Exhibit 99.1
KONTOOR BRANDS REPORTS THIRD QUARTER 2022 RESULTS;
UPDATES OUTLOOK FOR FULL YEAR 2022
•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
GREENSBORO, N.C. - November 3, 2022 - 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.
Contacts
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
###
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.