KTB - Earnings call 3 2020 | Kontoor Brands, Inc.

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Operator

Thank you for joining Kontoor's Third Quarter 2020 Earnings Conference Call.

As a service provider for corporate earnings conference calls, we sincerely apologize to Kontoor's management team, those of you in the investment community and others for the inconvenience earlier today. This widespread issue was due to a technical outage with our telephone carrier systems. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Eric Tracy. Mr. you, Thank Tracy.

begin. You may

Eric Tracy

operator. Brands Good welcome you, everyone, morning, Quarter XXXX Kontoor Third to Earnings Thank and Conference Call.

in today's other cause We to factors, detailed actual in forward-looking urge make to materially on you are call filed disclosures uncertainties statements language those results to cautionary on are These subject could based reports. and current risk with statements. that read uncertainties documents contained our differ. are and expectations Participants These will the SEC.

tables referred to and related adjusted on call of that impact Adjusted today's investors. of financial our supplemental to which the included in clearly Reconciliations on an morning. measures adjustments. website adjusted will Republic the charges view useful release on items Amounts defined GAAP of restructuring Rock our & often can this at and dollar and was news other is be we found this exclude be information issued news to why the separation amounts These earlier is basis, and provide trademark costs, in identify release, which available amounts quantify impairment in management's today's excluded noncash tables to kontoorbrands.com.

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

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

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

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

Scott Baxter

safe From us your remain all Thank thanks you, Kontoor, joining hope sincerely and Good and at families healthy. of you and I morning, us. for everyone, Eric.

our ahead that on expectations, improving key performance today, like Rustin few take third Lee greater We across before results thoughts with will a driven our and that, my in geographies. the the a are pleased broad-based quarter came on through and share bit, you Wrangler to of you areas. results to share in but channels I'd by financials brands, detail

First, despite COVID, we the from quarter. the business. are the working, our points strategies evidenced proof I'll are by of across some as impacts seeing select acceleration share our third

context our confident I'm coupled digital for And yield more as improving category some Kontoor model finally, excited with I'll offer provide the sustainable is our growth Next, to transformation, in investments forward of announce how perspective going over cash fourth a to driving with expansion geographic that this positioned and during quarter. why profitable extensions the time. fundamentals, dividend making decision. Directors reinstatement will Board on of have given and success strong the generation, I'll well

always, want dedication in unwavering a doubt, execution are rise we health globe results employees. occasion. the of But support uncertain no our their superior direct to our environment, safety know are challenging reflection first, to as our and the around these to great thank for efforts, continued No colleagues excellence. incredible our I our the I the to team, continue remain of and matter times will and and colleagues. of our

our to Turning quarter third results.

flows color start you by our flow providing take of quarter. in on ahead business, improvement but pleased drove margins line top later in call, saw cash cash let and the areas through improving across all strategic me initiatives the how performance the to in coming our almost fundamental strong our that and with revenue, we Rustin will expectations. margins are We all share of

down quarter. Overall, revenues XX% sequentially QX, compared the in second X% improved in down with

growth the the in both U.S. X%. while during delivering positive U.S., up the increased trends we Wrangler Lee accelerating QX. the business with In quarter saw Wrangler brands Importantly, XX%, and was

accelerating spring brands and during a this for on of taking launch the soft region improvements opportunity Wrangler women's the share Europe strategic trends According These broader and are Lee fall China our focus which including highlighted denim. executing sequential will a U.S. of we've Both both a ending the and investments, quarter. with consistent men's are be we saw given NPD, remains spin. space strategic gradual significant broad-based in and to since broadly. opening And for during the QX, Wrangler, with launch share presents, track gains increases the both white China quarter the QX, continue solid the initiatives to been function last 'XX. of saw across the improvement

these now. Let areas of on me a few touch

quality First, optimal foundation to more began our create the of top our of growth distribution select the distribution. in to in sales necessary spin enhance of This with exit strategy. the the with we future. efforts continue and markets to line optimize wholesale channels, healthier points through of support sales work the in sustained, investment quality This of business underperforming initiatives

wholesale retailers. strong customers. we partners believe an an their essential these uncertain deemed and were as component continue of assuming partnering well increased remained open even Many and Target retailers as are And distribution well strategy select including to Western on has Amazon environment. the positioned these of been our Walmart, during focus Another performance Specialty with pandemic, best-in-class

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center at do. everything developing be investments the We will continue we to the in of distort as digital ecosystem will our consumer

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Our innovation within platforms. third and our lies strategic focus scaling enhancing

