Greetings welcome to the Fourth Quarter 2023 VF Corporation Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note that this conference is being recorded. I will now turn the conference over to our host, Allegra Perry. You may begin.

Good afternoon, and welcome to VF Corporation's fourth 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. Unless otherwise noted, results presented on today's call are based on continuing operations. Joining me on the call will be VF's Interim President and Chief Executive Officer, Benno Dorer; and EVP and Chief Financial Officer, Matt Puckett. Following our prepared remarks, we'll open the call for questions. I'll now hand over to Benno.

Hello, everyone. It's been nearly six months into my interim role as CEO of VF. I'm proud to be part of this beautiful company, of the products that we create for our consumers, the difference we make to so many people's lives to witness so many highly skilled and committed people create engaging styles and shopping experiences for our consumers and how people know, where and love our brands on streets, trails and mountains around the world. Having an even deeper appreciation of VF's possibilities now, I'm incredibly optimistic about the company's future. I'm pleased to report that VF is stable, delivering against our commitments with strong discipline and making solid progress against our executional priorities. Today, I will build on themes introduced in February and highlight progress to sharpen our focus on the biggest consumer opportunities within our brand portfolio and on enhanced operational performance. I will cover three areas. First, an overview of VF's performance in Q4 fiscal year ‘23 and an update on work underway in pursuit of our near-term priorities. Second, an outline of the primary objectives for fiscal year ’24, which will be a year of transition and progress. And third, why I believe even more today in VF's unique value proposition and our plan to return to strong growth and long-term shareholder value creation. First, we delivered revenue and profit in line with guidance for Q4 to close our fiscal year ‘23 and we've made solid progress towards our priority areas of focus. Against the backdrop of continued challenging macroeconomic conditions, we grew full-year revenue by 3% in constant dollars with 10 out of our 12 global brands flat or growing revenue, five of them double-digits and delivered earnings per share of $2.10 at the midpoint of our guidance, revenue in Q4 was flat…

Thank you, Benno, and good afternoon, everyone. We are pleased to have delivered Q4 results in line with our guidance, but acknowledge we still have much to do to fulfill the full potential of the portfolio. The end of the fiscal year was characterized by an ongoing challenged macro environment, particularly in the U.S. The business continued to excel in certain areas. And importantly, we are seeing progress against our near-term priorities, all aspects of the business are still underperforming. During the fiscal year, revenue was up 3% in constant dollars, with growth in both wholesale and direct-to-consumer. Despite softer results in the Americas, we saw strong growth in The North Face and Outdoor emerging brands, which saw growth of 12%, both in the quarter and the year and in the international business, highlighted by exceptional results in Europe and steady sequential recovery in the APAC region. Adjusted gross margin was down 220 basis points, and adjusted operating margin declined by 330 basis points, which led to adjusted earnings per share of $2.10, compared to $3.18 in fiscal year ‘22. As anticipated, liquidity was slightly above $3 billion at the end of Q4, benefiting from our Eurobond offering, but impacted during the year by lower earnings and a significant inventory build. I also want to mention the Supreme impairment of $313 million recorded in the quarter. The business performance was clearly uneven in fiscal ‘23. We are now planning more modest growth in fiscal ‘24 before accelerating in fiscal ‘25, benefiting from geographic expansion, the pace of which will begin to quicken starting this fall. We remain confident in the brand's long-term growth potential, which will benefit from increasing access to the brand through both geographic expansion and further penetration in current markets, along with product category extension opportunities with…

Thank you. And at this time, we will be conducting a question-and-answer session. [Operator Instructions] And our first question comes from the line of Abbie Zvejnieks with Piper Sandler. Please proceed with your question.

Hey, thanks so much for taking my question. So I guess, just can you talk a little bit about the wholesale behavior in the U.S.? I mean it sounds like next quarter will be challenging from both the footwear and apparel perspective group. Can you just really talk about the differences, I guess, between what you're seeing in footwear with both Vans and Timberland and the difference between the North Face? And then I guess, complementary to that, how willing are retailers then to take on like new product advance that will be driving kind of the second-half growth? Thanks so much.

