Kontoor Brands revenues increase but China lockdowns weigh on results

For the fourth quarter, Kontoor Brands reported revenue of 732 million dollars, a 7 percent or 9 percent increase in constant currency over the same period in the prior year.

The company said, revenue increases were primarily driven by strength in domestic wholesale and digital, somewhat offset by decreases in international with the continued impacts of lockdowns and restrictions in China weighing on the quarter.

For the full year, revenue was 2.63 billion dollars, a 6 percent or 8 percent increase in constant currency over the prior year.

The company added that revenue increases were primarily driven by strength in digital, as well as strength in U.S. wholesale offset by a decrease in non-U.S. wholesale with the continued impacts of lockdowns and restrictions in China weighing on the year.

“We finished 2022 strong, as fourth quarter revenue and EPS came in significantly above our plan. Despite unprecedented macroeconomic challenges, we are delivering on many of our long-term goals, with 2022 revenue and earnings ahead of our Investor Day targets,” said Scott Baxter, president, CEO and chair of Kontoor Brands in a statement.

Highlights of Kontoor Brands Q4 results

For the fourth quarter, U.S. revenue was 605 million dollars, increasing 16 percent over the same period in the prior year, with gains in both the Wrangler and Lee brands.

U.S. wholesale increased 17 percent, including strength in U.S. digital wholesale of 66 percent compared to last year. These gains were augmented by continued strength in U.S. own.com revenue, which increased 19 percent compared to the same period last year.

International revenue was 127 million dollars, a 20 percent or 12 percent decrease in constant currency over the same period in the prior year. China decreased 33 percent or 25 percent in constant currency, driven by impacts from the Covid lockdowns and restrictions in the region. Europe decreased 15 percent or 4 percent in constant currency, with wholesale pressures more than offsetting constant currency gains in DTC.

Wrangler brand global revenue was 509 million dollars, a 15 percent or 16 percent increase in constant currency with Wrangler U.S. revenue increasing 19 percent, primarily driven by increased shipments in U.S. wholesale, with broad-based channel and category strength including western, outdoor, workwear and T-shirts. Wrangler international revenue decreased 17 percent or 9 percent in constant currency, with gains in DTC more than offset by decreases in wholesale channels.

Lee brand global revenue was 219 million dollars, a 6 percent or 3 percent decrease in constant currency. Lee U.S. revenue increased 5 percent compared to the same period last year, primarily driven by digital. Globally, non-denim categories such as T-shirts experienced significant year-over-year gains in the quarter. Lee international revenue decreased 21 percent or 13 percent in constant currency, driven primarily by reductions in China due to the impact of Covid restrictions.

Other global revenue was 4 million dollars, a 19 percent decrease compared to the same period in the prior year.

Gross margin decreased 200 basis points to 40.8 percent of revenue compared to the same period last year. Compared to adjusted gross margin in the fourth quarter 2021, gross margin decreased 180 basis points. Operating income was 85 million dollars on a reported basis and 86 million dollars on an adjusted basis. Adjusted operating margin of 11.7 percent increased 110 basis points.

EBITDA was 95 million dollars on a reported basis and 93 million dollars on an adjusted basis. Adjusted EBITDA margin of 12.7 percent increased 60 basis points.

Earnings per share were 91 cents on a reported basis and 88 cents on an adjusted basis compared to reported EPS of 75 cents and adjusted EPS of 88 cents, in the same period last year.

Full year review of Kontor Brands’ performance

Full year U.S. revenue was 2.07 billion dollars, increasing 11 percent over last year, with gains in both the Wrangler and Lee brands. U.S. wholesale increased 11 percent compared to 2021, including strength in digital wholesale which increased 23 percent compared to last year. U.S. own.com revenue increased 23 percent compared to 2021.

International revenue was 557 million dollars, an 8 percent or 1 percent decrease in constant currency over the prior year. China decreased 23 or 20 percent in constant currency compared to 2021, driven by the impacts of Covid lockdowns and restrictions in the region. Europe decreased 5 percent or increased 7 percent in constant currency over the prior year, with DTC driving the constant currency gains.

Wrangler brand global revenue was 1.75 billion dollars, an 11 percent or 12 percent increase in constant currency, driven by U.S. wholesale and global Wrangler own.com which increased 25 percent. Wrangler U.S. revenue increased 13 percent compared to last year. U.S. Wrangler.com increased 27 percent compared to last year. Wrangler international revenue decreased 1 percent or increased 8 percent in constant currency compared to 2021.

Lee brand global revenue was 874 million dollars, a 1 percent decrease or 1 percent increase in constant currency from the prior year. Lee U.S. revenue increased 7 percent, primarily driven by digital. U.S. Lee.com increased 13 percent compared to last year. Lee international revenue decreased 12 percent or 6 percent in constant currency from 2021, driven primarily by the reductions in China due to the impact of Covid lockdowns.

Other global revenue was 11 million dollars, a 17 percent decrease compared to the prior year.

Gross margin was 43.1 percent of revenue, a decrease of 160 basis points. Operating income was 357 million dollars on a reported basis and 372 million dollars on an adjusted basis. Adjusted operating margin of 14.1 percent decreased 10 basis points. EBITDA was 390 million dollars on a reported basis and 402 million dollars on an adjusted basis. Adjusted EBITDA margin of 15.3 percent decreased 30 basis points compared to the prior year.

Earnings per share were 4.31 dollars on a reported basis and 4.49 dollars on an adjusted basis compared to 3.31 dollars and adjusted EPS of 4.28 dollars, in the prior year.

Kontoor Brands expects FY23 revenue to increase at low-single percent

For 2023, the company said, revenue is expected to increase at a low-single digit percentage over 2022 with growth fairly balanced between the first and second half.

The company expects first half growth to be driven by the U.S. with continued momentum in POS, share gains and digital, somewhat tempered by softness in China as the region continues to recover from Covid lockdowns and restrictions.

During the second half of 2023, the company assumes macro consumer demand conditions to be more challenged in the U.S., with the China market fully reopening.

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.