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Kontoor Brands Reports Third Quarter 2021 Results; Raises Outlook for Fiscal 2021

  • Q3 Reported EPS of $1.07; Adjusted EPS of $1.28
  • Q3 Reported Revenue of $652 million increased 12 percent compared to the prior year
  • Q3 Reported Gross Margin of 44.4 percent increased 20 basis points compared to the prior year; Q3 Adjusted Gross Margin of 44.1 percent increased 80 basis points compared to the prior year
  • Fiscal 2021 guidance raised; Adjusted EPS is now expected to be $4.15 to $4.20, up from the prior range of $3.90 to $4.00

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 2, 2021.

“Kontoor is uniquely positioned to win in the marketplace, as evidenced by another quarter of broad-based strength across segments, channels and regions. And we expect our momentum to continue building, as reflected in our raised fiscal year guidance. Our strategic investments in key TSR-bolstering enablers such as digital, demand creation and people should fuel our accelerating fundamentals,” said Scott Baxter, President and Chief Executive Officer, Kontoor Brands.

“Additionally, our balanced capital allocation strategy affords us enhanced optionality. We are continuing to invest in pillars of growth, while also delivering superior cash returns to our stakeholders. This is highlighted in the recently announced dividend increase and initial share repurchases during the third quarter,” added Baxter.

This release refers to “adjusted” amounts 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.

In addition, due to the significant impact of COVID-19 on prior-year figures, this release will also include periodic comparisons to 2019 for additional context.

Third Quarter 2021 Income Statement Review

Revenue increased to $652 million, a 12 percent increase on a reported basis and 11 percent in constant currency over the same period in the prior year.

Revenue increases compared to the prior year were primarily driven by strength in Digital, including own.com and digital wholesale, as well as improved performance across the U.S. wholesale business and positive trends in international markets. Gains in the quarter were somewhat offset by the impacts of the previously announced strategic actions related to VF Outlet store closures and the discontinuation of the sale of third-party branded merchandise in all stores. Compared to revenue in the third quarter of 2019, reported revenue increased 2 percent, or up 11 percent excluding the strategic actions.

U.S. revenue was $493 million, increasing 8 percent over the same period in the prior year driven by growth in U.S. wholesale, including new business development wins and strength in Digital, with own.com increasing 52 percent and digital wholesale increasing 90 percent. Compared to revenue in the third quarter of 2019, own.com and digital wholesale increased 118 percent and 237 percent, respectively.

International revenue was $159 million, a 25 percent increase over the same period in the prior year on a reported basis and 20 percent in constant currency. China increased 22 percent over the same period in the prior year on a reported basis and 14 percent in constant currency. The European business increased 19 percent over the same period in the prior year on both a reported and constant currency basis.

Wrangler brand global revenue increased to $422 million, a 22 percent increase over the same period in the prior year on a reported basis and 21 percent in constant currency. Wrangler U.S. revenue increased 20 percent compared to the same period last year, driven by increases in Digital, Western and Outdoor.

Lee brand global revenue increased to $228 million, a 6 percent increase over the same period in the prior year on a reported basis and 4 percent in constant currency. In the U.S., strength from improving sell through of new programs and increases in Digital was more than offset by the previously mentioned strategic actions, demand fulfillment challenges, and comparisons to a significant new distribution gain in the third quarter of 2020. Lee U.S. revenue decreased 4 percent compared to the same quarter last year, but is expected to return to strong growth in the fourth quarter.

Other global revenue declined to $3 million driven by impacts from the strategic actions related to VF Outlet operations.

Gross margin increased 20 basis points to 44.4 percent of revenue, compared to the same period in the prior year. Adjusted gross margin increased 80 basis points to 44.1 percent of revenue, compared to the same period in the prior year. Favorable channel, customer and product mix, as well as business model changes, were the primary drivers of gross margin gains in the quarter. Higher transitory air freight expenses in support of strong demand negatively impacted gross margin by 180 basis points in the quarter. Compared to the third quarter of 2019, adjusted gross margin increased 320 basis points.

