Textiles & Apparel / Garment

2022-03-03

Kontoor Brands reports 2021 fourth quarter and full year results and provides 2022 outlook

Kontoor Brands, Inc. (NYSE: KTB), a global lifestyle apparel company, with a portfolio led by two of the world’s most iconic consumer brands, Wrangler® and Lee®, today reported financial results for its fourth quarter and year ended January 1, 2022.
  • Q4 Reported Revenue of $681 million; up 3 percent versus Q4 2020; FY Reported Revenue of $2.48 billion; up 18 percent versus FY 2020
  • Q4 Reported EPS of $0.75; Q4 Adjusted EPS of $0.88; FY Reported EPS of $3.31; FY Adjusted EPS of $4.28
  • 2022 Revenue is expected to approximate $2.7 billion; up high single digits versus FY 2021
  • 2022 EPS is expected to be in the range of $4.65 to $4.75


“Kontoor’s solid fourth quarter and full year 2021 performance demonstrates how our strategies are working. In the quarter, we amplified strategic investments and delivered near-term results while continuing to set the foundation for greater long-term success. This execution was also a testament to our colleagues around the world, whose perseverance, collaboration and focus led our organization to new operational heights despite the ongoing dynamic macroenvironment,” said Scott Baxter, President, Chief Executive Officer and Chair of Kontoor Brands.

“Based on the breadth and diversification of growth catalysts, supported by investments in key enablers – such as the evolution of our Digital, ESG and demand creation platforms – we have confidence in our robust 2022 guidance, highlighting the continued momentum we expect in our business. As we look to the future, I’m optimistic that our growth-minded culture, as well as accelerating fundamentals and cash flow optionality, create a powerful combination for all of Kontoor’s stakeholders,” added Baxter.

This release refers to “adjusted” amounts and “constant currency” amounts, which are further described in the Non-GAAP Financial Measures section below. All per share amounts are presented on a diluted basis.

In addition, due to the significant impact of COVID-19 on prior year figures, this release also includes periodic comparisons to 2019 for additional context.

Fourth Quarter 2021 Income Statement Review

Revenue was $681 million, a 3 percent increase on a reported and constant currency basis over the same period in the prior year. Excluding revenue from the 53rd week in the prior year period, revenue increased 8 percent on a reported and constant currency basis.

Revenue increases compared to the prior year were primarily driven by strength in Digital own.com, as well as continued positive trends in the U.S. wholesale business and solid performance in international markets. Gains in the quarter were somewhat offset by the combined impacts of the previously announced strategic actions related to VF Outlet store closures, the discontinuation of the sale of third-party branded merchandise in all domestic stores and India business model changes. Excluding impacts from these strategic actions, fourth quarter reported revenue would have increased 7 percent compared to the same period in the prior year, 13 percent compared to the fourth quarter of 2019 on a reported basis and 12 percent in constant currency.

U.S. revenue was $523 million, increasing 1 percent over the same period in the prior year. Gains were driven by growth in wholesale, including new business development wins, and strength in Digital own.com, which increased 39 percent. Excluding revenue from the 53rd week in the prior year period, revenue increased 6 percent on a reported and constant currency basis. Compared to the fourth quarter of 2019, own.com revenue increased 108 percent, and total U.S. revenue increased 11 percent, excluding impacts from the VF Outlet strategic actions.

International revenue was $158 million, a 12 percent increase over the same period in the prior year on a reported and constant currency basis. Compared to the same period in the prior year, China increased 13 percent on a reported basis and 9 percent in constant currency, while the European business increased 8 percent on a reported basis and 11 percent in constant currency. Compared to the fourth quarter of 2019, International revenue increased 21 percent on a reported basis and 17 percent in constant currency, excluding the strategic actions in India.

Wrangler brand global revenue was $444 million, a 1 percent decrease over the same period in the prior year on a reported and constant currency basis. Wrangler U.S. revenue decreased 2 percent compared to the same period last year, with strength in Digital, Western and Outdoor offset by a 5-point headwind from the 53rd week in 2020. Wrangler international revenue increased 8 percent over the same period in the prior year on a reported basis and 9 percent in constant currency.

Lee brand global revenue was $233 million, a 14 percent increase over the same period in the prior year on a reported and constant currency basis. Lee U.S. revenue increased 13 percent compared to the same period last year, driven by improving sell through of new programs and increases in Digital. Lee international revenue increased 14 percent over the same period in the prior year on a reported and constant currency basis.

Other global revenue declined to $5 million driven by impacts from the strategic actions related to VF Outlet operations.

Gross margin increased 30 basis points to 42.8 percent of revenue, compared to the same period in the prior year. Adjusted gross margin decreased 60 basis points to 42.6 percent of revenue, compared to the same period in the prior year. Structural margin improvements increased 80 basis points driven by favorable customer and product mix, as well as business model changes, which more than offset the impacts of inflation, inventory adjustments, and higher distressed sales. Additionally, in support of strong demand, transitory expenses, which include air freight for expedited shipments, negatively impacted gross margin by 140 basis points in the quarter. Compared to the fourth quarter of 2019, adjusted gross margin increased 170 basis points.

