Fourth Quarter 2023 Highlights
- Revenue of $670 million decreased 8 percent
- Reported gross margin was 41.7 percent. Adjusted gross margin
was 42.2 percent, including an unanticipated 90 basis point impact
from an out-of-period duty charge. Excluding the duty expense,
adjusted gross margin increased 230 basis points to 43.1
percent
- Reported EPS of $1.21 compared to $0.91 in the prior year.
Adjusted EPS of $1.28, including an unanticipated $0.07 charge from
duty expense related to prior periods. Excluding the duty charge,
adjusted EPS was $1.35 and increased 54 percent
- Inventory of $500 million decreased 16 percent
- The Company repurchased $30 million of shares under the prior
share repurchase program and the Board of Directors approved a new
$300 million share repurchase authorization
- The Company’s Board of Directors declared a regular quarterly
cash dividend of $0.50 per share
Full Year 2023 Highlights
- Revenue of $2.61 billion decreased 1 percent
- Reported gross margin was 41.7 percent. Adjusted gross margin
was 41.9 percent, including a 60 basis point impact from the
out-of-period duty charge. Excluding the duty expense, adjusted
gross margin decreased 60 basis points to 42.5 percent
- Reported EPS of $4.06 compared to $4.31 in the prior year.
Adjusted EPS was $4.26, including a $0.19 charge from the
previously disclosed duty expense related to prior years. Excluding
the duty charge, adjusted EPS was $4.45
- Cash from operations increased to $357 million
- Adjusted return on invested capital was 27 percent
- Through a combination of share repurchases and dividends, the
Company returned a total of $139 million to shareholders during
2023
Full Year 2024 Financial Outlook
- Revenue in the range of $2.57 billion to $2.63 billion,
reflecting a decrease of 1% to an increase of 1%
- Adjusted gross margin in the range of 44.2 percent to 44.4
percent, expanding 170 to 190 basis points compared to the prior
year excluding the out-of-period duty charge
- Adjusted operating income in the range of $372 million to $382
million, reflecting an increase of 7 percent to 10 percent compared
to the prior year excluding the out-of-period duty charge
- Adjusted EPS in the range of $4.65 to $4.75, reflecting an
increase of 4 percent to 7 percent compared to the prior year
excluding the out-of-period duty charge
- Cash from operations is expected to exceed $325 million
Project Jeanius Global Transformation
- Expected to result in $50 million to $100 million of gross
profit improvement and SG&A savings on a run rate basis, with
impacts starting in the fourth quarter of 2024
- Impact of Project Jeanius not currently reflected in the 2024
financial outlook
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 fourth quarter and full year ended December 30,
2023.
“Our POS performance in the U.S. outpaced shipments in the
fourth quarter and resulted in continued market share gains.
However, the U.S. wholesale environment was challenging as
retailers managed inventory levels tightly against uncertain
consumer spending patterns, which negatively impacted our revenue,”
said Scott Baxter, President, Chief Executive Officer and Chair of
Kontoor Brands. “We are pleased with our execution and the progress
we made further reducing inventory levels, accelerating cash
generation, and driving strong gross margin expansion and returns
on capital.”
Fourth Quarter 2023 Income Statement
Review
Revenue was $670 million, decreasing 8 percent (9 percent
decrease in constant currency) compared to the prior year. Revenue
decreases were primarily driven by retailer inventory management
actions in the U.S., partially offset by gains in digital
wholesale, China and DTC.
U.S. revenue was $538 million, decreasing 11 percent compared to
the prior year. U.S. wholesale decreased 12 percent. Growth in
digital wholesale and owned brick-and-mortar was more than offset
by reduced wholesale shipments as retailers tightly managed
inventory levels.
International revenue was $132 million, a 4 percent increase
(flat in constant currency) compared to the prior year with growth
in both DTC and wholesale. International direct-to-consumer
increased 8 percent (6 percent increase in constant currency).
China increased 23 percent (25 percent increase in constant
currency), driven by gains in DTC and wholesale. Europe decreased 3
percent (9 percent decrease in constant currency), with growth in
digital and owned retail more than offset by a decline in
wholesale.
Wrangler brand global revenue was $461 million, a 9 percent
decrease (10 percent decrease in constant currency) compared to the
prior year. Wrangler U.S. revenue decreased 10 percent, driven by
reduced wholesale shipments as retailers tightly managed inventory
levels partially offset by growth in DTC and digital wholesale.
Wrangler U.S. own.com increased 7 percent. Wrangler international
revenue decreased 2 percent (7 percent decrease in constant
currency), with increases in DTC more than offset by declines in
wholesale.