Selling, General & Administrative (SG&A) expenses were $204 million on a reported basis. Adjusted SG&A was $186 million, or 28.5 percent of revenue, up 290 basis points compared to the same period in the prior year. Adjustments primarily relate to costs associated with the global ERP implementation and information technology infrastructure build-out. Higher demand creation, digital investments and compensation costs more than offset better fixed cost leverage on improving revenue and restructuring benefits. Prior year comparisons were affected by reduced spending in 2020 in light of COVID uncertainty.

Operating income on a reported basis was $86 million. Adjusted operating income was $102 million, down 1 percent compared to the same period in the prior year. Adjusted operating margin decreased 200 basis points to 15.6 percent of revenue, driven by normalizing of COVID-related expense, as well as higher transitory air freight expenses and amplified investments in demand creation to drive future accelerating revenue growth. These investments more than offset structural gross margin improvements and fixed cost leverage on improving revenue.

Earnings Before Interest, Tax, Depreciation and Amortization (EBITDA) on a reported basis was $94 million. Adjusted EBITDA was $111 million, increasing 1 percent compared to the same period in the prior year. Adjusted EBITDA margin decreased 190 basis points to 16.9 percent of revenue.

Earnings per share was $1.07 on a reported basis compared to $1.05 in the same period in the prior year. Adjusted earnings per share was $1.28 compared to $1.33 in the same period in the prior year.

October 2, 2021, Balance Sheet and Liquidity Review

The Company ended the third quarter of 2021 with $215 million in cash and equivalents, and approximately $0.8 billion in long-term debt.

As of October 2, 2021, the Company had no outstanding borrowings under the Revolving Credit Facility and $488 million available for borrowing against this facility.

As previously announced, the Company’s Board of Directors declared a regular quarterly cash dividend of $0.46 per share, an increase of $0.06 or 15 percent. Consistent with a commitment to return cash to shareholders, the Company repurchased $10 million in common stock during the third quarter. When combined with the strong dividend, the Company has returned a total of $79 million to shareholders fiscal year-to-date. The Company plans on continuing to use its share repurchase program to offset dilution, while also opportunistically buying shares as market conditions warrant.

Inventory at the end of the third quarter of 2021 was $409 million, down 5 percent compared to the prior-year period. Excluding balances related to VF Outlet and India, inventory at the end of the third quarter of 2021 increased 4 percent compared to the prior-year period.

Outlook

The Company is raising its fiscal 2021 Outlook. While the impacts from the COVID-19 pandemic and macroeconomic factors remain uncertain, the Company is updating its fiscal 2021 guidance as follows:

  • Revenue is now expected to increase at a high-teens percentage over 2020, to $2.47 billion to $2.48 billion, as compared to a mid-teens percentage in the prior guidance, including a mid-single digit adverse impact from the VF Outlet actions and India business model change.
  • Adjusted gross margin is now expected to increase at the high end of the prior guidance range of 44.5 percent to 45.0 percent of revenue, compared to 41.2 percent achieved in 2020. The increase is expected to be driven by growth in more accretive channels such as Digital and International, somewhat tempered by higher transitory air freight expenses in support of strong demand.
  • SG&A investments will continue to be made in brands and capabilities. Due to the strengthening revenue and gross margin outlook, during the fourth quarter, the Company expects to make incremental SG&A investments in demand creation and Digital to support expected accelerating revenue growth in 2022.
  • Adjusted EPS is now expected to be in the range of $4.15 to $4.20, as compared to $3.90 to $4.00 in the prior guidance, driven by operational performance. This EPS guidance includes a $0.20 impact from the incremental demand creation and Digital investments in the fourth quarter referenced above, somewhat offset by lower interest expense, a lower expected effective tax rate and year-to-date share repurchases, which in aggregate should benefit EPS by $0.19.
  • Capital Expenditures are expected to be in the range of $40 million to $50 million, including $25 million to $30 million associated with the implementation of the Company’s new global ERP system.
  • For 2021, an effective tax rate of approximately 21 percent is expected, compared to 22 percent in the prior guidance. Interest expense is expected to be approximately $35 million to $40 million, compared to approximately $40 million to $45 million in the prior guidance.

