- Q3'22 revenue of $607 million decreased 7 percent (5 percent in
constant currency) compared to Q3'21
- Q3'22 reported EPS of $0.90, adjusted EPS of $1.11 compared to
Q3'21 reported EPS of $1.07, adjusted EPS of $1.28
- 2022 revenue is now expected to increase approximately 4
percent (6 percent in constant currency) compared to 2021 and prior
guidance of increasing approximately 6 percent
- 2022 adjusted EPS is now expected to be in the range of $4.35
to $4.40, compared to prior guidance of $4.40 to $4.50
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 third quarter ended October 1, 2022.
“Despite the difficult environment, we are encouraged by the
sell-through of our brands including continued POS share gains, in
the third quarter in our largest market. However, as expected,
sell-in was adversely impacted and global revenue tempered as U.S.
retailer inventory rebalancing efforts and COVID-related lockdowns
in China continued. Mix benefits, strategic pricing, and tight
expense controls helped offset inflationary pressures and allowed
us to deliver upside to our profit expectations,” said Scott
Baxter, President, Chief Executive Officer and Chair of Kontoor
Brands.
“We expect challenging global macroeconomic conditions,
particularly inflation, should continue to weigh on consumer
discretionary spend, and ongoing inventory reduction actions will
pressure near-term margins. However, we anticipate revenue to
sequentially accelerate in the fourth quarter due to improved U.S.
retail inventory levels, continued POS momentum, share gains and
new business development activities. Further, our cash generation
is expected to remain strong over time, giving us confidence in our
capital allocation flexibility, as evidenced by our recently
announced dividend increase,” added Baxter.
This release refers to “adjusted” amounts from 2022 and 2021 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 dollar” amounts are the same.
Third Quarter 2022 Income Statement
Review
Revenue was $607 million, a 7 percent decrease (5 percent
decrease in constant currency) over the same period in the prior
year. Revenue decreases were primarily driven by significant U.S.
retailer inventory rebalancing efforts in the quarter and the
impacts of lockdowns in China. Challenges in domestic wholesale and
China were somewhat offset by continued strength in Digital
own.com, as well as gains in the EMEA region.
U.S. revenue was $452 million, decreasing 8 percent over last
year, with reductions in both the Wrangler and Lee brands. Lower
shipments due to retailer inventory rebalancing weighed on U.S.
wholesale, which was down 9 percent compared to the third quarter
2021. These pressures were somewhat offset by continued strength in
Digital own.com, with U.S. own.com revenue increasing 14 percent
compared to last year.
International revenue was $154 million, a 3 percent decrease (7
percent increase in constant currency) over the same period in the
prior year. As expected, due to COVID lockdowns in the region,
China decreased 24 percent (20 percent decrease in constant
currency) compared to the third quarter 2021, sequentially
improving from decreases of 50 percent in the second quarter of
2022. Europe increased 7 percent (27 percent increase in constant
currency), driven by Digital and aided by a shift in the timing of
shipments associated with the ERP implementation last year, from
the third quarter to the second quarter of 2021.
Wrangler brand global revenue was $406 million, a 4 percent
decrease (2 percent decrease in constant currency) from the same
period in the prior year. Wrangler U.S. revenue decreased 5 percent
compared to last year, primarily driven by the aforementioned
reduction of shipments in U.S. wholesale due to significant
retailer inventory rebalancing, somewhat offset by broad-based
channel and category strength including Western, Workwear, T-shirts
and Female. U.S. Wrangler.com increased 16 percent compared to last
year. Wrangler international revenue increased 3 percent (15
percent increase in constant currency) compared to the third
quarter 2021.
Lee brand global revenue was $198 million, a 13 percent decrease
(9 percent decrease in constant currency) from the same period in
the prior year. Lee U.S. revenue decreased 19 percent compared to
last year, primarily driven by the aforementioned reduction of
shipments due to significant retailer inventory rebalancing.
Globally, non-denim categories such as T-shirts experienced
significant year-over-year gains in the quarter. U.S. Lee.com
increased 10 percent compared to last year. Lee international
revenue decreased 6 percent (3 percent increase in constant
currency) from the third quarter 2021. Strength in Europe was
offset by expected reductions in China due to the impact of COVID
lockdowns.
Other global revenue was $2 million, a 33 percent decrease
compared to the same period in the prior year.