As capabilities. both discussed and past, the we making span manufacturing the advanced investments product innovation are in in we've

investments value be Our of with design emphasis fit channels lighter a and processes, evolving enhanced variety materials in segmented and durable premium pipeline an fabrications, will support across greater specialty. distribution all a on and more that and innovation appropriately

over apparel months accomplishments are our our sustainability our MVP insights know specialty by aspire and Nordstrom, our And to emerging that, the this across as in but pricing with innovation elevated the importantly, we've in ATG needed our can as both goals programs advanced quarter, Kohl's. last the and we sustainability sustainability quarter, legendary more doing leader line product efforts be provides with ESG publishing one traded just ESG. In the is of and said great Segal for we innovation foundational an of outdoor and collection manufacturing sets organization Lee channels, where we report within And report Fred louder Wrangler at to Last be launch we on support and and sustainability. recent independent industry. publicly inaugural area into that behind great XX seen progress company. the This technologies a as Wrangler we drive

the and our people, include years by first to We pillars and to owned progressive goals the facilities liters coming process, XX will with of of platform, saving to this planet, were scale look mover Indigood X XXXX. dyeing further process. and XXXX. with our billion we use in water connected of a this home renewable wireless development XXX% production in by product in These of energy the Power water reduce our area the operated

development sustainable cotton And by programs. factories worker will by synthetics well-being materials support only raw or XXX% work for Source and that XXXX we with finally, XXXX. community

on progress share. and achieving Kontoor's balancing to be sustainable commitment the goals to forward the come. is success that context, the striving commitment serve towards financial while approach our meet the business sustainability to and to we our we of quarters planet founded responsibly business look ESG needs business. to Within sustainably, activities we've purposeful communities doing We affirmed sharing a our and to in

discuss on I final challenging by aggressively is the demand creation enhanced environment, area initiatives. offense, been focus development, And Despite new the the we development. have today business will of investing supported strategic behind business

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seeing in help we well we encouraged in the early reads Although are and further will largely are initial the point-of-sale which is next sell-through. are set, few we The now over marketplace. finalized weeks, be underway assortments still by and in-store the should catalyze are days,

we're which as a Importantly, this of build. launch solid to foundation initial using

will product. to retail additional program Lee the and of sell-in to women's over elevated scale initial primarily include represents time at casual value our and men's the reminder, collection offering denim beneficial and select prices. bottoms, a The a As compelling included consumers. and The partners categories

excited really about well SKU for category opportunities and the over expansion the time. incremental door as are as potential We

the to the invest support And the we in in are brands creation accelerating year. opportunity of by half to these back programs, new taking our demand investment

influential sustainability quarter, third this recently a brands and announced AppHarvest, included like partnership with agricultural domestic collaborations ongoing the with Alife During organization. leading the

brand works. sustainability introduced also And in highlight world China, Selfridges a in for launched a platform Stand a London, local pop-up influencer utilizing equity campaign we Tall, Eddie titled our artists collaborations Internationally, that which we in with for Peng.

the brand. to Turning Wrangler

highlight with New continued in new demonstrating outdoor strategy. to outdoor has portfolio. ATG, Year-to-date, than U.S., distribution outdoor, added a Wrangler the in primarily continues more within including be XXX Wrangler growing wholesale doors diversification of business development our specialty, our

last kicking Dressmann launch the internationally, with just And highlighted off. is quarter we that

the the be ATG genders, fashion and especially on breadth doors. in is will demonstrates be and We European What Wrangler of quality received Cubus, in the makes solely with marketplace. this will that exciting a being channels well women's today concept product, platform across collection to ATG this are that announce early its the geographies how is women's highlighting success, based line launching outdoor women's over the pleased XXX

is in opportunity to back the creation half taking the investments also similar And to demand of accelerate year. Lee, the Wrangler

our the photography campaign, capabilities media end, and with continued scale new successful agency. to digital Abandon our quarter, in-house we During production Wear our ramped expanded and with a advertising partnered social

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at collection on with channel, Wrangler all reach brand's also by Segal collaborations more to introduce Swim and continuing we Wrangler the We just consumers. Rick approach will our and younger, Morty Nordstrom, enhanced the launched diverse Fred Adult

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at years. We development continue new not to a seen drive business in pace

building well to Our forward and brands on look are and this momentum. positioned, healthy we

want I reinstate they Next, to of topic your that to decision many to minds, a a the on is know turn dividend. is key and

of morning, you've in reinstated Board As our year. dividend seen payable cash declared of this and December quarterly in our this release Directors

be clear, Board our confidence. a this decision me made Let is with

the of credit shifted at liquidity for flexibility, of fourth As to quarters the the suspension the and of quickly during all financial a the pandemic, you X and COVID prudently reevaluate amendment facility at temporary least and focus our quarter. with opportunity our the outset dividend including support to know,

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our uniquely proactive and the improvement, future. strategic, coupled drive these for cash flow, of with sustainable growth superior us actions combination more powerful fundamental The that profitable in positions

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With to that, over turn it Rustin. I

Rustin Welton

and Scott, morning, you, Thank good everyone.

driven As Scott drove by performance, our came demonstrates internal strong generated since improving in performance improvement We overall our debt for aggressive we execution, proactive are continued the allowing above that and strategies brand while our spin in cash, expectations our sequential significant mentioned, traction. enhanced our third and liquidity position. quarter implemented gaining profitability clearly paydown the

through strategic we actions to are you of further the walked these Scott many taking gains.

