KTB - Earnings call transcript Q3 2019

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Operator

Greetings. Welcome to Kontoor Brands’ third quarter 2019 earnings conference call. At this time, all participants will be in listen-only mode. A brief question and answer session will follow the formal presentation. If anyone today should require operator assistance during the conference, please press star, zero from your telephone keypad. is conference this note being recorded. Please

time, Tracy, Senior this may I’ll Mr. turn Eric to begin. over conference Director you the Tracy, At of Relations. Investor

Eric Tracy

earnings Kontoor everyone make will to could differ. are These on filed Commission. third those materially welcome to subject morning based statements. disclosures Participants to are These expectations Good our quarter today’s you and with forward-looking We Securities results XXXX detailed other cause current conference documents statements call uncertainties to call. on factors, that Brands actual and in reports. risk Exchange the and urge and cautionary read defined are uncertainties language in contained

we amounts today’s of news to to on the in our Rock stated, this on release impairment call that otherwise Republic model, was an separation related Adjusted and referred our impact define basis, the clearly business amounts exclude non-cash issued in be Unless changes which costs, morning. restructuring will adjusted & dollar charge trademark, tables tables and be items supplemental at on These the website the GAAP quantify found and view news in adjustments. is amounts financial to to our adjusted to and information measures investors. in which is provide useful can today’s kontoorbrands.com. release, available why A excluded management’s of identify included other reconciliation this

exchange foreign excluding the operational to in shifts be the constant currency intended understand of period. impacts a changes on basis, performance are help exchange noted, otherwise over currency will currency investors the on referred better our amounts translation excludes call Unless business, in of to rates. underlying amounts impact rates this to which the Constant currency

and Rustin Brands today’s Scott call Chief Financial are Welton. Officer Joining Chief and Officer, President me on Kontoor Executive Baxter,

We call anticipate Following our questions. last open one hour. for prepared call will the about we will your the remarks,

Scott turn With CEO that, to over I Baxter. it

Scott Baxter

our the we’re over spinoff morning provide serve regarding pleased you year this progress we’re to goal of in foundation we’re term since and Good investments strategic near improved quality strategic shareholder for to X% of making which the initiatives growth. total for cash May to to The joining our an everyone. implementing from profitability annualized the taking we’re innovation and are Eric. generation actions we’ve sales the you stated with achieving will also share XX%. significant talent and made of that Thank Thanks update us. driving Today as fuel return the our

We commitments. our plans on in remain deliver to and ability our confident these

improved and Our over resolve to drive growth successfully brands focused unwavering. enhance and the to long our term execute strategies remains against our

On today’s call, we key will areas. cover four

First, our we demand highlights vectors our enablers drivers, will platforms; will the quarter we robust performance; unlock geographies; our third, outlook detail including across will and these channels accretive we help pipeline long dimensionalize and and of update provide second, growth for provide will fourth, categories, that and to for quarter third we will creation term third evolving year. innovation growth the the a our select financial

of started the third get let’s that, highlights quarter. With with our

customer and a quarter date year third is of was excluding in revenue U.S. flat the bankruptcy. X% impact key down to

our with during We will softer continue largest distribution key Despite year. we and the retail U.S. win landscape, market. for retail U.S. to winning of challenges in well the some retailers including expect be tiers are essentially and the flat to positioned the the modestly traffic quarter, in

high our distribution supports Our points focus brands domestic quality adding further strategy. on our for

second a quarter. International revenue improvement significant down the X% was from constant currency,

through product influenced the are results our as introductions on have last new already selling we well and European our leadership As the call, teams have we across Asian marketplace. and new in mentioned markets positively

increase, third quarter, early brand good Lee in currency news schedule in comp We’re advance store in our Wrangler China in the X% increased a revenue XXXX. especially that the brand China of the pleased to during launch constant XX% on note of including

taken progress, additional influenced quality meaningful amplify we’ve near of our made further we’ve of actions sales While proactively term that initiatives. some our also decided performance. to We

points the distribution chose we for that the India the exit channels in years, select results to several will established were last balance our in year. of Specifically, impact of which over

We will the bit impacts discuss a on these more call. later

our we to are on, to pleased excel. continues Moving that report digital performance

digital Our quarter. third XX% branded was in the business up

validate approach increased constant investments XX% currency yields on to superior basis, that digital the results wholesale PSR-driven quarter in third While these returns. our

brand, note however, impact X% quarter; in a of excluding customer declined performance date we in important and U.S. revenue customer quarter. Wrangler Wrangler’s expect the U.S. revenue our excluding to the the was to Regarding wholesale to that it’s wholesale third flat the improve large fourth bankruptcy, bankruptcy, our year

was Regarding X% a to quarter. impact bright margin XX XX.X%, up is our a bit revenue during quality benefiting of the gross remains while spot, hold bankruptcy, favorable restructuring and take of the up to have wholesale the XX% The U.S. initiatives the points to Lee ahead customer importance, year third begun excluding up our the sales in in X% from Lee men’s Of our mix, decreased business basis U.S. of quarter plan. and brand, date.