Gross margin decreased to 43.5 percent, a decrease of 90
basis points on a reported basis and 60 basis points on an adjusted
basis, compared to the third quarter 2021. Higher inflationary
pressures on input costs, inventory provisions, elevated ocean
freight rates and foreign currency primarily drove the decline. The
decline was partially offset by strategic pricing, channel and
product mix, as well as moderating transitory costs such as air
freight.
Selling, General & Administrative (SG&A) expenses
were $189 million on a reported basis, and $174 million on an
adjusted basis. As a percent of revenue, adjusted SG&A was 28.7
percent, increasing 20 basis points compared to adjusted SG&A
during the same period in the prior year. As expected, tight
controls of discretionary expenses as well as lower compensation
costs were somewhat offset by higher distribution expenses, as well
as continued strategic investments in digital and IT.
Operating income was $75 million on a reported basis and
$90 million on an adjusted basis. Adjusted operating margin of 14.8
percent decreased 80 basis points compared to adjusted operating
margin during the same period in the prior year. Higher
inflationary pressures on input costs, inventory provisions and
elevated ocean freight more than offset the benefits of strategic
pricing and tight control of expenses.
Earnings Before Interest, Tax, Depreciation and Amortization
(EBITDA) was $82 million on a reported basis and $97 million on
an adjusted basis. Adjusted EBITDA margin of 15.9 percent decreased
100 basis points compared to adjusted EBITDA margin during the same
period in the prior year.
Earnings per share was $0.90 on a reported basis and
$1.11 on an adjusted basis compared to reported EPS of $1.07 and
adjusted EPS of $1.28, in the same period in the prior year.
October 1, 2022, Balance Sheet and
Liquidity Review
The Company ended the third quarter 2022 with $58 million in
cash and cash equivalents, and approximately $0.8 billion in
long-term debt.
As of October 1, 2022, the Company had $40 million in
outstanding borrowings under the Revolving Credit Facility and $448
million available for borrowing against this facility.
As previously announced, the Company’s Board of Directors
approved a $0.02 or 4 percent increase in the regular quarterly
cash dividend to $0.48 per share, payable on December 19, 2022, to
shareholders of record at the close of business on December 9,
2022. With a combination of share repurchases and payout of the
dividend, the Company returned a total of $140 million to
shareholders during the first three quarters of 2022.
Inventory at the end of the third quarter 2022 was $678 million,
up 66 percent compared to the prior-year period and 24 percent with
pre-pandemic 2019 levels. Approximately 90 percent of inventory at
the end of the third quarter was core product. The Company is
taking proactive actions and expects inventory to return to more
historical levels in mid-2023.
2022 Outlook
In consideration of impacts from retailer inventory rebalancing
in the third quarter, inflation, ongoing lockdowns in China and
foreign currency, the Company is revising its 2022 outlook,
including the following:
- Revenue is now expected to increase approximately 4
percent (increase 6 percent in constant currency) compared to 2021
and compared to prior guidance of up approximately 6 percent. The
updated revenue guidance includes an incremental 1-point negative
impact from foreign currency.
- Gross margin is now expected to approximate 43.0 percent
compared to adjusted gross margin of 44.6 percent achieved in 2021
and compared with prior guidance of 43.5 percent. The updated gross
margin guidance includes the incremental impacts from capacity
downtime, geographic mix and foreign currency. The benefits from
continued structural mix shifts to accretive channels such as
Digital, ongoing cost saving initiatives and strategic pricing are
anticipated to help offset these higher costs.
- Adjusted SG&A is expected to increase at a low
single-digit rate compared to adjusted SG&A in 2021.
Investments will continue to be made in the Company’s brands and
capabilities, including demand creation, Digital, and international
expansion. Given the uncertain macroeconomic conditions, the
Company expects continued tight expense control on non-strategic
and discretionary items, to assist in funding strategic
investments. Adjusted SG&A excludes one-time restructuring
charges related to the globalization of the Company’s operating
model and relocation of the European headquarters, which are
anticipated to be approximately $16 million for the year.
- Adjusted EPS is expected to be in the range of $4.35 to
$4.40, compared to prior guidance of $4.40 to $4.50. Adjusted EPS
excludes one-time restructuring charges related to the
globalization of the Company’s operating model and relocation of
the European headquarters, which are anticipated to be
approximately $0.23 per share for the year.
- Capital Expenditures are expected to be in the range of
$30 million to $35 million, primarily to support manufacturing,
distribution, and information technology projects, down from $35
million to $40 million prior.
- The Company expects an effective tax rate of
approximately 20 percent in 2022. Interest expense is
expected to be in the range of $30 million to $35 million in 2022.
