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Following strong Q2, Kontoor Brands increases full year outlook

By Prachi Singh

Aug 5, 2021

Management

Image: Wrangler, Facebook

Kontoor Brands revenue increased to 491 million dollars, a 41 percent increase on a reported basis and 37 percent in constant currency over the same period in the prior year. Compared to adjusted revenue in the second quarter of 2019, reported revenue decreased 19 percent.

The company said in a statement that revenue increases compared to the prior year were primarily driven by strength in digital, including own.com and digital wholesale, as well as improved performance across the U.S. wholesale business and accelerating trends in international markets.

However, the company added that revenue was negatively impacted by a shift in the timing of shipments from the second quarter to the first quarter ahead of the company’s North American ERP implementation. Additionally, gains in the quarter were offset by the VF Outlet store closures and the transition to a new licensed business model in India. In select markets and channels, Covid-19 also negatively impacted the company’s second quarter 2021 results.

“Kontoor’s strong second quarter results, which came in above our expectations, and our improving fundamentals give us confidence to raise full year guidance. As discussed at our recent Investor Day, we expect to catalyze sustained, profitable growth across channels, categories and geographies, fueled by investments in key enablers within talent, demand creation, digital and sustainability,” said Scott Baxter, president and CEO, Kontoor Brands.

Review of Kontoor Brands’ Q2 results

The company’s U.S. revenue was 365 million dollars, increasing 27 percent over the same period in the prior year driven by growth in U.S. wholesale, new business development wins and strength in digital, with own.com increasing 28 percent and digital wholesale increasing 49 percent.

International revenue was 126 million dollars, a 106 percent increase over the same period in the prior year on a reported basis and 87 percent in constant currency. China increased 10 percent over the same period in the prior year in constant currency. Despite ongoing headwinds from Covid-19, the European business increased 254 percent over the same period in the prior year in constant currency.

Wrangler brand global revenue increased to 311 million dollars, a 24 percent increase on a reported basis and 22 percent in constant currency. Wrangler U.S. revenue increased 14 percent, driven by increases in digital, western and new product categories.

Lee brand global revenue increased to 176 million dollars, a 105 percent increase on a reported basis and 96 percent in constant currency. Lee U.S. revenue increased 118 percent.

Other global revenue declined 70 percent on a reported basis to 3 million dollars driven by impacts from the strategic actions related to VF Outlet stores.

Kontoor Brands returns to earnings growth in Q2

The company’s gross margin increased 760 basis points to 46.1 percent of revenue, compared to the same period in the prior year. Operating income on a reported basis was 35 million dollars, while adjusted operating income was 59 million dollars, increasing 957 percent compared to the same period in the prior year. Adjusted operating margin increased 1,040 basis points to 12 percent of revenue.

EBITDA on a reported basis was 44 million dollars and adjusted EBITDA was 67 million dollars, increasing 433 percent compared to the same period in the prior year. Adjusted EBITDA margin increased 1,010 basis points to 13.7 percent of revenue.

Earnings per share was 40 cents on a reported basis compared to a loss per share of 58 cents in the same period in the prior year. Adjusted earnings per share was 70 cents compared to a loss of 22 cents in the same period in the prior year.

Kontoor Brands updates full year guidance

Raising its fiscal 2021 outlook, the company said, revenue is now expected to increase in the mid-teens range over 2020 to 2.39 billion dollars to 2.42 billion dollars, as compared to a low-teens range in the prior guidance, including a mid-single digit impact from the VF Outlet actions and India business model change.

The company added that gross margin is now expected to increase by 330 to 380 basis points above the adjusted gross margin of 41.2 percent achieved in 2020 to 44.5 percent to 45 percent of revenue. This compares to prior guidance of a 230 to 270 basis points increase.

Adjusted EPS is now expected to be in the range of 3.90 dollars to 4 dollars as compared to 3.70 dollars to 3.80 dollars in the prior guidance.