Retail & Brands

2022-05-12

Kontoor Brands raises outlook for full year 2022

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 first quarter ended April 2, 2022.
  • Q1’22 reported revenue of $680 million increased 4 percent versus Q1’21, and compared to guidance of $650 million to $660 million
  • Q1’22 GAAP EPS of $1.40 versus Q1’21 GAAP EPS of $1.09, Q1’21 adjusted EPS of $1.43, and compared to guidance of $1.15 to $1.25
  • 2022 revenue is now expected to be above $2.7 billion, increasing approximately 10 percent versus 2021; up from the prior guidance of increasing high single digits
  • 2022 EPS is now expected to be in the range of $4.75 to $4.85, increasing 11 percent to 13 percent over 2021 adjusted EPS, and up from the prior guidance of $4.65 to $4.75


“Our strategies continue to yield accelerating performance, with first quarter results coming in above our expectations. We expect macroeconomic challenges will persist, with inflationary pressures, supply chain disruptions and COVID lockdowns weighing on the operating environment. However, based on Kontoor-specific drivers, momentum across the business and continued execution of our strategic playbook, we have confidence in raising our fiscal year revenue and EPS guidance,” said Scott Baxter, President, Chief Executive Officer and Chair of Kontoor Brands.

“The continued emphasis on our digital ecosystem, demand creation platforms and talent will increasingly support Kontoor in becoming a consumer-centric, growth-oriented company. These investments, when combined with our significant cash flow optionality, should afford compelling returns for all KTB stakeholders,” added Baxter.

This release refers to “adjusted” amounts from the first quarter of 2021 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.

As previously stated, the cutover and transition of the Company’s North American ERP system caused timing of shipments to benefit first quarter 2021 revenue and profitability, while negatively impacting second quarter 2021 revenue and profitability. These factors primarily have an impact on year-over-year quarterly comparisons for the first two quarters but are not expected to impact the full year.

First Quarter 2022 Income Statement Review

Revenue was $680 million, a 4 percent increase on a reported basis, and 5 percent in constant currency, over the same period in the prior year. Revenue increases 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. Compared to first quarter 2021, global own.com revenue increased 38 percent and digital wholesale increased 24 percent.

U.S. revenue was $507 million, increasing 4 percent over last year. Gains were driven by growth in wholesale, including new business development wins, and strength in Digital, with U.S. own.com revenue increasing 43 percent and digital wholesale increasing 37 percent compared to the first quarter 2021.

International revenue was $173 million, a 6 percent increase over the same period in the prior year on a reported basis and up 9 percent in constant currency. Compared to the first quarter 2021, China increased 3 percent on a reported basis and 1 percent in constant currency, while the European business increased 11 percent on a reported basis and 19 percent in constant currency.

Wrangler brand global revenue was $412 million, a 3 percent increase over the same period in the prior year on a reported basis and was up 4 percent in constant currency. Wrangler U.S. revenue increased 2 percent compared to last year, with strength in Digital, Western and Workwear. Comparisons to first quarter 2021 were negatively impacted by timing shifts due to the North American ERP implementation. Wrangler international revenue increased 14 percent over the first quarter 2021 on a reported basis and 20 percent in constant currency.

Lee brand global revenue was $264 million, a 6 percent increase over the same period in the prior year on a reported basis and was up 7 percent in constant currency. Lee U.S. revenue increased 9 percent compared to last year, driven by continued strength in demand and increases in Digital. Comparisons to first quarter 2021 were also impacted by timing shifts due to the North American ERP implementation. Lee international revenue increased 2 percent over the first quarter 2021 on a reported basis and 4 percent in constant currency.

Other global revenue was $3 million, an 11 percent increase compared to the same period in the prior year.

