For the third quarter, Kontoor Brands, Inc. with a portfolio led by Wrangler and Lee brands, reported revenue of 655 million dollars, up 8 percent or 7 percent constant currency.
The company’s gross margin decreased 200 basis points to 41.5 percent, EBITDA was 91 million dollars and EBITDA margin of 13.9 percent decreased 200 basis points.
Earnings per share (EPS) was 1.05 dollars in the third quarter, compared to reported EPS of 90 cents and adjusted EPS of 1.11 dollars in the same period last year. Adjusted EPS was 1.22 dollars, up 10 percent.
“In the third quarter, we delivered strong revenue growth and profitability that was ahead of our expectations, excluding the duty charge, reflecting the broad-based strength of our business,” said Scott Baxter, president, CEO and chair of Kontoor Brands.
Review of Kontoor Brands’ Q3 results
The company said that the revenue increases were primarily driven by strength in U.S. wholesale and DTC, partially offset by decreases in international, mainly China. U.S. revenue was 506 million dollars, increasing 12 percent, U.S. wholesale increased 12 percent, while U.S. digital revenue increased 11 percent compared to the same period last year.
International revenue was 149 million dollars, a 4 percent or 8 percent decrease in constant currency with strength in DTC more than offset by a decline in wholesale. International DTC increased 7 percent or 5 percent in constant currency.
The company added that China decreased 23 percent or 19 percent in constant currency, while Europe increased 4 percent but decreased 4 percent in constant currency over the same period last year.
Wrangler brand global revenue was 445 million dollars, a 9 percent increase from the same period in the prior year. Wrangler U.S. revenue increased 10 percent, driven by U.S. wholesale core denim and category diversification including non-denim bottoms, outdoor and western. Wrangler U.S. digital revenue increased 11 percent and international revenue increased 8 percent or 2 percent in constant currency, driven by increases in both wholesale and DTC.
Lee brand global revenue was 208 million dollars, a 5 percent or 3 percent increase in constant currency. Lee U.S. revenue increased 20 percent and US digital revenue increased 11 percent. Lee international revenue decreased 10 percent or 13 percent in constant currency, driven primarily by softness in China.
Kontoor Brands revises 2023 outlook
“Beginning with the fourth quarter, we expect gross margin expansion to drive accelerated earnings growth into 2024. And, given the strength of our balance sheet and cash flow generation, we have the opportunity to further enhance shareholder value through capital allocation optionality,” added Baxter.
The company added that revenue is expected to increase approximately 1 percent compared to 2022, which compares to the prior outlook of a low-single digit percentage increase.
During the fourth quarter of 2023, the company expects ongoing market share gains and strength from DTC to be offset by more challenging macroeconomic and consumer demand conditions in the U.S., with the China market more fully reopening.
Adjusted gross margin is expected to approximate 42.5 percent compared to the prior outlook of 43.5 percent to 44 percent. The company expects approximately 300 basis points of gross margin expansion in the fourth quarter.
Adjusted EPS is now expected to be approximately 4.35 dollars compared to the prior outlook of 4.55 dollars to 4.75 dollars. Excluding the duty charge, FY23 EPS is expected to approximate 4.50 dollars.