Kontoor Brands Q2 revenues flat but maintains outlook

Second quarter revenue at Kontoor Brands was 616 million dollars, flat compared to the same period in the prior year.

The company said in a release that revenue increases, primarily driven by strength in DTC and international, were tempered by decreases in U.S. wholesale.

“We delivered second quarter results largely consistent with our expectations, with U.S. POS continuing to outpace shipments. Investments in our brands helped drive continued share gains in the core U.S. wholesale business,” said Scott Baxter, president, CEO and chair of Kontoor Brands.

“While we continue to assume macroeconomic pressures will weigh on consumer demand in the second half of 2023, we are seeing shipments better align with POS in the U.S., which gives us confidence that third quarter revenue should deliver outsized growth relative to our full year guidance. Our FY’23 outlook, now on an adjusted basis to exclude restructuring charges, is consistent with our prior outlook,” added Baxter.

Kontoor Brands reports strength in DTC, while wholesale drops

U.S. revenue was 499 million dollars, down 2 percent, while U.S. wholesale decreased 3 percent, with particular softness in seasonal products. These decreases were somewhat offset by continued strength in DTC, with U.S. own.com revenue increasing 13 percent compared to the same period last year.

International revenue was 117 million dollars, a 13 percent increase both reported and in constant currency driven by strength in DTC and wholesale. International DTC increased 23 percent or 25 percent in constant currency. China increased 82 percent or 93 percent in constant currency, driven by strength in both wholesale and DTC. Europe decreased 3 percent or 5 percent in constant currency, with wholesale pressures more than offsetting gains in DTC. Europe DTC increased 12 percent or 10 percent in constant currency.

Wrangler brand global revenue was 425 million dollars, a 2 percent increase from the same period in the prior year. Wrangler U.S. revenue increased 2 percent, driven by U.S. wholesale category diversification including non-denim bottoms, outdoor and tops. Wrangler U.S. own.com increased 8 percent, while Wrangler international revenue decreased 4 percent or 5 percent in constant currency, with gains in DTC more than offset by decreases in wholesale.

Lee brand global revenue was 188 million dollars, a 3 percent decrease, while Lee U.S. revenue decreased 15 percent, with gains in own.com more than offset by decreases in wholesale, with seasonal product particularly soft. Lee U.S. own.com increased 25 percent. Lee international revenue increased 27 percent, driven primarily by increases in the APAC region, including strength in China wholesale and DTC.

Kontoor Brands’ operating performance in Q2

Gross margin for the quarter decreased 290 basis points to 40.6 percent of revenue on a reported basis and decreased 250 basis points to 41 percent of revenue on an adjusted basis.

Operating income was 63 million dollars on a reported basis and 72 million dollars on an adjusted basis in the second quarter. Adjusted operating margin of 11.7 percent decreased 280 basis points.

EBITDA was 69 million dollars on a reported basis and 78 million dollars on an adjusted basis in the second quarter. Adjusted EBITDA margin of 12.7 percent decreased 280 basis points.

Earnings per share were 64 cents on a reported basis and 77 cents on an adjusted basis in the second quarter, compared to 1.09 dollars in the same period last year.

Kontoor Brands maintains FY 2023 outlook

For 2023, the company ‘s revenue is expected to increase at a low-single digit percentage over 2022, consistent with the prior outlook, with second half performance now anticipated to be above first half growth.

During the fourth quarter of 2023, the Company assumes macro consumer demand conditions will be more challenged in the U.S., with the China market more fully reopening. Based on continued U.S. share gains, improving shipments and POS, as well as strong quarter-to-date trends, the company anticipates third quarter revenue to increase at a mid-single digit rate.

Adjusted gross margin is expected to be in the range of 43.5 percent to 44 percent, increasing 40 to 90 basis points compared to gross margin of 43.1 percent in 2022.

Adjusted EPS is expected to be in the range of 4.55 dollars to 4.75 dollars, consistent with prior outlook excluding 13 cents associated with restructuring charges in the second quarter.