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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): August 1, 2024
KONTOOR BRANDS, INC.
(Exact name of registrant as specified in charter)
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| North Carolina | | 001-38854 | | 83-2680248 |
(State or other jurisdiction
of incorporation) | | (Commission file number) | | (I.R.S. employer
identification number) |
400 N. Elm Street
Greensboro, North Carolina 27401
(Address of principal executive offices)
(336) 332-3400
(Registrant’s telephone number, including area code)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Securities registered pursuant to Section 12(b) of the Act:
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| Title of Each Class | | Trading Symbol(s) | | Name of Each Exchange on which Registered |
| Common Stock, no par value | | KTB | | New York Stock Exchange |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Item 2.02. Results of Operations and Financial Condition.
On August 1, 2024, Kontoor Brands, Inc. issued a press release announcing financial results for the second quarter of fiscal 2024. A copy of the press release is furnished as Exhibit 99.1 and incorporated herein by reference.
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits.
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| Exhibit No. | Description | | | |
| Press release issued by Kontoor Brands, Inc., dated August 1, 2024, announcing financial results for the second quarter of fiscal 2024. | | | |
| 104 | Cover Page Interactive Data File - The cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | | | |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
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| KONTOOR BRANDS, INC. | |
| Date: August 1, 2024 | By: | /s/ Joseph A. Alkire | |
| Name: | Joseph A. Alkire | |
| Title: | Executive Vice President and Chief Financial Officer | |
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KONTOOR BRANDS REPORTS 2024 SECOND QUARTER RESULTS; RAISES FULL YEAR OUTLOOK
Second Quarter 2024 Highlights
•Revenue of $607 million decreased 1 percent compared to prior year
•Reported gross margin was 44.7 percent. Adjusted gross margin was 45.2 percent and increased 420 basis points compared to prior year
•Reported EPS was $0.92. Adjusted EPS of $0.98 increased 27 percent compared to prior year
•Inventory decreased 22 percent compared to prior year
•The Company repurchased $25 million of shares and made a $25 million voluntary term loan payment
•The Company’s Board of Directors declared a regular quarterly cash dividend of $0.50 per share
Updated Full Year 2024 Financial Outlook
•Revenue is expected to be in the range of $2.57 to $2.63 billion, representing a decrease of 1 percent to an increase of 1 percent, consistent with the prior outlook
•Adjusted gross margin is now expected to approximate 44.8 percent (44.6 percent prior), representing an increase of 230 basis points compared to the prior year on an adjusted basis, excluding the out-of-period duty charge in that period
•Adjusted operating income is now expected to be at the higher end of the prior range of $377 to $387 million, representing an increase of 10 to 11 percent compared to the prior year on an adjusted basis, excluding the out-of-period duty charge in that period. Adjusted operating income includes $6 million of incremental demand creation investment in both the Wrangler® and Lee® brands compared to the prior outlook
•Adjusted EPS is now expected to approximate $4.80 ($4.70 to $4.80 prior), representing an increase of 8 percent compared to the prior year on an adjusted basis, excluding the out-of-period duty charge in that period. Adjusted EPS includes an $0.08 impact from incremental demand creation investment compared to the prior outlook
•Cash from operations is now expected to exceed $350 million (exceed $335 million prior)
GREENSBORO, N.C. - August 1, 2024 - Kontoor Brands, Inc. (NYSE: KTB), a global lifestyle apparel company, with a portfolio led by two of the world’s most iconic consumer brands, Wrangler® and Lee®, today reported financial results for its second quarter ended June 29, 2024.
“We delivered second quarter results that exceeded our expectations driven by higher revenue, stronger gross margin expansion and cash flow generation,” said Scott Baxter, President, Chief Executive Officer and Chair of Kontoor Brands. “Our fundamentals continue to improve, providing us with significant optionality to drive long-term value while returning more than $100 million to shareholders year-to-date. We are carrying great momentum into the second half of the year and are raising our outlook, including the impact of additional demand creation investments that will support profitable growth for the balance of the year and beyond.”
Second Quarter 2024 Income Statement Review
Revenue was $607 million and decreased 1 percent compared to the prior year. The revenue decline was driven by retailer inventory management actions in the U.S., the anticipated decrease in revenue from seasonal product and lower international revenue, partially offset by growth in direct-to-consumer, as well as an approximate 2-point benefit from the earlier timing of shipments in U.S. wholesale from the third quarter into the second quarter.
U.S. revenue was $496 million and decreased 1 percent compared to the prior year. Growth in direct-to-consumer was more than offset by a 1 percent decline in wholesale revenue due to reduced shipments as retailers tightly managed inventory levels.
International revenue was $111 million, a 6 percent decrease (5 percent decrease in constant currency) compared to the prior year. Europe decreased 5 percent, with 3 percent growth in direct-to-consumer (4 percent growth in constant currency) more than offset by an 8 percent decline in wholesale. Asia decreased 13 percent (10 percent decrease in constant currency), with a 26 percent decrease in wholesale (24 percent decrease in constant currency) partially offset by a 4 percent increase in direct-to-consumer (8 percent increase in constant currency). Non-U.S. Americas increased 2 percent (3 percent increase in constant currency) driven by growth in wholesale. International direct-to-consumer increased 3 percent (5 percent increase in constant currency), with 25 percent growth in digital (28 percent growth in constant currency) partially offset by an 11 percent decrease in owned brick-and-mortar stores (9 percent decrease in constant currency).
Wrangler brand global revenue was $429 million, a 1 percent increase compared to the prior year. Wrangler U.S. revenue was flat, with 10 percent growth in direct-to-consumer offset by a 1 percent decline in wholesale. Wrangler international revenue increased 7 percent, driven by 13 percent growth in direct-to-consumer (14 percent growth in constant currency) and 6 percent growth in wholesale.
Lee brand global revenue was $175 million, a 7 percent decrease (6 percent decrease in constant currency) compared to the prior year. Lee U.S. revenue decreased 3 percent driven by reduced shipments to the wholesale channel and a decline in direct-to-consumer. Lee international revenue decreased 13 percent (11 percent decrease in constant currency) driven by a decline in wholesale, partially offset by growth in direct-to-consumer.