Selling, General & Administrative (SG&A) expenses were $223 million on a reported basis. Adjusted SG&A was $218 million, or 32.0 percent of revenue, up 370 basis points compared to the same period in the prior year. Higher demand creation, digital investments, distribution expenses and compensation costs more than offset restructuring benefits and better fixed cost leverage on improving revenue. Prior year comparisons were also affected by reduced spending in 2020 in light of COVID uncertainty.

Operating income on a reported basis was $69 million. Adjusted operating income was $72 million, compared to $99 million in the same period in the prior year. Adjusted operating margin decreased 430 basis points to 10.6 percent of revenue, driven by amplified investments in demand creation to drive future accelerating revenue growth and higher transitory impacts to chase demand. These investments, transitory impacts such as air freight, and distribution expenses more than offset structural gross margin improvements and fixed cost leverage on improving revenue. Prior year comparisons were also impacted by reduced spending during 2020 in light of COVID uncertainty.

Earnings Before Interest, Tax, Depreciation and Amortization (EBITDA) on a reported basis was $79 million. Adjusted EBITDA was $83 million, compared to $106 million in the same period in the prior year. Adjusted EBITDA margin decreased 400 basis points to 12.1 percent of revenue.

Earnings per share was $0.75 on a reported basis compared to $0.74 in the same period in the prior year. Adjusted earnings per share was $0.88 compared to $1.23 in the same period in the prior year.

Full Year 2021 Income Statement Review

Revenue was $2,476 million, an increase of 18 percent on a reported basis and 17 percent in constant currency.

Revenue increases compared to the prior year were primarily driven by strength in Digital, as well as continued positive trends in the U.S. wholesale business and solid performance in international markets. Gains for the year were somewhat offset by the impacts of the previously announced strategic actions related to VF Outlet store closures, the discontinuation of the sale of third-party branded merchandise in all domestic stores and India business model changes. Excluding impacts from these strategic actions, full year reported revenue would have increased 24 percent compared to the prior year, 6 percent compared to 2019 on a reported basis and 5 percent in constant currency.

U.S. revenue was $1,869 million, increasing 14 percent over the same period in the prior year. Gains were driven by growth in wholesale, including new business development wins, and strength in Digital, with own.com revenue increasing 43 percent. Compared to 2019, own.com increased 98 percent, and total U.S. revenue increased 7 percent, excluding impacts from the VF Outlet strategic actions.

International revenue was $607 million, a 33 percent increase over the same period in the prior year on a reported basis and a 27 percent increase in constant currency. China increased 37 percent over the same period in the prior year on a reported basis and 29 percent in constant currency. The European business increased 33 percent over the same period in the prior year on a reported basis and 28 percent in constant currency. Excluding the strategic actions in India, International revenue increased 3 percent on a reported basis and decreased 2 percent in constant currency compared to revenue in 2019.

Wrangler brand global revenue was $1,575 million, a 17 percent increase over the same period in the prior year on a reported basis and 16 percent in constant currency. Wrangler U.S. revenue increased 15 percent compared to the same period last year. Wrangler international revenue increased 27 percent over the same period in the prior year on a reported basis and 22 percent on a constant currency basis. Excluding impacts from strategic actions, Wrangler brand global revenue increased 8 percent on both a reported and constant currency basis compared to 2019 driven by Digital, Western, Outdoor and International.



Lee brand global revenue was $887 million, a 29 percent increase over the same period in the prior year on a reported basis and a 26 percent increase in constant currency. Lee U.S. revenue increased 24 percent compared to the same period last year, driven by improving sell through of new programs and increases in Digital. Lee international revenue increased 36 percent over the same period in the prior year on a reported basis and 30 percent on a constant currency basis. Excluding impacts from the strategic actions, Lee brand global revenue increased 6 percent on a reported basis and 3 percent in constant currency compared to 2019 driven by strength in U.S. wholesale, Digital and International.

Other global revenue declined to $14 million driven by impacts from the strategic actions related to VF Outlet operations.

Gross margin increased 350 basis points to 44.7 percent of revenue, compared to the same period in the prior year. Adjusted gross margin increased 340 basis points to 44.6 percent of revenue, compared to the same period in the prior year. Favorable structural improvement from channel, customer and product mix more than offset higher transitory expenses, including air freight for expedited shipments, in support of strong demand, which negatively impacted gross margin by 130 basis points for the year. Compared to 2019, full year adjusted gross margin increased 380 basis points.

Selling, General & Administrative (SG&A) expenses were $825 million on a reported basis. Adjusted SG&A was $753 million, or 30.4 percent of revenue, up 10 basis points compared to the same period in the prior year. Adjustments primarily relate to costs associated with the global ERP implementation and information technology infrastructure build-out, which was completed during the year. Higher demand creation, digital investments, distribution expenses and compensation costs offset restructuring benefits and better fixed cost leverage on improving revenue. Prior year comparisons were affected by reduced spending in 2020 in light of COVID uncertainty.