Average shares outstanding in 2022 are expected to be
approximately 57 million, excluding the impact of additional share
repurchases.
Webcast Information
Kontoor Brands will host its third quarter 2022 conference call
beginning at 8:30 a.m. Eastern Time today, November 3, 2022. 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 2022 represent
charges related to the globalization of the Company’s operating
model and relocation of the European headquarters. Adjustments
during 2021 primarily represent costs associated with the Company’s
global ERP implementation and information technology infrastructure
build-out. 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.
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: risks associated with the COVID-19 pandemic, which
could continue to result in closed factories and stores, reduced
workforces, supply chain interruption, and reduced consumer traffic
and purchasing; the level of consumer demand for apparel; intense
industry competition; the Company’s ability to gauge consumer
preferences and product trends, and to respond to constantly
changing markets; the ability to accurately forecast demand for
products; 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; reliance on a small number of large
customers; 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; operational
difficulties and additional expenses related to the Company’s
design and implementation of its enterprise resource planning
software system; 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; the impact of climate change
and related legislative and regulatory responses; legal,
regulatory, political and economic risks; changes to trade policy,
including tariff and import/export regulations; 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; the Company’s ability to maintain effective internal
controls; 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; 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; 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; the failure to declare future
cash dividends; and fluctuations in the amount and frequency of our
share repurchases.
Many of the foregoing risks and uncertainties will continue to
be exacerbated by the COVID-19 pandemic and any continued worsening
of the global business and economic environment as a result. 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
September
%
Nine Months Ended
September
%
(Dollars in thousands, except per share
amounts)
2022
2021
Change
2022
2021
Change
Net revenues
$
606,521
$
652,298
(7
)%
$
1,899,836
$
1,794,825
6
%
Costs and operating expenses
Cost of goods sold
342,460
362,735
(6
)%
1,064,190
978,558
9
%
Selling, general and administrative
expenses
188,995
203,583
(7
)%
563,614
601,934
(6
)%
Total costs and operating
expenses
531,455
566,318
(6
)%
1,627,804
1,580,492
3
%
Operating income
75,066
85,980
(13
)%
272,032
214,333
27
%
Interest expense
(8,858
)
(7,156
)
24
%
(25,115
)
(26,588
)
(6
)%
Interest income
263
345
(24
)%
1,028
1,024
-
Other expense, net
(2,219
)
(676
)
228
%
(5,187
)
(1,073
)
383
%
Income before income taxes
64,252
78,493
(18
)%
242,758
187,696
29
%
Income taxes
13,169
15,080
(13
)%
48,870
36,183
35
%
Net income
$
51,083
$
63,413
(19
)%
$
193,888
$
151,513
28
%
Earnings per common share
Basic
$
0.92
$
1.10
$
3.47
$
2.63
Diluted
$
0.90
$
1.07
$
3.40
$
2.56
Weighted average shares
outstanding
Basic
55,428
57,648
55,830
57,535
Diluted
56,550
59,282
57,060
59,180
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 September 2022 and September 2021 correspond to the 13-week
and 39-week fiscal periods ended October 1, 2022 and October 2,
2021, respectively. References to September 2022, December 2021 and
September 2021 relate to the balance sheets as of October 1, 2022,
January 1, 2022 and October 2, 2021, respectively. Amounts herein
may not recalculate due to the use of unrounded numbers.
KONTOOR BRANDS, INC.
Condensed Consolidated Balance
Sheets
(Unaudited)
(In thousands)
September 2022
December 2021
September 2021
ASSETS
Current assets
Cash and cash equivalents
$
58,053
$
185,322
$
215,442
Accounts receivable, net
234,569
289,800
269,874
Inventories
678,207
362,957
409,110
Prepaid expenses and other current
assets
102,425
72,579
93,922
Total current assets
1,073,254
910,658
988,348
Property, plant and equipment, net
101,407
105,155
106,959
Operating lease assets
47,831
54,950
56,555
Intangible assets, net
13,242
14,638
14,975
Goodwill
209,012
212,213
212,503
Other assets
208,264
235,410
233,842
TOTAL ASSETS
$
1,653,010
$
1,533,024
$
1,613,182
LIABILITIES AND EQUITY
Current liabilities
Short-term borrowings
$
7,093
$
249
$
254
Current portion of long-term debt
7,500
—
18,125
Accounts payable
306,278
214,204
244,681
Accrued liabilities
167,690
217,164
218,058
Operating lease liabilities, current
18,885
24,195
23,480
Total current liabilities
507,446
455,812
504,598
Operating lease liabilities,
noncurrent
30,255
32,993
36,329
Other liabilities
82,417
104,764
114,088
Long-term debt
824,793
791,317
773,413
Commitments and contingencies
Total liabilities
1,444,911
1,384,886
1,428,428
Total equity
208,099
148,138
184,754
TOTAL LIABILITIES AND EQUITY
$
1,653,010
$
1,533,024
$
1,613,182
KONTOOR BRANDS, INC.