Abbie, I'll start that one and certainly, Benno can add if he wants to on the new product in particular. I would say, overall, the environment generally is challenging, right? I think that's well understood. In the near-term, I would say, I'd highlight kind of two main issues for us. Certainly, the macro wholesale partners generally taking a more cautious approach to order book. That's certainly prevalent in the U.S. But beyond in Europe, we're seeing some of that as well. And as I think about the fall order book positions, they're being very cautious and very careful. And certainly coming off of a year last year where inventories got distorted way too high and created a really heavy promotional environment, certainly reacting to that, I think, is one thing. And then I think just a general, kind of, cautious tone around consumer. But for us, at VF, we're also dealing with, quite honestly, the effects certainly in our first-half of our own missteps from fall last year. Our supply chain in fall of ‘22 didn't perform to the level that we expect and kind of our own expectations and our own bar. And -- but we'll largely be past that moving over the next couple of quarters. And certainly, as we move toward the holiday sales season, we'll be in a much better place. As it relates to footwear versus apparel, I don't think we're seeing a discernible difference in terms of how retailers are responding. And I would say, generally speaking, to answer your question, certainly, a new compelling, interesting product, they're always eager to understand what we have to offer there and willing to take those things, because that certainly helps from a traffic driving perspective.

Thank you.

Our next question comes from the line of Brooke Roach with Goldman Sachs. Please procced with your question.

Good afternoon. Thank you for taking the question. Can you talk to the confidence that you have in the drivers of margin inflection forecasted in your outlook today against a choppy macro? What levers do you still have to pull if the consumer environment gets weaker? And Matt, can you quantify your expectation for each of the moving pieces in gross margin, particularly the lower promotional effect that you're anticipating in the back half? Thank you.

Yes, certainly, Brooke. I would say gross margin up at least 100 basis points is certainly the biggest driver of margin expansion as we look at fiscal ‘24. As I unpack that, a moderating promotional environment is assumed to some degree, beginning from fall, I would say, beginning from fall, not back to, I would say, normal levels, but certainly moderating and improving from there. And we have a lot of confidence in that, especially kind of in terms of our view and visibility to where we think inventories will be positioned, certainly our own inventories, but the market itself. So that's a good guy for us. I think we're being fairly cautious in our projection of that, but that's a big part of the gross margin increase. That's certainly not getting recovering everything we lost this year. We talked about significant reductions in margin over the last couple of quarters being heavily driven by promotions. So while some improvement, not all of it, business mix will continue to be a benefit. Think about that kind of in the 0.5 a point range, I think it's fair on a full-year basis. And then we've got the benefit of lower freight costs coming into the margins and strategic price increases, which will largely offset continued higher FOBs, although moderating, and some foreign currency headwinds inside of product cost. But gross margin clearly is the big driver for us. SG&A will be fairly cautious in terms of how we think about spending as we move through the year, given the environment. But we're continuing to drive. It's becoming kind of a routine discipline here as part of our revised, and I’d say revamped planning process in some way to really get after cost savings on an ongoing basis. So we're never stopping there, and we're looking for ways to reduce cost to funnel investments back towards the consumer and quite honestly, back towards the things that are working.

Thank you. And if I could just follow-up, can you provide a little bit more color on your leverage targets and actions that you're taking to strengthen the balance sheet throughout the year?

Yes. So accelerating our path towards our target leverage, which is 2.5 times gross over time, that work is one of our top priorities and certainly a focus of our capital allocation. So the next couple of years, it's ahead the emphasis. We're going to generate strong free cash flow this year, and we'll use that to pay -- we'll pay a dividend as we announced a continuation of the dividend, but more commensurate and in line with our policy of kind of a 50% payout target. And then beyond that, we'll pay down debt. The drivers of free cash flow going to be consistent EBITDA growth. Certainly, good progress in ‘24. I expect to see that further accelerating beyond their big working capital benefits this year, both from an inventory unwind standpoint, but also we've got a benefit in accounts payable as we get the full anniversary of the terms change that we put into place over the last few months and a continued sharpen focus on capital investments. We expect to spend about $200 million this year on CapEx, which is a little lower than our kind of long-term average spend and really all geared towards the consumer. So those are the things we're thinking about. I would expect at the end of this year, our gross leverage would be under 4x and our net would be in the mid-3s and then kind of sequentially similar kind of progress as you move into fiscal '25.

Thank you very much.

Thank you, Brooke.

Our next question comes from the line of Paul Lejuez with Citigroup. Please procced with your question.