Operating income on a reported basis was $283 million. Adjusted operating income was $352 million, compared to $229 million in the same period in the prior year. Adjusted operating margin increased 330 basis points to 14.2 percent of revenue, driven by structural gross margin improvements and fixed cost leverage on higher revenue. These factors were somewhat tempered by amplified investments in demand creation to drive future accelerating growth, as well as higher transitory expenses and distribution expenses. Prior year comparisons were also impacted by reduced spending during 2020 in light of COVID uncertainty.

Earnings Before Interest, Tax, Depreciation and Amortization (EBITDA) on a reported basis was $319 million. Adjusted EBITDA was $387 million, compared to $258 million in the same period in the prior year. Adjusted EBITDA margin increased 330 basis points to 15.6 percent of revenue.

Earnings per share was $3.31 on a reported basis compared to $1.17 in the same period in the prior year. Adjusted earnings per share was $4.28 compared to $2.61 in the same period in the prior year.

January 1, 2022, Balance Sheet and Liquidity Review

The Company ended the fourth quarter of 2021 with $185 million in cash and cash equivalents, and approximately $0.8 billion in long-term debt.

As of January 1, 2022, the Company had no outstanding borrowings under the Revolving Credit Facility and $487 million available for borrowing against this facility.

As previously announced, the Company’s Board of Directors declared a regular quarterly cash dividend of $0.46 per share, payable on March 18, 2022, to shareholders of record at the close of business on March 8, 2022. Consistent with a commitment to return cash to shareholders, the Company repurchased $65 million in common stock during the fourth quarter. When combined with the strong dividend, the Company returned a total of $171 million to shareholders during fiscal 2021. The Company plans on continuing to use its share repurchase program to offset dilution, while also opportunistically buying shares as capital allocation priorities, excess cash flows and market conditions warrant.

Inventory at the end of fiscal 2021 was $363 million, up 7 percent compared to the prior year period.

2022 Outlook

While the impacts from the COVID-19 pandemic and other macroeconomic factors remain uncertain, the Company is providing its 2022 guidance, including the following:

• Revenue is expected to approximate $2.7 billion, increasing at a high single digit percentage over 2021. The Company expects first half revenues to increase in the low teens range compared to the prior year.

• Gross margin is expected to be consistent with adjusted gross margin of 44.6 percent achieved in 2021. Expected increases from continued structural mix shifts to accretive channels such as Digital and International, as well as benefits of strategic pricing, are anticipated to be offset by higher transitory expenses, including freight, in support of strong demand. Transitory impacts are expected to remain elevated in the first half to chase demand.

• SG&A investments will continue to be made in the Company’s brands and capabilities. In addition to incremental volume-related items, SG&A investments are expected to be amplified in demand creation, Digital, and International expansion. Compared to adjusted SG&A in 2021, the Company expects full year SG&A growth to be relatively consistent with full year revenue growth, with second half investments anticipated to be stronger than in the first half.

• EPS is expected to be in the range of $4.65 to $4.75.

• Capital Expenditures are expected to be in the range of $35 million to $40 million, primarily to support manufacturing, distribution and information technology projects.

• The Company expects an effective tax rate of approximately 21 percent, interest expense to be approximately $35 million and average shares outstanding of approximately 59 million, excluding the impact of potential additional share repurchases.

Webcast Information

Kontoor Brands will host its fourth quarter 2021 conference call beginning at 8:30 a.m. Eastern Time today, March 1, 2022. The conference will be broadcast live via the Internet, accessible at https://www.kontoorbrands.com/investors. For those unable to listen to the live broadcast, an archived version will be available at the same location.

Non-GAAP Financial Measures

Adjusted Amounts - This release refers to “adjusted” amounts. Adjustments during the fourth quarter and fiscal years 2021 and 2020 primarily represent costs associated with the Company’s global ERP implementation and information technology infrastructure build-out. Adjustments during the fourth quarter and fiscal year of 2019 primarily represent restructuring and separation costs, a non-cash impairment charge related to our Rock & Republic® trademark and other adjustments. Additional information regarding adjusted amounts is provided in notes to the supplemental financial information included with this release.

Constant Currency - This release refers to “reported” amounts in accordance with GAAP, which include translation and transactional impacts from changes in foreign currency exchange rates. This release also refers to “constant currency” amounts, which exclude the translation impact of changes in foreign currency exchange rates.

Reconciliations of these non-GAAP measures to the most comparable GAAP measures are presented in the supplemental financial information included with this release that identifies and quantifies all reconciling adjustments and provides management's view of why this non-GAAP information is useful to investors. While management believes that these non-GAAP measures are useful in evaluating the business, this information should be viewed in addition to, and not as an alternate for, reported results under GAAP. The non-GAAP measures used by the Company in this release may be different from similarly titled measures used by other companies. A reconciliation of non-GAAP forward looking information to the corresponding GAAP measures cannot be provided without unreasonable efforts due to the challenge in quantifying various items including, but not limited to, the effects of foreign currency movements, gains or losses on sales of assets, taxes, and any future restructuring or impairment charges.

https://www.kontoorbrands.com/news-media/press-release/111/kontoor-brands-reports-2021-fourth-quarter-and-full-year



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