balance call. outline cover for me of what I will the let So the

profitability continuing enhancing to First, strategic we initiatives. in invest I discuss will while how are

and best in position spin provide will us our a third results to fourth on review And balance net the our made quarter of delevering for walk reinstate putting I in a finally, Next, I we progress with perspective will close and year. and ourselves additional expectations the the liquidity full sheet, enabling since through dividend. quarter the the

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our continues regional pandemic, and with XXXX. Phase to we realize our was regional of our predicated We to X of on remain and investment on in ERP third ERP remaining beginning first quarter on our the the track track completed XXXX. savings. in savings remain cost strategic progress implementation, implementation savings during planned on balance the projected anticipated program the successfully deliver implementations the Despite

and together third came actions with the margin in operating quarter. These gross improvement

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the review Let's components in more detail.

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an talked touch our and that. but trajectory, these in gross they on call, about and just improving quarter expectations the see I have We in fourth continuing will the margin beyond. later these are doing forward benefits measures we supporting

continue resulted to As our dynamic for advantage the we has actively minimizing conditions have The since manufacturing distinct discussed we a our owned a supply/demand adjust production highly to and warrant the disruptions balance. pandemic provides competitive environment, while in service spin, partners. manage as

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while a the rethink technology you us in Third, to prudent engaged taking year, approach expenses. platforms. to the we managing heard have discuss cost growth processes, organization challenge discretionary and supporting Earlier leverage global

of made to the also our We and temporary colleagues. salary impacted decision many that adjustments difficult merit-based make

were leveraging with during we points. say previously to quarter, cost-saving the from third improvements pleased salary discussed, to very basis cost these Phase SG&A XXX also in drove restore meaningful program we X am I of While the able adjustments part

These more proactive forward that to cost are the to leading measures look us back reinvest sharing in the details tangible structure business. allow will ahead. quarters improvements into to We

operating challenging XX% our adjusted basis XXX margin an operating increased to Despite $XXX to million, environment, of adjusted XX.X% incredibly our increased profit while points sales.

actions results growth. While we global key long-term the are points continue that creation and taking we to invest for our are accelerate continued our sustainable third in long-term proof strategies, quarter are our demand positioning us initiatives, growth support solid

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strong this position. has debt net liquidity bolstering to paydown our cash an Importantly, in while acceleration led generation

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as we our our under well. position and credit available marking with in ended borrowings best million quarter facility, since Additionally, $XXX cash liquidity the the spin

but the we encourage the touch to table detail. for highly on from this refer additional in have back, and improvement in included you stepping the we So this fourth I quarter. the to XXXX release of to meaningfully liquidity will in and marketplace, later I additional the again further call, morning position X pandemic improved quarters through see despite the capital and dynamic headwinds our opportunity

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additional perspective. provide me Let

of a uncertain key continued share sustainable remain is pre-COVID per in element that business. very continue to enables XX% levels First, organic paydown allows or $X.XX the the reinstatement of a debt financial the approximately and the dividend. for allows rewards shareholders, strong resiliency a maintain a and to investment believe and TSR of in creating operate dividend environment prudent a in we reinstating of continuing flexibility to growth and it Accordingly, with dividend

policy increase and of Board's The level anticipate in time over reflects and environment continual on described reinstatement and limited of our financial amount depend but in relevant. listed our confidence any including, the multiple increases we outstanding in the operating dividend capital Board's timing other our earnings, evaluation of as the the as performance Second, of the business, warrant. the will and filings, condition, our Board factors indebtedness deems considerations our not to, terms requirements,

And finally, of increasing Kontoor framework TSR, fundamentals an these as actions. improving all to our actions drive supporting performance-driven optionality reflect importantly, and for TSR percentage our we position while shareholder-friendly

in to and second decreased shipments revenue Now compared third get offset double-digit business the were third quarter third quarter Wrangler from let's Global from timing new the during increases the quarter in Revenue digital, discussed U.S. XXXX. wins impact of our by in the same the COVID, X% of last on our shift call. primarily to development declines quarter review. as quarter with earnings result the we

revenues development On the aforementioned wins were new business quarter. XX% to attributable U.S. quarter, in same our revenue a regional quarter offset the timing in basis COVID and by shift. The to the U.S. in were digital, for growth represented Impacts flat XXXX. the of compared

of QX U.S., anticipate with e-commerce wholesale digital compared declined sequential We revenues both improved sequentially the Europe improving XX% the and driven Despite XXXX. during regions. by China in and demand. same improvement in in both decline, quarter continued constant international Outside currency the

channels. our Turning to

revenue, previously X% driven with quarter revenue timing new represented our the in shift. increased wholesale which our the were business key channel, and of Increases benefits U.S. XX% compared in development trends by improving the of with XXXX. Our same wholesale partners, wins mentioned

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in of XX% represented which both driven increased and X% revenues, channel, our by direct-to-consumer branded strong Wrangler lee.com. gains Our

business growth and driven in XX% Our XX% by owned U.S. the increased digital growth in China. XX%

led Strength turn with the growth discussed XXXX. let's brand Wrangler in our of brands. X% Finally, the timing in well Wrangler X% same compared to as in the our to previously declined our increase period. in increased U.S. revenue Western digital as shift. and quarter the Global wholesale revenue business

Additionally, accelerating revenue in we business, same increased XX% in last was the which international drove growth year. compared XX% down the period dot-com owned Wrangler with our quarter.