Lee brand global revenue was $206 million, a 6 percent decrease
(7 percent decrease in constant currency) compared to the prior
year. Lee U.S. revenue decreased 14 percent driven primarily by
reduced shipments to the wholesale channel as retailers tightly
managed inventory levels, partially offset by growth in digital
wholesale. Lee international revenue increased 8 percent (4 percent
increase in constant currency) driven by DTC and wholesale growth
in China.
Gross margin increased 90 basis points to 41.7 percent on
a reported basis and increased 140 basis points to 42.2 percent on
an adjusted basis compared to the prior year. Gross margin included
an unanticipated 90 basis point negative impact from duty expense
related to prior periods, as well as the impact from proactive
inventory management actions. Excluding the duty charge, adjusted
gross margin increased 230 basis points driven by the benefits from
pricing, channel mix and lower product costs.
Selling, General & Administrative (SG&A) expenses
were $204 million or 30.5 percent of revenue on a reported basis in
the fourth quarter. On an adjusted basis, SG&A declined 5
percent to $202 million, or 30.1 percent of revenue, compared to
the prior year. Investments in DTC and technology were offset by
prudent management of discretionary expenses.
Operating income was $75 million on a reported basis. On
an adjusted basis, operating income was $81 million. Operating
income included $6 million of duty expense related to prior
periods. Excluding the duty charge, adjusted operating income was
$87 million and increased 1 percent compared to adjusted operating
income in the prior year. Adjusted operating margin of 12.1 percent
increased 40 basis points compared to adjusted operating margin for
the prior year. Excluding the duty charge, adjusted operating
margin increased 120 basis points to 12.9 percent.
Earnings per share (EPS) was $1.21 on a reported basis
and $1.28 on an adjusted basis compared to reported EPS of $0.91
and adjusted EPS of $0.88 in the prior year. EPS included an
unanticipated $0.07 charge for duty expense related to prior
periods. Excluding the duty charge, adjusted earnings per share was
$1.35, increasing 54 percent compared to the prior year. EPS in the
quarter was positively impacted by discrete tax items that are
expected to lower the Company’s cash tax payments in future
years.
Full Year 2023 Income Statement
Review
Revenue was $2.61 billion, decreasing 1 percent compared
to the prior year. Growth in DTC and U.S. digital wholesale was
offset by retailer inventory management actions in the U.S. and
softness in international markets.
U.S. revenue was $2.06 billion, decreasing 1 percent compared to
the prior year. U.S. wholesale decreased 1 percent driven by
retailer inventory management actions, partially offset by
double-digit growth in digital wholesale. U.S. direct-to-consumer
increased 6 percent driven by 7 percent growth in owned digital and
4 percent growth in owned retail.
International revenue was $547 million, a 2 percent decrease (3
percent decrease in constant currency) compared to the prior year.
China decreased 7 percent (2 percent decrease in constant
currency), with growth in DTC more than offset by a decline in
wholesale. Europe decreased 2 percent (4 percent decrease in
constant currency), with double-digit growth in owned retail and
digital more than offset by a decline in wholesale.
Wrangler brand global revenue was $1.75 billion, flat compared
to the prior year and supported by growth in categories such as
outdoor, non-denim bottoms and female. Wrangler U.S. revenue was
flat with growth in DTC and digital wholesale offset by retailer
inventory management actions. Wrangler U.S. own.com increased 9
percent driven by growth in tops and Western. Wrangler
international revenue increased 1 percent (1 percent decrease in
constant currency).
Lee brand global revenue was $843 million, a 4 percent decrease
compared to the prior year. Lee U.S. revenue decreased 4 percent
due to retailer inventory management actions. Lee international
revenue decreased 3 percent (4 percent decrease in constant
currency).
Gross margin decreased 140 basis points to 41.7 percent
on a reported basis and decreased 120 basis points to 41.9 percent
on an adjusted basis compared to the prior year. Gross margin
included a 60 basis point negative impact from the previously
discussed duty expense related to prior years. Excluding the duty
charge, adjusted gross margin decreased 60 basis points as benefits
from pricing, channel mix and lower transitory costs such as air
freight were offset by increased product costs and proactive
inventory management actions.
Selling, General & Administrative (SG&A) expenses
were $769 million or 29.5 percent of revenue on a reported basis.
On an adjusted basis, SG&A of $760 million was approximately
flat compared to adjusted SG&A in the prior year. As a percent
of revenue, adjusted SG&A increased 10 basis points to 29.1
percent. Investments in DTC and technology, as well as increased
distribution costs, were offset by tight control of discretionary
expenses.
Operating income was $319 million on a reported basis and
$334 million on an adjusted basis. Operating income included $14
million of previously discussed duty expense related to prior
years. Excluding the duty charge, adjusted operating income was
$348 million, or 13.3 percent of revenue compared to adjusted
operating income of $372 million, or 14.1 percent in the prior
year.