with million our consistent earnings we share, the during third per and capital the cash quarter, delivered and $X.XX paid share. dividend strategy EBITDA For quarterly of we adjusted regular adjusted our allocations of quarter, per $XX first third of $X.XX

the everyone will growth. Now our we’ve evolve since remind focus spin significant quality of of on progress operational and let’s review model how made a with the

both heard we doing making sales term we’re but markets actions are go-forward the for These distribution optimizing us before, headwinds, we they sustainable Within healthy, two you’ve are the correct say world our points quality decisions and growth, that. is horizon some about foundation our one, will just and and future that think one difficult is long-term, shareholders. for actions model underperforming in our exiting create near include term As around distressed of capacity of of markets horizons. the business higher actions towards certain improving management our adjusting growth, our horizon and margin as moving significant. sales we opportunities blocks opportunities, long and SKUs, right-sizing and these helping are unprofitable generation from models. direct to in to investing Horizon necessary These two, through to improvement rationalizing are and create that to and distributor while revenue the reducing look remain goals, we inventory confident building achieve margin required cash

line To discuss the where let’s end, that areas. we top greatest long-term see three There primary are opportunities.

Lee into brands. expanding extensions, category tops, Wrangler accessories both and further First, across the include and outerwear, which

includes focus our into traditional and international geographic markets on a footprint Lee moving third, points new to of Second, and which Wrangler a features U.S.-based distribution on with beyond China. channel evolution, which with sharp digital; brands taking and DXC, focus select wholesale expansion,

as of well our a growth perspective. some Now some bit further color third offerings carefully near as augment providing we and more into these accessories. expansions about will tops, Category our the term and core extend longer areas outerwear on as drivers, such denim product strong business each term bottoms quarter

Let me provide a few examples.

with extend goods. all-terrain such as affords points channels select distribution. our recently gear, retailer programs into launched and known as also major a outdoor additional and new opportunities sporting First, Wrangler specialty program ATG, to distribution outdoor with of The

will distribution, teams Wrangler which while been new the created and Second, have program under of specialty with both our Initial later, Lee upper specialty very our for discuss tiers from Shape and tops Illusions sold I stores our encouraging. dot-com. design platform, reads have early, well in collections tops by

under-indexed we t-shirt Third, business. significantly remain in our

five put and for sell to an the in Just opportunity we roughly t-shirts obvious as some XXX sold. opportunity as every we of of category the sell pairs to material every sold. that t-shirt in perspective, many one intend capture. competitors currently is U.S. for relative contrast, jeans pair jeans one In This

Now and evolution. effectively capital-efficient the digital on connect growth to grow channel we With our believe with focus our onto it’s way DXC, we’ll most as consumer.

behind with platform ecosystem, well new revolving investing establishing including a also partners. global a our We’re expanding digital as as digital digital wholesale

growth our quarter, by own the third digital healthy returns. and growth evidenced digital wholesale are yielding investments these As in

As geographic includes right we are select on related that build we our long-term, business models. which foundation and to confident growth. to markets durable establishing are underperforming This shifting exiting expansion, the

latest with will taken quarter the India. the insights Rustin in steps more later efforts these in continued in call. We provide

we our While with by these significantly international and improving businesses results, largest performance near our term in quarter. China temper are and markets moves over encouraged recent European quarter may our

investments, with as making leadership, new we catalyze DXC, are necessary systems the including and Just growth. infrastructure long-term to

be focal for China a international point will and specifically expansion. Asia

Lee XX-plus brand brand to lifestyle years leading Our leverage continues of as premium business in region. a the

iconic We’re pleased are results year-to-date for growth about we two brands. our the our by opportunities excited and

to that XXXX. of in we track brand the first on China in are launch the To end, quarter Wrangler

will strategy a go-to-market brand. in digital launching this large with digital, partner on Our focus

in live which couldn’t excited appears early consumer the with testing and Abandon our Wear February global associated by in resonating have with campaign encouraged our be well. brand be goes The to campaign, We’re showcased. region more to we global ad

that important focused are opportunity to our at only relative accretive respectively. under-indexed channels an domestic as relative growth This It’s of XX% of is represents within model. revenues XX% note our highly to we DXC key international, really branded to each peer and these historically and wholesale set

horizon focused strengthening our scaling platform, including these innovation, further enhancing demand of support In elevating and creation three one, whitespace our opportunities advantage. supply and chain we’re global during on enablers, primary

call, second both manufacturing about touched and think a we on quarter perspective. On I our from product how innovation

invest behind, and new now capabilities advanced more scale company, As never effectively before. are manufacturing technologies standalone a like we positioned to showcase product and

some through cognitive developments recent born you our design within walk innovation of research me science Let network. out

with we’ve buyers In one anatomy confined how sharper empowering Illusions, the this Body the few very our ownership. and greater consumer in ago feel. in Shape denim Optics early, began a shading Lee partners to technology, broader of we the largest program, region seen. enhances offering our under Optics China consumer of encouraged program, relatively Illusions yet September, under and retail was with Body prior a apparel launched in is and point advanced shaping Starting our are our we products, years while look confidence price which Shape they new by platform and

platform to scale market the U.S. a we to Now, the example have Shape first is for of time. bring this perfect mass and that the we technologies Illusions globally, innovation the ability as

for meaningful the channel, more mass and value and within consumer a of carries a categories the features some well. the benefits positive it of points both the Illusions Shape Given and tops provides the Lee price and for as the compelling customers, in product, our denim elevated

humid through Optics Jade leading to well distribution pinnacle Body as own and our and offering in other digital as actually ecosystem cools consumers Lee’s extending weather Similar apparel, technology Fusion such Body the this look evolve exotic the and continuous to begin of Asian significantly of tiers [indiscernible] our innovation comfortable in and product. suite Using give leading denim hot China. to keeping push platform position denim our permission fabric, of of helping to Asia, Jade price the us to contributes weather. market into into Innovations higher warm use forward wholesale marketplace. woven minerals In the lines as to we beyond technology Optics, also dry