Gross margin increased 410 basis points to 44.7 percent on a reported basis and increased 420 basis points to 45.2 percent on an adjusted basis compared to the prior year. Adjusted gross margin expansion was driven by the benefits from lower product costs, improved product mix and proactive supply chain efficiencies, partially offset by lower pricing.
Selling, General & Administrative (SG&A) expenses were $196 million or 32.3 percent of revenue on a reported basis. On an adjusted basis, SG&A expenses were $195 million, or 32.1 percent of revenue, representing an increase of 8 percent compared to the prior year. Investments in direct-to-consumer and technology were partially offset by lower distribution and freight expense.
Operating income was $75 million on a reported basis. On an adjusted basis, operating income was $80 million and increased 10 percent compared to the prior year. Adjusted operating margin of 13.1 percent increased 140 basis points compared to the prior year.
Earnings per share (EPS) was $0.92 on a reported basis. On an adjusted basis, EPS was $0.98 compared to adjusted EPS of $0.77 in the prior year, representing an increase of 27 percent.
Balance Sheet and Liquidity Review
The Company ended the second quarter with $224 million in cash and cash equivalents, and $750 million in long-term debt.
Inventory at the end of the second quarter was $488 million, down 22 percent compared to the prior year.
As of the end of the second quarter, the Company had no outstanding borrowings under the Revolving Credit Facility and $494 million available for borrowing against this facility. During the second quarter, the Company made a $25 million voluntary payment against its outstanding term loan.
As previously announced, the Company’s Board of Directors declared a regular quarterly cash dividend of $0.50 per share, payable on September 20, 2024, to shareholders of record at the close of business on September 10, 2024.
Consistent with a commitment to return cash to shareholders, the Company repurchased $25 million of common stock during the second quarter. When combined with the strong dividend, the Company returned a total of $53 million to shareholders during the second quarter and $101 million year-to-date. The Company has $255 million remaining under its authorized share repurchase program.
Updated 2024 Outlook
“We are raising our full year outlook driven by better-than-expected second quarter results and increased confidence in the balance of the year,” said Scott Baxter, President, Chief Executive Officer and Chair of Kontoor Brands. “To fuel our momentum, we are making incremental investments in both brands starting in the third quarter to support accelerating revenue, expanding distribution and category growth, as well as continued market share gains. While we will continue to manage the business conservatively in light of the uncertain environment, in the second half of the year we expect accelerating revenue growth, double-digit operating earnings growth, and significant cash generation.”
The Company’s updated 2024 outlook includes the following:
•Revenue is expected to be in the range of $2.57 to $2.63 billion, reflecting a decrease of 1 percent to an increase of 1 percent compared to the prior year, consistent with the prior outlook. The Company continues to expect market share gains, growth from channel and category expansion, and expanded distribution to be offset by conservative retailer inventory management and macroeconomic pressures on consumer spending around the globe.
The Company continues to expect second half revenue to increase at a mid-single digit rate compared to the prior year, excluding the approximate 2-point impact from the earlier timing of shipments from the third quarter into the second quarter. In the third quarter, the Company expects revenue of approximately $660 million, reflecting growth of 1 percent. The Company expects mid-single digit revenue growth in the fourth quarter.
•Adjusted gross margin is now expected to approximate 44.8 percent, representing an increase of 230 basis points compared to adjusted gross margin in the prior year, excluding the out-of-period duty expense in that period. This compares to the prior outlook of approximately 44.6 percent. Gross margin expansion is driven by the benefits of favorable mix, lower product costs and proactive supply chain efficiencies.
In the third quarter, the Company expects adjusted gross margin of approximately 44.3 percent, representing an increase of approximately 100 basis points compared to the prior year, excluding the out-of-period duty expense in that period. The Company expects fourth quarter adjusted gross margin to approximate 44.3 percent, representing an increase of approximately 120 basis points compared to prior year adjusted gross margin, excluding the out-of-period duty expense in that period.
•Adjusted SG&A is expected to increase approximately 4 percent compared to adjusted SG&A in the prior year, including an incremental $6 million demand creation investment compared with the prior outlook. The Company will continue to invest in its brands and capabilities in support of long-term profitable growth, including demand creation, direct-to-consumer and international expansion.
•Adjusted operating income is now expected to be at the higher end of the prior range of $377 to $387 million, including an incremental $6 million demand creation investment, reflecting an increase of between 10 and 11 percent compared to adjusted operating income in the prior year, excluding the out-of-period duty expense in that period.
The Company expects adjusted operating income of approximately $210 million in the second half of the year, including an incremental $5 million of demand creation investment, representing a double-digit increase compared to adjusted operating income in the prior year, excluding the out-of-period duty expense in that period.
•Adjusted EPS is now expected to approximate $4.80 compared to the prior outlook of $4.70 to $4.80, including an incremental $0.08 impact from demand creation investment compared with the prior outlook. Excluding the out-of-period duty expense in the prior year, adjusted EPS is now expected to increase 8 percent compared to the prior outlook of a 6 to 8 percent increase.
Full year 2024 adjusted EPS includes an approximate 5-percentage point headwind from a higher tax rate, including a 12-percentage point headwind in the second half of the year.
In the third quarter, the Company expects adjusted EPS of approximately $1.25.
•Capital Expenditures are now expected to be approximately $35 million.
•For the full year, the Company expects an effective tax rate of approximately 20 percent. Interest expense is expected to approximate $35 million. Other Expense is expected to be in the range of $12 million to $14 million. Average shares outstanding are expected to be approximately 57 million, excluding the impact of any future share repurchases.
•The Company now expects cash flow from operations to exceed $350 million driven by the combination of accelerated earnings growth and a continued normalization of inventory. This compares to the prior outlook of cash flow from operations to exceed $335 million.
•The Company’s outlook does not yet reflect the anticipated impact of Project Jeanius.