Earnings per share (EPS) was $4.06 on a reported basis
and $4.26 on an adjusted basis compared to reported EPS of $4.31
and adjusted EPS of $4.49 in the prior year. EPS included a $0.19
charge for duty expense related to prior years. Excluding the duty
charge, adjusted earnings per share was $4.45. Full year EPS was
positively impacted by discrete tax items that are expected to
lower the Company’s cash tax payments in future years.
Balance Sheet and Liquidity
Review
The Company ended fiscal 2023 with $215 million in cash and cash
equivalents, and approximately $0.8 billion in long-term debt.
Inventory at the end of fiscal 2023 was $500 million, down 16
percent compared to the prior year and in-line with
expectations.
As of December 30, 2023, the Company had no outstanding
borrowings under the Revolving Credit Facility and $493 million
available for borrowing against this facility.
As previously announced, the Company’s Board of Directors
declared a regular quarterly cash dividend of $0.50 per share,
payable on March 18, 2024, to shareholders of record at the close
of business on March 8, 2024.
Consistent with a commitment to return cash to shareholders, the
Company repurchased $30 million of common stock during the fourth
quarter. When combined with the strong dividend, the Company
returned a total of $139 million to shareholders during 2023. The
Company has $300 million remaining under its authorized share
repurchase program.
Project Jeanius
The investments made over the past five years have enabled
Kontoor Brands to become a standalone public company, strengthen
its brands, reduce financial leverage, implement a global ERP
solution and navigate an uneven operating environment. To meet the
Company’s accelerated growth objectives while maintaining a strong
financial profile, the Company has commenced Project Jeanius to
unlock sources of capital to support increased investment in
accretive growth opportunities, improve profitability and drive
higher returns on capital.
Project Jeanius will simplify and transform processes, systems,
and the Company’s global operating model, with particular focus on
enhancing and optimizing the supply chain, reducing operating
complexity and integrating the business across global shared
services. The initiative will improve speed to market and agility,
and leverage advanced data analytics to enhance business insights
and decision making.
“This is one of the most important steps we have taken as a
public company and will transform our organization from the legacy
structure required at the spin to a best-in-class global
multi-brand platform, while unlocking significant sources of
capital. With our strong leadership team in place, we are able to
take this step from a position of strength, and I am confident this
will deliver the next chapter of Kontoor’s value-creation journey,”
said Scott Baxter, President, Chief Executive Officer and Chair of
Kontoor Brands.
Project Jeanius is a multi-year initiative and the Company
expects to realize between $50 million and $100 million of gross
profit improvement and SG&A savings on a run rate basis over
the course of the program, a portion of which will be reinvested
into strategic priorities to accelerate growth. The Company
anticipates the impact from Project Jeanius to begin in the fourth
quarter of 2024, with more significant benefits expected in 2025
and 2026. The Company’s 2024 outlook does not yet reflect the
anticipated impact of Project Jeanius.
2024 Outlook
“Our outlook for this year reflects strong gross margin
expansion and operating earnings growth, strong cash generation,
best-in-class returns on capital and significant capital allocation
optionality. Although we anticipate the operating environment will
remain challenging over the near term, we enter 2024 from a
position of strength,” said Scott Baxter, President, Chief
Executive Officer and Chair of Kontoor Brands.
“And, to build on our momentum, we initiated Project Jeanius to
further enhance our operating efficiency while simultaneously
creating significant capacity to invest behind our brands and
strategic priorities to accelerate growth. The future is bright for
Kontoor Brands and we are committed to driving superior returns and
value creation for all stakeholders,” added Baxter.
The Company’s 2024 outlook includes the following:
- Revenue is expected to be in the range of $2.57 billion
to $2.63 billion, reflecting a decrease of 1 percent to an increase
of 1 percent compared to the prior year. The Company expects growth
from strategic initiatives, expanded distribution and ongoing
market share gains to be offset by conservative retailer inventory
management and continued challenging macroeconomic conditions. The
Company anticipates these challenges to be most pronounced in the
first half of 2024, with first half revenue declining at a
mid-single digit rate compared to the prior year. In the first
quarter, the Company expects a revenue decline of approximately 9
percent compared to the prior year reflecting tight retailer
inventory management and a conservative approach to seasonal
product.
- Adjusted gross margin is expected in the range of 44.2
percent to 44.4 percent, increasing 170 to 190 basis points
compared to adjusted gross margin in the prior year, excluding the
out-of-period duty expense. Gross margin expansion is driven by the
benefits of mix as well as lower input costs. The Company
anticipates stronger gross margin expansion in the first half of
2024, with first half gross margin expanding more than 250 basis
points compared to the prior year. In the first quarter, the
Company expects gross margin in the range of 44.0 percent to 44.2
percent.