Jade design, is robust focused technologies Whether manufacturing revolutionary traceability product accelerating. and our innovation our Body is within on sustainability, dying line, waterless Shape such within Optics Rooted Fusion, foam in collection, or technology or in and Indigood our cotton pipeline Illusions as or including our

were of and to innovation able you Los evolving. our ever rapidly in our were how you join first to Angeles able us suite September innovation is for Several see in event

us begun just just with talking you we it’s story, are We innovation the future, and our sharing excited more have innovation. about only in about not and to tell

time evolving the world, in algorithm. separation platforms are brands’ scale longer supporting first and around to the our competitive histories, For growth innovation driving behind these investing our term we

creation The is demand our prioritized our likes evolving doing key TSR enabler that efforts, in second way so lens. a through in

Let from me few demand through walk you creation specific quarter. highlights third a the

coming It campaigns earlier, have new expression soon diversity, First, tethered ethos global Wear we elevated launch to with remains the ambition campaign, in global spring. Chinese pushing while campaign and the our its heights prior support This will as this Abandon, reach. Wrangler’s I new will market that Wrangler U.S. to advertising an launched western in of brand mentioned creativity. from

a a permission distribution. Wrangler with kicking pop-up retailer’s Angeles. in store collaboration play we Using are in developed of decades brand’s of the our location history archives team tiers have Boulevard we innovation September showcasing upper Fred spanning that our when new Los Second, and six-week design as Sunset the in off while specialty design to elevated, a collection in capsule began motivation, Segal,

Importantly, store the with a a we Segal the to months, coming pop-up design and marketing Fred will extend in collaborative across testament the our assortment effort evolving to teams. permanent

celebrates that iconic collaboration updates anniversary with recently by contemporary capsule years of XX history and co-branded an these Lee a respectively. Alife. the Third, capsule Alife brands incorporates introduced heritage styles we with The for and also collection with years XXX Alife

Fourth, collaboration off the Wrangler Manhattan. the we are an event and activation NYC that kicks excited brand with to announce Nordstrom in with tomorrow

Our tribute This fashion forward weekend synonymous past, with our our technology to will future and with western The convenience. consumer authentic collection modern showcase design our to Heritage the elevate styling our to name. allows laser in also and from Wrangler both the product. our draws customization this or event personalize heightened through that’s retail legacy experience partners us technology pays customized

It’s landscape we much our of expansion. fueled work but It evolving we’re also employees. we globe. How platforms, for commitments Wrangler in near do, will shareholders, differentiator the that does around key rewards when retail as operational key our three term together? the this channel global long-term on dynamic act not on of only a our creation us. innovation faces and world-class have customers, confident enablers in that combined Our long-term supply brands Lee our model the and category, The changing demand all reflects but come and areas: accelerating geographic to support growth and a with and chain, deliver is will develop

turn I that, to With it Rustin. over

Rustin Welton

you good Scott, everyone. morning Thank and

we During savings details restructuring with and initiatives. conference cost call, outlined our prior our associated

As follow-up, implementation I’ll our you progress, before financial third to turning our on quarter our global a ERP results. update including

savings not expected upon Mexico, operations, results. select owned program we end financial than but our to beginning from see relocating by phase in were and select actions three closing and reminder, in been million completion have in XXXX. facilities annual operations, and of and moving Key facilities and the to global supply announced our and that restructuring executed, in chain Kansas All exiting are $XX the a in cost right-sizing As the announced projects first streamlining more unprofitable Carolina. North and benefits yield the a to is international included in our savings to limited markets including manufacturing business headquarters including consolidating Lee locations, we

benefits and results the to financial to beyond. Our next program accrue and several track on is over quarters will our continue the

laser quality sustained long-term In aligns future. for evolving operational addition to - of also focused restructuring TSR is the quality we our for business. paramount of the on our Establishing quality actions, the in the building we and sales model are with highest foundation our and quality approach our are success

Let’s at more of sales our look quality in actions detail.

direct mentioned and model Turkey we to licensed quarter, in Last operations that we had exited Chile, Russia Israel. our and in a shifted

in We have additional relationships the announce distributor entered to a near future. in new plan relationship Chile and

third margin, in million however, taking establish market are quarter planned We potential have to estimated all after in EBITDA exit new drove term remains committed our debt unprofitable lower understanding important anticipate fresh quarter and additional distribution. $X a and the actions fourth and quarter, unfavorable strategic as impact before, the that for due as points growth health us. and This of adjusted unprofitable began long eyes million of reserves. in we for reserves, analyzing the sales said to India increased platform analysis, personnel India $X actions an well; channels. we the an impact continued In These an and we we with operations made bad the considerable than to decisions distribution of necessary higher business, approximate to of sustainable aspects inventory points rationalizing select primarily

that our In as U.S., we strategy. as go-forward were non-core exited well with retailer inconsistent a programs the select

management, our right-sizing sales of and focused on Finally, unprofitable through distressed reducing moving SKUs, remains forward capacity. improving inventory the rationalizing each brand

inventory improvement with estimated fourth an further anticipating $XX expected quarter XXXX. the million in We reduction in are

global we With ERP regard remain to our on program, track.

