- Earnings call transcript Q3 2022

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Operator

Greeting and welcome to the Kontoor Brands’ Third Quarter 2022 Earnings Call. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation [Operator instructions] As a reminder, this conference is being recorded. I'd now like to turn the call over to Eric Tracy, Vice President of Corporate Finance and Investor Relations. Thank you.

begin. may You

Eric Tracy

and will and contained view Earnings operator morning make and documents comparisons to differ. Kontoor clearly website our is is be Third our to kontoorbrands.com. certain current Brands' statements. tables could uncertainties we Thank actual cause news found currency, available language, Reconciliations cautionary risk Call. welcome in stated. was the the Participants items and XXXX results expectations on on in based supplemental at Conference in release. to statements reports. measures will subject of We be on Quarter the adjusted unless to this comparisons results, that filed in These be disclosures that Select you, materially are to those are today’s forward-looking uncertainties can on results management’s These dollar These detailed why urge to adjusted SEC. tables XXXX included defined news will factors, Comparisons quantify adjusted and otherwise will excluded and in to which with today’s amounts we are investors. of basis in this you make read an other to and identify constant on financial provide useful release cases, GAAP earlier information XXXX call issued

Chief Chair, Scott? today’s Executive hour. will Joining Baxter and about call Kontoor We Chief President, Officer Rustin last me on Welton. Financial this anticipate call Brands’ are and Scott Officer, an

Scott Baxter

us thanks Thanks, everyone Eric and joining today. for

remain by world. with day challenges. resilient, even so each and face to on for strategies in it's so teams grateful to colleagues the of around times, execute every ongoing agile, start the unprecedented important I'm in operate of Kontoor to my and proud our today macroeconomic comments our continue how our me thanking and them partner We really

topics primary are address. get so I to it. a three lot let's cover, to have want We There to

macro our everyone's offer know specifically biggest from Kontoor. are four environment on at acknowledging I'd as I our business the on like on that it to is perspective, having First, impact near-term factors mind, the some thoughts key

the and Second, highlights proof on we investments I'll address the a off. broader initiatives touch to the my how help trends I the are macro how are model select quarter. third what of points of in of quarter take dynamic started improve on and you going landscape And sobering strategic and to some comments finally, description our to brand backdrop we continue from third with during call including provide quarter our our key strategies forward. enhancement through doing the our a implications continue will paying outlook, the second I'll see

varying similar challenge us that food, areas consumer and and a inflationary we Europe, consumers we As begin prices pressures in I four into housing, impacting seen to to nearly we haven't winter century, facing are elevated in of levels severe think to months. input said, is Clearly, apparel, as with the from seeing that are on In the been crisis in first inflation consumers on the energy including half move everything are the underlying demand US, experiencing costs. impact are about degrees. inflation

pace second been slower expected. we've second candidly, on consumer The factor ongoing in the has COVID traffic is and The of weighed largest the economy, has policy reopening in world's China. lockdowns zero the than

build. in buy shipments dynamic a significant anticipated retailers restricted. quarter we subsequent bit dollars third open on our of inversely had This while were would to US more as across Third, an rebalancing revenue inventory inventory impact impact

for have plagued from to begun show have moderating supply challenges the the chain last highs. signs of plus that global the historic Finally, industry year

while freight moving Asia from and to ocean times historic has moderate. lead levels seen have above we to levels still Specifically, well closer begun pre-pandemic

we've As our into also I accurately impacts have outlook, and factors reflect is positioned better will attempt which to these company Kontoor is we not these I to bit, our know to but we I growth. am than ability organization's for immune cover stated again consistently, in sustained, above drive and extremely earnings been the profitability positioning our expectations overall competitive profitable to proud continue separation the internal also ever while and deliver once of more to long-term a company