This release refers to “adjusted” amounts from 2024 and 2023 and “constant currency” amounts, which are further described in the Non-GAAP Financial Measures section below. Unless otherwise noted, “reported” and “constant currency” amounts are the same. As previously disclosed, full year 2023 results included a $14 million duty charge related to prior years. All per share amounts are presented on a diluted basis. Amounts as presented herein may not recalculate due to the use of unrounded numbers.
Webcast Information
Kontoor Brands will host its second quarter 2024 conference call beginning at 8:30 a.m. Eastern Time today, August 1, 2024. The conference will be broadcast live via the Internet, accessible at https://www.kontoorbrands.com/investors. For those unable to listen to the live broadcast, an archived version will be available at the same location.
Non-GAAP Financial Measures
Adjusted Amounts - This release refers to “adjusted” amounts. Adjustments during 2024 represent charges related to business optimization activities and actions to streamline and transfer select production within our internal manufacturing network. Adjustments during 2023 represent charges related to strategic actions taken by the Company to drive efficiencies in our operations, which included reducing our global workforce, streamlining and transferring select production within our internal manufacturing network and globalizing our operating model. Additional information regarding adjusted amounts is provided in notes to the supplemental financial information included with this release.
Constant Currency - This release refers to “reported” amounts in accordance with GAAP, which include translation and transactional impacts from changes in foreign currency exchange rates. This release also refers to “constant currency” amounts, which exclude the translation impact of changes in foreign currency exchange rates.
Reconciliations of these non-GAAP measures to the most comparable GAAP measures are presented in the supplemental financial information included with this release that identifies and quantifies all reconciling adjustments and provides management's view of why this non-GAAP information is useful to investors. While management believes that these non-GAAP measures are useful in evaluating the business, this information should be viewed in addition to, and not as an alternate for, reported results under GAAP. The non-GAAP measures used by the Company in this release may be different from similarly titled measures used by other companies.
For forward-looking non-GAAP measures included in this filing, the Company does not provide a reconciliation to the most comparable GAAP financial measures because the information needed to reconcile these measures is unavailable due to the inherent difficulty of forecasting the timing and/or amount of various items that have not yet occurred and have been excluded from adjusted measures. Additionally, estimating such GAAP measures and providing a meaningful reconciliation consistent with the Company’s accounting policies for future periods requires a level of precision that is unavailable for these future periods and cannot be accomplished without unreasonable effort.
About Kontoor Brands
Kontoor Brands, Inc. (NYSE: KTB) is a global lifestyle apparel company, with a portfolio led by two of the world’s most iconic consumer brands: Wrangler® and Lee®. Kontoor designs, manufactures, distributes, and licenses superior high-quality products that look good and fit right, giving people around the world the freedom and confidence to express themselves. Kontoor Brands is a purpose-led organization focused on leveraging its global platform, strategic sourcing model and best-in-class supply chain to drive brand growth and deliver long-term value for its stakeholders. For more information about Kontoor Brands, please visit www.KontoorBrands.com.
Forward-Looking Statements
Certain statements included in this release and attachments are "forward-looking statements" within the meaning of the federal securities laws. Forward-looking statements are made based on our expectations and beliefs concerning future events impacting the Company and therefore involve several risks and uncertainties. You can identify these statements by the fact that they use words such as “will,” “anticipate,” “estimate,” “expect,” “should,” “may” and other words and terms of similar meaning or use of future dates. We caution that forward-looking statements are not guarantees and that actual results could differ materially from those expressed or implied in the forward-looking statements. We do not intend to update any of these forward-looking statements or publicly announce the results of any revisions to these forward-looking statements, other than as required under the U.S. federal securities laws. Potential risks and uncertainties that could cause the actual results of operations or financial condition of the Company to differ materially from those expressed or implied by forward-looking statements in
this release include, but are not limited to: macroeconomic conditions, including elevated interest rates, inflation, recessionary concerns and fluctuating foreign currency exchange rates, as well as continuing global supply chain issues and geopolitical events, continue to adversely impact global economic conditions and have had, and may continue to have, a negative impact on the Company’s business, results of operations, financial condition and cash flows (including future uncertain impacts); the level of consumer demand for apparel; reliance on a small number of large customers; supply chain and shipping disruptions, which could continue to result in shipping delays, an increase in transportation costs and increased product costs or lost sales; intense industry competition; the ability to accurately forecast demand for products; the Company’s ability to gauge consumer preferences and product trends, and to respond to constantly changing markets; the Company’s ability to maintain the images of its brands; increasing pressure on margins; e-commerce operations through the Company’s direct-to-consumer business; the financial difficulty experienced by the retail industry; possible goodwill and other asset impairment; the ability to implement the Company’s business strategy; the stability of manufacturing facilities and foreign suppliers; fluctuations in wage rates and the price, availability and quality of raw materials and contracted products; the reliance on a limited number of suppliers for raw material sourcing and the ability to obtain raw materials on a timely basis or in sufficient quantity or quality; disruption to distribution systems; seasonality; unseasonal or severe weather conditions; the Company's and its vendors’ ability to maintain the strength and security of information technology systems; the risk that facilities and systems and those of third-party service providers may be vulnerable to and unable to anticipate or detect data security breaches and data or financial loss or maintain operational performance; ability to properly collect, use, manage and secure consumer and employee data; disruption and volatility in the global capital and credit markets and its impact on the Company's ability to obtain short-term or long-term financing on favorable terms; legal, regulatory, political and economic risks; changes to trade policy, including tariff and import/export regulations; the impact of climate change and related legislative and regulatory responses; compliance with anti-bribery, anti-corruption and anti-money laundering laws by the Company and third-party suppliers and manufacturers; changes in tax laws and liabilities; the costs of compliance with or the violation of national, state and local laws and regulations for environmental, consumer protection, employment, privacy, safety and other matters; continuity of members of management; labor relations; the ability to protect trademarks and other intellectual property rights; the ability of the Company’s licensees to generate expected sales and maintain the value of the Company’s brands; the Company maintaining satisfactory credit ratings; restrictions on the Company’s business relating to its debt obligations; volatility in the price and trading volume of the Company’s common stock; anti-takeover provisions in the Company’s organizational documents; and fluctuations in the amount and frequency of our share repurchases. Many of the foregoing risks and uncertainties will be exacerbated by any worsening of the global business and economic environment.