reminder, this platform us global the As a in a program establishing most model in our a global manner efficient operate for is possible. critical brand enabler to

regional our go-live completed and We phase first have the proceeding scheduled into phases the for testing and validation development in mid-XXXX. are

the program in regional two deployments. will the with We final complete XXXX

stated, accurately adjusted the these get believe basis. our and to be quarter business outlook. an operations a basis. most review We standalone results let’s on our on adjusted of results Unless continuing Now our third reflect will otherwise

revenues bankruptcy reflecting underperforming currency impact the the the revenue was actions Our compared two quarter initiatives contributed country points including primarily constant X% a The points with of taken in retailer revenue and India; major select exit XXXX. an decreased two quarter three and same U.S. quality global channels decline. XXXX of second, by in to decline other adjusted global sales the in fourth for of distribution, quarter in of represented third in of the to points factors: the driven first, decline,

you’d As anniversary from headwinds will dates. these continue see some revenue actions their expect, until to we

year a important mentioned On X%, in note U.S. quarter, revenues flat that exclude bankruptcy, date this with of U.S. in half U.S. expectations. were X% regional to the the as basis represented our The quarter. customer up was represented line to approximately earlier, The bankruptcy down our for if U.S. of to U.S. with XX% business It’s we date. revenue year our wholesale the decline.

last revenues timing three about in improving and and from first, the International model exits points. actions down XX% impacted by decline; third, in quarter, down decline; Europe, three points second, favorably revenue factors: of in of quarter, in drove driven our planned India shifts X%, the of we quarter were points by second four proactive represented the third about changes two shipments business discussed primarily which

down or currency. the our have factors, X% international up excluding these been Excluding foreign X% would business of impact

remain great focus. of Our an area international operations

were choosing Asia quarter results change our infrastructure, we’re in by quickly, to creation across scaling the demand new markets and our healthiest to international grow, by foundation the how able regions, evidenced business. improving to our platforms, and encouraged Europe to behind very teams to as behind that support which and people, investing investing so including across confined remains third creation work was previously We’re leadership which growth geographic global establish efforts. demand on and the that innovation said, That platforms global operate, limited effect

in clearly our we a that. this now are of We total and after businesses, quarter a doing about just are way, in under-indexed We only representing meaningful can revenues. international get

retail as remains in China to Lee position leading platform. distribution our Scott As the substantial area in digital as incremental expansion in of well focus opportunities continues mentioned, strategy. a maintain of strong both a expansion with international China further development key

by growing X% results brick We are story. constant quarter a comp. accretive in very including very region We remain currency mortar long third this in China, Lee’s international term opportunities XX% expansion affords our and encouraged the confident

other will all to where assess using choose We continue to our in to lens conditions focused invest. help TSR determine markets economic we

of of revenue our to our was XX% in profitable the to of made important this reflection and leading increased the sales into represented investments exit wholesale of in points third channels, and in A digital revenues the quarter, with we’ve area. down longstanding quality initiatives less U.S. which wholesale X%. contributed customer Turning distribution, platforms channel, our wholesale bankruptcy, U.S. a the U.S. this XX% decline. quarter, partnerships digital of

before, was X% Due represented primarily of XX% actions the in mentioned proactive currency. down quarter, X% channel, or down to in revenues non-U.S. wholesale strategic which constant our our

the operations due well which European as by revenues select Asia brick as channel, X% up of and store to consumer in closures. to weakness constant flat in digital or part in U.S. in currency. was offset and direct strength quarter, branded in Broad-based was represented mortar Our our XX% European

Our up the quarter. U.S.-owned XX% was digital in business

seeing positive been from area the We our U.S. an that has platform, prioritized. are in investments results

enabler our enhance significant will ERP digital implementation further to learnings of digital platforms The these globally. our developing apply will system in our ecosystem. global a be We

of nature grow channel, under-indexed investments this to area. distort in to accretive continue the we will this Given

Europe. of brand driven Global X% of to changes currency, Now currency. to revenue of declined revenue lines international and U.S. margin India, a Wrangler in U.S. X% by business training driven sales mentioned customer revenue and Wrangler Wrangler in Europe, the the in our or shifts taken XX% exit constant let’s previously constant by flat turn sales is our business, of business X% in reduced initiatives. model date. and and year brands. X% was bankruptcy, The quality market actions lower declined down

