Digital and transit costs dampened Kontoor brands’ Q4 revenue gains – Sourcing Journal

Led by a 14% rise in global revenue from the Lee brand, Kontoor Brands saw sales rise 3% to $681 million in the fourth quarter.

In a word: Kontoor Brands Inc., with a portfolio led by the Wrangler and Lee brands, provided guidance for 2022 that included expected revenue of $2.7 billion, growing by a high single-digit percentage from 2021.

Kontoor said he expects first-half revenue to grow in the low teenage range from a year earlier. Gross margin is expected to be in line with the adjusted gross margin of 44.6% achieved in 2021.

Expected increases from continued structural mix shifts to accretive channels such as digital and international, as well as benefits from strategic pricing, are expected to be offset by higher transitional spending, including freight, to support a strong demand. Transient impacts should remain high in the first half to drive demand.

Commercial, general and administrative (SG&A) investments will continue to be made in the company’s brands and capabilities. In addition to additional volume-related elements, SG&A investments are expected to be amplified in demand generation, digital and international expansion. Compared to adjusted general and administrative expenses in 2021, the company expects full-year general and administrative expense growth to be relatively consistent with full-year revenue growth , with investments in the second half expected to be greater than in the first half.

Earnings per share (EPS) should be between $4.65 and $4.75. Capital expenditures are expected to be between $35 million and $40 million, primarily to support manufacturing, distribution and information technology projects.

The company ended the fourth quarter with $185 million in cash and cash equivalents and about $800 million in long-term debt. As of January 1, the company had no borrowings outstanding under its revolving credit facility and $487 million was available to borrow against this facility.

Inventory at the end of fiscal 2021 was $363 million, up 7% from a year earlier.

Sales: Revenue for the fourth quarter ended January increased 3% to $681 million from the same period a year earlier. Excluding revenue from the 53rd week of the prior year period, revenue was up 8%.

Revenue gains were primarily driven by strength in owned digital commerce, as well as continued positive trends in U.S. wholesale and strong performance in international markets, Kontoor said. These were somewhat offset by the combined impacts of the closure of VF Outlet stores, which Kontoor had inherited upon its separation from VF Corp. in 2018, the discontinuation of the sale of third-party branded merchandise in all domestic stores and the Indian business model. changes. Excluding the impact of these strategic actions, fourth quarter sales would have increased by 7% compared to the same period of the previous year.

U.S. revenue was $523 million, up 1% from the prior year period. Gains were driven by wholesale growth, including new business development gains, and force-owned digital commerce, which grew 39%. Excluding revenue from the 53rd week of the prior year period, revenue was up 6%.

International revenue increased 12% to $158 million year-over-year. Compared to the same period of the previous year, the turnover in China increased by 13%, while the European activity increased by 8%.

Wrangler brand global revenue increased 1% to $444 million from the same period in 2020. Wrangler U.S. revenue decreased 2%, digital strength, west and out being offset by a headwind of 5 points from the 53rd week in 2020. Wrangler’s international revenue increased 8% year-over-year.

Global Lee brand revenue increased 14% to $233 million. Lee’s US revenue increased 13%, driven by improved new program sales and increased digital. Lee’s international sales increased by 14%.

For the year, revenue increased 18% to $2.48 billion, driven by digital strength and continued positive wholesale trends in the US and strong performance in international markets. The year’s gains were somewhat offset by the effects of VF Outlet store closures, the discontinuation of the sale of third-party branded merchandise in all national stores and business model changes in India. Excluding the impacts of these strategic actions, full-year revenue would have increased by 24% compared to the previous year.

U.S. revenue increased 14% to $1.87 billion, driven by wholesale growth, including new business development gains, and the strength of digital, which increased by 43%. International revenue jumped 33% to $607 million. China grew by 37% and European business by 33%. Excluding strategic actions in India, international revenue increased by 3%.

Wrangler brand worldwide revenue increased 17% to $1.58 million. Wrangler sales in the United States increased by 15% and international sales by 27%. Excluding the impact of strategic actions, worldwide Wrangler brand sales increased 8%.

Global Lee brand revenue increased 29% to $887 million. Lee’s US revenue grew 24%, driven by improved new program sales and increased digital, while Lee’s international revenue jumped 36%. Excluding the impacts of strategic actions, worldwide sales of the Lee brand increased by 6%.

Earnings: Net income increased 2% in the quarter to $43.91 million.

Earnings before interest, taxes, depreciation and amortization (EBITDA) were $78.68 million, compared to $72.23 million in the same period a year earlier. EPS was 75 cents versus 74 cents in the same period a year earlier.

Operating profit was $69 million. Adjusted operating income was $72 million, compared to $99 million for the same period in 2020. Adjusted operating margin decreased by 430 basis points to 10.6% of revenue. business, due to amplified investment in demand creation to drive future revenue growth and higher transitory impacts to drive demand. These investments, transitory impacts such as airfreight and distribution expenses more than offset the structural improvements in gross margin and the leverage effect of fixed costs on improving revenues.

Gross margin increased by 30 basis points to 42.8% of revenue, while adjusted gross margin decreased by 60 basis points to 42.6% of revenue. Structural margin improvements increased by 80 basis points, driven by a favorable customer and product mix, as well as business model changes, which more than offset the impacts of inflation, inventory adjustments and rising distressed sales. Additionally, to support strong demand, transient expenses, which include air freight for expedited shipments, negatively impacted gross margin by 140 basis points in the quarter.

For the year, net income jumped 188% to $195.42 million from $67.92 million. EBITDA was $319 million. Adjusted EBITDA was $387 million, compared to $258 million in the same period of 2020. Adjusted EBITDA margin increased 330 basis points to 15.6% of revenue .

EPS was $3.31 compared to $1.17 the previous year. Adjusted EPS was $4.28, compared to $2.61 in 2020.

Operating profit was $283 million. Adjusted operating profit was $352 million, compared to $229 million a year earlier. Adjusted operating margin increased by 330 basis points to 14.2% of revenue, driven by structural improvements in gross margin and leverage of fixed costs on revenue growth business. These factors were somewhat mitigated by amplified investments in demand creation to drive accelerated future growth, as well as higher transitory spending and distribution spending.

Gross margin increased by 350 basis points to 44.7% of revenue. Adjusted gross margin increased by 340 basis points to 44.6% of sales. Favorable structural improvement in channel, customer and product mix more than offset higher transient spending, including airfreight for expedited shipments, in support of strong demand, which negatively impacted gross margin of 130 basis points for the year.

Opinion of the CEO: Scott Baxter, CEO and President of Kontoor Brands, said, “Kontoor’s strong performance in the fourth quarter and full year 2021 demonstrates how our strategies are working. During the quarter, we amplified strategic investments and delivered near-term results while continuing to lay the foundation for greater long-term success…Based on breadth and diversification of growth catalysts , supported by investments in key enablers, such as the evolution of our digital, ESG and demand creation platforms, we are confident in our strong guidance for 2022, underscoring the continued momentum we expect from our business. As we look to the future, I am optimistic that our growth-oriented culture, along with accelerating fundamentals and cash flow optionality, creates a powerful combination.