More information on potential factors that could affect the Company's financial results are described in detail in the Company’s most recent Annual Report on Form 10-K and in other reports and statements that the Company files with the SEC.
Contacts
Investors:
Michael Karapetian, (336) 332-4263
Vice President, Corporate Development, Strategy, and Investor Relations
Michael.Karapetian@kontoorbrands.com
or
Media:
Julia Burge, (336) 332-5122
Director, External Communications
Julia.Burge@kontoorbrands.com
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KONTOOR BRANDS, INC.
Condensed Consolidated Statements of Operations
(Unaudited)
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| | Three Months Ended June | | % | | Six Months Ended June | | % |
| (Dollars and shares in thousands, except per share amounts) | | 2024 | | 2023 | | Change | | 2024 | | 2023 | | Change |
| Net revenues | | $ | 606,898 | | | $ | 616,009 | | | (1)% | | $ | 1,238,100 | | | $ | 1,283,132 | | | (4)% |
| Costs and operating expenses | | | | | | | | | | | | |
| Cost of goods sold | | 335,538 | | | 365,748 | | | (8)% | | 681,596 | | | 746,170 | | | (9)% |
| Selling, general and administrative expenses | | 196,117 | | | 186,864 | | | 5% | | 396,831 | | | 378,616 | | | 5% |
| Total costs and operating expenses | | 531,655 | | | 552,612 | | | (4)% | | 1,078,427 | | | 1,124,786 | | | (4)% |
| Operating income | | 75,243 | | | 63,397 | | | 19% | | 159,673 | | | 158,346 | | | 1% |
| Interest expense | | (10,382) | | | (9,663) | | | 7% | | (19,674) | | | (19,936) | | | (1)% |
| Interest income | | 2,616 | | | 691 | | | 279% | | 5,041 | | | 1,110 | | | 354% |
| Other expense, net | | (3,021) | | | (3,152) | | | (4)% | | (5,904) | | | (5,378) | | | 10% |
| Income before income taxes | | 64,456 | | | 51,273 | | | 26% | | 139,136 | | | 134,142 | | | 4% |
| Income taxes | | 12,687 | | | 14,877 | | | (15)% | | 27,860 | | | 31,450 | | | (11)% |
| Net income | | $ | 51,769 | | | $ | 36,396 | | | 42% | | $ | 111,276 | | | $ | 102,692 | | | 8% |
| Earnings per common share | | | | | | | | | | | | |
| Basic | | $ | 0.93 | | | $ | 0.65 | | | | | $ | 2.00 | | | $ | 1.84 | | | |
| Diluted | | $ | 0.92 | | | $ | 0.64 | | | | | $ | 1.97 | | | $ | 1.80 | | | |
| Weighted average shares outstanding | | | | | | | | | | | | |
| Basic | | 55,810 | | | 56,089 | | | | | 55,772 | | | 55,868 | | | |
| Diluted | | 56,456 | | | 56,846 | | | | | 56,597 | | | 56,893 | | | |
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Basis of presentation for all financial tables within this release: The Company operates and reports using a 52/53-week fiscal year ending on the Saturday closest to December 31 each year. For presentation purposes herein, all references to periods ended June 2024 and June 2023 correspond to the 13-week and 26-week fiscal periods ended June 29, 2024 and July 1, 2023, respectively. References to June 2024, December 2023 and June 2023 relate to the balance sheets as of June 29, 2024, December 30, 2023 and July 1, 2023, respectively. Amounts herein may not recalculate due to the use of unrounded numbers.
KONTOOR BRANDS, INC.
Condensed Consolidated Balance Sheets
(Unaudited)
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| (In thousands) | | June 2024 | | December 2023 | | June 2023 |
| ASSETS | | | | | | |
| Current assets | | | | | | |
| Cash and cash equivalents | | $ | 224,296 | | | $ | 215,050 | | | $ | 82,418 | |
| Accounts receivable, net | | 205,019 | | | 217,673 | | | 186,024 | |
| Inventories | | 488,340 | | | 500,353 | | | 626,885 | |
| Prepaid expenses and other current assets | | 104,357 | | | 110,808 | | | 114,345 | |
| Total current assets | | 1,022,012 | | | 1,043,884 | | | 1,009,672 | |
| Property, plant and equipment, net | | 108,150 | | | 112,045 | | | 106,878 | |
| Operating lease assets | | 55,850 | | | 54,812 | | | 65,388 | |
| Intangible assets, net | | 11,854 | | | 12,497 | | | 12,941 | |
| Goodwill | | 209,493 | | | 209,862 | | | 209,969 | |
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| Other assets | | 205,080 | | | 212,339 | | | 203,469 | |
| TOTAL ASSETS | | $ | 1,612,439 | | | $ | 1,645,439 | | | $ | 1,608,317 | |
| LIABILITIES AND EQUITY | | | | | | |
| Current liabilities | | | | | | |
| Short-term borrowings | | $ | — | | | $ | — | | | $ | 62 | |
| Current portion of long-term debt | | — | | | 20,000 | | | 15,000 | |
| Accounts payable | | 196,460 | | | 180,220 | | | 195,282 | |
| Accrued and other current liabilities | | 153,903 | | | 171,414 | | | 156,766 | |
| Operating lease liabilities, current | | 22,714 | | | 21,003 | | | 21,899 | |
| Total current liabilities | | 373,077 | | | 392,637 | | | 389,009 | |
| Operating lease liabilities, noncurrent | | 35,911 | | | 36,753 | | | 42,044 | |
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| Other liabilities | | 86,646 | | | 80,215 | | | 80,743 | |
| Long-term debt | | 749,654 | | | 763,921 | | | 773,270 | |
| Total liabilities | | 1,245,288 | | | 1,273,526 | | | 1,285,066 | |