We driven in quarter fourth expect Wrangler improvement the year U.S. by our global primarily sales of in business. the to improve

and U.S. X% the Lee decreased customer lower revenue reduced margin brand constant X% of Lee of X%, in sales from global declined revenue or lines previously impacted negatively currency. mentioned business. bankruptcy

sales business the moderate to and results in in constant of market second we a XXXX. currency, will X% have X% lines margin bankruptcy, U.S. business, quarter or down anticipate was Lee’s actions the the continued Due Excluding India. and U.S. fourth Lee of up quarter down of year-to-date. Europe primarily would X% and been of changes revenue exit international in the lower business taken driven model X% in by reduction

on recently mentioned we second As digital staffing commerce changes China quarter our our call, platform, it’s strategies. in made our have and we

have the are been by We encouraged in more to positively impact able of how digital growth than adjustments XX% these including results, China quarter. in near term

in We further into significant tier opportunities, are with further both in well growth Lee regions also while cities. positioned lower expanding China existing brand penetrating the with

Now more gross India strategic adjusted mix, Total gross actions of of XX of sales in due impact currency. basis restructuring, quality increased impacts as offset margin to the foreign than pressure from negative primarily well initiatives, channel points and the to which taken favorable approximately onto margin. XX.X%, as

adjustments customer related move previously through we’ve as elevated manufacturing As levels. and term have inventory caused the inefficiencies near bankruptcy mentioned, we capacity

gross $XX margins or our expected have improved, in year end, which and As an we’ve prior the and year great is to by expect to additional fourth approximate at capacity adjustments million from cleared below goods, distressed we the fully quarter. levels reduction progress third are achieved inventory be

gross in quarters. each margin As anticipated, of the year-over-year three in past seen improvements we’ve comparison

quality margin term, fourth India and to underlying will from as in strength shifts mix Longer will international, unfavorable quarter. further sales benefit strategic digital actions fuel While and accretive mix margin, the gross expansion. margin such during restructuring temper gross higher of structurally favorable channels, will mix

by increased The and sales XX.X%. were driven increases a India, basis debt higher creation, expense primarily XX by in of year-over-year due expense percent These demand higher restructuring fixed increase deleverage tight control points revenue and Adjusted bad offset to benefits. cost was SG&A declines. to as partially

We the a of Rock given reductions the quarter, primarily million charge intangible brand $XX also based trademark to impairment changes distribution & of Republic on composition our going forward. our revenue the related asset recorded non-cash to during anticipated

Adjusted operating third of was of Adjusted XXXX. profit from $XXX or compared $XX million XX% of the prior. XX% was EBITDA million year XX.X% the million sales, $XX or quarter in sales down with

mentioned previously, As the the actions we quarter. million an adjusted took approximate in drove $X India impact in EBITDA

rate share unfavorable expense million interest $X.XX $XX earnings in third per the impact approximately in tax actions was XX.X% drove of We and to part quarter. our $X.XX approximate Rock Net quarter. India & we in took in effective delivered an the adjusted Republic adjusted The was due the impairment.

built plant’s inventories Now in elevated we of to X% ended last primarily anticipation inventory as were year, turning due the the compared expected balance to period same the sheet, our close. as slightly up with quarter,

levels so year-on-year second to The X%, to inventory Again, we’re progress that be year-end, achieving on expectation we relatively increase making here. quarter our at comp prior an flat track below of should year. was are

focused deleveraging balance flow. cash the which generation our allocation Next, to supports our XX cash on dividend months sheet. superior paying for strategy, and free XX Significant capital robust flow next is our

we quarter, of first paid third During the share. $X.XX quarterly per cash dividend our

Now outlook. our onto

outlook are the second in our revenues previously our sharpened Revenue a impact range year announced to actions negative magnitude the these actions, second quarter year reflecting be million taken impact be the total impact half the will the comparison. be mid-single million. have lower customer adjusted in the earlier, EBITDA $XX of and a with Based The revenue. benefits for of and less $X million. to billion, by a the to half adjusted bankruptcy we fourth XXXX discussed the compared should unchanged quarter are fourth upon full we quarter, of expectations similar and year half realized. we of improve of in to also to are estimated beginning third in $X.X $XXX of India XXXX As drove adjusted EBITDA fourth exceed impacted actions expecting in million took The $XXX decline digit full quarter beyond an

expenditures range to $XX including million and Capital the expected ERP are million, and support $XX unchanged between and of million the $XX $XX implementation million approximately to system. to design

Other XXXX, basis. and expense should an in full include rate or effective approximately tax interest year on $XX be assumptions $XX annualized million million are of unchanged approximately an and XX%,

Before move we message offer Q&A, I summary this onto today. of our

First, our as gross the the are during benefits track to be restructuring steady savings quarters. and on three cost margin past initiatives by and are improvements evidenced realized, beginning

to quality sales our we’ve first including on will growth, Second, stated long-term for as since our spin, XX sustainable, XX initiatives. months the of healthy, the be foundation focused setting implementation of

de-levering the paying sheet. strong our Finally, superior and cash a is dividend balance evolving, generation visible, on while our allocation is aggressively operating flow model focused supporting robust capital strategy best-in-class is that

turn With the the and the to Operator Operator? question answer back for time it’s discussion. call to that,

Operator

instructions] [Operator

today line first questions. of with your Please The the Drbul question is proceed Bob coming with Guggenheim from Securities.

Bob Drbul

good morning. Hey guys,

Wrangler first improve anticipation your color what terms quarter, U.S., The can the on question in performance maybe little bit about just for little seeing of that to brand talk is a the fourth have you a you’re there? the more in I just

Scott Baxter

Scott. are Yes, hey Thanks us Bob, it’s How today. joining you? for

Bob Drbul

Hi Scott.

