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Kontoor Brands: Revenue and earnings increase in Q4

By Prachi Singh

Mar 2, 2021

Management

For the fourth quarter, Kontoor Brands, Inc. said revenue increased 1 percent to 661 million dollars on a reported basis and remained flat in constant currency. The company said, revenue increases were primarily driven by strength in digital, including own.com and digital wholesale, as well as improved performance across the Wrangler U.S. wholesale business and accelerating trends in International markets.

“We finished 2020 with great momentum, a testament to our teams’ unwavering focus on execution throughout this unprecedented year,” said Scott Baxter, President and Chief Executive Officer, Kontoor Brands, adding, “Our strong fourth quarter performance is also a result of the strategic measures we’ve taken over the last two years, allowing us to not only navigate near-term challenges, but also position the company for success in 2021 and beyond.”

Highlights of Kontoor Brands’ Q4 results

The company added that fourth quarter U.S. revenue was 520 million dollars, up 1 percent over the same period in the prior year, which was driven by growth in Wrangler wholesale, new business development wins and strength in digital, with own.com increasing 50 percent and digital wholesale increasing 75 percent. These increases were somewhat offset by impacts of the ongoing headwinds from Covid-19.

International revenue was 141 million dollars, up 4 percent over the same period in the prior year on a reported basis, with Wrangler international up 5 percent and Lee international up 3 percent. On a constant currency basis, international revenue was flat compared to the same period in the prior year. The Europe and China businesses experienced continued sequential revenue improvements, with China increasing 11 percent and Europe increasing 7 percent on a reported basis.

Wrangler brand global revenue increased to 448 million dollars, a 7 percent increase over the same period in the prior year on a reported and constant currency basis. Wrangler U.S. revenue increased 8 percent, driven by increases in digital and strength in the core U.S. wholesale and western businesses.

Lee brand global revenue increased to 204 million dollars, a 1 percent increase over the same period in the prior year on a reported basis and flat in constant currency. Lee U.S. revenue was flat in the quarter with strength from improving sell through of new programs and increases in digital, largely offset by the ongoing impacts of COVID-19 on select distribution and quality-of-sales actions during the quarter.

Other global revenue declined 75 percent compared to the same period in the prior year to 9 million dollars driven by impacts from the strategic actions related to VF Outlet stores, as well as planned reductions in the sale of goods manufactured for third parties and the Rock & Republic brand.

Gross margin increased 180 basis points compared to the same period in the prior year to 42.5 percent of revenue on a reported basis. On an adjusted basis, gross margin increased 230 basis points to 43.2 percent of revenue. Operating income on a reported basis was 63 million dollars, increasing 7 percent compared to the same period in the prior year. On an adjusted basis, operating income was 99 million dollars, up 16 percent compared to the same period in the prior year. Adjusted operating margin increased 180 basis points to 14.9 percent of revenue.

EBITDA on a reported basis was 72 million dollars and adjusted EBITDA was $106 million, increasing 14 percent compared to the same period in the prior year. Adjusted EBITDA margin increased 190 basis points to 16.1 percent of revenue. Earnings per share were 74 cents on a reported basis compared to 50 cents in the prior year, while adjusted earnings per share were 1.23 dollars, increasing 27 percent compared to the same period in the prior year.

2020 income statement review of Kontoor Brands

For 2020, revenue decreased to 2.10 billion dollars, an 18 percent decline year-over-year on a reported and constant currency basis primarily as a result of temporary wholesale and owned door closures and stay-at-home orders due to Covid-19. The 53rd week contributed approximately 1 point to full-year revenue.

U.S. revenue was 1.64 billion dollars, a 14 percent decline year-over-year on a reported basis primarily driven by Covid-19 impacts. Full year declines were partially offset by new business development wins and growth in digital, with U.S. own.com increasing 38 percent and U.S. digital wholesale increasing 59 percent year-over-year.

International revenue was 456 million dollars, down 29 percent on a reported and constant currency basis, partially offset by growth in owned digital, which grew 12 percent on a reported basis.

Wrangler brand global revenue decreased to 1.35 billion dollars, an 11 percent decline on a reported and constant currency basis. U.S. revenue declined 7 percent, with 2020 second half Wrangler U.S. revenues increasing 5 percent compared to the same period in the prior year.

Lee brand global revenue decreased to 688 million dollars, a 22 percent decline on a reported and constant currency basis. U.S. revenue declined 18 percent compared to the prior year. 2020 second half Lee U.S. revenues increased 5 percent compared to the same period in the prior year, reflecting new business development wins and strength in digital.

Other global revenue decreased 59 percent to 61 million dollars driven by Covid-19 impacts, the strategic actions related to VF Outlet stores, as well as planned reductions in sales of product manufactured for third parties and Rock & Republic.

Gross margin increased 180 basis points to 41.2 percent on a reported basis. On an adjusted basis, gross margin increased 40 basis points to 41.2 percent. Operating income on a reported basis was 124 million dollars and on an adjusted basis, operating income was 229 million dollars. Operating margin on a reported basis declined to 5.9 percent of revenue. Adjusted operating margin decreased 140 basis points year-over-year to 10.9 percent of revenue.

EBITDA on a reported basis was 156 million dollars, while adjusted EBITDA was 258 million dollars, down 24 percent compared to the prior year. EBITDA margin on a reported basis declined to 7.4 percent of revenue. Adjusted EBITDA margin decreased 120 basis points to 12.3 percent. Earnings per share were 1.17 dollars on a reported basis and adjusted earnings per share were 2.61 dollars.

Kontoor Brands expects low-double digit sales growth in 2021

The company said, 2021 revenue is expected to increase in the low-double digit range over 2020 levels, including a mid-single digit impact from the VF Outlet actions and India business model changes.

Adjusted Gross Margin is expected to increase 150 to 200 basis points above the 41.2 percent achieved in 2020, 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 international.

Adjusted EPS is expected to be in the range of 3.50 dollars to 3.60 dollars, including the accretive impacts of actions taken with the VF Outlet and India businesses.

Image: Wrangler, Facebook