| Commitments and contingencies | | | | | | |
| Total equity | | 367,151 | | | 371,913 | | | 323,251 | |
| TOTAL LIABILITIES AND EQUITY | | $ | 1,612,439 | | | $ | 1,645,439 | | | $ | 1,608,317 | |
KONTOOR BRANDS, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
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| | | | Six Months Ended June |
| (In thousands) | | | | 2024 | | 2023 |
| OPERATING ACTIVITIES | | | | | | |
| Net income | | | | $ | 111,276 | | | $ | 102,692 | |
| Adjustments to reconcile net income to cash provided by operating activities: | | | | | | |
| Depreciation and amortization | | | | 19,530 | | | 18,219 | |
| Stock-based compensation | | | | 13,669 | | | 7,023 | |
| Other, including working capital changes | | | | 8,196 | | | (16,258) | |
| Cash provided by operating activities | | | | 152,671 | | | 111,676 | |
| INVESTING ACTIVITIES | | | | | | |
| Property, plant and equipment expenditures | | | | (8,122) | | | (13,277) | |
| Capitalized computer software | | | | (2,045) | | | (6,756) | |
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| Other | | | | (1,265) | | | (10) | |
| Cash used by investing activities | | | | (11,432) | | | (20,043) | |
| FINANCING ACTIVITIES | | | | | | |
| Borrowings under revolving credit facility | | | | — | | | 268,000 | |
| Repayments under revolving credit facility | | | | — | | | (268,000) | |
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| Repayments of term loan | | | | (35,000) | | | (5,000) | |
| Repurchases of Common Stock | | | | (45,271) | | | — | |
| Dividends paid | | | | (55,732) | | | (53,756) | |
| Shares withheld for taxes, net of proceeds from issuance of Common Stock | | | | (1,037) | | | (3,057) | |
| Other | | | | — | | | (7,236) | |
| Cash used by financing activities | | | | (137,040) | | | (69,049) | |
| Effect of foreign currency rate changes on cash and cash equivalents | | | | 5,047 | | | 655 | |
| Net change in cash and cash equivalents | | | | 9,246 | | | 23,239 | |
| Cash and cash equivalents – beginning of period | | | | 215,050 | | | 59,179 | |
| Cash and cash equivalents – end of period | | | | $ | 224,296 | | | $ | 82,418 | |
KONTOOR BRANDS, INC.
Supplemental Financial Information
Business Segment Information
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June | | % Change | | % Change Constant Currency (a) |
| (Dollars in thousands) | | 2024 | | 2023 | | |
| Segment revenues: | | | | | | | | |
| Wrangler | | $ | 429,245 | | | $ | 425,485 | | | 1% | | 1% |
| Lee | | 175,299 | | | 188,008 | | | (7)% | | (6)% |
| Total reportable segment revenues | | 604,544 | | | 613,493 | | | (1)% | | (1)% |
Other revenues (b) | | 2,354 | | | 2,516 | | | (6)% | | (6)% |
| Total net revenues | | $ | 606,898 | | | $ | 616,009 | | | (1)% | | (1)% |
| Segment profit: | | | | | | | | |
| Wrangler | | $ | 88,339 | | | $ | 70,976 | | | 24% | | 24% |
| Lee | | 13,367 | | | 17,165 | | | (22)% | | (21)% |
| Total reportable segment profit | | $ | 101,706 | | | $ | 88,141 | | | 15% | | 16% |
| Corporate and other expenses | | (28,378) | | | (27,660) | | | 3% | | 3% |
| Interest expense | | (10,382) | | | (9,663) | | | 7% | | 7% |
| Interest income | | 2,616 | | | 691 | | | 279% | | 270% |
Loss related to other revenues (b) | | (1,106) | | | (236) | | | * | | * |
| Income before income taxes | | $ | 64,456 | | | $ | 51,273 | | | 26% | | 26% |
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| | Six Months Ended June | | % Change | | % Change Constant Currency (a) |
| (Dollars in thousands) | | 2024 | | 2023 | | |
| Segment revenues: | | | | | | | | |
| Wrangler | | $ | 838,739 | | | $ | 848,632 | | | (1)% | | (1)% |
| Lee | | 394,742 | | | 428,657 | | | (8)% | | (8)% |
| Total reportable segment revenues | | 1,233,481 | | | 1,277,289 | | | (3)% | | (3)% |
Other revenues (b) | | 4,619 | | | 5,843 | | | (21)% | | (21)% |
| Total net revenues | | $ | 1,238,100 | | | $ | 1,283,132 | | | (4)% | | (4)% |
| Segment profit: | | | | | | | | |
| Wrangler | | $ | 163,005 | | | $ | 142,083 | | | 15% | | 14% |
| Lee | | 48,461 | | | 56,738 | | | (15)% | | (14)% |
| Total reportable segment profit | | $ | 211,466 | | | $ | 198,821 | | | 6% | | 6% |
| Corporate and other expenses | | (56,438) | | | (45,724) | | | 23% | | 24% |
| Interest expense | | (19,674) | | | (19,936) | | | (1)% | | (1)% |
| Interest income | | 5,041 | | | 1,110 | | | 354% | | 351% |
Loss related to other revenues (b) | | (1,259) | | | (129) | | | * | | * |
| Income before income taxes | | $ | 139,136 | | | $ | 134,142 | | | 4% | | 3% |
(a) Refer to constant currency definition on the following pages.
(b) We report an "Other" category to reconcile segment revenues and segment profit to the Company's operating results, but the Other category does not meet the criteria to be considered a reportable segment. Other includes sales and licensing of Rock & Republic®, other company-owned brands and private label apparel.
* Calculation not meaningful.
KONTOOR BRANDS, INC.