COVID-related impacts on performance. continued to weigh

with sequential key see did digital wholesale and improvement key we ongoing markets in our partners. strength However,

revenue revenue wholesale U.S. development continued the global in and in quarter new by business declined brand strength XX% in as owned X% compared in the Lee well dot-com. increased Lee growth with period driven same digital XX% XXXX. wins as

revenue was compared third XX% Lee international XXXX. the with quarter down

While we particularly e-commerce saw sequential ongoing owned region, strength second the headwinds COVID, Europe, the on quarter continue in in our from business. weigh to with from combined the improvement

Now on margin. to gross

drivers the to XX.X%. year. offset As total balance increased basis well benefits the will increases points as adjusted product mentioned, were I in through was the primarily driven we continue discuss of margin mix outlook anticipate channel for the product by these These as our cost previously and by quarter. momentarily, the increase XXX largely fourth quarter in to slightly owned The manufacturing. of but downtime gross

Adjusted SG&A million. a million decreased $XX to year-over-year basis $XXX on

from Tight revenues of restructuring result of percentage to headwinds offset actions a the revenue, COVID. to decreased cost lower XXX as third the $X.XX SG&A more Adjusted As prior per were benefits in year. with controls fixed basis expense and $X.XX XX.X%. quarter earnings compared in than share points due a

sheet. balance Now turning to our

versus million working down $XXX XX%. $XXX controls reflects tight year decline decreased to management. strong The capital culture inventory inventories or million the for our year-over-year quarter prior Third and

essentially the were second flat. quarter, to inventories Compared

to inventory and continuing inventory We in managing fourth well positioned support holiday in to anticipated levels. our while are and with are performance this improve pleased environment demand quarter we believe

$X million cash third billion. $XXX and approximately finished of debt in the We with quarter

and totaling the As due our generation improving on in the third strong XXXX. cash fourth paydown continued liquidity our quarter to previously Strong million made an aggressive additional quarter. debt during repayment quarter discussed, support we $XXX third position, discretionary should performance revolver the of in

to on now outlook. our And

full flat-to-down as While be digital levels XXXX Fourth Revenue well quarter well as to macroeconomic impacts offer experience accretive factors such be you the as ongoing in benefits to of the XXXX following adjusted modestly. uncertain, anticipated and adjusted the and sales improvement gross year the the providing growth perspective guidance from fourth within initiatives from EPS sequential from should third with margin is in revenue improving reflecting and above quarter, mix remain anticipated of the COVID as XX.X%, are restructuring think continued we quality more balance expected channels year. as about International. quarter of as higher

long-term in anticipated is expected to finally, $X.XX both adjusted increase the at be expected Full quarter strong the range of support demand to And quarter in quarter. fourth least of paydown, million cash year-over-year debt is year per creation EPS strategic should and Fourth DXC to XXXX continued generation $XXX be SG&A share. and driven the decisions amplify fourth investments in aggressive adjusted by revenue. support to during to $X.XX

we the drive and In are want have the I closing, the business in value. greater executing confidence shareholder to strategies to against reiterate we

are sharing capital of coming we XXXX. is our we profitability priorities, fortifying the in to position. improving executing We Investor long-term current Day challenges planned quarters progress much our have still the pleased there the despite and progress at do with our While look our and made forward environment, the currently and spring to in of

call prepared to turn I our now back and operator. will Operator? concludes This the remarks, our

Operator

comes Sandler. question first Our Instructions] with Murphy Erinn [Operator Piper from

Erinn Murphy

year my once hear launched sell-in bit was could question the think rollout? business September. frame even then is that don't But I'd help guess then quantify door you talk just August follow-up. about if and about today how I of know talk up doors. in And more seeing the categories thinking the you Can I I then much left on you're new love in to sell-through. what another to into you it if rollout Walmart. and potentially -- into us you how next how into about in And you looked spring open So could new have Lee I you're also if a and

Scott Baxter

the our partnership Obviously, consumer winning with Sure. with out, the we're Lee is we Erinn, From partnership, this really pleased extremely it's we're is expansion rolled rollout that we're with winners, a our pleased accepted with fact the been I by big most But it we're actually Walmart. thing perspective, and of Scott. that the well. pleased. think

has well. business female exceptionally Our done

So we're really pleased with that.