Webcast Information

Kontoor Brands will host its third quarter 2021 conference call beginning at 8:30 a.m. Eastern Time today, November 4, 2021. 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 the third quarter of 2021 and 2020 primarily represent costs associated with the Company’s global ERP implementation and information technology infrastructure build-out. Adjustments during the third quarter of 2019 primarily represent restructuring and separation costs, a non-cash impairment charge related to our Rock & Republic® trademark and other adjustments. 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. A reconciliation of non-GAAP forward looking information to the corresponding GAAP measures cannot be provided without unreasonable efforts due to the challenge in quantifying various items including, but not limited to, the effects of foreign currency movements, ERP implementation expenses, gains or losses on sales of assets, taxes, and any future restructuring or impairment charges.

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 the Company’s 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)

 

2021

 

2020

 

Change

 

2021

 

2020

 

Change

Net revenues

 

$

652,298

 

 

$

583,222

 

 

12%

 

$

1,794,825

 

 

$

1,436,974

 

 

25%

Costs and operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

Cost of goods sold

 

362,735

 

 

325,512

 

 

11%

 

978,558

 

 

854,134

 

 

15%

Selling, general and administrative expenses

 

203,583

 

 

174,846

 

 

16%

 

601,934

 

 

521,935

 

 

15%

Total costs and operating expenses

 

566,318

 

 

500,358

 

 

13%

 

1,580,492

 

 

1,376,069

 

 

15%

Operating income

 

85,980

 

 

82,864

 

 

4%

 

214,333

 

 

60,905

 

 

252%

Interest expense

 

(7,156

)

 

(13,249

)

 

(46)%

 

(26,588

)

 

(37,308

)

 

(29)%

Interest income

 

345

 

 

283

 

 

22%

 

1,024

 

 

1,255

 

 

(18)%

Other expense, net

 

(676

)

 

(751

)

 

(10)%

 

(1,073

)

 

(1,710

)

 

(37)%

Income before income taxes

 

78,493

 

 

69,147

 

 

14%

 

187,696

 

 

23,142

 

 

711%

Income taxes

 

15,080

 

 

8,362

 

 

80%

 

36,183

 

 

(1,669

)

 

2,268%

Net income

 

$

63,413

 

 

$

60,785

 

 

4%

 

$

151,513

 

 

$

24,811

 

 

511%

Earnings per common share

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

1.10

 

 

$

1.07

 

 

 

 

$

2.63

 

 

$

0.44

 

 

 

Diluted

 

$

1.07

 

 

$

1.05

 

 

 

 

$

2.56

 

 

$

0.43

 

 

 

Weighted average shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

57,648

 

 

57,007

 

 

 

 

57,535

 

 

56,938

 

 

 

Diluted

 

59,282

 

 

57,642

 

 

 

 

59,180

 

 

57,669

 

 

 

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 2021 and September 2020 relate to the 13-week and 39-week fiscal periods ended October 2, 2021 and September 26, 2020, respectively. References to September 2021, December 2020 and September 2020 relate to the balance sheets as of October 2, 2021, January 2, 2021 and September 26, 2020, respectively. Amounts herein may not recalculate due to the use of unrounded numbers.

 

KONTOOR BRANDS, INC.

Condensed Consolidated Balance Sheets

(Unaudited)

 

(In thousands)

 

September 2021

 

December 2020

 

September 2020

ASSETS

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

Cash and equivalents

 

$

215,442

 

 

$

248,138

 

 

$

285,251

 

Accounts receivable, net

 

269,874

 

 

231,397

 

 

221,971

 

Inventories

 

409,110

 

 

340,732

 

 

432,280

 

Prepaid expenses and other current assets

 

93,922

 

 

81,413

 

 

81,781

 

Total current assets

 

988,348

 

 

901,680

 

 

1,021,283

 

Property, plant and equipment, net

 

106,959

 

 

118,897

 

 

122,739

 

Operating lease assets

 

56,555

 

 

60,443

 

