Kontoor Brands raises outlook after "better-than-expected" Q3

Kontoor Brands, with a portfolio led by Wrangler and Lee, reported third quarter revenue of 670 million dollars, an increase of 2 percent driven by growth in global direct-to-consumer and US wholesale, partially offset by a decline in international wholesale revenue.

Earnings per share were 1.26 dollars on a reported basis. On an adjusted basis, EPS was 1.37 dollars, representing an increase of 12 percent.

“Our third quarter results exceeded expectations driven by strong execution and business fundamentals. Fueled by our Jeanius transformation program, momentum for the business is building, supported by increased investment capacity and capital allocation optionality that position us to deliver strong returns for stakeholders in the years ahead,” said Scott Baxter, president, CEO and chair of Kontoor Brands.

Review of Kontoor Brands Q3 financial results

The company’s US revenue was 530 million dollars and increased 5 percent, while wholesale revenue increased 5 percent driven by expanded distribution, market share gains and strength in point-of-sale, partially offset by retailer inventory management actions.

Direct-to-consumer increased 5 percent driven by 9 percent growth in digital partially offset by a 2 percent decline in brick-and-mortar retail. International revenue for the quarter was 141 million dollars, a 5 percent decrease compared to the prior year. International wholesale decreased 7 percent and direct-to-consumer was flat, with 11 percent growth in digital partially offset by a 6 percent decrease in company-owned brick-and-mortar retail.

Europe decreased 6 percent or 8 percent in constant currency, with 9 percent or 7 percent growth in constant currency growth in direct-to-consumer more than offset by a 9 percent decline in wholesale or 11 percent decline in constant currency.

Asia increased 2 percent, with 5 percent growth in wholesale partially offset by a 7 percent decrease in direct-to-consumer. Non-US Americas decreased 12 percent or 6 percent in constant currency.

Gross margin for the quarter increased 320 basis points to 44.7 percent on a reported basis and increased 150 basis points to 45 percent on an adjusted basis. Operating income was 98 million dollars on a reported basis. On an adjusted basis, operating income was 107 million dollars, up 8 percent and adjusted operating margin of 15.9 percent increased 80 basis points.

Kontoor Brands posts 4 percent rise in Wrangler brand sales

Wrangler brand global revenue of 464 million dollars, a 4 percent increase with Wrangler US revenue increasing by 5 percent, driven by 10 percent growth in direct-to-consumer and 5 percent growth in wholesale.

Wrangler international revenue decreased 3 percent, driven by a decline in wholesale partially offset by growth in direct-to-consumer.

Lee brand global revenue was 202 million dollars, a 3 percent decrease compared to the prior year. Lee US revenue increased 1 percent driven by growth in the wholesale channel partially offset by a decline in direct-to-consumer.

Lee international revenue decreased 7 percent driven by a decline in wholesale and brick-and-mortar retail, partially offset by growth in digital.

Kontoor Brands raises full year outlook

“We are raising our full year outlook driven by better-than-expected third quarter results, stronger profitability and cash generation. We will continue to manage the business conservatively in light of the uncertain environment, but remain confident in our ability to drive strong returns for the balance of the year and into 2025,” added Scott Baxter.

The company said revenue is now expected to be 2.60 billion dollars , including fourth quarter revenue of approximately 695 million dollars, reflecting growth of approximately 4 percent.

Adjusted gross margin is now expected to be 45.1 percent , representing an increase of 260 basis points. In the fourth quarter, the company expects adjusted gross margin to be 44.6 percent, representing an increase of 150 basis points.

Adjusted operating income is expected to be 385 million dollars, an increase of 11 percent, while fourth quarter adjusted operating income is expected to be 105 million dollars, reflecting growth of more than 20 percent.

Adjusted EPS is now expected to be 4.83 dollars, an increase of 9 percent. In the fourth quarter, the company expects adjusted EPS of 1.31 dollars.

The company expects its growth momentum to continue into 2025 driven by continued market share gains, category expansion and new distribution. Based on current visibility, the company expects revenue growth of approximately 4 percent in the first half of 2025. Adjusted gross margin expansion is expected and adjusted operating income growth is expected to outpace revenue growth driven by gross margin expansion.