Scott Baxter

I’ll go kick off. that ahead and

mitigate know, through this encouraged You really will really will in customer quarter, itself very large helpful. fourth bankruptcy, going the be we’re to which we’re which Bob, work

really in In addition that, pipeline. to got we’ve product the new exciting good, some

has script, checking distribution broader ATG, the gear, which terrain is the in We and my have it mentioned all well. really gained this--I

our with campaign. thrilled new We’re

consumers, on real up campaign globe, Our so have what partners campaigns about really to the of the gotten we’ve past positive very consumers lens the important, been from broader a but range call this kind we’ve and specific has of would feedback been we’re that. our from around on I channels, opened focused so and talking which happy

think I how then team the of we’re with that proud about partners some I the But am of the doing. co-labs and

some Segal, have I us. talked want partner about to I talked about really exceptional that Nordstrom. We people Fred with

gaining is heat. think just significant I it how brand the really shows

we’ve under-distributed. single a or Those I that the today, been tell are and dimensionalized important we very lot in up is was and important some brand role thing globally, we with not for bring is instance a you, now and we at ahead and look important, do that now. I really specific did the both got ownership I really It under-distributed it’s and here partners what to work right this exactly doing have business know an but good and that and really Bob, that that not at our which to it look has and will to do; past long time. even wholesale our about Wrangler China, but for what pick talked that it but It is to we going everyone need and things, know you as opportunity choose this most needed quality brand I a it’s think played forward, want U.S. I in high the team in go

going in future. being are the we and right come is belongs now, going now the This make to that that, and I the our forward, choice work talked we about more great Bob, global very been greatest world’s high brand because and and do and decisions really with to a our under-distributed, quality. the we we team the have on is good chance by that forward, a think line even that discussion going to we’re for brand so advantaged walked though in have have brands, done Wrangler

Bob Drbul

doors. bit exits more Scott. us can made elaborate bit factors little you to Maybe just give were the a color India, and what in the were, etc., on Got On QX distribution more QX? India, the Thanks. exactly little partners a you it, thanks

Scott Baxter

Bob? I’ll up what, Rustin start from and know pick you it will Yes, then there.

our sure outside community, those said want of are talked we’ve into serious I as making that our playbook team very that would jump remind one making of to we India, as investors really things what doing horizon time with about to good hitting I we’re do doing spent we just and and and we’re our job want Before far a as and our that a one horizon and we’ve horizon all that shareholders we know, milestones. sure we everyone as lot a and that one are the initiatives, two of playing about we and that outlining

the team would and One quality with so of we were we company Asian with at a channel there. and high new high brand not where just of proud term, that’s said is the the our made and team walk make things have really important long there, that a I’m the new we sure here we to made sales, want leadership Wrangler our headquarters leadership courage the team go of conjunction team, to thrilled that’s the with talk that be we quality in decision ahead representative

results, we thrive So impact script, as QX QX our to it our exit chance in get to outlined in made his grow going decision Rustin results, it’s the in impact brand that and is but right Wrangler we the the to once and going India the to and channels. has also past marketplace a

points few nice ahead to go and from Bob, Rustin you, hear you. thanks for let again, a to but dimensionalize going I’m

Rustin Welton

Yes, good morning Bob.

add the comments, for cited you’ll market, affecting seen onto we’ve several as to the and past demonetization Just that recall, impact broader quarters. Scott’s some we’ve

that As the certainly we we were the projecting in had outlook for seen consideration we taking year, softness that into market. our were

smaller To within Scott’s we to great fresh see It They particularly tend for amplify term India - the market, of very Bob, were long potential we right which for. not challenged. as that took of a some couple in it and channels there. two That’s take decision but robust operations, sales at the channels, quality in in to all profitability actually in point, have and of the action select again, we to that look points channels. retail distribution there our we’re so is a India well, were seeing started channels be we

Despite critically these in for those future. in us, but our profitability for we important about, it long range the creates had of previously delivering see of so discussed EBITDA taking the is a as term short through and bear actions, foundation, term still within that that the actions, Scott we’re success, optimizing the you’ll headwind talked in certainly spite

Operator

you. Thank

the question Piper Our proceed question. next line Please Jaffray. Erin your comes from of with with Murphy

Erin Murphy

magnitude beginning that next the the for just the fourth year to understand market? it the the reposition Are say. next the XXXX? to on this I’m as in on quarter, is with the as something of would hitting market? another I I should beginning a India--on in that’s to the understand question, in continue the of and Thanks, good you third trying had I guess and in Bob’s you four not morning. Why pressure, disappears reposition clarify follow-up syncing into just distributor you just math quarters. I’m trying

Rustin Welton

again and ahead Rustin the challenged them welcome anything, to some more so decisions particular at are looked to others, exit Eric, certainly I’ll made we wants of channels, than these Yes good in third morning. go We retailers to start it’s some here. of - he’s quarter those. if some these Scott some of and add and in

as in and We’re is But us, in in obviously it quickly. decisions some I’m continuing that decisions through the we’re India, moving getting see fourth cited well, this this retailers but improved going as XXXX, why interested and confident XXXX anticipate as some putting to those look very provide of not at to profitability behind the by these see which we pressure behind quickly we think quarter. some quarter will would relates we us about so guidance that to specific in we’re we fourth