 

71,075

 

Intangible assets, net

 

14,975

 

 

15,991

 

 

16,458

 

Goodwill

 

212,503

 

 

213,392

 

 

212,637

 

Other assets

 

233,842

 

 

235,413

 

 

224,532

 

TOTAL ASSETS

 

$

1,613,182

 

 

$

1,545,816

 

 

$

1,668,724

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

Short-term borrowings

 

$

254

 

 

$

1,114

 

 

$

148

 

Current portion of long-term debt

 

18,125

 

 

25,000

 

 

15,625

 

Accounts payable

 

244,681

 

 

167,240

 

 

207,564

 

Accrued liabilities

 

218,058

 

 

192,952

 

 

206,521

 

Operating lease liabilities, current

 

23,480

 

 

27,329

 

 

33,065

 

Total current liabilities

 

504,598

 

 

413,635

 

 

462,923

 

Operating lease liabilities, noncurrent

 

36,329

 

 

39,806

 

 

43,023

 

Other liabilities

 

114,088

 

 

119,777

 

 

115,040

 

Long-term debt

 

773,413

 

 

887,957

 

 

1,021,710

 

Commitments and contingencies

 

 

 

 

 

 

Total liabilities

 

1,428,428

 

 

1,461,175

 

 

1,642,696

 

Total equity

 

184,754

 

 

84,641

 

 

26,028

 

TOTAL LIABILITIES AND EQUITY

 

$

1,613,182

 

 

$

1,545,816

 

 

$

1,668,724

 

 

KONTOOR BRANDS, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

 

 

Nine Months Ended September

(In thousands)

 

2021

 

2020

OPERATING ACTIVITIES

 

 

 

 

Net income

 

$

151,513

 

 

$

24,811

 

Adjustments to reconcile net income to cash provided by operating activities:

 

 

 

 

Depreciation and amortization

 

26,675

 

 

24,384

 

Stock-based compensation

 

29,211

 

 

9,738

 

Other

 

1,953

 

 

70,750

 

Cash provided by operating activities

 

209,352

 

 

129,683

 

INVESTING ACTIVITIES

 

 

 

 

Property, plant and equipment expenditures

 

(6,642

)

 

(16,481

)

Capitalized computer software

 

(23,536

)

 

(30,038

)

Proceeds from sales of assets

 

95

 

 

13,068

 

Other

 

(1,873

)

 

(3,651

)

Cash used by investing activities

 

(31,956

)

 

(37,102

)

FINANCING ACTIVITIES

 

 

 

 

Borrowings under revolving credit facility

 

 

 

512,500

 

Repayments under revolving credit facility

 

 

 

(387,500

)

Payment of deferred financing costs

 

 

 

(4,346

)

Repayments of term loans

 

(125,000

)

 

 

Repurchases of Common Stock

 

(10,006

)

 

 

Dividends paid

 

(69,068

)

 

(31,877

)

Proceeds from issuance of Common Stock, net of shares withheld for taxes

 

(2,209

)

 

(2,800

)

Other

 

(562

)

 

(885

)

Cash (used) provided by financing activities

 

(206,845

)

 

85,092

 

Effect of foreign currency rate changes on cash and cash equivalents

 

(3,247

)

 

770

 

Net change in cash and cash equivalents

 

(32,696

)

 

178,443

 

Cash and cash equivalents – beginning of period

 

248,138

 

 

106,808

 

Cash and cash equivalents – end of period

 

$

215,442

 

 

$

285,251

 

 

KONTOOR BRANDS, INC.

