• 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.