Scott Baxter

that Rustin well. think I captured

Erin Murphy

trying the you way in understand to that Okay. Just maybe Are you region think signing new the a term. Scott, up you longer country? with to elevated very were I reposition a in cited, in distributor because confident more

Rustin Welton

that fragmented points distribution very I those we relates sure Erin, points a potential have so look India, in as term distribution small of to mean, we’re I retailers. a within that the of market. we’re very couple of we’re a taking long ones lot and exiting with. making It’s are there market, things so of Yes, see these healthy we think a at that of lots it only those about remaining

of opportunity. great we terms doing digital to opportunities see that because and, the digital side we’re at the the within we’re we’re are looking similar to what digital also behind In piece going market, invest on India. the We’ve seen globally, growth nice

Erin Murphy

here dovetails with just more up XX% was question, share I Can digital, second well the the about on direct my part a second necessarily in of then as are bit it’s consumer, that it North of just in traffic not consumer you driving the okay. what think business, relates quarter outlets to your terms and you saw piece guess this, and I Thank you. in a strategic can I America? Got broadly third the little That but just direct you in share in platforms to conversion it, to know quarter.

Rustin Welton

little let Maybe DXC. seeing, then just on that perspective, capital I’ll From bit clearly we We and really performance and outlet that’s business brick consumer side and as focus is really is a digital we’re we’re speak we and efficient happy China was again board, and the direct but consumer, the in focus of is it’s in growth to XX%, Scott growth broad-based I’ll what we’re where spoke start it’s a think and because to think the the that’s digital. we’ve reach across and with our about mortar our up Europe, the where about seen, the the over U.S., that most solid the so it way that’s particularly Erin. to digital emphasizing

I’ll outlet. to maybe turn that, and it over Scott With on some comments

Scott Baxter

of been a aware but business. of a our you a time, business. long very our part know, Yes and Erin, are of part for small our good business it’s you a It as has part small

We’re both more we a paying we bigger going I continuing our we’ve key about accretive, scripts, footprint We we’re the and forward a flywheel is there’s as our in and go our it got and believe think that assess there are that to and investment point talked nice off. in here, our digital to distorting and investments just standpoint. better opportunities, much business,

Thank Erin. you,

Operator

Our proceed next of the your line with Please Poser Sam is question coming Susquehanna. from question. with

Sam Poser

Good guess about business morning, my retailer one, the for I you a taking number have in a talked questions. Wrangler bankruptcy. about closure the U.S. plus I and talked you you few. Thank the

foundation then about we think like the If Wrangler the whoever U.S. closure new you customers plus bankruptcy add net-net do and the how now? in, this business of everything, right the was,

Rustin Welton

Yes, and in Sam, future business weigh I’ll so make here. the then maybe of comments, the some Scott I’ll opening let on

the in prepared was bankruptcy. about we the X%, U.S. took about of As that Wrangler actions Approximately were half in on the the again as remarks. we quarter, to the indicated and think down place we that due

the doing so really world, particular the sales, opportunity, look to not we’re quality moving the emphasis of market point, whether be on take sure made programs were or that right forward. and it a retailer that at have special we a of your a exit to as we couple making strategic for around took India also We any us did

Lee, we’re going that that, to make forward. that’s or moving the setting do that We’re whether to Wrangler sure continue U.S. business and solid foundation

opportunity Wrangler With sees that, business Scott he over maybe it domestically. about the where for turn the to

Scott Baxter

of the heat, lifestyle becoming can that Yes and distribution folks that where talked one business the that is Wrangler. great a expanding the Wrangler before, distribution. with all it ourselves incredible partnered and Sam, way also we’ve and brand we’re that we points with gain pleased positioning world, the is opening really creating positioning of with, we’re our significant I’m I apparel/brands and we’re about in forward going the really the

with A right, us Wrangler distribution. channels what great traditional out It example with gained we distribution for classify gear did all-terrain out our that product, would the with, wholesaler outside of we you really so points of as really that last and rolled checked of of big win it is rolled well well, it’s you year. new

and works, in it forward. capturing it’s spinoff, putting advertising up going things consumers, about we together position in campaign really and So which you nice how we’re with two couple just think think that’s that a that we to we typical as ourselves happens new intelligent up, some cleaning really those a clean of smart, need a

Sam Poser

me Let up follow there. just

instead guiding of did about--well you India EPS of to you have start going are benefit are song western coming? get Then If about of Number Wrangler? you the EBITDA. trend two, first seeing I think another in a from question you about and question when Lil Nas’ all,

Scott Baxter

I also that’s up opening way. Sam, right do trend but a using western. really fairly our knows his, right, positive really into and traffic, so consumer, simple really really nice good space Obviously trend got history lens our you that got start the Americana, you’ve from western in we team and on our that All but - has that, very where plays a you’ve resilient only this with western the really high in couple brand Not you’ve Yes, those then apparel it. buying happening heading. where you’ve is together so is What’s job so both retailers music, got two AURs, that healthy, healthy. in western all history why category, don’t in now like of western brand a and nice things are done people the everybody got

and has really Sam, before. that it’s tells one, than traditional our retro retro done noticed a go strong, our retro women have into team--again, both markets, two, and done what brand moment. us in for I that, design team our to sales it out has getting standpoint. and key also that the and This western men us we’ve well have it tells that It’s team is this we but in Wrangler, in back Then and exceptionally the has that that, we here’s from metro done, team more placing the with come Wrangler, the both product western well,