Gross margin decreased 130 basis points to 44.8 percent of revenue, compared to the first quarter 2021. Gross margin decreased 140 basis points compared to first quarter 2021 adjusted gross margin with near-term transitory expenses of 210 basis points more than offsetting structural margin improvements of 70 basis points. Based on strong demand during the quarter, transitory expenses, which include air freight for expedited shipments, were elevated as expected. Structural margins improved as impacts of pricing and favorable channel and product mix more than offset the impacts of inflationary costs, including cotton, ocean freight and labor.

Selling, General & Administrative (SG&A) expenses were $196 million on a reported basis, or 28.9 percent of revenue, down 290 basis points compared to the same period in the prior year. SG&A increased 110 basis points compared to first quarter 2021 adjusted SG&A. Higher demand creation, digital and IT investments, product development and distribution expenses more than offset better fixed cost leverage on improving revenue and lower compensation related expenses.

Operating income was $108 million on a reported basis. Operating margin increased 160 basis points to 15.9 percent of revenue. Operating margin decreased 240 basis points compared to first quarter 2021 adjusted operating margin, driven by strategic investments 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.




Earnings Before Interest, Tax, Depreciation and Amortization (EBITDA) was $118 million on a reported basis. EBITDA margin increased 170 basis points to 17.3 percent of revenue. EBITDA margin decreased 220 basis points compared to first quarter 2021 adjusted EBITDA margin.

Earnings per share was $1.40 on a reported basis compared to reported EPS of $1.09, and adjusted EPS of $1.43, in the same period in the prior year.

April 2, 2022, Balance Sheet and Liquidity Review

The Company ended the first quarter 2022 with $194 million in cash and cash equivalents, and approximately $0.8 billion in long-term debt.

As of April 2, 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 June 20, 2022, to shareholders of record at the close of business on June 10, 2022. Consistent with a commitment to return cash to shareholders, the Company repurchased $23 million in common stock during the first quarter. When combined with the strong dividend, the Company returned a total of $49 million to shareholders during the first quarter. 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 the first quarter 2022 was $433 million, up 24 percent compared to the prior-year period. Q2’22 revenue growth is expected to be up 30 to 32 percent.

2022 Outlook

The Company is raising its 2022 Outlook. While the impacts from the COVID-19 pandemic and other macroeconomic factors remain uncertain, the Company is updating its 2022 guidance, including the following:

• Revenue is now expected to be above $2.7 billion, increasing at approximately 10 percent compared to 2021, and compared to prior guidance of a high single digit percentage. The Company now expects first half revenues to increase in the mid-teens range compared to the prior year, versus a low-teens range in the prior guidance. Consistent with prior guidance, Q2’22 revenue is expected to be in the range of $640 million to $650 million, increasing 30 to 32 percent compared to last year.

• Gross margin is expected to be consistent with the adjusted gross margin of 44.6 percent achieved in 2021. The Company expects higher inflationary pressures on input costs, transitory expenses, including freight, and adverse mix due to COVID lockdowns in China to weigh on gross margin. However, the benefits from continued structural mix shifts to accretive channels such as Digital, ongoing cost saving initiatives and strategic pricing are anticipated to offset these higher costs. The Company expects the impacts of COVID lockdowns in China to weigh most heavily on Q2’22 gross margin.

• 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 now expected to be in the range of $4.75 to $4.85, increasing 11 percent to 13 percent over 2021 adjusted EPS, and up from the prior guidance of $4.65 to $4.75. Q2’22 EPS is now expected to be in the range of $1.05 to $1.15, compared to prior guidance of $1.25 to $1.35, due to COVID lockdowns in China and higher transitory freight expenses negatively impacting gross margin and profitability. Q2’21 adjusted EPS was $0.70.

• 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 58 million, excluding the impact of additional share repurchases.

Webcast Information

Kontoor Brands will host its first quarter 2022 conference call beginning at 8:30 a.m. Eastern Time today, May 5, 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 first quarter of 2021 primarily represent costs associated with the Company’s global ERP implementation and information technology infrastructure build-out. 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.

https://www.kontoorbrands.com/news-media/press-release/119/kontoor-brands-reports-first-quarter-2022-results-raises




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