one think I with of talked too. about our and pricing, that a is as accelerated lot team the things we've a about talked partner the

point price we So we're good really in a been at haven't that at our before. collections

that price been really out. feel strong we So that point, at really good about take even there's the fact

big get to running. and a so wanted get we the standpoint, program, expansion had really up an program, that's to we from think it I

next denim with call the we chose move casuals program shorts. does seasonals we but and for year expansion So as into to start, and

rollout. a got date it. it's really the think ahead to pleased we really we're with And nice of So future

we've line? things I any we're seeing product and and me consumer we're team our taking our I'm there. And mention, because want cannibalization talk to any about not the cannibalization I volumes partner pleased the question out that really that's speaks of is in right and are most thing coming that's we hearing to And consumer the with about to that that had relative seeing now. the that this the One would I is, from our that this think Wrangler

on Erinn. program. really that to are pleased Thanks, where we So date with

Erinn Murphy

It it And encouraging. dollar good then to a very follow-up see dividend. Obviously, that's just amount. Yes, lower the at this is a on reinstated morning.

you're can So what just know if I the fourth paydown? can to you're specifically with share in how don't quarter. kind balancing that you expecting of down debt you pay speak of

M&A? said You rethink And you remind you about perspective aggressive. a debt to from would just then do EBITDA it be us, where an before to net be need

Scott Baxter

Sure.

he'll and I'll some start, to Let rest our answer me amended facility. obviously the then and But and credit of go question. flip the ahead Rustin, it over we of

we a So that to X-quarter we have. had had abatement

that And that have that in team, But this were the I confidence the fundamentals. this the to reason we have much able thing is much company, it employees did I think confidence in were so strong I'm encouraged this that so for the about most of we team minute Board did. our reinstate, we of Directors and

improving will cash about. generation, really bit improving which Rustin we little a performance, have So fundamentals, strong talk

just future, the happen lot are our most about now. in good single But important to I of you, organization we're is talent and that But things would great and company. have very confidence the things beginning early strategy, at people. A We're this tell of is future. thinking the look happening joining about at thinking thing in the where going the we this the take taking the globally of lot to journey, a a are going a

have We the confidence strategy. great in

good that you of in gave the strong maybe to can it the through really some Rustin, ahead go have operating and go confidence details? We reinstate confidence model, so us quickly. really

Rustin Welton

Yes. Great.

sustainable obviously, point, Just reinstate think we really healthy, wanted I a attractive, with to building starts it level. Scott's dividend on confidence. at And

dividend kind believe that increase a payout the and the at really benchmarks, of Directors factors a of confidence that and operating the obviously current puts think S&P but So current macro certainly balances number I $X.XX dividend we the given not time. acknowledges we estimates sort of dynamic And can the targeting over about, that performance including level, this environment Board spoke Directors' considered Scott that dividend in of at and that the a operating specific ratio position being we're us earnings into Board reinstated increased environment, prior of that of quarter peer stabilization a time, a environment. level, determining future and

levels Obviously, amount evaluation factors will including earnings, upon and the a any Board's timing the increase capital of condition, financial indebtedness, certainly, our requirements, really of the depend number cetera. et our on of

timing that into going expansion the So to for we're see that, of time. not opportunity get over we but

discretionary the debt aggressive mentioned repayments quarters, of X balancing a about of about debt fact paydown. proud made million. how $XXX Certainly, thinking bit that we're over little the we've past very You

And model, I our morning, our think to of release we operating fourth in speaks additional on that indicated at script least the debt environment, in the in anticipate $XXX and million particularly environment. the an we operating this strength the as repayment quarter. this of

reaching a we Certainly, structure. time getting our gross of spin, we're asked we paydown. than that the optimal bit little the Erinn. said debt the a also Xx, At capital about targeting ratio less You after leverage were

morning. paydown for capital same, that was Horizon remain certainly dividend priorities and with that that superior confidence X aggressive Our the reinstated just allocation this debt paying here

evaluate the to way but work we the continue business debt. we'll fundamentals the as our focused of really on XXXX and that through down So paying

Scott Baxter

looking time And which really this joining. is Erinn, we're spring, you, some forward our Thank in Rustin. the upcoming thing one spend we'll last on One Day thing. last everyone to Investor in

I and think it's about going really to we're term. business thinking we're can day be a where what thinking great we how with share you this long

So thank you, Erinn.