Hey, thanks guys. Curious if you can talk about what you're seeing in your DTC channel for each brand? And how that compares to the sell-through that you're seeing at the wholesale channel? And then one other, just bigger picture. You guys have purchased businesses, you've spun off businesses, you've done both of those things. I'm curious where your heads are at in terms of whether or not you're in the mindset of still acquiring more at some point or maybe likely to sell or spend something off? Thanks.

Yes, I'll take the first part and let Benno talk about the second part of your question. DTC is a growth driver for us and will continue to be. It's approaching 50% of the business, certainly, and over time, we expect will be half of the business and beyond as we think about our long-term plan. Q4 was another strong result overall and consistent with the last couple of quarters, up low-single-digits. And despite the challenges at Vans and to some degree, the choppiness that we've seen over the last few quarters in China. So we're really seeing good results across most of the portfolio. That will continue. And we're benefiting from the investments that we've made in DTC. And I think about digital data and analytics, brand loyalty programs, consumer insights, a sharper focus on ROI, the omni capabilities, so we feel good about the progress that we're making and the opportunity here that will be further fueled as Vans begins to turn around its business later this year. As it relates to wholesale and sell-through, I mean, we're continually seeing consistently good results in the businesses that are consistently performing. Vans has been challenged. And I think we continue to be that way in its classic products in many cases. But buoyant strengthen, obviously, by newness and some of the things that we've put into place. And Benno talked about some of those things in his prepared comments. But I think the underlying sell-through in the businesses that are performing is pretty consistent across D2C and wholesale.

Then Paul, regarding M&A. So near term, clearly, we're focused on organic growth to pay down debt. Also, that's based on belief that M&A should come on top of a strong operating performance, and we're in the process of making significant progress on that. And then we'll turn M&A back on once we close to target debt, we certainly want to get bigger, not smaller. We feel like we're in an attractive space with a lot of interesting targets. And our promise to our investors is that we're going to continue to do M&A with a lot of discipline. We're looking for a sustained growth, margin accretive growth and ongoing consumer tailwinds. So near term, it's all about organic growth investments and then M&A, we'll turn back on.

Thanks, guys. Good luck.

Thank you.

Our next question comes from the line of Laurent Vasilescu with BNP Paribas. Please procced with your question.

Thank you very much. Good afternoon, Benno and good afternoon, Matt. Thanks very much for taking my questions. In your press release, you talked about how 10 of the 12 brands were flat or actually grew for fiscal year '23. A lot of us model for -- at least for the big four brands. Can you maybe just give us some context of just how we should think about at least the four big brands so we can get confidence around the full year guide? And then maybe just, Matt, if you can give a little bit of shape of the curve of the year, how should it unfold by quarter? And then I have a follow-up question.

Okay. Thanks, Laurent. Great to talk to you. First off, let me just click up in terms of your question about brands and the outlook. We've got a realistic plan. It's not an easy external environment certainly in the near term, but we've got a lot of confidence in the things that we're doing. The initiatives and the actions we've been driving are working and many parts of our portfolio are performing. The North Face consistently is delivering outstanding results. Our EMEA business has grown strongly for the last several years, including 12% in fiscal ‘23. Our direct-to-consumer business, we continue to make investments is consistently growing. Our operational execution continues to improve with better planning now firmly in place and impacting the go forward. Our supply chain performance improved a lot in Q4 with better on-time performance and customer service. We met our guidance now for the last couple of quarters, including a large inventory reduction here recently. We took decisive actions to strengthen our financial position and have a clear plan to reduce our leverage levels, as I talked about. The right work against our strategy at Vans is progressing and will lead to that business starting to turn around later this year. We've got a powerful portfolio of brands positioned to benefit from strong and growing tailwind marketplaces. And our 30,000 associates around the world are consistently delivering the things that are necessary to win in the marketplace today and set us up for growth into the future. So our plan is working, we're on track. We feel really good about where we are and the direction that we're heading and the opportunity ahead. And from an outlook standpoint, that kind of summarizes how we think about it. Your question is a little more specifically. It certainly…

Very helpful, Matt. And just a quick follow-up. Just curious to know how the permanent CEO search is progressing. Should we anticipate some news at some point this summer? Or should we anticipate it for later this fall?