- Adjusted SG&A is expected to increase at a low- to
mid-single digit percentage compared to adjusted SG&A in the
prior year. The Company will continue to invest in its brands and
capabilities in support of long-term profitable growth, including
demand creation, DTC, and international expansion, while remaining
disciplined with discretionary expenses.
- Adjusted operating income is expected to be in the range
of $372 million to $382 million, reflecting an increase of between
7 percent and 10 percent compared to adjusted operating income in
the prior year excluding the out-of-period duty expense, including
double-digit growth beginning in the second quarter.
- Adjusted EPS is expected to be in the range of $4.65 to
$4.75, reflecting an increase of 9 percent to 12 percent compared
to adjusted EPS in the prior year. Excluding the out-of-period duty
expense in 2023, adjusted EPS is expected to increase between 4
percent and 7 percent, including an approximate 5 percentage point
headwind from a higher tax rate. The Company anticipates first half
2024 adjusted EPS to be relatively consistent with the prior year
on a dollar basis. In the first quarter, the Company expects
adjusted EPS of approximately $0.90.
- Capital Expenditures are expected to be approximately
$40 million.
- 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 share repurchases.
- The Company expects cash flow from operations to exceed
$325 million driven by the combination of accelerated earnings
growth and a continued normalization of inventory.
This release refers to “adjusted” amounts from 2023 and 2022 and
“constant currency” amounts, which are further described in the
Non-GAAP Financial Measures section below. All per share amounts
are presented on a diluted basis. Unless otherwise noted,
“reported” and “constant currency” amounts are the same. Amounts as
presented herein may not recalculate due to the use of unrounded
numbers.
As previously disclosed, management identified and corrected
inaccuracies in processing certain transactions with U.S. Customs
and Border Protection (“U.S. Customs”) arising from the
implementation of the Company’s ERP system. These inaccuracies
resulted in underpayment of duties owed to U.S. Customs for the
2021 to 2023 periods. Full year 2023 results include a $14 million
charge related to prior years, and fourth quarter 2023 results
include a $6 million charge related to prior annual and interim
periods.
Webcast Information
Kontoor Brands will host its fourth quarter and full year 2023
conference call beginning at 8:30 a.m. Eastern Time today, February
28, 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 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 optimizing and globalizing
our operating model. Adjustments during 2022 represent charges
related to the globalization of the Company’s operating model and
relocation of the European headquarters. 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
and distributes 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 inflation, elevated
interest rates, 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; ability to
properly collect, use, manage and secure consumer and employee
data; foreign currency fluctuations; 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.
KONTOOR BRANDS, INC.
Condensed Consolidated
Statements of Operations
(Unaudited)
Three Months Ended
December
%
Twelve Months Ended
December
%
(Dollars in thousands, except per share
amounts)
2023
2022
Change
2023
2022
Change
Net revenues
$
669,800
$
731,608
(8)%
$
2,607,472
$
2,631,444
(1)%
Costs and operating expenses
Cost of goods sold
390,390
432,886
(10)%
1,519,635
1,497,076
2%
Selling, general and administrative
expenses
203,969
214,089
(5)%
768,568
777,703
(1)%
Total costs and operating
expenses
594,359
646,975
(8)%
2,288,203
2,274,779
1%
Operating income
75,441
84,633
(11)%
319,269
356,665
(10)%
Interest expense
(10,018
)
(9,804
)
2%
(40,408
)
(34,919
)
16%
Interest income
1,717
324
430%
3,791
1,352
180%
Other (expense) income, net
(1,611
)
1,225
(232)%
(10,753
)
(3,962
)
171%
Income before income taxes
65,529
76,378
(14)%
271,899
319,136
(15)%
Income taxes
(3,242
)
24,773
(113)%
40,905
73,643
(44)%
Net income
$
68,771
$
51,605
33%
$
230,994
$
245,493
(6)%
Earnings per common share
Basic
$
1.23
$
0.93
$
4.13
$
4.40
Diluted
$
1.21
$
0.91
$
4.06
$
4.31
Weighted average shares
outstanding
Basic
55,955
55,485
55,961
55,744
Diluted
56,982
56,666
56,931
56,962
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 December 2023 and December 2022 correspond to the 13-week and
52-week fiscal periods ended December 30, 2023 and December 31,
2022, respectively. References to December 2023 and December 2022
relate to the balance sheets as of December 30, 2023 and December
31, 2022, respectively. Amounts herein may not recalculate due to
the use of unrounded numbers.
KONTOOR BRANDS, INC.