anticipated played let as rebalanced inventory down more third currency And bit the our their wholesale in be now by declined key challenged than particularly a our said, X% within with quarter retail positioning. we results. me of wholesale planned to revenue addressing takeaways constant out, some US as business, quarter key shipments aggressively turn partners So I X%. would as from third US revenue, reduced at this they overall We

and we piece our X% bottoms. growth markets able provide combined POS in believe workwear share, to outdoor, retailer lower strategy. up DXC categories afford space overall increased once outdoor digital once t-shirts and it will own consumers, and in by be with extensions billion up during aggregate, play categories than the $XXX opportunities collectively us from closer of that more of US when new the premium quarter. and creation, to to enhanced connections brands increasingly with market, beyond we versus experience Authentic our This as of brand growing the broad-based product; and western, goods note in in outdoor, distribution has to Wrangler XXXX areas beyond drive product to a platforms. levels, quarter. diversifying including no and product in important the compared by our However, Lee and opened X% for are our category into selling meaningful elevated traditional year-to-date showing new evolution and addressable were we demand been channels further was continue and product core design Further, has important the is core pre-pandemic in across again expansion white while while critical Wrangler expanding and there's outpace brands, as also impacted specialty, Lee revenue diversifying sporting large when AURs permission the continued workwear distribution again tees, the representing also nearly dollars, denim such These portfolio specialty, strength our channel

developments great quarter, and we you that our channel mortar proof highly share. investments the including As know, brick our creation digital And XXX% XXXX in exciting USown.com here growth have we growth XX% digital, remain are early year-over-year our in our within increased the paying mid-teens over stores, own.com while off. days of all accretive Within experience in terms this demand over penetration. points well in 'XX are and to below global competition some

with we the our a frontages our their plans consumers was by commend them down one in these opportunistically another will each results. China also trip in our knew really of term new Lee first was region, We and increased unique will and dual spent have underscores for Europe, immersive opened roll in on able will reopened, markets brand, we I times, lockdowns spent from maintain strategy, expertise. inflationary concept quarter near AMEA environment time see the combined of with retail Geneva. In headquarters that concept I The a earlier. a as great together XX%. quarter unified areas It fantastic for have improvement year-over-year, Europe experience and First, stores recently through to a brands doubt visit select third QX teams the team week XX% deal Antwerp great storm Within the retail denim years that both XXX-plus seen confronted be destinations APAC the but discussed the I including in with in ongoing to to new my continue revenue go-forward across I in come to that performance. last on Europe to positioning premium long-term while that no support format crafted did our European with challenging great brands. see sequential we brands offer we time branded have will by understanding pressures design really China folks to from products our a success. the to challenge in revenue actually just the region. expertly Wrangler out separate The Berlin will

we continue when momentum cautious on be with normalize the build conditions reopening to continue So we respect opportunities to while region, remain to long-term in and the significant.

initiative build launch Now the Asia includes each do our into investments in forward strategically a continue moving world-class to pushing geographies despite months to continuing quarters. of opportunities retail at are across Based More the early make the and critical don't model. this product channels retail technologies fully also leverage our brand Europe The come team will assortments excellence Kontoor rolling learnings be to next the on we'll This amplify in the and navigate significant are store and categories, is of the as region Europe, for respective retail tremendous. to out building. to growth Asia excellence transforming POS APAC our happen as These in across program reformatted seek the initiative aimed to we opportunities our more XX the so footprint, recent global backdrop develop retailer, we near-term and improved our strategy KTB globally. on now enhanced look mortar we to of we globalized while without XX testing, market success Asia globally over in coming brick platform developments a to the the to in enhance consumer the challenges experience. and and these will