Supplemental Financial Information

Business Segment Information

(Unaudited)

 

 

 

Three Months Ended September

 

% Change

 

% Change Constant

Currency (a)

(Dollars in thousands)

 

2021

 

2020

 

 

Segment revenues:

 

 

 

 

 

 

 

 

Wrangler

 

$

421,508

 

 

$

346,629

 

 

22%

 

21%

Lee

 

227,973

 

 

214,440

 

 

6%

 

4%

Total reportable segment revenues

 

649,481

 

 

561,069

 

 

16%

 

15%

Other revenues (b)

 

2,817

 

 

22,153

 

 

(87)%

 

(87)%

Total net revenues

 

$

652,298

 

 

$

583,222

 

 

12%

 

11%

Segment profit:

 

 

 

 

 

 

 

 

Wrangler

 

$

77,184

 

 

$

76,908

 

 

—%

 

—%

Lee

 

42,969

 

 

40,968

 

 

5%

 

1%

Total reportable segment profit

 

$

120,153

 

 

$

117,876

 

 

2%

 

1%

Corporate and other expenses

 

(35,051

)

 

(31,347

)

 

12%

 

11%

Interest expense

 

(7,156

)

 

(13,249

)

 

(46)%

 

(46)%

Interest income

 

345

 

 

283

 

 

22%

 

10%

Profit (loss) related to other revenues (b)

 

202

 

 

(4,416

)

 

105%

 

104%

Income before income taxes

 

$

78,493

 

 

$

69,147

 

 

14%

 

12%

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September

 

% Change

 

% Change Constant

Currency (a)

 

 

2021

 

2020

 

 

Segment revenues:

 

 

 

 

 

 

 

 

Wrangler

 

$

1,131,631

 

 

$

901,670

 

 

26%

 

25%

Lee

 

654,135

 

 

483,162

 

 

35%

 

31%

Total reportable segment revenues

 

1,785,766

 

 

1,384,832

 

 

29%

 

27%

Other revenues (b)

 

9,059

 

 

52,142

 

 

(83)%

 

(83)%

Total net revenues

 

$

1,794,825

 

 

$

1,436,974

 

 

25%

 

23%

Segment profit:

 

 

 

 

 

 

 

 

Wrangler

 

$

214,001

 

 

$

139,709

 

 

53%

 

53%

Lee

 

112,583

 

 

23,524

 

 

379%

 

360%

Total reportable segment profit

 

$

326,584

 

 

$

163,233

 

 

100%

 

97%

Corporate and other expenses

 

(113,585

)

 

(90,917

)

 

25%

 

24%

Interest expense

 

(26,588

)

 

(37,308

)

 

(29)%

 

(29)%

Interest income

 

1,024

 

 

1,255

 

 

(18)%

 

(23)%

Profit (loss) related to other revenues (b)

 

261

 

 

(13,121

)

 

102%

 

101%

Income before income taxes

 

$

187,696

 

 

$

23,142

 

 

711%

 

691%

(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. Other also included sales of third-party branded merchandise at VF Outlet stores through the first quarter of 2021. During 2020, the Company decided to discontinue the sale of third-party branded merchandise in all VF Outlet stores, exit certain VF Outlet stores and convert all remaining locations to Lee Wrangler OutletTM and Lee Wrangler Clearance CenterTM retail stores. Sales of Wrangler® and Lee® branded products in our retail stores are not included in Other and are reported in the respective segments.

 

KONTOOR BRANDS, INC.

Supplemental Financial Information

Business Segment Information – Constant Currency Basis (Non-GAAP)

(Unaudited)

 

 

 

Three Months Ended September 2021

 

 

As Reported

 

Adjust for Foreign

 

 

(In thousands)

 

under GAAP

 

Currency Exchange

 

Constant Currency

Segment revenues:

 

 

 

 

 

 

Wrangler

 

$

421,508

 

 

$

(1,176

)

 

$

420,332

 

Lee

 

227,973

 

 

(5,011

)

 

222,962

 

Total reportable segment revenues

 

649,481

 

 

(6,187

)

 

643,294

 

Other revenues

 

2,817

 

 

(23

)

 

2,794

 

Total net revenues

 

$

652,298

 

 

$

(6,210

)

 

$

646,088

 

Segment profit:

 

 

 

 

 

 

Wrangler

 

$

77,184

 

 

$

33

 

 

$

77,217

 

Lee

 

42,969

 

 

(1,400

)

 

41,569

 

Total reportable segment profit

 

$

120,153

 

 

$

(1,367

)

 

$

118,786

 

Corporate and other expenses

 