Condensed Consolidated
Statements of Cash Flows
(Unaudited)
Nine Months Ended
September
(In thousands)
2022
2021
OPERATING ACTIVITIES
Net income
$
193,888
$
151,513
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation and amortization
27,827
26,675
Stock-based compensation
17,758
29,211
Other
(226,744
)
1,953
Cash provided by operating
activities
12,729
209,352
INVESTING ACTIVITIES
Property, plant and equipment
expenditures
(13,091
)
(6,642
)
Capitalized computer software
(7,633
)
(23,536
)
Other
(990
)
(1,778
)
Cash used by investing
activities
(21,714
)
(31,956
)
FINANCING ACTIVITIES
Borrowings under revolving credit
facility
76,000
—
Repayments under revolving credit
facility
(36,000
)
—
Repayments of term loans
—
(125,000
)
Repurchases of Common Stock
(62,494
)
(10,006
)
Dividends paid
(77,021
)
(69,068
)
Shares withheld for taxes, net of proceeds
from issuance of Common Stock
(12,643
)
(2,209
)
Other
7,002
(562
)
Cash used by financing
activities
(105,156
)
(206,845
)
Effect of foreign currency rate changes on
cash and cash equivalents
(13,128
)
(3,247
)
Net change in cash and cash
equivalents
(127,269
)
(32,696
)
Cash and cash equivalents – beginning
of period
185,322
248,138
Cash and cash equivalents – end of
period
$
58,053
$
215,442
KONTOOR BRANDS, INC.
Supplemental Financial
Information
Business Segment
Information
(Unaudited)
Three Months Ended
September
% Change
% Change Constant
Currency (a)
(Dollars in thousands)
2022
2021
Segment revenues:
Wrangler
$
406,161
$
421,508
(4
)%
(2
)%
Lee
198,465
227,973
(13
)%
(9
)%
Total reportable segment
revenues
604,626
649,481
(7
)%
(4
)%
Other revenues (b)
1,895
2,817
(33
)%
(33
)%
Total net revenues
$
606,521
$
652,298
(7
)%
(5
)%
Segment profit:
Wrangler
$
75,597
$
77,184
(2
)%
(1
)%
Lee
26,703
42,969
(38
)%
(33
)%
Total reportable segment profit
$
102,300
$
120,153
(15
)%
(12
)%
Corporate and other expenses
(28,775
)
(35,051
)
(18
)%
(10
)%
Interest expense
(8,858
)
(7,156
)
24
%
24
%
Interest income
263
345
(24
)%
(6
)%
(Loss) profit related to other revenues
(b)
(678
)
202
(436
)%
(435
)%
Income before income taxes
$
64,252
$
78,493
(18
)%
(18
)%
Nine Months Ended
September
% Change
% Change Constant
Currency (a)
(Dollars in thousands)
2022
2021
Segment revenues:
Wrangler
$
1,236,528
$
1,131,631
9
%
10
%
Lee
655,738
654,135
—
%
3
%
Total reportable segment
revenues
1,892,266
1,785,766
6
%
8
%
Other revenues (b)
7,570
9,059
(16
)%
(16
)%
Total net revenues
$
1,899,836
$
1,794,825
6
%
8
%
Segment profit:
Wrangler
$
226,049
$
214,001
6
%
6
%
Lee
101,837
112,583
(10
)%
(7
)%
Total reportable segment profit
$
327,886
$
326,584
—
%
2
%
Corporate and other expenses
(60,774
)
(113,585
)
(46
)%
(44
)%
Interest expense
(25,115
)
(26,588
)
(6
)%
(5
)%
Interest income
1,028
1,024
—
%
9
%
(Loss) profit related to other revenues
(b)
(267
)
261
(202
)%
(202
)%
Income before income taxes
$
242,758
$
187,696
29
%
30
%
(a) Refer to constant currency definition
on the following pages.
(b) We report an "Other" category in order
to reconcile segment revenues and segment profit to the Company's
operating results, but the Other category is not considered a
reportable segment based on evaluation of aggregation criteria.