Supplemental Financial Information
Business Segment Information – Constant Currency Basis (Non-GAAP)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 2024 |
| | As Reported | | Adjust for Foreign | | |
| (In thousands) | | under GAAP | | Currency Exchange | | Constant Currency |
| Segment revenues: | | | | | | |
| Wrangler | | $ | 429,245 | | | $ | 173 | | | $ | 429,418 | |
| Lee | | 175,299 | | | 920 | | | 176,219 | |
| Total reportable segment revenues | | 604,544 | | | 1,093 | | | 605,637 | |
| Other revenues | | 2,354 | | | — | | | 2,354 | |
| Total net revenues | | $ | 606,898 | | | $ | 1,093 | | | $ | 607,991 | |
| Segment profit: | | | | | | |
| Wrangler | | $ | 88,339 | | | $ | (13) | | | $ | 88,326 | |
| Lee | | 13,367 | | | 145 | | | 13,512 | |
| Total reportable segment profit | | $ | 101,706 | | | $ | 132 | | | $ | 101,838 | |
| Corporate and other expenses | | (28,378) | | | (41) | | | (28,419) | |
| Interest expense | | (10,382) | | | — | | | (10,382) | |
| Interest income | | 2,616 | | | (58) | | | 2,558 | |
| Loss related to other revenues | | (1,106) | | | — | | | (1,106) | |
| Income before income taxes | | $ | 64,456 | | | $ | 33 | | | $ | 64,489 | |
| | | | | | |
| | Six Months Ended June 2024 |
| | As Reported | | Adjust for Foreign | | |
| (In thousands) | | under GAAP | | Currency Exchange | | Constant Currency |
| Segment revenues: | | | | | | |
| Wrangler | | $ | 838,739 | | | $ | (1,421) | | | $ | 837,318 | |
| Lee | | 394,742 | | | 585 | | | 395,327 | |
| Total reportable segment revenues | | 1,233,481 | | | (836) | | | 1,232,645 | |
| Other revenues | | 4,619 | | | — | | | 4,619 | |
| Total net revenues | | $ | 1,238,100 | | | $ | (836) | | | $ | 1,237,264 | |
| Segment profit: | | | | | | |
| Wrangler | | $ | 163,005 | | | $ | (520) | | | $ | 162,485 | |
| Lee | | 48,461 | | | 173 | | | 48,634 | |
| Total reportable segment profit | | $ | 211,466 | | | $ | (347) | | | $ | 211,119 | |
| Corporate and other expenses | | (56,438) | | | (90) | | | (56,528) | |
| Interest expense | | (19,674) | | | — | | | (19,674) | |
| Interest income | | 5,041 | | | (36) | | | 5,005 | |
| Loss related to other revenues | | (1,259) | | | — | | | (1,259) | |
| Income before income taxes | | $ | 139,136 | | | $ | (473) | | | $ | 138,663 | |
| | | | | | |
Constant Currency Financial Information
The Company is a global company that reports financial information in U.S. dollars in accordance with GAAP. Foreign currency exchange rate fluctuations affect the amounts reported by the Company from translating its foreign revenues and expenses into U.S. dollars. These rate fluctuations can have a significant effect on reported operating results. As a supplement to our reported operating results, we present constant currency financial information, which is a non-GAAP financial measure that excludes the impact of translating foreign currencies into U.S. dollars. We use constant currency information to provide a framework to assess how our business performed excluding the effects of changes in the rates used to calculate foreign currency translation. Management believes this information is useful to investors to facilitate comparison of operating results and better identify trends in our businesses.
To calculate foreign currency translation on a constant currency basis, operating results for the current year period for entities reporting in currencies other than the U.S. dollar are translated into U.S. dollars at the average exchange rates in effect during the comparable period of the prior year (rather than the actual exchange rates in effect during the current year period).
These constant currency performance measures should be viewed in addition to, and not as an alternative for, reported results under GAAP. The constant currency information presented may not be comparable to similarly titled measures reported by other companies.
KONTOOR BRANDS, INC.
Supplemental Financial Information
Reconciliation of Adjusted Financial Measures - Quarter-to-Date (Non-GAAP)
(Unaudited)
| | | | | | | | | | | | | | | | |
| | Three Months Ended June | | |
| (Dollars in thousands, except per share amounts) | | 2024 | | 2023 | | |
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| Cost of goods sold - as reported under GAAP | | $ | 335,538 | | | $ | 365,748 | | | |
Restructuring and transformation costs (a) | | (3,173) | | | (2,354) | | | |
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| Adjusted cost of goods sold | | $ | 332,365 | | | $ | 363,394 | | | |
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| Selling, general and administrative expenses - as reported under GAAP | | $ | 196,117 | | | $ | 186,864 | | | |
Restructuring and transformation costs (a) | | (1,290) | | | (6,439) | | | |
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| Adjusted selling, general and administrative expenses | | $ | 194,827 | | | $ | 180,425 | | | |
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| Diluted earnings per share - as reported under GAAP | | $ | 0.92 | | | $ | 0.64 | | | |
Restructuring and transformation costs (a) | | 0.06 | | | 0.13 | | | |
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| Adjusted diluted earnings per share | | $ | 0.98 | | | $ | 0.77 | | | |
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| Net income - as reported under GAAP | | $ | 51,769 | | | $ | 36,396 | | | |
| Income taxes | | 12,687 | | | 14,877 | | | |
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| Interest expense | | 10,382 | | | 9,663 | | | |
| Interest income | | (2,616) | | | (691) | | | |
| EBIT | | $ | 72,222 | | | $ | 60,245 | | | |
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| Depreciation and amortization | | 10,025 | | | 9,092 | | | |
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| EBITDA | | $ | 82,247 | | | $ | 69,337 | | | |
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Restructuring and transformation costs (a) | | 4,463 | | | 8,793 | | | |
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| Adjusted EBITDA | | $ | 86,710 | | | $ | 78,130 | | | |
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| As a percentage of total net revenues | | 14.3 | % | | 12.7 | % | | |
Non-GAAP Financial Information: The financial information above has been presented on a GAAP basis and on an adjusted basis. EBIT, EBITDA and adjusted presentations are non-GAAP measures. See “Notes to Supplemental Financial Information - Reconciliation of Adjusted Financial Measures" at the end of this document. Amounts herein may not recalculate due to the use of unrounded numbers.
