innovation pipeline more consistently strong.
We will also eliminate unnecessary SKU complexity to simplify and importantly amplify the shopping experience. A small test at our Irvine, California store led to a footwear revenue improvement of plus 12 percentage points with 30% fewer SKUs. We will begin to expand this initiative as of fall fiscal year '24.
We will move our digital spending principal from budget-cap based to flexible and ROI-based to take advantage of available spending opportunities that translate into incremental revenue and profits. It is early days, but we have already seen an improvement in profitable DTC growth rates only a few weeks into this change.
We will sharpen our processes, in fiscal year '24 we will go-to-market at retail, including wholesale customers, with clearly aligned and integrated product calendars. This will lead to better plans that are more centered around the consumer. And to drive Vans forward, we have made tremendous progress putting a World-class Vans leadership team in-place. Two critical leaders, our new Chief Product and Merchandising Officer and our new Chief Digital Officer, have both joined in December and they're off to a fast-start.
Vans continues to be a fundamentally strong brand. The number of consumers buying Vans during the last 12 months was up, as was brand advocacy. But many people buy the brand less often. So what we do need to do is to fuel the brand more consistently and give people more reasons to buy more Vans. That is on us, and that's what we will do.
The momentum we continue to generate with The North Face further proves this point. The brand continues to perform strongly driven by strong consumer engagement and iconic products. And we will keep investing to fuel that momentum. Our XPLR PASS membership continue to grow significantly in Q3, up 2.1 million members to approximately 17 million in total. It's more than a jacket marketing campaign launched this season and drove strong outerwear growth globally, with the Nuptse jackets and the recently re-launched Summit Series premium product-line leading the business.
Our recent first ever performance-led collab launch with American artist and designer, KAWS, was highly successful. Net, the brand's momentum is strong and broad-based. The North Face is a solid and transferable execution blueprint for Vans, and frankly, the entire VF portfolio in the Americas, where we must grow with consumers more consistently.
The second near-term priority at VF is to return to the company's hallmark standard of excellence in the supply chain arena. We are working through a variety of external and internal issues that impacted revenues and profits in a high-volume quarter like Q3. Lengthened manufacturing and freight lead times, larger upfront product buys, unpredicted demand spikes from elevated promotional activity in the quarter, plus higher-than-normal customer order cancellations, add-up to unsatisfactory customer service, elevated inventory, and significantly higher costs. So we're taking aggressive actions to address these issues.
We expect to be able to work excess seasonal inventory down to more normalized levels by the end of Q4 this fiscal year. Our customer service levels are also improving, albeit still below our own and our customers' expectations. We have a plan in-place to get back to target levels by the end-of-the first-half of fiscal year '24.
We will also leverage our logistics partnerships to reduce costs by improving ocean and parcel rates for the next fiscal year. And we will see a return to more normalized and predictable promotional patterns and anticipate moderating inflation, which we expect will contribute to lower-cost through fiscal year '24. We are committed to serving our customers better. And so getting back to strong supply-chain performance at improved costs. Again, much of this is within our control.
My third message is that we're taking prudent steps to strengthen VF financial position and build a stronger company. VF is committed to strong financial discipline. This all starts with a strong core, and growth that is profitable and sustainable. And to reinforce this, we are taking significant actions now.
We will focus on near-term growth efforts on our existing portfolio. Smart acquisitions we remain part of the VF playbook, but near-term we believe we are best served to return to strong shareholder value-creation by taking advantage of the many opportunities offered by our portfolio of beloved brands, including those acquired in the recent years. Our growth strategy, laid out in the company's Investor Day last September, continues to be a solid foundation to achieve this, but we will lean into the consumer even more strongly than in the past.
We will also pursue strategic alternatives for our Packs business. This business is performing well. But we need to make sure that we are the highest-value owner and that we focus our resources against the highest-value opportunities within our existing portfolio. To grow margins and profit while supporting strong investments in the business, we will lean into cost-savings through a more systematic and ongoing cross-functional approach to eliminate costs that do have lower strategic value and are less consumer-oriented.
And we're making the tough, but what we believe to be a principal and financially responsible decision to cut our dividend by about 40%. We do not take this last step lightly and fully understand the value of a solid dividends as part of a comprehensive approach to total shareholder value-creation. But we also believe that it is prudent to right-size the dividend to accelerate the back to our target dividend payout and debt-to-EBITDA ratios, and to rebuild the dividend from there based on solid expected cash flows and a return to sustained earnings growth beginning with fiscal year '24. Returning cash to shareholders through a strong dividend remains a key capital allocation priority.
In a continued difficult environment, we are committed to return to a more profitable and consistent growth next fiscal year. Matt will talk you through these actions and the shape of our initial fiscal year expectations in more depth in a moment.
My last message for you is that I'm even more optimistic today then it was two months ago about VF's future and our ability to return to strong long-term shareholder value-creation. We have significant potential to unlock value from our unique brand portfolio. While not immune to the challenging macroeconomic environment near-term, these brands will benefit from significant long-term category and consumer tailwinds. We will leverage these tailwinds and apply VF best practices, scale, and capabilities, a distinct competitive advantage.
We have a clear set of near-term priorities to inject consistency of execution, which will improve performance across the business over-time. We will sharpen our consumer growth strategies on all our brands and ensure we have the right investments against each of them to realize their full potential funded by cost-savings.
And we have permission from consumers to broaden our reach by taking many of our brands into new financially attractive categories and countries and we are putting in-place strong future plans to do so. We are committed to returning to strong operational discipline, which will help drive predictability, profit, and margin growth, and strong and consistent cash-flow generation. And we will remain committed to the dividend as part of a comprehensive shareholder value-creation plan after today's adjustments.
Lastly. We have a talented, engaged, and passionate workforce. And we continue to nurture our superb internal talent, and attract great outside hires, reinforcing our confidence that VF remains a top destination for exceptional leaders. Thank you.
With that, I'll hand it over to Matt to talk through the financials.