(35,051

)

 

270

 

 

(34,781

)

Interest expense

 

(7,156

)

 

3

 

 

(7,153

)

Interest income

 

345

 

 

(35

)

 

310

 

Profit (loss) related to other revenues

 

202

 

 

(25

)

 

177

 

Income before income taxes

 

$

78,493

 

 

$

(1,154

)

 

$

77,339

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 2021

 

 

As Reported

 

Adjust for Foreign

 

 

 

 

under GAAP

 

Currency Exchange

 

Constant Currency

Segment revenues:

 

 

 

 

 

 

Wrangler

 

$

1,131,631

 

 

$

(8,804

)

 

$

1,122,827

 

Lee

 

654,135

 

 

(19,666

)

 

634,469

 

Total reportable segment revenues

 

1,785,766

 

 

(28,470

)

 

1,757,296

 

Other revenues

 

9,059

 

 

(144

)

 

8,915

 

Total net revenues

 

$

1,794,825

 

 

$

(28,614

)

 

$

1,766,211

 

Segment profit:

 

 

 

 

 

 

Wrangler

 

$

214,001

 

 

$

(512

)

 

$

213,489

 

Lee

 

112,583

 

 

(4,435

)

 

108,148

 

Total reportable segment profit

 

$

326,584

 

 

$

(4,947

)

 

$

321,637

 

Corporate and other expenses

 

(113,585

)

 

406

 

 

(113,179

)

Interest expense

 

(26,588

)

 

9

 

 

(26,579

)

Interest income

 

1,024

 

 

(57

)

 

967

 

Profit (loss) related to other revenues

 

261

 

 

(70

)

 

191

 

Income before income taxes

 

$

187,696

 

 

$

(4,659

)

 

$

183,037

 

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)

 

2021

 

2020

 

2019

Cost of goods sold - as reported under GAAP

 

$

362,735

 

$

325,512

 

$

382,181

Restructuring & separation costs (a)

 

1,821

 

5,384

 

(4,867)

Adjusted cost of goods sold

 

$

364,556

 

$

330,896

 

$

377,314

Selling, general and administrative expenses - as reported under GAAP

 

$

203,583

 

$

174,846

 

$

192,293

Restructuring & separation costs (a)

 

(17,685)

 

(25,340)

 

(14,490)

Adjusted selling, general and administrative expenses

 

$

185,898

 

$

149,506

 

$

177,803

Other expense, net - as reported under GAAP

 

$

(676)

 

$

(751)

 

$

(1,456)

Other adjustments (b)

 

525

 

442

 

1,183

Adjusted other expense, net

 

$

(151)

 

$

(309)

 

$

(273)

Diluted earnings per share - as reported under GAAP

 

$

1.07

 

$

1.05

 

$

0.25

Restructuring & separation costs (a)

 

0.21

 

0.27

 

0.26

Non-cash impairment of intangible asset (c)

 

 

 

0.44

Adjusted diluted earnings per share

 

$

1.28

 

$

1.33

 

$

0.95

Net income - as reported under GAAP

 

$

63,413

 

$

60,785

 

$

14,502

Income taxes

 

15,080

 

8,362

 

1,642

Interest expense

 

7,156

 

13,249

 

14,140

Interest income

 

(345)

 

(283)

 

(712)

EBIT

 

$

85,304

 

$

82,113

 

$

29,572

Depreciation and amortization - as reported under GAAP

 

$

8,926

 

$

9,165

 

$

6,995

Restructuring & separation costs (a)

 

(106)

 

(2,238)

 

Adjusted depreciation and amortization

 

$

8,820

 

$

6,927

 

$

6,995

EBITDA

 

$

94,230

 

$

91,278

 

$

36,567

Restructuring & separation costs (a)

 

15,758

 

17,718

 

19,357

Non-cash impairment of intangible asset (c)

 32,636

Other adjustments (b)

 

525

 

442

 

1,183

Adjusted EBITDA

 

$

110,513

 

$

109,438

 

$

89,743

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" within the following pages. Amounts herein may not recalculate due to the use of unrounded numbers.