Other primarily includes other revenue sources, including sales and
licensing of Rock & Republic® apparel.
KONTOOR BRANDS, INC.
Supplemental Financial
Information
Business Segment Information –
Constant Currency Basis (Non-GAAP)
(Unaudited)
Three Months Ended September
2022
As Reported
Adjust for Foreign
(In thousands)
under GAAP
Currency Exchange
Constant Currency
Segment revenues:
Wrangler
$
406,161
$
6,531
$
412,692
Lee
198,465
9,686
208,151
Total reportable segment
revenues
604,626
16,217
620,843
Other revenues
1,895
(1
)
1,894
Total net revenues
$
606,521
$
16,216
$
622,737
Segment profit:
Wrangler
$
75,597
$
855
$
76,452
Lee
26,703
2,105
28,808
Total reportable segment profit
$
102,300
$
2,960
$
105,260
Corporate and other expenses
(28,775
)
(2,709
)
(31,484
)
Interest expense
(8,858
)
(9
)
(8,867
)
Interest income
263
61
324
(Loss) profit related to other
revenues
(678
)
1
(677
)
Income before income taxes
$
64,252
$
304
$
64,556
Nine Months Ended September
2022
As Reported
Adjust for Foreign
(In thousands)
under GAAP
Currency Exchange
Constant Currency
Segment revenues:
Wrangler
$
1,236,528
$
13,569
$
1,250,097
Lee
655,738
16,577
672,315
Total reportable segment
revenues
1,892,266
30,146
1,922,412
Other revenues
7,570
14
7,584
Total net revenues
$
1,899,836
$
30,160
$
1,929,996
Segment profit:
Wrangler
$
226,049
$
1,334
$
227,383
Lee
101,837
2,721
104,558
Total reportable segment profit
$
327,886
$
4,055
$
331,941
Corporate and other expenses
(60,774
)
(2,723
)
(63,497
)
Interest expense
(25,115
)
(11
)
(25,126
)
Interest income
1,028
85
1,113
(Loss) profit related to other
revenues
(267
)
1
(266
)
Income before income taxes
$
242,758
$
1,407
$
244,165
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
September
(In thousands, except for per share
amounts)
2022
2021
Cost of goods sold - as reported under
GAAP
$
342,460
$
362,735
Restructuring & separation costs
(a)
—
1,821
Adjusted cost of goods sold
$
342,460
$
364,556
Selling, general and administrative
expenses - as reported under GAAP
$
188,995
$
203,583
Restructuring & separation costs
(a)
(14,740
)
(17,685
)
Adjusted selling, general and
administrative expenses
$
174,255
$
185,898
Interest expense - as reported under
GAAP
$
(8,858
)
$
(7,156
)
Other adjustments (b)
—
(525
)
Adjusted interest expense
$
(8,858
)
$
(7,681
)
Other expense, net - as reported under
GAAP
$
(2,219
)
$
(676
)
Other adjustments (b)
—
525
Adjusted other expense, net
$
(2,219
)
$
(151
)
Diluted earnings per share - as
reported under GAAP
$
0.90
$
1.07
Restructuring & separation costs
(a)
0.21
0.21
Adjusted diluted earnings per
share
$
1.11
$
1.28
Net income - as reported under
GAAP
$
51,083
$
63,413
Income taxes
13,169
15,080
Interest expense
8,858
7,156
Interest income
(263
)
(345
)
EBIT
$
72,847
$
85,304
Depreciation and amortization - as
reported under GAAP
$
9,006
$
8,926
Restructuring & separation costs
(a)
—
(106
)
Adjusted depreciation and
amortization
$
9,006
$
8,820
EBITDA
$
81,853
$
94,230
Restructuring & separation costs
(a)
14,740
15,758
Other adjustments (b)
—
525
Adjusted EBITDA
$
96,593
$
110,513
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. 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
September
2022
2021
(Dollars in thousands, except per share
amounts)
GAAP
Adjusted
GAAP
Adjusted
Net revenues
$
606,521
$
606,521
$
652,298
$
652,298
Gross margin
$
264,061
$
264,061
$
289,563
$
287,742
As a percentage of total net revenues
43.5
%
43.5
%
44.4
%
44.1
%
Selling, general and administrative
expenses
$
188,995
$
174,255
$
203,583
$
185,898
As a percentage of total net revenues
31.2
%
28.7
%
31.2
%
28.5
%
Operating income
$
75,066
$
89,806
$
85,980
$
101,844
As a percentage of total net revenues
12.4
%
14.8
%
13.2
%
15.6
%
Earnings per share - diluted
$
0.90
$
1.11
$
1.07
$
1.28
Net income
$
51,083
$
62,987
$
63,413
$
75,757
Income taxes
13,169
16,005
15,080
18,600
Interest expense
8,858
8,858
7,156
7,681
Interest income
(263
)
(263
)
(345
)
(345
)
EBIT
$
72,847
$
87,587
$
85,304
$
101,693
Depreciation and amortization
$
9,006
$
9,006
$
8,926
$
8,820
EBITDA
$
81,853
$
96,593
$
94,230
$
110,513
As a percentage of total net revenues
13.5
%
15.9
%
14.4
%
16.9
%
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.