second see iconic able our partner of but Leon unique Some ambassador Lee and Grammy were Up moments inspired Lee Festival originals it. newly Wrangler Tinnesz such during boldness, how time highlights the by The we or to to US, embark is Lee connection brand of Seliger once greater campaign big collabs The drive and and demand XXth took equity creation with to come to with Lee efforts two global able small Seven And events, Week brand sponsoring in stand their lower leaders brands campaign, entitled anniversary, of extend to Mark were as winner, Brooklyn X-line to Award the again night, test these individuals campaign its parts its Photographer design, support us life approach and Originals, creative From Seliger year's of those similar innovation younger, lives Brooklyn brand a enhanced you partnerships to thrilled for investments over brand celebration with continues our and Manhattan here and Lee Lee, collaboration Bridges. during define teams the continue brand who repositioning. the more New consumers song with Wave. and collaborate as preeminent the new this to the the launching Sam creative just product the Director our China in brand in as the optimism. reach Fashion part to to authentic global in don't diverse on join apply brand to creation brand innovative in its amplified one with who man using Bonnaroo Wrangler of Circus activation QX consumers. and

In of addition brands. and build Leon mentioned to the earlier, the partnerships Wrangler collection with Bridges class cultural world launch I influencers continues to iconic

multitude to brand, selling university Gant the trip highly taking our up college fashion to while heights, this to the Europe, staying collaboration brings Coliseum are the such program roots. final in a brands to with Wrangler hopefully finally, a were we with brands big invest the fall, organically brand powerful to chain it the our supply creation our Western bring as partnership continues comments The firsthand cowboy behind improved and position. these Wrangler Yellowstone to great I ongoing as commitment across shirts challenging innovation to macro takes Midwest, brand. weeks authentic show premiumization while for during me with collabs ambassadors Anecdotally, our demonstrate talent, season our our teaming signature much premier forward Which the iconic initiatives with long-term these of when strategically way. relates ongoing And environment a support that hitting the saw how partnerships and able to over ethos, to to even brand with supports my in investments to go-forward. €XXX pieces my anticipated South up this our with Importantly, with new coupled demand all ways few the in this culture the in Gant Wrangler true of expect

a impacting I earlier. top as have of bit a tweaked with on tight our four stated you've remaining crystal I weighs currency assuming touched macro, monetary ball over incremental resulting term. in down are challenges guidance earlier, about by well our and a point line As From the earnings high policy while seen, economic subsequent we as conditions here we the inflation revenue acknowledgement headwinds today don't the demand, level, near in we in challenged that as on a

that assumption, planning in are sequentially here. QX? given points why revenue A few So we accelerate

outlook and share domestic gains on our still business strong POS base we First, development. combination the new of

Kontoor uncertainty to respect productively more detail shipments, take but wanted, we current coupled orders QX US going competitors. relatively and retailer we specifically, many inventory know second point, of this have advantageous into back like let's color ideally certain of current we challenged, rebalancing but in product, while This in bit, a sell select holiday heavier and aggressive planned risks into affording assured of clear, and even health strong, retail open utilizing be while year. quarter all year we mitigates inventory, already. partners in our retailers navigate the in downtime our a our than downtime from many been key full rest our have that outpaced our regarding our Based planning from up through our is to us Second, would have levels materially not actions to dollars key opening significantly the improved into the adjustments our position address And brands capacity customers to US Rustin brand own facing given efforts process the will has to of core XX% to as our through the 'XX, inventory on of be will inventory through prudently has meaningful roughly but guide With in that with seen remain fact particularly conservative would've continue or significant Most environment. QX. are plants. markdown of next I we we buy taken you with shipments some well accelerating specific are exited you want date to early haven't with

macro fundamentals as 'XX As both the half are both I've stated, to half the front assume and the we first top more begin line likely second to more and operational demand opportunity headwinds ongoing to to costs on bottom challenges the in the on on accelerate in pronounced ease. pressures be input of and inflationary

We support to and the third our last also as accordingly our expenses provide challenging for uneven continue and improvements the tighten unique to confidence our the leading to even the in balance This flow sheet over recognize drive coupled enhance fundamental board landscape. in marketplace is evidenced to increased dividend the of reflecting in agility with our the to Further, years did need in times, the generation, actions us environment ability taken industry stakeholders. be will look navigate proven bolster our X% and in Rustin? quarter. are cash we more that returns all several structure, position we've flexible strong recent increase in the quarterly discretionary capital our to substantial our competitive