Notes to Supplemental Financial Information - Reconciliation of Adjusted Financial Measures

Management uses the above 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 2021, September 2020 and September 2019, restructuring and separation costs included charges of $18.1 million, $21.7 million and $7.7 million, respectively, related to the Company's global ERP system and information technology infrastructure build-out. During the three months ended September 2021, restructuring and separation costs also related to strategic actions taken by the Company, including charges resulting from the Company's transition of our India business to a licensed model. During the three months ended September 2020, restructuring and separation costs also included charges related to strategic actions taken by the Company, which included a $6.6 million gain on the sale of manufacturing assets. During the three months ended September 2019, restructuring and separation costs also included charges related to the spin-off from VF Corporation and establishment of Kontoor as a standalone public company. Total restructuring and separation costs resulted in a corresponding tax impact of $3.5 million, $4.2 million and $4.5 million for the three months ended September 2021, September 2020 and September 2019, respectively.

(b) Other adjustments have been made for the three months ended September 2021, September 2020 and September 2019 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.

(c) Non-cash impairment of intangible asset for the three months ended September 2019 represents a write-down of the Rock & Republic® trademark intangible asset to reflect fair value. The $32.6 million impairment charge resulted in a tax impact of $(7.4) million for the three months ended September 2019.

 

KONTOOR BRANDS, INC.

Supplemental Financial Information

Summary of Select GAAP and Non-GAAP Measures

(Unaudited)

 

 

 

Three Months Ended September

 

 

2021

 

2020

 

2019

(Dollars in thousands, except per share amounts)

 

GAAP

 

Adjusted

 

GAAP

 

Adjusted

 

GAAP

 

Adjusted

 

 

 

 

 

 

 

 

 

 

 

 

 

Net revenues

 

$

652,298

 

 

$

652,298

 

 

$

583,222

 

 

$

583,222

 

 

$

638,138

 

 

$

638,138

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross profit

 

$

289,563

 

 

$

287,742

 

 

$

257,710

 

 

$

252,326

 

 

$

255,957

 

 

$

260,824

 

As a percentage of total net revenues

 

44.4

%

 

44.1

%

 

44.2

%

 

43.3

%

 

40.1

%

 

40.9

%

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

$

203,583

 

 

$

185,898

 

 

$

174,846

 

 

$

149,506

 

 

$

192,293

 

 

$

177,803

 

As a percentage of total net revenues

 

31.2

%

 

28.5

%

 

30.0

%

 

25.6

%

 

30.1

%

 

27.9

%

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-cash impairment of intangible asset

 

$

 

 

$

 

 

$

 

 

$

 

 

$

32,636

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

$

85,980

 

 

$

101,844

 

 

$

82,864

 

 

$

102,820

 

 

$

31,028

 

 

$

83,021

 

As a percentage of total net revenues

 

13.2

%

 

15.6

%

 

14.2

%

 

17.6

%

 

4.9

%

 

13.0

%

Earnings per common share - diluted

 

$

1.07

 

 

$

1.28

 

 

$

1.05

 

 

$

1.33

 

 

$

0.25

 

 

$

0.95

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EBIT

 

$

85,304

 

 

$

101,693

 

 

$

82,113

 

 

$

102,511

 

 

$

29,572

 

 

$

82,748

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EBITDA

 

$

94,230

 

 

$

110,513

 

 

$

91,278

 

 

$

109,438

 

 

$

36,567

 

 

$

89,743

 

As a percentage of total net revenues

 

14.4

%

 

16.9

%

 

15.7

%

 

18.8

%

 

5.7

%

 

14.1

%

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" within the previous pages.

