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Kontoor Brands reports strong Q1, raises FY21 forecast

By Prachi Singh

May 6, 2021

Management

Lee Jeans, Facebook

Kontoor Brands, Inc. reported revenue increase to 652 million dollars, up 29 percent on a reported basis and 27 percent in constant currency for the first quarter. Compared to adjusted revenue in the first quarter of 2019, reported revenue increased 3 percent.

“The strong performance in the quarter was broad-based, as evidenced by improving growth across regions, channels and categories,” said Scott Baxter, president and chief executive officer, Kontoor Brands, adding, “As we transition into our next horizon, the stage is set for us to pivot to growth.”

Review of Q1 results at Kontoor Brands

The company said in a release 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.

First quarter revenue also benefited from a shift in the timing of shipments from the second quarter to the first quarter ahead of the company’s North American ERP implementation. Gains in the quarter were somewhat offset by the strategic actions related to VF Outlet store closures and the transition to a new licensed business model in India. Additionally, Covid-19 continued to negatively impact the company’s results in select markets and channels.

The company added that U.S. revenue was 488 million dollars, increasing 29 percent driven by growth in U.S. wholesale, new business development wins and strength in digital. Compared to adjusted revenue in the first quarter of 2019, reported revenue increased 11 percent, with own.com increasing 70 percent and digital wholesale increasing 132 percent.

International revenue was 163 million dollars, a 30 percent increase over the same period in the prior year on a reported basis and 21 percent in constant currency driven by the China business that increased 109 percent over the same period in the prior year in constant currency and increased 20 percent in constant currency over the same period in 2019.

Despite ongoing headwinds from Covid-19, Kontoor Brands said, the Europe business, led by digital, increased 4 percent on a reported basis and was down 5 percent in constant currency. Compared to adjusted revenue in the first quarter of 2019, international revenue decreased 14 percent driven primarily from impacts associated with the business model change in India.

Kontoor Brands posts revenue growth across its brand portfolio

The company further said that Wrangler brand global revenue increased to 399 million dollars, a 31 percent increase over the same period in the prior year on a reported basis and 30 percent in constant currency. Compared to adjusted revenue in the first quarter of 2019, Wrangler brand global reported revenue increased 10 percent. Wrangler U.S. revenue increased 38 percent driven by increases in digital and strength in the core U.S. wholesale and western businesses. Compared to revenue in the first quarter of 2019, Wrangler U.S. reported revenue increased 18 percent.

Lee brand global revenue increased to 250 million dollars, a 37 percent increase over the same period in the prior year on a reported basis and 33 percent in constant currency. Compared to adjusted revenue in the first quarter of 2019, Lee brand global reported revenue increased 4 percent.

Lee U.S. revenue increased 28 percent compared to the same quarter last year with strength from improving sell through of new programs and increases in digital. Compared to revenue in the first quarter of 2019, Lee U.S. reported revenue increased 16 percent.

Other global revenue declined 85 percent compared to the same period in the prior year to 3 million dollars driven by impacts from the strategic actions related to VF Outlet stores, as well as planned reductions in Rock Republic.

Kontoor Brands reports return to earnings

Gross margin increased 830 basis points to 46.1 percent of revenue, compared to gross margin during the same period in the prior year, or 820 basis points on an adjusted basis. Operating income on a reported basis was 93 million dollars and adjusted operating income was 119 million dollars, increasing 437 percent compared to the same period in the prior year. Adjusted operating margin increased 1,390 basis points to 18.3 percent of revenue.

EBITDA on a reported basis was 102 million dollars, and adjusted EBITDA was 127 million dollars, increasing 325 percent compared to the same period in the prior year. Adjusted EBITDA margin increased 1,360 basis points to 19.5 percent of revenue. Adjusted EBITDA margin increased 750 basis points compared to the first quarter of 2019.

Earnings per share were 1.09 dollars on a reported basis compared to a loss per share of 5 cents in the same period in the prior year and compared to earnings per share of 27 cents in the same period in 2019. Adjusted earnings per share were 1.43 dollars compared to 27 cents in the same period in the prior year and compared to 96 cents in the same period in 2019.

Kontoor Brands raises 2021 fiscal outlook

The company said, revenue is now expected to increase in the low-teens range over 2020, as compared to a low-double digit range in the prior guidance, including a mid-single digit impact from the VF Outlet actions and India business model change.

Gross margin is now expected to increase by 230 to 270 basis points, as compared to 150 to 200 basis points in the prior guidance, above the adjusted gross margin of 41.2 percent achieved in 2020.

Adjusted EPS is now expected to be in the range of 3.70 dollars to 3.80 dollars as compared to 3.50 dollars to 3.60 dollars in the prior guidance.