(a) See Note 1 of “Notes to Supplemental Financial Information - Reconciliation of Adjusted Financial Measures" at the end of this document.
KONTOOR BRANDS, INC.
Supplemental Financial Information
Summary of Select GAAP and Non-GAAP Measures
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June |
| | 2024 | | 2023 | | |
| (Dollars in thousands, except per share amounts) | | GAAP | | Adjusted | | GAAP | | Adjusted | | | | |
| | | | | | | | | | | | |
| Net revenues | | $ | 606,898 | | | $ | 606,898 | | | $ | 616,009 | | | $ | 616,009 | | | | | |
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| Gross margin | | $ | 271,360 | | | $ | 274,533 | | | $ | 250,261 | | | $ | 252,615 | | | | | |
| As a percentage of total net revenues | | 44.7 | % | | 45.2 | % | | 40.6 | % | | 41.0 | % | | | | |
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| Selling, general and administrative expenses | | $ | 196,117 | | | $ | 194,827 | | | $ | 186,864 | | | $ | 180,425 | | | | | |
| As a percentage of total net revenues | | 32.3 | % | | 32.1 | % | | 30.3 | % | | 29.3 | % | | | | |
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| Operating income | | $ | 75,243 | | | $ | 79,706 | | | $ | 63,397 | | | $ | 72,190 | | | | | |
| As a percentage of total net revenues | | 12.4 | % | | 13.1 | % | | 10.3 | % | | 11.7 | % | | | | |
| Earnings per share - diluted | | $ | 0.92 | | | $ | 0.98 | | | $ | 0.64 | | | $ | 0.77 | | | | | |
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Non-GAAP Financial Information: The financial information above has been presented on a GAAP basis and on an adjusted basis. These adjusted presentations are non-GAAP measures. See “Notes to Supplemental Financial Information - Reconciliation of Adjusted Financial Measures" at the end of this document.
KONTOOR BRANDS, INC.
Supplemental Financial Information
Disaggregation of Revenue
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 2024 |
| | Revenues - As Reported |
| | | | | | | | |
| (In thousands) | | Wrangler | | Lee | | Other | | Total |
| Channel revenues | | | | | | | | |
| U.S. Wholesale | | $ | 353,376 | | | $ | 96,613 | | | $ | 2,162 | | | $ | 452,151 | |
| Non-U.S. Wholesale | | 40,294 | | | 41,662 | | | — | | | 81,956 | |
| Direct-to-Consumer | | 35,575 | | | 37,024 | | | 192 | | | 72,791 | |
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| Total | | $ | 429,245 | | | $ | 175,299 | | | $ | 2,354 | | | $ | 606,898 | |
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| Geographic revenues | | | | | | | | |
| U.S. | | $ | 382,977 | | | $ | 110,899 | | | $ | 2,354 | | | $ | 496,230 | |
| International | | 46,268 | | | 64,400 | | | — | | | 110,668 | |
| Total | | $ | 429,245 | | | $ | 175,299 | | | $ | 2,354 | | | $ | 606,898 | |
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| | Three Months Ended June 2023 |
| | Revenues - As Reported |
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| (In thousands) | | Wrangler | | Lee | | Other | | Total |
| Channel revenues | | | | | | | | |
| U.S. Wholesale | | $ | 355,207 | | | $ | 98,218 | | | $ | 2,366 | | | $ | 455,791 | |
| Non-U.S. Wholesale | | 38,104 | | | 51,232 | | | — | | | 89,336 | |
| Direct-to-Consumer | | 32,174 | | | 38,558 | | | 150 | | | 70,882 | |
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| Total | | $ | 425,485 | | | $ | 188,008 | | | $ | 2,516 | | | $ | 616,009 | |
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| Geographic revenues | | | | | | | | |
| U.S. | | $ | 382,111 | | | $ | 114,248 | | | $ | 2,516 | | | $ | 498,875 | |
| International | | 43,374 | | | 73,760 | | | — | | | 117,134 | |
| Total | | $ | 425,485 | | | $ | 188,008 | | | $ | 2,516 | | | $ | 616,009 | |
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KONTOOR BRANDS, INC.
Supplemental Financial Information
Summary of Select Revenue Information
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June | | | | | | | | | | | | |
| | 2024 | | 2023 | | | | 2024 to 2023 | | |
| (Dollars in thousands) | | As Reported under GAAP | | | | | | % Change Reported | | % Change Constant Currency | | | | |
| Wrangler U.S. | | $ | 382,977 | | | $ | 382,111 | | | | | | | —% | | —% | | | | |
| Lee U.S. | | 110,899 | | | 114,248 | | | | | | | (3)% | | (3)% | | | | |
| Other | | 2,354 | | | 2,516 | | | | | | | (6)% | | (6)% | | | | |
| Total U.S. revenues | | $ | 496,230 | | | $ | 498,875 | | | | | | | (1)% | | (1)% | | | | |
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| Wrangler International | | $ | 46,268 | | | $ | 43,374 | | | | | | | 7% | | 7% | | | | |
| Lee International | | 64,400 | | | 73,760 | | | | | | | (13)% | | (11)% | | | | |
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| Total International revenues | | $ | 110,668 | | | $ | 117,134 | | | | | | | (6)% | | (5)% | | | | |
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| Global Wrangler | | $ | 429,245 | | | $ | 425,485 | | | | | | | 1% | | 1% | | | | |
| Global Lee | | 175,299 | | | 188,008 | | | | | | | (7)% | | (6)% | | | | |
| Global Other | | 2,354 | | | 2,516 | | | | | | | (6)% | | (6)% | | | | |
| Total revenues | | $ | 606,898 | | | $ | 616,009 | | | | | | | (1)% | | (1)% | | | | |
Non-GAAP Financial Information: The financial information above has been presented on a GAAP basis and on a constant currency basis, which is a non-GAAP financial measure. See “Business Segment Information – Constant Currency Basis (Non-GAAP)" for additional information on constant currency financial calculations.