Operator

Sachs. Goldman from comes Walvis question next Alexandra Our with

Alexandra Walvis

amplify investments making? digital those advantage pull-forward there you the are to are question, that? And are a you on previous fourth opportunities Or a your investments noted What that more bit in of? you intention you're Can in creation My demand taking little investment first on quarter. plans? elaborate and new

Scott Baxter

ahead and take and I'll go Scott. together. It's Rustin will that I and start,

I lot build, lot of quarter. future too. in tell a just is going have that we the on you, So fourth But would a

of going period as time. brands think of don't to So like I a a think very these to short-term build over like perspective. to of how long I'd things we're

Cubus really done going a in the as forward. you in those the ahead new programs nice support Walmart come we've from more things with to and we've And go future. And and standpoint, know, some got hopper to and development and Dressmann business

to going that. ahead go do we're and So

invested in we really little these can history great talked lot we brands talked really collabs little of And haven't with the strategy, brands. about well, and about Alife been talked these. things beginning, bit the supporting one X these too about a at a a the love make that lot of with we're remember We're the a And you long these that doing likes with something of that in, brands, out and cool globe, Alex, fact with we excited incredible about. time. investment, bit marketing, of Fred which a special that we're the all really is of we probably and this lot very Segal They're we around of a

we marketing And to a and incredible way. our significant I our bringing our owe global and gratitude think a teams the in life team we're -- of debt how team on really back teams these to brands

the think the happening plays casualization invest how that about right think I I in the into brands, strategy. as So back to we around that's globe about that these have and our opportunity

expanding rapidly, I growing line talked business our little think the Terrain and that's Gear, about All a about new today. we and bit development our outdoor

in how to about starting how X and come way. And that investments, a year we're you can really build and digital investments next the they're on ERP see I really how think come coming And paying our making to really be a we're capable digital things really smart starting elegant that in team. together the will and and will together system those board really, off

back brands, to getting that so business would nice the for important it So comfortable right really level marketplace these feel of these is optimal get the into that building as the return thing investing brands, can against we're we grow these them money brands. and spending the within We do we Rustin? amount right we a way. these, the say grows. that an I

Rustin Welton

Thanks, Yes. Scott.

win Scott offer will obviously, trusted further significant brands We about, consumers ourselves that environment. we believe and spend, of time compelling find dynamic Just a build do, agile this talking chain supply really really is that environment I to maybe points that a that this of value Scott's comments. amount in and enabled an strong And in. by dimensionalize we couple operating

our the little Scott most history We on And we trusted our consumers. believe a have over bit of of with brands. amongst X in talked about years XXX world the belief brands iconic

over a product and market have at continue sourcing We're that believe XXX of value world-class has the have. really of XX we operating channels in to the to enabled we in chain. us all supply diversified, from or factories that supply quality compelling distribution countries We offer a

fourth line distort Scott long-term this top set initiatives lot really quarter but as And and to of to is decision and the holiday, sort just strategic that beyond. to through said, during a creation important, launched so not the for acceleration, investment but we've the growth us and on of DXC up support demand in XXXX

Alexandra Walvis

XX% second forward? inventory, clear. in to inventory, for over And And how question super grow of was Can your on interesting, on health my you the any That's you and would going balance channel comments that on then share expectations quarter. both in the too. the expect Great. down sheet be

Scott Baxter

Alex. we I'll clean Thanks, my some and Rustin detail. here, position. Yes. as I we've business, years in feel good the would in really you, have. a of start it for But like we fall time to flip never XX with this tell and seasonal we're as then come period the over out

have really lot We in that. about a good that. of feel So confidence really

that's great our going the supply right things think advantage and then forward, I going model ahead is and And way that we're our world-class the capabilities. now and manufacturing a demand of matching one

just that played in now. that really we're well in right has I think environment the really

place. feel good a we like really So we're in

here one product to doing great seen our teams things is And that's think and that our job have you to want really are important I really, be that in. of making the and people designing a want products of create buy. product to teams And people

enough. -- can't just I I them So thank

be here our can't them of teams proud -- what and just what of Rustin? in thank time I'm have short as Board done. done super Our a and period enough we've can't

Rustin Welton

Yes.

you. think a around I dimensionalizing of that a job, did you figures. for Scott bit give just little great Alex, the I'll

million. with So $XXX ended $XXX QX. we were quarter. in to the down year-over-year, flat That That where XX% we about down was million was relatively

the highlight million to working of talked really back as year-on-year. of maybe sort we we the of QX, what And inventory were second million, of came with on as last half in $XX down we balance, about about inventory quarter. year the reiterate just that in call, down million $XX were coming in So $XXX and last the

a we of hand. inventory the inventory and again, Scott just is flat happy we're feel QX that position to QX, as about have in great really like on quality the So with talked

So thanks, Alex.

Operator

Our next comes question Securities, LLC. Robert Drbul from Guggenheim with

Robert Drbul

from of questions Just a me. couple

even for different maybe and maybe talk I think price in trends the of you channels what globally? terms about the a first throughout the you're little points, Scott. across et of sort in denim Can seeing category bit cetera,

from just about margins the then gross gross the are the you quarter. you sustainable years today? Can second I question and talk 'XX, the into next margin you into where -- And for being Rustin. see where -- about talk talked you we fourth over X Can think