Condensed Consolidated Balance
Sheets
(Unaudited)
(In thousands)
December 2023
December 2022
ASSETS
Current assets
Cash and cash equivalents
$
215,050
$
59,179
Accounts receivable, net
217,673
225,858
Inventories
500,353
596,836
Prepaid expenses and other current
assets
110,808
100,396
Total current assets
1,043,884
982,269
Property, plant and equipment, net
112,045
104,465
Operating lease assets
54,812
51,029
Intangible assets, net
12,497
13,361
Goodwill
209,862
209,627
Deferred income taxes
75,081
67,282
Other assets
137,258
154,228
TOTAL ASSETS
$
1,645,439
$
1,582,261
LIABILITIES AND EQUITY
Current liabilities
Short-term borrowings
$
—
$
7,280
Current portion of long-term debt
20,000
10,000
Accounts payable
180,220
206,262
Accrued liabilities
171,414
196,989
Operating lease liabilities, current
21,003
19,898
Total current liabilities
392,637
440,429
Operating lease liabilities,
noncurrent
36,753
31,506
Deferred income taxes
5,611
6,919
Other liabilities
74,604
70,031
Long-term debt
763,921
782,619
Commitments and contingencies
Total liabilities
1,273,526
1,331,504
Total equity
371,913
250,757
TOTAL LIABILITIES AND EQUITY
$
1,645,439
$
1,582,261
KONTOOR BRANDS, INC.
Condensed Consolidated
Statements of Cash Flows
(Unaudited)
Twelve Months Ended
December
(In thousands)
2023
2022
OPERATING ACTIVITIES
Net income
$
230,994
$
245,493
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation and amortization
38,046
37,126
Stock-based compensation
16,725
21,891
Other, including working capital
changes
70,784
(220,925
)
Cash provided by operating
activities
356,549
83,585
INVESTING ACTIVITIES
Property, plant and equipment
expenditures
(27,366
)
(18,375
)
Capitalized computer software
(10,018
)
(10,022
)
Other
(1,754
)
(1,721
)
Cash used by investing
activities
(39,138
)
(30,118
)
FINANCING ACTIVITIES
Borrowings under revolving credit
facility
288,000
163,000
Repayments under revolving credit
facility
(288,000
)
(163,000
)
Payment of deferred financing costs
—
(298
)
Repayments of term loan
(10,000
)
—
Repurchases of Common Stock
(30,111
)
(62,494
)
Dividends paid
(108,574
)
(103,661
)
Proceeds from issuance of Common Stock,
net of shares withheld for taxes
284
(11,700
)
Other
(7,297
)
7,246
Cash used by financing
activities
(155,698
)
(170,907
)
Effect of foreign currency rate changes on
cash and cash equivalents
(5,842
)
(8,703
)
Net change in cash and cash
equivalents
155,871
(126,143
)
Cash and cash equivalents – beginning
of period
59,179
185,322
Cash and cash equivalents – end of
period
$
215,050
$
59,179
KONTOOR BRANDS, INC.
Supplemental Financial
Information
Business Segment
Information
(Unaudited)
Three Months Ended
December
% Change
% Change Constant
Currency (a)
(Dollars in thousands)
2023
2022
Segment revenues:
Wrangler
$
460,959
$
509,277
(9)%
(10)%
Lee
205,836
218,628
(6)%
(7)%
Total reportable segment
revenues
666,795
727,905
(8)%
(9)%
Other revenues (b)
3,005
3,703
(19)%
(19)%
Total net revenues
$
669,800
$
731,608
(8)%
(9)%
Segment profit:
Wrangler
$
83,882
$
95,124
(12)%
(12)%
Lee
20,675
19,219
8%
7%
Total reportable segment profit
$
104,557
$
114,343
(9)%
(9)%
Corporate and other expenses
(30,260
)
(28,158
)
7%
7%
Interest expense
(10,018
)
(9,804
)
2%
2%
Interest income
1,717
324
430%
467%
Loss related to other revenues (b)
(467
)
(327
)
43%
43%
Income before income taxes
$
65,529
$
76,378
(14)%
(14)%
Twelve Months Ended
December
% Change
% Change Constant
Currency (a)
(Dollars in thousands)
2023
2022
Segment revenues:
Wrangler
$
1,754,130
$
1,745,805
—%
—%
Lee
842,520
874,366
(4)%
(4)%
Total reportable segment
revenues
2,596,650
2,620,171
(1)%
(1)%
Other revenues (b)
10,822
11,273
(4)%
(4)%
Total net revenues
$
2,607,472
$
2,631,444
(1)%
(1)%
Segment profit:
Wrangler
$
307,521
$
321,173
(4)%
(4)%
Lee
98,148
121,056
(19)%
(18)%
Total reportable segment profit
$
405,669
$
442,229
(8)%
(8)%
Corporate and other expenses
(96,075
)
(88,932
)
8%
8%
Interest expense
(40,408
)
(34,919
)
16%
16%
Interest income
3,791
1,352
180%
187%
Loss related to other revenues (b)
(1,078
)
(594
)
81%
83%
Income before income taxes
$
271,899
$
319,136
(15)%
(14)%
(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.
