Kontoor Brands, Inc., led by Wrangler and Lee brands divested by VF Corp., posted revenue of $667 million in its first quarter ended April 1, a 2 percent decrease (-1 percent in constant-currency) over the comparable period last year. Revenue increases, primarily driven by strength in domestic wholesale and direct-to-consumer (DTC), were more than offset by decreases in International wholesale, primarily driven by the continued impacts of COVID-policy changes in China.

U.S. revenue was $518 million in Q1, increasing 2 percent over the year-ago period. U.S. wholesale increased 1 percent compared to the first quarter 2022, including strength in digital wholesale which increased 11 percent compared to last year. These gains were augmented by continued strength in DTC, with U.S. own.com revenue increasing 15 percent compared to the same period last year.

International revenue was $149 million in the quarter, a 14 percent decrease (-9 percent in constant-currency) over the year-ago period, driven by softness in wholesale, which was said to be “somewhat offset by strong DTC performance.” International DTC increased 10 percent (+17 percent in constant-currency) compared to the year-ago period. As expected, China decreased 36 percent (-31 percent in constant-currency) compared to the first quarter 2022, driven by impacts in the wholesale channel from the COVID-policy changes. China DTC increased 3 percent (+11 percent in constant-currency) compared to the year-ago period. Europe decreased 7 percent (-1 percent in constant-currency) over the year-ago period, with wholesale pressures more than offsetting gains in DTC. Europe DTC increased 15 percent (+22 percent in constant-currency) compared to the same period last year.

Wrangler brand global revenue was $423 million, a 3 percent increase from the year-ago period. Wrangler U.S. revenue increased 3 percent compared to Q1 last year, driven by increased shipments in U.S. wholesale, reflecting category diversification, including non-denim bottoms, Outdoor and Workwear. Wrangler U.S. DTC increased 16 percent compared to the year-ago period. Wrangler international revenue was flat (+5 percent in constant-currency) compared to the first quarter 2022, with broad-based constant currency gains in wholesale and DTC.

Lee Brand’s global revenue was $241 million, a 9 percent decrease (-7 percent in constant-currency) from the year-ago period. Lee U.S. revenue was flat compared to Q1 last year, with gains in own.com offset by softness in wholesale. Lee U.S. DTC increased 8 percent compared to the year-ago period. Lee international revenue decreased 20 percent (-16 percent in constant-currency) compared to the first quarter 2022, driven primarily by reductions in China wholesale due to the impact of COVID-policy changes.

Gross margin decreased 180 basis points to 43.0 percent of revenue compared to the year-ago period. Kontoor said that “as expected, and as indicated in a prior commentary, higher inflationary pressures on input costs and geographic mix, as well as impacts from proactive actions in managing internal production, including downtime, primarily drove the decline.” The decline was partially offset by strategic pricing and moderating transitory costs such as air freight.

In the first quarter, SG&A expenses were $192 million, or 28.7 percent of revenue, decreasing 20 basis points compared to the year-ago period. As expected, continued strategic investments in DTC were said to be more than offset by lower compensation costs and tight controls of discretionary expenses.

Operating income was $95 million in the first quarter. Operating margin of 14.2 percent decreased 170 basis points compared to the year-ago period. Benefits from tight expense controls, lower compensation costs and strategic pricing were more than offset by higher inflationary pressures on input costs and geographic mix, as well as impacts from proactive actions in managing internal production, including downtime.

EBITDA was $102 million in the first quarter. The EBITDA margin of 15.3 percent decreased by 200 basis points compared to the EBITDA margin during the year-ago period.

Earnings per share were $1.16 in the first quarter, compared to $1.40 in the first quarter last year.

“We delivered first quarter results consistent with our expectations and commentary provided on the fourth quarter earnings call. As anticipated, our brands continued to gain share in the U.S., where POS outpaced shipments in the quarter. Increases domestically were muted by expected softness in International markets. In addition to share gains and positive sell-through, robust performance in our own DTC during the quarter further validates that our brands are connecting with consumers and winning in a challenging marketplace,” said Scott Baxter, president, CEO and chair of Kontoor Brands.

“We continue to assume macroeconomic pressures will weigh on consumer demand in the second half of 2023, particularly in the U.S. However, we believe that our increasingly diversified growth across channels, categories and geographies, enabled by strategic investments in DTC, demand creation and data analytics, will generate more sustained, profitable growth over time; this gives us confidence in reaffirming our 2023 outlook, despite the uneven backdrop. These resilient fundamentals should, when coupled with our solid balance sheet and capital allocation optionality, uniquely position us to yield superior returns for all KTB stakeholders going forward,” added Baxter.

 

Photo courtesy Wrangler