Scott Baxter

Yes. business. margin. in. the Bob, that category the I'll gross take we're this Really the Rustin will first one, We then love and take love

a I the the casualization now. category in globally, absolutely we're of spot think is right and happening sitting just it. that's terrific There's sweet right

ventured consumers. taking is, played you I have company, this around of were we talked know in we one And business you've and our a exceptional while, was long of things for Bob, playing own strategy that business, think that And now of and about the -- care and higher all a our been a for a you time. actually it we range as been that's if for things from our a out one publicly-traded category we've sure range that standpoint that making in a the in narrow

new in us player category in whether recently really bigger us, be multiple advantage that with a to itself. Asia and States the we've it's our to those some the the folks, business business of for here at So or Lee higher playing channels in other in some business and Nordstrom's channels a price gives higher the built a United and Walmart point, distinct play in it

casualization we're and just and thinking from a am we where are. from standpoint, from a about how segmentation, global So our standpoint building pleased really I

Rustin Welton

to those pleased as levels. here remarks, we product the take expect year your the part we prepared about in largely above and improvements, on quarter, mix see talked drivers the mix channel in again around that margin I'll margin continuing product strongest finish our prior points, Bob, really cost the XXX with second fourth margin gross the Obviously, basis third And up in spin. question. really since seen And we've Great. gross quarter,

about And you've cost have talk the after the lost Bob, was us, the certainly some and we margin of matters. spin how that to did bit get a coming first after start out in really been the heard really sales thing XXXX, about quality we spin program and As business think quite of that since the of pre-spin. save the margin got initiatives this to expansion recapture sequencing

the the gross that invest really expansion because us margin brands margin. So critical organization operating enhancing for into enables while focal our point a remains it to

us And I'm not imperative you for will will I a move expansion breathe forward. going make today. improving oxygen to P&L guidance remain a the that that to specific critical margin as operating we really strategic us while we on the strategic gross into provide is tell But margin. margin that allows of talked the gross the 'XX It about the lot investments Scott's

thanks the for question, So Bob.

Operator

comes question next Our Barclays. Adrienne from Yih with

Adrienne Yih-Tennant

you business Great. Scott really reminds quarter what us this and run. think a strong Rustin, I of

the ones spin, and low space. of a obviously to better business in the You're the one mid-teen margin after that's

So I guess when look this the I my is XX.X%, question. at

points. alone We them let in of expand expand XXX the by anybody COVID midst basis haven't margins, seen

it X when that like you step-function that a X, Horizon certainly sales is change this Horizon start next to quarter growth. see so seems to moved has And

on put very XQ. different, so guidance, some Analyst for And the there's Horizon X? and horse, cart I'm profitable. medium this guess to that I onetime Or to happy don't nature to business going come to I'm seems asking on But much Day. more some a as and longer-term the And on that's there's you if LRP you the want are wondering path the before maybe maybe

Rustin Welton

that. ahead Yes. take go Rustin. and I'll Adrienne, its

that very -- fourth. I top So certainly pleased that in stating really continuing remiss dynamic the we're the obviously didn't into here. in we proud a sequential operating line be begin I'd so And of third see if with QX results with the environment. our quarter, growth

of taken a expansion, some gross some in margin terms at did we height the to of bit prepared temporary we the of had of of a sign in salary SG&A, in reinstate actions driven the the I part that actions by in et some quarter middle the in digital, is the distorted reductions, pandemic take of Obviously, us. the sort cetera. talked little the welcome growth remarks the for

you'll of kind moving forward to back impact sort now the levels. So normal we're that that operating of have of

top of about question the creation and sort solidify line, But the high beyond. in asked we to it XX.X%. to again, starting I think demand XX.X% wanting Certainly, watermark And but and quite forward. DXC about that a quarter a And distort bit about fourth you to at that's XXXX the talked really inflect moving how think we and talking investments. about

think control, we allocation, focused of fundamentals and sort we So what can is the on X, of about as capital that really Horizon improving we're Horizon the business. X,

organically in here to dividend, fourth priorities X, able then being X element into a important reestablishing our sort really reinvest business. an debt continue again, the So and brands just Horizon aggressive of our superior quarter, here that down and pay obviously, in that will

put over feel spin priorities continue this debt net term. the here since situation quarter. in we're financial near And ourselves in like best will we liquidity at the the and with a our position healthy We

continue operating we is spring, environment in fundamentals. the that But a optionality the we we'll the to certainly, planned fact we bit into the little Day year, see actions see move Investor more that's capital point we we in as how in So where that the as next in. is we currently this should the like dynamic into really further really as increased about talk we're TSR-bolstering to X. focal Horizon drive get that And future evolving allocation improve

Adrienne Yih-Tennant

I then, Scott, then the seeing what more -- comment if there, been you've may. details some launch? Wrangler you on give improvement Would And China, and us Great. the

Scott Baxter

seeing quarters. talking of about Sure, Adrienne. improvement that for We've fundamental been in a now China we've couple nice here been

call to going getting So continue we'd would are there. like to think that, to They normal. consumer what back that's to with closer we the

launch. we'll is call I it market believe hope a what to we at reason when is And environment have and that full we we want Wrangler in we launch we groups timing and the better in soft then more people receiving do inclusive And with can way, together can no brand. won't, marketing and speak. right with things have we it normalization the and programs way, operating spring, to The just a be which launch do the collaborations and relative as the now happening to what then would do a that will that be, do have

