Kontoor Brands turnover and profit fall in Q4 and FY19

Kontoor Brands, Inc. said fourth quarter revenue decreased to 653 million dollars, a 10 percent decline on a reported and constant currency basis, while revenue declined 8 percent compared to fourth quarter 2018 adjusted revenue. EBITDA on a reported basis was 65 million dollars, while adjusted EBITDA was 93 million dollars, up 1 percent. EBITDA margin on a reported basis declined to 10 percent of revenue and adjusted EBITDA margin increased 130 basis points to 14.2 percent of revenue. The company said, earnings per share were 50 cents on a reported basis and adjusted earnings per share were 97 cents.

“Since our spin-off in May of 2019, we have been successfully executing on our Horizon 1 strategic initiatives, making excellent strides in setting the foundation for more profitable, and sustainable, long-term growth,” said Scott Baxter, President and Chief Executive Officer, Kontoor Brands, adding, “Prior to the emergence of the coronavirus, we saw improved trends from holiday, both within the U.S. and international markets,” Baxter said. “Based on information we have quarter-to-date, we anticipate a potential negative global impact of approximately 4 points to our first quarter revenue, due mostly to our operations in China.”

Review of Kontoor Brands’ Q4 results

The company added that reasons behind revenue declines during the quarter include proactive strategic quality-of-sales initiatives contributing 3 points to the decline, reflecting business model changes and actions taken to exit an underperforming country and other global points of distribution, including select channels in India; the reduced sales of certain lower margin lines of business and lower distressed sales, which represented approximately 1 point of the decline; and, impacts of a major U.S. retailer bankruptcy in the fourth quarter of 2018, which contributed approximately 1 point of the decline.

During the fourth quarter, U.S. revenue was 517 million dollars, down 8 percent on a reported basis, while compared with 2018 adjusted revenue, U.S. revenue declined 6 percent due to softness in broader retailer traffic during the holiday period and the exit or reduction of select non-core programs partially offset by growth in digital, with U.S. digital wholesale increasing 52 percent. International revenue was 136 million dollars, down 17 percent on a reported basis and down 16 percent in constant currency. Compared to fourth quarter 2018 adjusted revenue, international revenue declined 14 percent, partially offset by growth in company-owned digital revenue in Europe and China, which grew 36 percent and 8 percent in constant currency, respectively.

Wrangler brand global revenue decreased to 417 million dollars, a 6 percent decline on a reported and constant currency basis. Compared to fourth quarter 2018 adjusted revenue, global revenue declined 5 percent and U.S. revenue declined 3 percent. Lower distressed sales and the exit or reduction of select non-core programs were the primary drivers of the U.S. decline. Lee brand global revenue decreased 12 percent to 202 million dollars on a reported basis and in constant currency. Other global revenue declined 36 percent to 34 million dollars.

FY19 highlights of Kontoor Brands’ results

The company’s annual revenue decreased 8 percent to 2.55 billion dollars on a reported basis, down 6 percent in constant currency. Compared with 2018 adjusted revenue, 2019 revenue declined 6 percent to 2.52 billion dollars. U.S. revenue was 1.91 billion dollars, down 5 percent on a reported basis. U.S. revenue declined 3 percent compared with 2018 adjusted revenue, partially offset by growth in digital, with U.S. digital wholesale increasing 43 percent.

International revenue was 639 million dollars, down 15 percent on a reported basis and down 10 percent in constant currency. Compared with 2018 adjusted revenue, international revenue declined 13 percent. International declines were partially offset by growth in digital wholesale, company-owned digital and China, which grew 14 percent, 6 percent and 2 percent in constant currency, respectively.

Wrangler brand global revenue decreased 5 percent to 1.52 billion dollars on a reported basis, down 4 percent in constant currency. Compared with 2018 adjusted revenue, global revenue declined 4 percent and U.S. revenue declined 2 percent. Lee brand global revenue decreased 8 percent to 882 million dollars on a reported basis, down 6 percent in constant currency. Compared with 2018 adjusted revenue, global revenue declined 8 percent and U.S. revenue declined 6 percent. On a constant currency basis, Lee brand revenue increased 2 percent in China during 2019, with broad-based strength across all channels of distribution, including a 2 percent comparable store increase and 2 percent increase in the digital business. Other global revenue decreased 26 percent to 148 million dollars.

Gross margin decreased 90 basis points to 39.4 percent on a reported basis. On an adjusted basis, gross margin was down 70 basis points to 40.8 percent. EBITDA, the company added, on a reported basis was 194 million dollars and adjusted EBITDA was 341 million dollars, down 12 percent. EBITDA margin on a reported basis declined to 7.6 percent of revenue and adjusted EBITDA margin decreased 90 basis points to 13.5 percent. Earnings per share were 1.69 dollars on a reported basis and adjusted earnings per share were 3.84 dollars.

Kontoor Brands reveals outlook for the fiscal 2020

The company said, revenue is expected to be largely consistent with full year 2019 adjusted revenue, with branded Wrangler and Lee revenue anticipated to increase low-single digits while other non-strategic revenues expected to decline double-digits due to ongoing planned reductions in non-branded VF Outlet and Rock & Republic. The 53rd week is expected to contribute approximately one half of a point to full year revenue.

The company further said that negative impact of 2019 strategic business exits, quality-of-sales initiatives and lower revenue associated with non-strategic lines of business is expected to contribute up to 3 points of headwind to full year 2020 revenue with the majority occurring during the first half of the year. In addition, timing shifts between the second quarter and third quarter shipments are anticipated. Due to these reasons, first half revenue is expected to decline. Revenue is expected to grow in the second half. Adjusted EPS is expected to be in the range of 3.55 dollars to 3.65 dollars compared with full year 2019 adjusted EPS of 3.84 dollars.

Picture:Facebook/Wrangler

 

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