Kontoor Brands Q1 sales improve by 2 percent

Kontoor Brands, Inc. reported first quarter revenue of 667 million dollars, a 2 percent or 1 percent decrease in constant currency.

Revenue increases, the company said, primarily driven by strength in domestic wholesale and DTC, were more than offset by decreases in international wholesale, primarily driven by the continued impacts of Covid-policy changes in China.

“As anticipated, our brands continued to gain share in the U.S. where POS outpaced shipments in the quarter. We continue to assume macroeconomic pressures will weigh on consumer demand in the second half of 2023, particularly in the U.S. However, we believe that our increasingly diversified growth across channels, categories and geographies, enabled by strategic investments in DTC, demand creation and data analytics will generate more sustained, profitable growth over time,” said Scott Baxter, president, CEO and chair of Kontoor Brands.

Highlights of Kontoor Brands Q1 performance

The company added that U.S. revenue was 518 million dollars, up 2 percent, and U.S. wholesale increased 1 percent, including strength in digital wholesale which increased 11 percent compared to last year. These gains were augmented by continued strength in DTC, with U.S. own.com revenue increasing 15 percent compared to the same period last year.

International revenue was 149 million dollars, a 14 percent or 9 percent decrease in constant currency driven by softness in wholesale, somewhat offset by strong DTC performance. International DTC increased 10 percent or 17 percent in constant currency. Sales in China decreased 36 percent or 31 percent in constant currency compared to the first quarter of 2022, driven by impacts in the wholesale channel from the Covid-policy changes. China DTC increased 3 percent or 11 percent in constant currency compared to the same period last year.

Sales in Europe decreased 7 percent or 1 percent in constant currency with wholesale pressures more than offsetting gains in DTC. Europe DTC increased 15 percent or 22 percent in constant currency compared to the same period last year.

Kontoor Brands posts sales increase in Wrangler

Wrangler brand global revenue was 423 million dollars, a 3 percent increase from the same period in the prior year. Wrangler U.S. revenue increased 3 percent, driven by increased shipments in U.S. wholesale reflecting category diversification including non-denim bottoms, outdoor and workwear. Wrangler U.S. DTC increased 16 percent, while Wrangler international revenue was flat or 5 percent increase in constant currency compared to the first quarter 2022.

Lee brand global revenue was 241 million dollars, a 9 percent or 7 percent decrease in constant currency. Lee U.S. revenue was flat compared to the same period last year, with gains in own.com offset by softness in wholesale. Lee U.S. DTC increased 8 percent, while Lee international revenue decreased 20 percent or 16 percent in constant currency, driven primarily by reductions in China wholesale.

Gross margin decreased 180 basis points to 43 percent of revenue, operating income was 95 million dollars and operating margin of 14.2 percent decreased 170 basis points compared to the same period in the prior year. EBITDA was 102 million dollars, while EBITDA margin of 15.3 percent decreased 200 basis points. Earnings per share was 1.16 dollars in the first quarter, compared to 1.40 dollars in the same period last year.

Kontoor Brands expects low-single digit percentage increase in 2023

The company said revenue is expected to increase at a low-single digit percentage in 2023 with first and second half performance relatively balanced. The company continues to expect the first half to be driven by the U.S. with momentum in POS, share gains and DTC.

Gross margin is expected to be in the range of 43.5 percent to 44 percent, increasing 40 to 90 basis points compared to gross margin of 43.1 percent in 2022.

EPS is expected to be in the range of 4.55 dollars to 4.75 dollars, consistent with the prior outlook.