So program seeding full then spring. the Adrienne. and small Thanks, this now and

Operator

Susquehanna. from comes Our Sam next question Poser with

Samuel Poser

are might it at all-over-the-place me question. of tough that of fact more despite this sort the like in have defined. slow sounds getting this me forward Lee, sales it define been better been has with and robust it sounds than sort and to for is down the otherwise? total But your through better pandemic your brands going year, arguably to launch allowed an This like businesses And growth COVID things have to Walmart you

Scott Baxter

to segment Yes, Sam. ahead us I'll This go is Scott. It's our take allowed and that. brands.

So and if segmented both the you globally, we've think with about them. what we've Lee Wrangler done really the brand,

I product these one have competitors benefits really and to as other and love our of other the permission channels, these we're brands, about places go talked consumers have. the the brands think history have lot these lane. now bring that brands, to And seeing what to talked about one good some a some with stayed is them in brands. of the we a things brands marketing, that And was these we've fact of the spin-off of the the

of our really So model, about Sam. good that's what the gives optimism us future

Samuel Poser

not more than a may to clarify And I'm might aggressively getting bit your different because stronger of the without little more what crisis. have just question, were question. slightly grow I to had you brand to a you tried they make it the the maybe want methodical that been be arguably to but to to crisis, And at. even answer, able understand have That's say I you been the the there crisis. about

Scott Baxter

on good in look them how of in strategic going we've way the we at marketplace. in these way, a No, We to the things certainly one is And brands real completely that understand. have taken the do dislocation advantage treat forward. of a really tried

and business I of the important our brands are about a about really to that's question bringing think Sam, your taking things, is back of forefront. one very long-term the we view these

saying. with agree you're So what

Rustin Welton

Yes. us and new criticality would And And Scott's about several development to also really also just how the talked wins. about talked time. of add, for gaining business now I it's going those take Sam, for we've quarters

brands year, think you And Dressmann's, beginning Walmart, of talked a in it at acceleration that sort after to really, of segmented was in placing in an Lee back of if pre-COVID, at some points really we And at the distribution. Cubus Scott new the of it's talked talked back as now, getting whether these about half. about Scott's the about way wins, at these

Operator

question from Jim with Duffy final Our comes Stifel.

Peter McGoldrick

lower even the low there's future an to like Recently, salary at revenue, know in seeing near a McGoldrick is that for Can looking teens seasonality Jim. we're margin return this This Peter It which reductions? the in is Gross on margin which on guiding operating net for business operating is plus margin. the DTC term, but stabilizing. ball low-teens seems really second sustain working on reversal I actually you, are for margins of you're gross the could near this years. some we're half. investments term, mid-teens very and into

Is have just not existed then was as given in the the is there might demand that? that emergent pull-forward, a follow-up, creation. that about on think previously? opportunity a third quarter? strength Or I should And we curious How an

Rustin Welton

go I'll and take Rustin. those. It's Yes. ahead

I'll back savings about of out spin. sales we focused comment the quality sort go the As think because of We cost really to P&L, and of the I really coming it made on enhancement the that us. was sequenced think start of the creating margin spin. for oxygen at as gross that about And the with starts we really all P&L. for important that and We

brands invest the So as in expands, the to it's margins. also demand fourth here going certainly the via DXC us allow gross and seeing while into operating margin creation the as to improving that ability you're quarter back

expansion, margin point So and an that's as why us both an organization. that a for focal to such do gross it's with over we opportunity see time

demand And As in we environment, about good back little trusted a opportunity feel it's And you quarter an want earlier, fourth and winning the to this my need creation, go where Scott's think of wins. our the certainly, retailers. winning ago, development distribution comments strong brands. And bit for quarter. under-indexed some But us and really of holiday talked Scott to I'll in bit do we to really a we about certainly particularly really point support that, about an the the forward, these support in moving really drive business demand in with creation not get to opportunity to that new just see the and earlier continue in we're as a little fourth to stronger as call brands to behind and well. again, top time expand line over growth

the for thanks questions. So

Scott Baxter

look you appreciated, day. some for season. and Investor with much It's time next for in time and the So thank you year folks, inconvenience the and flexibility we'll But say Have thanks, and you quickly your today. to on with flexibility a wish some us. everyone, all company. to the of I everyone, patient being but apologize having -- and the our spending you of appreciate jumping to happy quality again, Day, call, for between. back wanted support talk holiday in I you great to And year rest wanted really of appreciate today. a forward that yes, you again, we wanted to healthy our caused we folks, flexibility thank and We Also the

Operator

this concludes conference. today's gentlemen, and Ladies web

for may great day. You participation, and have this lines Thank time. at your a your now disconnect you

Kontoor Brands (KTB) 29 Oct 202020 Q3 Earnings call transcript