I'm not going to give better forecast, but we said six to 12 months, and now we're still short of six months. It's a rigorous process. We're we have to wide net, internal candidates, external candidates. The process consists of interviews and leadership assessments. What I can say is that we make strong -- we are making strong progress. What I also can say is that my confidence in the ability to hire great new CEO has never been hired. We'll update you when the news is ready. And in the meantime, as you hopefully can see from today's report, this team is stable, very committed and engaged. And the business progress is very solid as is our progress on engaging the organization. So the goal here is to find the right CEO, not a fast CEO, and we're very much on track to deliver that in the time that -- in the time range that we talked about at the beginning of this process.

Great to hear. Thank you very much.

Our next question comes from the line of Janine Stichter with BTIG. Please procced with your question.

Hi, thanks very much for taking my question. On Vans returning to growth in the back half of the year, I want to know how we should think about the pacing in terms of DTC versus wholesale? And then I know you tested some changes to the storage business for Vans in terms of reduced SKUs and some of the in-store merchandising. I want to get an update on what you were seeing there in terms of early reads? Thank you.

Yes, Janine, thanks for that. So as you think about the fiscal year, what we've commented on is that we'll return to sales growth sometime during the course of the back half, but that will be growing profit in the full-year, even ahead of sales growth. That's what we predicted in February, that's what we're predicting today. So the plan is really unchanged, and the work is on track and executed with great sense of urgency. As you think about DTC versus wholesale, we certainly expect DTC to grow quite a bit ahead of wholesale, given the issues that Matt reported on, which affect Vans, but frankly affect our whole industry. But in DTC, you should see the movement earliest, then you should see growth in the channel for the fiscal year. Everything else, all the work, including SKU simplification, is on track. We are rolling out a new store layout with improved merchandising, and we will be done with that by the end of 2023. And we expect the SKU count by the end of fiscal year ‘24 to be about 30% lower than what it was at the end of fiscal year ’23, all very consistent with what we talked about, all very consistent. All focused on product and consumer engagement on productivity, on organization, on cost efficiencies, all on track and proceeding with a great sense of urgency.

Okay, thanks very much and best of luck.

Thank you.

Our next question comes from the line of Bob Drbul with Guggenheim. Please procced with your question.

Hi, good afternoon. I was just hoping that you could elaborate a little bit more on China, either by brand sort of Q4 into Q1, just what you're seeing there? I know you said, I think, double digit for the year for '24. But if you could maybe just address some of the recent performance and really how you're feeling within what you're seeing, that would be great? And then just a second quick question is just on Supreme. I know you wrote some -- you took a write-down $300-some million. Just how you feel about that business and sort of what you're really seeing real time with the strength of the brand at this point? Thank you.

Yes, feeling bullish about China. As we turn to growth in Q4 at plus 10%, recall, in Q3, it was minus 10%, so a positive inflection. The North Face might not surprise you, is also leading a growth year, was up nearly 40% in Q4. And we certainly expect continued momentum in fiscal year ‘24. First, we have a lot of underpenetrated brands with a tremendous amount of upside. Second, there's a lot of category tailwinds with government support. And three, we're certainly also reaping the benefits of our own focus. As you probably know, we moved our headquarter to Shanghai for the region with a local leader in that city. We have more localized innovation and marketing plans, and we're certainly investing to fuel into that long-term growth opportunities. So very bullish about Greater China and feel very good about where we stand and what it will do for the business in fiscal year ‘24. Supreme, the best way I describe it is, it remains a great brand and acquisition. There's no doubt about it. We saw sequential improvement in Q4, which is good. And we're expecting growth from the business margin accretive growth for the company in fiscal year ‘24. And we're very confident in our go-wide strategy. We call that our goal is to increase global access to the brand from today, 20% of global consumers to 40% in three years. And there are three strategic pillars behind it: First, grow brand awareness; second, expand in new categories, including footwear; and last but not least, geographic expansion with [Indiscernible] and focus on Asia. The key to that is store openings, which, of course, is the key -- the big reason why our performance, as Matt said earlier, was perhaps a little more uneven in the last couple of years. We've done very little of that, given COVID, but we'll reaccelerate that work. Stores are performing really well. Our best market is Japan these days, which is growing strongly, and it's no surprise that that's also the market where we have the most stores, even more stores than in the United States. We recently entered the Beijing market and that store is performing well. The latest store openings in the U.S. in Los Angeles, where we've moved the previous location and in Chicago performing well. And we're now focused on opening more markets in Asia. So long-term growth tailwinds on a great brand with a lot of opportunities ahead.

