Kontoor Brands revenues drop by 9 percent, expects recovery in Q4

For the third quarter, Kontoor Brands, Inc., having Wrangler and Lee under its portfolio, reported revenue decrease of 9 percent to 583 million dollars, on a reported and constant currency basis. The company said in a statement that revenue declines during the quarter were primarily driven by Covid-19 impacts, offset in part by increases in digital, new business development wins, and a 33 million dollars shift in the timing of U.S. Wrangler shipments from the second quarter to the third quarter of 2020.

“Our strategic actions delivered strong results in the quarter and are enhancing the Kontoor operating model focused on more profitable and sustainable long-term growth,” said Scott Baxter, President and Chief Executive Officer, Kontoor Brands.

Review of Kontoor Brands’ third quarter performance

During the third quarter, the company’s U.S. revenue was 455 million dollars, flat year-over-year on a reported basis, led by U.S. digital wholesale increase of 68 percent and U.S. owned.com increase of 43 percent, as well as new business development wins and the previously mentioned timing shift.

International revenue was 128 million dollars, down 30 percent on a reported basis and down 31 percent in constant currency, primarily driven by Covid-19 impacts. Despite the decline, the company added that both the Europe and China businesses experienced a gradual recovery during the quarter, with continued sequential revenue improvements in both regions expected in the fourth quarter.

Wrangler brand global revenue decreased to 347 million dollars, a 6 percent decline on a reported and constant currency basis. Wrangler U.S. revenue increased 2 percent, driven by increases in digital, strength in the Western business and the timing shift into the third quarter. Lee brand global revenue decreased to 214 million dollars, down 8 percent on a reported and constant currency basis, while Lee U.S. revenue increased 10 percent, a result of new business development wins and increases in digital during the quarter.

Other global revenue, the company further said, declined 43 percent to 22 million dollars on a reported and constant currency basis driven by Covid-19 impacts to the company’s VF Outlet stores, as well as planned reductions in the sale of goods manufactured for third parties and the Rock & Republic brand.

Gross margin for the quarter increased 410 basis points to 44.2 percent of revenue on a reported basis. On an adjusted basis, gross margin increased 240 basis points to 43.3 percent of revenue. EBITDA on a reported basis was 91 million dollars and adjusted EBITDA was 109 million dollars, increasing 22 percent from 90 million dollars in the prior year. EBITDA margin on a reported basis increased to 15.7 percent of revenue and adjusted EBITDA margin increased 470 basis points to 18.8 percent of revenue. Earnings per share were 1.05 dollars on a reported basis compared with 25 cents in the prior year and adjusted earnings per share were 1.33 dollars compared with 95 cents in the prior year.

Kontoor Brands’ board declares dividend

Given the company’s continued improving operational performance and strong cash flow generation, Kontoor Brands also announced that its board of directors has declared a regular quarterly cash dividend of 40 cents per share of its common stock payable on December 18, 2020, to shareholders of record at the close of business on December 10, 2020.

The company expects revenue in the fourth quarter to show continued sequential improvement from third quarter results, with revenue anticipated to be flat to down modestly. Adjusted gross margin is anticipated to be above the 40.9 percent achieved in the prior year, reflecting continued benefits from ongoing restructuring and quality-of-sales initiatives, as well as higher anticipated growth in more accretive channels such as digital and improving mix within international. The company expects full-year adjusted EPS to be in the range of 2.25 dollars to 2.35 dollars.