Kontoor Brands Q4 revenues drop, announces 'Project Jeanius' to drive growth

Fourth quarter revenue at Kontoor Brands was 670 million dollars, a decrease of 8 percent or 9 percent in constant currency, driven by retailer inventory management actions in the U.S., partially offset by gains in digital wholesale, China and DTC.

Full year revenue was 2.61 billion dollars, a decrease of 1 percent. The company’s growth in DTC and U.S. digital wholesale was offset by retailer inventory management actions in the U.S. and softness in international markets.

The company announced the commencement of Project Jeanius, which is expected to drive between 50 million dollars and 100 million dollars of gross profit improvement and SG&A savings over the course of the program. Kontoor Brands anticipates the impact from initiative to begin in the fourth quarter of 2024, with more significant benefits expected in 2025 and 2026.

Kontoor Brands has also appointed Mary Campbell to the board of directors effective immediately, increasing the size of the board from seven to eight directors.

“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, CEO and chair of Kontoor Brands.

Review of Kontoor Brands’ Q4 performance

The company’s U.S. revenue was 538 million dollars, down 11 percent with a wholesale decrease of 12 percent. International revenue of 132 million dollars, increased 4 percent and remained flat in constant currency with growth in both DTC and wholesale.

International direct-to-consumer increased 8 percent or 6 percent in constant currency. China increased 23 percent or 25 percent in constant currency, driven by gains in DTC and wholesale, while Europe decreased 3 percent or 9 percent 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 dollars, a 9 percent or 10 percent decrease in constant currency with U.S. revenue down 10 percent, and U.S. own.com increased 7 percent. Wrangler international revenue decreased 2 percent or 7 percent in constant currency.

Lee brand global revenue was 206 million dollars, a 6 percent or 7 percent decrease in constant currency. Lee U.S. revenue decreased 14 percent, while Lee international revenue increased 8 percent or 4 percent in constant currency driven by DTC and wholesale growth in China.

Gross margin for the quarter 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. Operating income was 75 million dollars on a reported basis and 81 million dollars on an adjusted basis. Adjusted operating margin increased 120 basis points to 12.9 percent.

Earnings per share (EPS) rose to 1.21 dollars on a reported basis and 1.28 dollars on an adjusted basis.

Highlights of Kontoor Brands full year results

U.S. revenue was 2.06 billion dollars, down 1 percent with wholesale down 1 percent and direct-to-consumer up 6 percent driven by 7 percent growth in owned digital and 4 percent growth in owned retail.

International revenue was 547 million dollars, a 2 percent or 3 percent decrease in constant currency compared to the prior year. China decreased 7 percent or 2 percent in constant currency and Europe decreased 2 percent or 4 percent in constant currency.

Wrangler brand global revenue was 1.75 billion dollars, 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 and U.S. own.com increased 9 percent driven by growth in tops and western. Wrangler international revenue increased 1 percent and decreased 1 percent in constant currency.

Lee brand global revenue was 843 million dollars, a 4 percent decrease compared to the prior year. Lee U.S. revenue decreased 4 percent and international revenue decreased 3 percent or 4 percent 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. Operating income was 319 million dollars on a reported basis and 334 million dollars on an adjusted basis.

Earnings per share (EPS) was 4.06 dollars on a reported basis and 4.26 dollars on an adjusted basis.

Kontoor Brands forecasts challenging H12024

For the year 2024, revenue is expected to be in the range of 2.57 billion dollars to 2.63 billion dollars, reflecting a decrease of 1 percent to an increase of 1 percent compared to the prior year.

The company expects conservative retailer inventory management and continued challenging macroeconomic conditions to be most pronounced in the first half of 2024, with first half revenue declining at a mid-single digit. In the first quarter, the company expects a revenue decline of approximately 9 percent reflecting tight retailer inventory management and a conservative approach to seasonal products.

Adjusted gross margin is expected in the range of 44.2 percent to 44.4 percent, increasing 170 to 190 basis points. The company anticipates first half gross margin to expand more than 250 basis points. In the first quarter, gross margin is expected to be in the range of 44 percent to 44.2 percent.

Adjusted operating income is expected to be in the range of 372 million dollars to 382 million dollars, reflecting an increase of between 7 percent and 10 percent.

Adjusted EPS is expected to be in the range of 4.65 dollars to 4.75 dollars, reflecting an increase of 9 percent to 12 percent. The company anticipates first half 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 90 cents.