Thank you.

Thanks, Bob.

Our next question comes from the line of Adrienne Yih with Barclays. Please procced with your question.

Good afternoon. Thank you. Benno, my question is on sort of the wholesale business in general. Clearly, last year, the retailers were kind of building up safety stock, and I think that's what that you were referring to kind of the destocking. Is this -- should we think about it as sort of the normalization of kind of the timing shift that happened last year? And it would seem that after we get through this next four quarters, that by this time next year, right, the retail channel has to grow sales, and they would be back on potentially buying flat to up. So if you can just, kind of, help contextualize that. And then, Matt, with regards to the promo comment, two things. When did you strategically raise prices? I think it was maybe fall of last year. And are you already seeing sort of reduced pricing concessions or any of that type of thing for the back-to-school or fall order book that gives you comfort?

Yes. Thank you. I'll take the one on U.S. wholesale. I think we've commented on this. Customers clearly a little cautious. Everybody is sitting on higher inventories so that will depress the business short-term for everybody in our categories. And I think a particular challenge that we have at VF is that we're dealing with the hangover from our 2022 customer service issues, we have to regain customer's confidence back in our ability to fully meet their needs and that's sort of a wait and see. We think that, that's going to certainly have a negative impact during the first half of the fiscal year, where we'll see a very marked difference between DTC and a more cautious outlook on wholesale. And then as we get to the back half of the fiscal year, we expect the two to move more in line, and we expect a significant recovery in U.S. wholesale and certainly continued strength in the DTC channel.

Great, thank you.

Yes. If I understood your pricing question, I'll answer what I think I heard if I'm not capturing it, you can let me know. But we took quite a bit of pricing action this past year. I think we talked about mid-single-digit price increases kind of broadly speaking, broad based. I would tell you, at the end of the day, probably 95% of what we planned occurred. So those price increases went into the market and have stuck and products generally have performed, notwithstanding kind of the overall macro. But in terms of the evaluation of the individual products themselves, we feel really good with what we got done there. We're a little bit more modest this year in terms of price increases, not as broad based I would suggest and probably more in the low single digit, a couple of percent range is what we've got baked in. So kind of more normalized. That's about what we see on a normal year. So price increases this year are certainly a little bit lower. But yes, we feel good about what we've gotten done there. And we have a rigorous process, as we've talked about a lot in terms of how we do this work and how we make those decisions. So we feel good about how that will play out.

Okay. And then the second part of that was just the confidence in promos. Is that coming from the DTC business and evidence there? Or are you actually giving fewer, kind of, pricing concessions on the fall/back-to-school kind of orders?

Yes, yes. Well, I think it's both, right? We are giving fewer concessions at this stage. I mean, we're seeing the order books stick. And our expectation moving into the fall season is that we won't have the issues. Remember, our issues were exaggerated last year. We were late. We were -- honestly, we were late on delivering product and particularly in the Outdoor segment. Our Outdoor brands, in particular, suffered there, and we had to offer a lot of additional pricing concessions to get product in and on the floor. We won't have to do that this year. We're well positioned. Our supply chain is in a good place, and we fully expect it will be on time or even maybe above our targets from a kind of service level perspective. So we've got our normal expectation of discounts and maybe a little bit of excess to give us some room. But overall, we feel good. And certainly, to your point, DTC, which is nearly half the business, fully in our control, and we feel good about how we've got that positioned, both from an inventory and a merchandise plan standpoint.

Yes, we're building on Matt's point. So clearly, as inventories ease up in the category, it is very consistent with past behavior the promotions are lower, that's what we're assuming. That said, we assume that promotions are still elevated from '22. We think that's prudent. We're also not assuming that we're recapturing the full margin benefit from the higher '22 promotions. So this is another example of being financially prudent and disciplined and having a balanced plan that gives us room to react should things get worse, but also room to do a lot better if things perhaps saw a little friendlier than we currently assume. So we think our plan is straight down the middle with perhaps a slight on being conservative.

Fantastic. That’s very helpful. Thank you.

Our next question comes from the line of Gabby Carbone with Deutsche Bank. Please procced with your question.

Hi, good afternoon. Thanks for taking my question. I just want to follow-up on Vans. You mentioned some big growth numbers for and How do you view the opportunity to build those franchises? And what do you think is making them so successful?

Could you repeat the very last question, please -- the very last part of your question. I did not get that.