KONTOOR BRANDS, INC.
Supplemental Financial Information
Adjusted Return on Invested Capital (Non-GAAP)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | |
(Dollars in thousands) | | Trailing Twelve Months Ended June | | |
| Numerator | | 2024 | | 2023 | | |
| Net Income | | $ | 239,578 | | | $ | 205,380 | | | |
| Plus: Income taxes | | 37,315 | | | 69,392 | | | |
| Plus: Interest income (expense), net | | 32,424 | | | 36,901 | | | |
| EBIT | | $ | 309,317 | | | $ | 311,673 | | | |
Plus: Restructuring and transformation costs (a) | | 18,392 | | | 21,419 | | | |
Plus: Operating lease interest (b) | | 1,205 | | | 990 | | | |
| Adjusted EBIT | | $ | 328,914 | | | $ | 334,082 | | | |
Adjusted effective income tax rate (c) | | 14 | % | | 25 | % | | |
| Adjusted net operating profit after taxes | | $ | 282,212 | | | $ | 251,338 | | | |
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| Denominator | | June 2024 | | June 2023 | | June 2022 |
| Equity | | $ | 367,151 | | | $ | 323,251 | | | $ | 179,189 | |
| Plus: Current portion of long-term debt and other borrowings | | — | | | 15,062 | | | 9,848 | |
| Plus: Noncurrent portion of long-term debt | | 749,654 | | | 773,270 | | | 786,968 | |
Plus: Operating lease liabilities (d) | | 58,625 | | | 63,943 | | | 45,386 | |
| Less: Cash and cash equivalents | | (224,296) | | | (82,418) | | | (145,296) | |
| Invested capital | | $ | 951,134 | | | $ | 1,093,108 | | | $ | 876,095 | |
Average invested capital (e) | | $ | 1,022,121 | | | $ | 984,602 | | | |
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Net income to average debt and equity (f) | | 21.5 | % | | 19.7 | % | | |
| Adjusted return on invested capital | | 27.6 | % | | 25.5 | % | | |
Non-GAAP Financial Information: Adjusted return on invested capital ("ROIC") is a non-GAAP measure. We believe this metric is useful in assessing the effectiveness of our capital allocation over time. ROIC may be different from similarly titled measures used by other companies. Amounts herein may not recalculate due to the use of unrounded numbers.
(a) See Note 2 of “Notes to Supplemental Financial Information - Reconciliation of Adjusted Financial Measures" at the end of this document.
(b) Operating lease interest is based upon the discount rate for each lease and recorded as a component of rent expense within "Selling, general and administrative expenses" in the Company's statements of operations. The adjustment for operating lease interest represents the add-back to earnings before interest and taxes ("EBIT") based upon the assumption that properties under our operating leases were owned or accounted for as finance leases. Operating lease interest is added back to EBIT in the adjusted ROIC calculation to account for differences in capital structure between us and other companies.
(c) Effective income tax rate adjusted for restructuring and transformation costs and the corresponding tax impact. See Note 2 of “Notes to Supplemental Financial Information - Reconciliation of Adjusted Financial Measures" at the end of this document.
(d) Total of "Operating lease liabilities, current" and "Operating lease liabilities, noncurrent" in the Company's balance sheets.
(e) The average is based on the "Invested capital" at the end of the current period and at the end of the comparable prior period.
(f) Calculated as "Net income" divided by average "Debt" and "Equity." "Debt" includes the current and noncurrent portion of long-term debt as well as other short-term borrowings. The average is based on the subtotal of "Debt" and "Equity" at the end of the current period and at the end of the comparable prior period.
KONTOOR BRANDS, INC.
Supplemental Financial Information
Reconciliation of Adjusted Financial Measures - Notes (Non-GAAP)
(Unaudited)
Notes to Supplemental Financial Information - Reconciliation of Adjusted Financial Measures
Management uses non-GAAP financial measures internally in its budgeting and review process and, in some cases, as a factor in determining compensation. In addition, adjusted EBITDA is a key financial measure for the Company's shareholders and financial leaders, as the Company's debt financing agreements require the measurement of adjusted EBITDA, along with other measures, in connection with the Company's compliance with debt covenants. While management believes that these non-GAAP measures are useful in evaluating the business, this information should be considered supplemental in nature and should be viewed in addition to, and not as an alternate for, reported results under GAAP. In addition, these non-GAAP measures may be different from similarly titled measures used by other companies.
(1) During the three months ended June 2024, restructuring and transformation costs included $2.7 million related to streamlining and transferring select production within our internal manufacturing network and $1.8 million related to business optimization activities. During the three months ended June 2023, restructuring and transformation costs of $8.8 million related to strategic actions taken by the Company to drive efficiencies in our operations, which included reducing our global workforce, streamlining and transferring select production within our internal manufacturing network and globalizing our operating model. Total restructuring and transformation costs resulted in a corresponding tax impact of $1.1 million and $1.5 million for the three months ended June 2024 and June 2023, respectively.
(2) During the trailing twelve months ended June 2024, restructuring and transformation costs were $18.4 million related to business optimization activities, streamlining and transferring select production within our internal manufacturing network, optimizing and globalizing our operating model and reductions in our global workforce. Total restructuring and transformation costs resulted in a corresponding tax impact of $4.6 million for the trailing twelve months ended June 2024.
During the trailing twelve months ended June 2023, restructuring and transformation costs were $21.4 million net, related to severance and employee-related benefit costs, strategic actions taken by the Company to drive efficiencies in our operations, which included reducing our global workforce, streamlining and transferring select production within our internal manufacturing network and globalizing our operating model, a pension curtailment gain, other employee-related benefits and other costs. Total restructuring and transformation costs resulted in a corresponding tax impact of $4.0 million for the trailing twelve months ended June 2023.
v3.24.2.u1
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