Rustin Welton

share here count that in things ratios the guided at distribution when relates your April, recall, were Sam, why take including you on XXXX. Clearly frankly even spin. the even in would of guiding take as on spin, our did it place a question lot we point, were at second EPS. that meeting EBITDA to unknowns as we that I’ll first and the back there That’s will

providing be QX more on We our the specific period for XXXX guidance call. will earnings

Scott Baxter

Thank you, Sam.

Operator

question. Stifel. proceed question the of Please your is next from with Our coming Duffy with Jim line

Jim Duffy

good Thank morning. you,

see reflection XXXX? gross on on I is just gross and confidence you we improved as comment the question sales. - for encouraging further presume a First margin look progress your into improvement margin of to Can guys of there, opportunities the quality

Rustin Welton

that take Yes, I’ll there start thanks Jim, and it’s one. Rustin.

perspective three from a see comparisons. to margin proud here improvement consecutive We’re quarters of of in terms year-on-year gross sequential

XXXX first quarter basis below number. the gross was XXX the Our margin points adjusted in

positive Second pleased XXX basis inflect a from and points points, XXX at quarter, prior quarter, points first XX ongoing XX progress we basis basis the but saw then year we the obviously were quarter, really versus the we’re from us improved you and so improvement quarter with below that’s point this second basis here.

start to time. really and accretive those to benefits gross and those focused able We like like we talked term, is on believe us a as margin, gross that to being and really growth then the little digital us and about, margins expand bit structural that’s this like recapture as to get opportunity framework some cost a for why we’ve grow structural that in for savings longer we’re significant distort restructuring of over and provide initiatives, categories, we international, will that

Jim Duffy

Then question, that. Rock can Great. you license? next talk the rate you can about I’m Republic more impact the hoping of run on the & of discontinuation details give

Rustin Welton

as it’s know Yes, had and wholesale and again. ahead go & I’ll take Republic, distribution Rustin licensing you we’ve agreement. domestic an Rock exclusive With that.

continue in would impairment not charge that XXXX, the a During created which saw. triggering event non-cash you the determined that a quarter, and in we that quarter

for broaden us Rock has a we’re distribution both excited this and we creates As about opportunity opportunity. fantastic considerable it’s on the reach really about that with brand think the internationally, equity Republic the so & brand, really that brand, domestically genders, and and an both to

piece X% Just of revenue in very global EBITDA so our a our Rock it’s than impact, less & Republic of today, and perspective for is business. small terms of the dimensionalizing

Scott Baxter

Jim. you, Thank

Operator

Thank you.

additional today, for the We line coming Alexandra question. proceed one Please for from time of have Walvis Goldman will question with which your be Sachs.

Brooke Roach

own both of initiatives? to the business U.S. the sales Alex. manufacturing Brooke of manufacturing the you. additional initiatives there, Could My saving post-these is help the base Hi the quality and frame the in so you question. for globally? now particular for manufacturing optimized This context have, have your you footprint. much us for on right-sizing thanks taking in Roach and your footprint that on cost Thank in your Is is initiatives of you question expect

Rustin Welton

good it’s I’ll one. us. and Brooke, morning. Yes ahead Thanks take joining go Rustin, that for

recall, right-size that As us time and that over place, that away we you light the as going U.S. particular about as took did Mexico what we the so to taking the and production the may of bankruptcy the really capacity think that customer at in in plant activities was of restructuring place place those in place, facilities took that three in closures was well XX% of that spin, facilities drove the those June action in part took is as allowed announce in

that I forward looking that. associated that As optimal in analysis we’re we you constantly tell the at own manufactured constantly moving and looking about sourced we’re impact. product would manufacturing, our produce whether the be determine think we make-versus-buy on perform and footprint that that manufacturing facilities, each location, right with at We or so

say mix margin, on In favorable that we the combination terms it in India of of there that a quality that the your some question about the margins basis saw the about that dimensionalizing restructuring, call. impact probably to FX, as you XX some and in on of little headwinds had I quarter, the of bit a improvement and and drove related to point sales, I would close then talked third

Scott Baxter

joining thanks this us for morning. In closing,

day us points today one. wrap-up, since reaffirmed we that few heard a key As you’ve from a

business, thoughtful sheet, our meaningful progress will growth, drive through financial will margins TSR a great healthy the long and have making we a of opportunities cash term strong policy deployment commitments, balance a we prioritizing on supported improving lens sustainable of geographic Year focused we and cash, by our investments deliver growth sharply X flow We’re and and TSR strong dividend maintain on our model. generation, channel approach and will category, we to we’re

we call Thanks. progress Kontoor on to we’ve forward at that, quarter fourth With our the made look and Brands. reporting

Operator

concludes This you. today’s Thank conference.

you disconnect lines participation. this at may your your You for time. thank We

Kontoor Brands (KTB) 7 Nov 192019 Q3 Earnings call transcript