KONTOOR BRANDS, INC.
Supplemental Financial
Information
Business Segment Information –
Constant Currency Basis (Non-GAAP)
(Unaudited)
Three Months Ended December
2023
As Reported
Adjust for Foreign
(In thousands)
under GAAP
Currency Exchange
Constant Currency
Segment revenues:
Wrangler
$
460,959
$
(2,141
)
$
458,818
Lee
205,836
(2,966
)
202,870
Total reportable segment
revenues
666,795
(5,107
)
661,688
Other revenues
3,005
—
3,005
Total net revenues
$
669,800
$
(5,107
)
$
664,693
Segment profit:
Wrangler
$
83,882
$
(13
)
$
83,869
Lee
20,675
(107
)
20,568
Total reportable segment profit
$
104,557
$
(120
)
$
104,437
Corporate and other expenses
(30,260
)
(6
)
(30,266
)
Interest expense
(10,018
)
5
(10,013
)
Interest income
1,717
119
1,836
Loss related to other revenues
(467
)
—
(467
)
Income before income taxes
$
65,529
$
(2
)
$
65,527
Twelve Months Ended December
2023
As Reported
Adjust for Foreign
(In thousands)
under GAAP
Currency Exchange
Constant Currency
Segment revenues:
Wrangler
$
1,754,130
$
(3,104
)
$
1,751,026
Lee
842,520
(1,858
)
840,662
Total reportable segment
revenues
2,596,650
(4,962
)
2,591,688
Other revenues
10,822
1
10,823
Total net revenues
$
2,607,472
$
(4,961
)
$
2,602,511
Segment profit:
Wrangler
$
307,521
$
(275
)
$
307,246
Lee
98,148
1,506
99,654
Total reportable segment profit
$
405,669
$
1,231
$
406,900
Corporate and other expenses
(96,075
)
(38
)
(96,113
)
Interest expense
(40,408
)
(4
)
(40,412
)
Interest income
3,791
86
3,877
Loss related to other revenues
(1,078
)
(9
)
(1,087
)
Income before income taxes
$
271,899
$
1,266
$
273,165
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
December
(In thousands, except for per share
amounts)
2023
2022
Cost of goods sold - as reported under
GAAP
$
390,390
$
432,886
Restructuring costs (a)
(3,437
)
—
Adjusted cost of goods sold
$
386,953
$
432,886
Selling, general and administrative
expenses - as reported under GAAP
$
203,969
$
214,089
Restructuring costs (a)
(2,097
)
(869
)
Adjusted selling, general and
administrative expenses
$
201,872
$
213,220
Other (expense) income, net - as
reported under GAAP
$
(1,611
)
$
1,225
Restructuring benefits (a)
—
(2,983
)
Adjusted other expense, net
$
(1,611
)
$
(1,758
)
Diluted earnings per share - as
reported under GAAP
$
1.21
$
0.91
Restructuring costs (benefits) (a)
0.07
(0.03
)
Adjusted diluted earnings per
share
$
1.28
$
0.88
Net income - as reported under
GAAP
$
68,771
$
51,605
Income taxes
(3,242
)
24,773
Interest expense
10,018
9,804
Interest income
(1,717
)
(324
)
EBIT
$
73,830
$
85,858
Depreciation and amortization
10,641
9,299
EBITDA
$
84,471
$
95,157
Restructuring costs (benefits) (a)
5,534
(2,114
)
Adjusted EBITDA
$
90,005
$
93,043
As a percentage of total net revenues
13.4
%
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.
KONTOOR BRANDS, INC.
Supplemental Financial
Information
Reconciliation of Adjusted
Financial Measures - Year-to-Date (Non-GAAP)
(Unaudited)
Twelve Months Ended
December
(In thousands, except for per share
amounts)
2023
2022
Cost of goods sold - as reported under
GAAP
$
1,519,635
$
1,497,076
Restructuring costs (a)
(5,791
)
—
Adjusted cost of goods sold
$
1,513,844
$
1,497,076
Selling, general and administrative
expenses - as reported under GAAP
$
768,568
$
777,703
Restructuring costs (a)
(8,536
)
(15,609
)
Adjusted selling, general and
administrative expenses
$
760,032
$
762,094
Other expense, net - as reported under
GAAP
$
(10,753
)
$
(3,962
)
Restructuring benefits (a)
—
(2,983
)
Adjusted other expense, net
$
(10,753
)
$
(6,945
)
Diluted earnings per share - as
reported under GAAP
$
4.06
$
4.31
Restructuring costs (a)
0.20
0.18
Adjusted diluted earnings per
share
$
4.26
$
4.49
Net income - as reported under
GAAP
$
230,994
$
245,493
Income taxes
40,905
73,643
Interest expense
40,408
34,919
Interest income
(3,791
)
(1,352
)
EBIT
$
308,516
$
352,703
Depreciation and amortization
38,046
37,126
EBITDA
$
346,562
$
389,829
Restructuring costs (a)
14,327
12,626
Adjusted EBITDA
$
360,889
$
402,455
As a percentage of total net revenues
13.8
%
15.3
%
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.