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 2021

 

 

Revenues - As Reported Under GAAP

 

 

 

 

 

 

 

 

 

(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

 

 

 

Three Months Ended September 2020

 

 

Revenues - As Reported Under GAAP

 

 

 

 

 

 

 

 

 

(In thousands)

 

Wrangler

 

Lee

 

Other

 

Total

Channel revenues

 

 

 

 

 

 

 

 

U.S. Wholesale

 

$

285,639

 

 

$

105,757

 

 

$

2,259

 

 

$

393,655

 

Non-U.S. Wholesale

 

35,724

 

 

70,555

 

 

1,124

 

 

107,403

 

Direct-to-Consumer

 

25,266

 

 

38,128

 

 

8

 

 

63,402

 

Other

 

 

 

 

 

18,762

 

 

18,762

 

Total

 

$

346,629

 

 

$

214,440

 

 

$

22,153

 

 

$

583,222

 

 

 

 

 

 

 

 

 

 

Geographic revenues

 

 

 

 

 

 

 

 

U.S.

 

$

307,512

 

 

$

126,912

 

 

$

21,029

 

 

$

455,453

 

International

 

39,117

 

 

87,528

 

 

1,124

 

 

127,769

 

Total

 

$

346,629

 

 

$

214,440

 

 

$

22,153

 

 

$

583,222

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 2019

 

 

Revenues - As Reported Under GAAP

 

 

 

 

 

 

 

 

 

(In thousands)

 

Wrangler

 

Lee

 

Other

 

Total

 

 

 

 

 

 

 

 

 

Geographic revenues

 

 

 

 

 

 

 

 

U.S.

 

$

302,819

 

 

$

115,700

 

 

$

38,263

 

 

$

456,782

 

International

 

64,387

 

 

116,521

 

 

448

 

 

181,356

 

Total

 

$

367,206

 

 

$

232,221

 

 

$

38,711

 

 

$

638,138

 

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" within the previous pages.

Notes to Supplemental Financial Information - Reconciliation of Adjusted Financial Measures

Management uses the above non-GAAP financial measures internally in its budgeting and review process and, in some cases, as a factor in determining compensation. 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

Summary of Select Revenue Information

(Unaudited)

 

 

 

Three Months Ended September

 

 

 

 

 

 

(Dollars in thousands)

 

2021

 

2020

 

2019

 

2021 to 2020

 

2021 to 2019

 

 

Reported

 

Reported

 

Reported

 

% Change Reported

 

% Change Constant Currency

 

% Change Reported

Wrangler U.S.

 

$

368,507

 

 

$

307,512

 

 

$

302,819

 

 

20%

 

20%

 

22%

Lee U.S.

 

121,951

 

 

126,912

 

 

115,700

 

 

(4)%

 

(4)%

 

5%

Other

 

2,371

 

 

21,029

 

 

38,263

 

 

(89)%

 

(89)%

 

(94)%

Total U.S. revenues

 

$

492,829

 

 

$

455,453

 

 

$

456,782

 

 

8%

 

8%

 

8%

 

 

 

 

 

 

 

 

 

 

 

 

 

Wrangler International

 

$

53,001

 

 

$

39,117

 

 

$

64,387

 

 

35%

 

32%

 

(18)%

Lee International

 

106,022

 

 

87,528

 

 

116,521

 

 

21%

 

15%

 

(9)%

Other

 

446

 

 

1,124

 

 

448

 

 

(60)%

 

(62)%

 

0%

Total International revenues

 

$

159,469

 

 

$

127,769

 

 

$

181,356

 

 

25%

 

20%

 

(12)%

 

 

 

 

 

 

 

 

 

 

 

 

 

Global Wrangler

 

$

421,508

 

 

$

346,629

 

 

$

367,206

 

 

22%

 

21%

 

15%

Global Lee

 

227,973

 

 

214,440

 

 

232,221

 

 

6%

 

4%

 

(2)%

Global Other

 

2,817

 

 

22,153

 

 

38,711

 

 

(87)%

 

(87)%

 

(93)%

Total revenues

 

$

652,298

 

 

$

583,222

 

 

$

638,138

 

 

12%

 

11%

 

2%

 

 

 

 

 

 

 

 

 

 

 

 

 

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" within the previous pages.

Notes to Supplemental Financial Information - Reconciliation of Adjusted Financial Measures

Management uses the above non-GAAP financial measures internally in its budgeting and review process and, in some cases, as a factor in determining compensation. 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.

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