Yes, just how do you view the opportunity to build those franchises? What do you think is making them so successful?

Yes. So as we analyze where we stand with the consumer, which is what we've done a lot of over the last six months, we realized that there's a big opportunity taking franchises that are out there, but have a very low awareness to the next level. And that's why there's a bullish on MTE and on Ultra Vans. Awareness generally on both platforms, even though they've been around for several years, hovers at around 10% and even loyalist advance show awareness of below 30% on those two. So what we're focused on, in general, in Vans is to tell fewer bigger stories and dedicate ourselves more to platforms, an MTE and UltraRange are two. So we're building awareness, and we're backing it up with new product news, and we're reintroducing these platforms to consumers, and that's what's working. UltraRange plus 51%, MTE plus 34%. And they're both part of what we call Progression, and Progression is about 30% of Vans. So these absolutely have the potential to be very meaningful for the brand in the future. And that's perhaps the model, this platform approach and building awareness over a longer period of time that we're also applying with new schools, which we've seeded in Q4 very successful, sold out within two weeks. We are leaning into inventory and things that could be meaningful. And just this last week, we began seeding a new women's sandal. We call it Style 93 that is going to see a full launch this fall. And we're also very bullish about this and the ability to turn into a meaningful platform. So this is a change in how we treat new products. Fewer stories, bigger stories backed with more money over a longer period of time in order to make them more sticky. This is a good approach that's showing some really strong green shoots as a proof point that we're effectively able to engage consumers when we have relevant product news, and we tell stories in an engaging way.

Great. Thank you so much.

Thank you.

And our last question will be from Jim Duffy with Stifel. Please procced with your question.

Good afternoon. Thanks for taking my question. I'm hoping you can speak more on the inventory posture. What's the carryover seasonal inventory composition? Can you give some directional commentary on how inventories mix between brands and regions? And then maybe if you could give us a sense for purchase orders for new receipts? I presume that down meaningfully versus a year ago. Can you perhaps give us an order of magnitude on that?

Jim, inventory, we said we're going to reduce inventory in Q4, and we did that. So we feel good about kind of having our arms around what we're going to get done here. We continue to carry higher levels of core and carryover in excess, much of which is in The North Face and Dickies, to a much lesser degree, honestly, in Timberland and Vans. And I've said -- we've said a few times, we're comfortable carrying this into '24 because we've got plans to consume this inventory within kind of normal planned assortments across channels through the balance of spring and really into fall holiday. So that's -- yes, that doesn't give us a lot of concern. I mean, certainly, I'd rather not have that inventory and rather have that cash and manage it differently, but we'll be able to work our way through that. I mentioned, I think, in my prepared comments up about $600 million or $620 million x in transit at the end of the year, which equated to 46%. To give you a little bit of color there, about 15% of that increase of that $620 million is what I call prior season discontinued product, all right? So that's a number, right, not nothing, but it's not unmanageable at all and will be sold primarily through our own outlets and at normal intervals in the excess channel as we normally would. So we've got plans to move through this inventory. We're on track, as we laid out a few months ago, to reduce inventory levels, to reduce days of supply while protecting brand equity. And we'll continue to do that over the next few quarters. We expect to make strong product -- strong progress by the middle of our fiscal year with inventories actually inflecting and declining at that point, near to normalized levels by the end of the calendar year and really kind of fully recovered by the end of the fiscal year. And I would suggest down more than 10% year-over-year at that point in time. So that kind of gives you a little bit of the glide path of how we're thinking about it. Hopefully, that's helpful.

It is. Can you comment on the purchase orders for new receipt?

Yes, right. No, you're right. Purchase orders are down. I'm not going to quantify that, but they're down. If you think about a reduction of inventory of a little over 10%, what that means from a COGS consumption standpoint, you can kind of do the math there and tie that into what we've laid out in terms of -- from a revenue standpoint, flat to up low-single or some improving margins. All that adds up to a fairly meaningful reduction in purchases for sure.

Excellent. Thank you so much.

No, you got it. Thank you, Jim.

And we have reached the end of the question-and-answer session. I'll now turn the call back over to Benno Dorer for closing remarks.

Thank you all for joining us today. We appreciate you. I look forward to speaking with you again in early August when we'll report fiscal year ‘24 Q1 earnings. And until then, please do well and be safe. Take good care.

And this concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.