KONTOOR BRANDS, INC.
Supplemental Financial
Information
Summary of Select GAAP and
Non-GAAP Measures
(Unaudited)
Three Months Ended
December
2023
2022
(Dollars in thousands, except per share
amounts)
GAAP
Adjusted
GAAP
Adjusted
Net revenues
$
669,800
$
669,800
$
731,608
$
731,608
Gross margin
$
279,410
$
282,847
$
298,722
$
298,722
As a percentage of total net revenues
41.7
%
42.2
%
40.8
%
40.8
%
Selling, general and administrative
expenses
$
203,969
$
201,872
$
214,089
$
213,220
As a percentage of total net revenues
30.5
%
30.1
%
29.3
%
29.1
%
Operating income
$
75,441
$
80,975
$
84,633
$
85,502
As a percentage of total net revenues
11.3
%
12.1
%
11.6
%
11.7
%
Earnings per share - diluted
$
1.21
$
1.28
$
0.91
$
0.88
Twelve Months Ended
December
2023
2022
(Dollars in thousands, except per share
amounts)
GAAP
Adjusted
GAAP
Adjusted
Net revenues
$
2,607,472
$
2,607,472
$
2,631,444
$
2,631,444
Gross margin
$
1,087,837
$
1,093,628
$
1,134,368
$
1,134,368
As a percentage of total net revenues
41.7
%
41.9
%
43.1
%
43.1
%
Selling, general and administrative
expenses
$
768,568
$
760,032
$
777,703
$
762,094
As a percentage of total net revenues
29.5
%
29.1
%
29.6
%
29.0
%
Operating income
$
319,269
$
333,596
$
356,665
$
372,274
As a percentage of total net revenues
12.2
%
12.8
%
13.6
%
14.1
%
Earnings per common share - diluted
$
4.06
$
4.26
$
4.31
$
4.49
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 December
2023
Revenues - As Reported
(In thousands)
Wrangler
Lee
Other
Total
Channel revenues
U.S. Wholesale
$
369,611
$
103,609
$
2,756
$
475,976
Non-U.S. Wholesale
38,099
58,203
—
96,302
Direct-to-Consumer
53,249
44,024
249
97,522
Total
$
460,959
$
205,836
$
3,005
$
669,800
Geographic revenues
U.S.
$
416,310
$
118,526
$
3,005
$
537,841
International
44,649
87,310
—
131,959
Total
$
460,959
$
205,836
$
3,005
$
669,800
Twelve Months Ended December
2023
Revenues - As Reported
(In thousands)
Wrangler
Lee
Other
Total
Channel revenues
U.S. Wholesale
$
1,418,102
$
440,690
$
10,149
$
1,868,941
Non-U.S. Wholesale
181,766
246,873
10
428,649
Direct-to-Consumer
154,262
154,957
663
309,882
Total
$
1,754,130
$
842,520
$
10,822
$
2,607,472
Geographic revenues
U.S.
$
1,549,051
$
500,816
$
10,812
$
2,060,679
International
205,079
341,704
10
546,793
Total
$
1,754,130
$
842,520
$
10,822
$
2,607,472
KONTOOR BRANDS, INC.
Supplemental Financial
Information
Disaggregation of
Revenue
(Unaudited)
Three Months Ended December
2022
Revenues - As Reported
(In thousands)
Wrangler
Lee
Other
Total
Channel revenues
U.S. Wholesale
$
420,004
$
119,674
$
3,478
$
543,156
Non-U.S. Wholesale
39,990
53,610
—
93,600
Direct-to-Consumer
49,283
45,344
225
94,852
Total
$
509,277
$
218,628
$
3,703
$
731,608
Geographic revenues
U.S.
$
463,595
$
137,601
$
3,703
$
604,899
International
45,682
81,027
—
126,709
Total
$
509,277
$
218,628
$
3,703
$
731,608
Twelve Months Ended December
2022
Revenues - As Reported
(In thousands)
Wrangler
Lee
Other
Total
Channel revenues
U.S. Wholesale
$
1,423,757
$
460,799
$
9,903
$
1,894,459
Non-U.S. Wholesale
183,714
266,201
903
450,818
Direct-to-Consumer
138,334
147,366
467
286,167
Total
$
1,745,805
$
874,366
$
11,273
$
2,631,444
Geographic revenues
U.S.