Management uses the above 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.
KONTOOR BRANDS, INC.
Supplemental Financial
Information
Disaggregation of
Revenue
(Unaudited)
Three Months Ended September
2022
Revenues - As Reported
(In thousands)
Wrangler
Lee
Other
Total
Channel revenues
U.S. Wholesale
$
324,564
$
84,122
$
1,771
$
410,457
Non-U.S. Wholesale
50,448
81,682
28
132,158
Direct-to-Consumer
31,149
32,661
96
63,906
Total
$
406,161
$
198,465
$
1,895
$
606,521
Geographic revenues
U.S.
$
351,624
$
98,862
$
1,867
$
452,353
International
54,537
99,603
28
154,168
Total
$
406,161
$
198,465
$
1,895
$
606,521
Three Months Ended September
2021
Revenues - As Reported
(In thousands)
Wrangler
Lee
Other
Total
Channel revenues
U.S. Wholesale
$
344,277
$
105,779
$
2,226
$
452,282
Non-U.S. Wholesale
48,558
86,494
446
135,498
Direct-to-Consumer
28,673
35,700
6
64,379
Other
—
—
139
139
Total
$
421,508
$
227,973
$
2,817
$
652,298
Geographic revenues
U.S.
$
368,507
$
121,951
$
2,371
$
492,829
International
53,001
106,022
446
159,469
Total
$
421,508
$
227,973
$
2,817
$
652,298
KONTOOR BRANDS, INC.
Supplemental Financial
Information
Summary of Select Revenue
Information
(Unaudited)
Three Months Ended
September
(Dollars in thousands)
2022
2021
2022 to 2021
As Reported under GAAP
% Change Reported
% Change Constant
Currency
Wrangler U.S.
$
351,624
$
368,507
(5
)%
(5
)%
Lee U.S.
98,862
121,951
(19
)%
(19
)%
Other
1,867
2,371
(21
)%
(21
)%
Total U.S. revenues
$
452,353
$
492,829
(8
)%
(8
)%
Wrangler International
$
54,537
$
53,001
3
%
15
%
Lee International
99,603
106,022
(6
)%
3
%
Other
28
446
(94
)%
(94
)%
Total International revenues
$
154,168
$
159,469
(3
)%
7
%
Global Wrangler
$
406,161
$
421,508
(4
)%
(2
)%
Global Lee
198,465
227,973
(13
)%
(9
)%
Global Other
1,895
2,817
(33
)%
(33
)%
Total revenues
$
606,521
$
652,298
(7
)%
(5
)%
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 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
September 2022, restructuring and separation costs include charges
of $13.7 million related to severance and employee-related benefits
and $1.0 million of other costs, both of which are attributable to
the globalization of the Company’s operating model and relocation
of the European headquarters. During the three months ended
September 2021, restructuring and separation costs primarily
related to the Company's global ERP system and information
technology infrastructure build-out, as well as strategic actions
taken by the Company, including adjustments resulting from the
Company's transition of our India business to a licensed model.
Total restructuring and separation costs resulted in a
corresponding tax impact of $2.8 million and $3.5 million for the
three months ended September 2022 and September 2021,
respectively.
(b) Other adjustments have been made for
the three months ended September 2021 to remove the funding fees
related to the accounts receivable sale arrangement, as they are
treated as interest expense in the calculation of adjusted EBITDA
for debt compliance purposes. Management believes these funding
fees are not material to evaluating the overall results of the
Company and thus has discontinued this adjustment effective in the
first quarter of 2022.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20221103005247/en/
Investors: Eric Tracy, (336) 332-5205 Vice President,
Corporate Finance and Investor Relations
Eric.Tracy@kontoorbrands.com
or
Media: Julia Burge, (336) 332-5122 Director, External
Communications Julia.Burge@kontoorbrands.com
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