$
1,542,593
$
521,636
$
10,370
$
2,074,599
International
203,212
352,730
903
556,845
Total
$
1,745,805
$
874,366
$
11,273
$
2,631,444
KONTOOR BRANDS, INC.
Supplemental Financial
Information
Disaggregation of
Revenue
(Unaudited)
Three Months Ended
December
2023
2022
2023 to 2022
(Dollars in thousands)
As Reported under GAAP
% Change Reported
% Change Constant
Currency
Wrangler U.S.
$
416,310
$
463,595
(10)%
(10)%
Lee U.S.
118,526
137,601
(14)%
(14)%
Other
3,005
3,703
(19)%
(19)%
Total U.S. revenues
$
537,841
$
604,899
(11)%
(11)%
Wrangler International
$
44,649
$
45,682
(2)%
(7)%
Lee International
87,310
81,027
8%
4%
Other
—
—
—%
—%
Total International revenues
$
131,959
$
126,709
4%
—%
Global Wrangler
$
460,959
$
509,277
(9)%
(10)%
Global Lee
205,836
218,628
(6)%
(7)%
Global Other
3,005
3,703
(19)%
(19)%
Total revenues
$
669,800
$
731,608
(8)%
(9)%
Twelve Months Ended
December
2023
2022
2023 to 2022
(Dollars in thousands)
As Reported Under GAAP
% Change Reported
% Change Constant
Currency
Wrangler U.S.
$
1,549,051
$
1,542,593
—%
—%
Lee U.S.
500,816
521,636
(4)%
(4)%
Other
10,812
10,370
4%
4%
Total U.S. revenues
$
2,060,679
$
2,074,599
(1)%
(1)%
Wrangler International
$
205,079
$
203,212
1%
(1)%
Lee International
341,704
352,730
(3)%
(4)%
Other
10
903
(99)%
(99)%
Total International revenues
$
546,793
$
556,845
(2)%
(3)%
Global Wrangler
$
1,754,130
$
1,745,805
—%
—%
Global Lee
842,520
874,366
(4)%
(4)%
Global Other
10,822
11,273
(4)%
(4)%
Total revenues
$
2,607,472
$
2,631,444
(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)
(In thousands)
Twelve Months Ended
December
Numerator
2023
2022
Net Income
$
230,994
$
245,493
Plus: Income taxes
40,905
73,643
Plus: Interest income (expense), net
36,617
33,567
EBIT
$
308,516
$
352,703
Plus: Restructuring costs (a)
14,327
12,626
Plus: Operating lease interest (b)
1,190
1,000
Adjusted EBIT
$
324,033
$
366,329
Adjusted effective income tax rate (c)
15
%
23
%
Adjusted net operating profit after
taxes
$
274,378
$
282,240
Denominator
December 2023
December 2022
December 2021
Equity
$
371,913
$
250,757
$
148,138
Plus: Current portion of long-term debt
and other borrowings
20,000
17,280
249
Plus: Noncurrent portion of long-term
debt
763,921
782,619
791,317
Plus: Operating lease liabilities (d)
57,756
51,404
57,188
Less: Cash and cash equivalents
(215,050
)
(59,179
)
(185,322
)
Invested capital
$
998,540
$
1,042,881
$
811,570
Average invested capital (e)
$
1,020,711
$
927,226
Net income to average debt and equity
(f)
20.9
%
24.7
%
Adjusted return on invested
capital
26.9
%
30.4
%
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 “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 costs and the corresponding tax impact. See “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
prior year 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
prior year 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.
(a) During the three months ended December
2023, restructuring costs included $3.3 million related to
streamlining and transferring select production within our internal
manufacturing network, $1.5 million related to optimizing and
globalizing our operating model and $0.7 million related to
reductions in our global workforce. During the twelve months ended
December 2023, restructuring costs included $7.3 million related to
reductions in our global workforce, $4.5 million related to
streamlining and transferring select production within our internal
manufacturing network and $2.5 million related to optimizing and
globalizing our operating model.
During the three months ended December
2022, restructuring costs included a net benefit of $2.1 million
related to the globalization of the Company's operating model and
relocation of the European headquarters, including a pension
curtailment gain of $2.6 million. During the twelve months ended
December 2022, restructuring costs included a net charge of $12.6
million related to the globalization of the Company's operating
model and relocation of the European headquarters, including a
pension curtailment gain of $2.6 million.
During the three months ended December
2023 and December 2022, total restructuring costs resulted in a
corresponding tax impact of $1.5 million and $(0.3) million,
respectively. During the twelve months ended December 2023 and
December 2022, total restructuring costs resulted in a
corresponding tax impact of $3.0 million and $2.5 million,
respectively.
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version on businesswire.com: https://www.businesswire.com/news/home/20240228028929/en/
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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