Rustin Welton

Thank and you thank us for you Scott, all today. joining

in brands is competitive our operating the times uncertainty, advantage current drive cross As creating geopolitical inventory these is positioning stated, that times, and global confidence, and as our us of we events of are to inflation, one the consumer But and of a of clearly macroeconomic allowing marketplace. strength competitive and rates, discussed, during Scott a rebalancing model have resiliency unprecedented interest spending are separation factors.

and TSR. and are call, of the on number X impacts a to on not how I'm for we cover superior deliver success, are as Kontoor their position to these we strategies long-term we of more topics about actions but over the execute For business our balance what thinking broadly our term near going to the best only taking Horizon

quarter Beginning on these review our global offset in in our business took update ongoing provide driven basis, in digital consumer year. the wholesale questions. opening a before revenues strength which partially up X% and On inventory year light wholesale compared first, retailers global was your China. retailer softness me revenue, the by will XX%. in shipments own increased the But to significant in regional broad-based our US to let US with lockdowns our quarter, a reduce by rebalancing softness business, in I Growth decreased to as start third prior to decreased the X% ongoing reduced guidance offsetting the actions was Finally, results. revenue an was of call in in considerations with full direct of

We such COVID solid region tees, increased which continue we XXXX. in timing are related making as progress the increased in revenues to lockdowns X%. to in delivered workwear XX% growth weigh the categories are and E by P in non-denim International encouraged the R related in the AMEA also by China driven digital key implementation quarter. and strength on while

Turning ERP XXXX seeing quarter platform. made each X%. revenue aforementioned the during and and related across to such down was even pronounced tees. by increases global Wrangler rebalancing during XX% AOV revenue gains brand in and was well more our a X% implementation. from double timing in brands, the driven which triple as categories by decreased as we in Momentum drive to returns posted channel. investments while XX% China have inventory digit in growth increases impacted digit to increase our female, continue retailer the Wrangler significantly US our Europe of in Western strong conversion, That as quarter. with The and the said, reflecting are digital digital our Revenue traffic own AURs we the by increased increased shifts international driven we

decreased quarter region increased Lee eCommerce great related shopping second decreasing revenue the driven the inventory a quarter That and with grew China. a in decreased Turning the XXXX COVID from discussed, by building in had as increase retailer our into in US global a own balancing holiday. all-important did lockdowns said, partially actions business improvement Lee, see offset on by XX%. momentum the XX% Lee revenue revenue a to digital the sequential XX% X% XX% we Scott International revenue impact significant X%.

results. revenue related investments with non-US to yielding great EMEA finally, perspective, prior fueled channel from And Wholesale year own.com increased helped shifts brand affirmation also that global timing a growing wholesale XX% implementation. and X%, increased X% XX% to the ERP was decreased are US by Moving own.com the channel wholesale increased XX%. by

Now on last margin to basis XX gross to gross margin, year. compared gross points decreased adjusted margin

earnings points SG&A by per percent in of As inflation $X.XX prior approximately addition a XX structural offsetting $X.XX XXX quarter. impacts year. ocean compared We decrease expense was expense XX discretionary and tight continued controls currency in these In period as compensation margin as of SG&A pricing to the investments lower and was sequential basis as last ongoing costs and distribution well XX in offset we revenue as saw expenses rates SG&A adjusted digital somewhat on strategic a pressures as accretive same transitory to such well contributed elevated or and freight share versus product foreign million improvement by million air weighed discussed quarter, channels freight points a deleveraged the to Adjusted pressures as benefits third headwinds. basis mix benefit. in quarter XXXX. it higher the somewhat in channel in were quarter Adjusted the a

XX% the inventory compared on compared and increased net quarter less debt, our or a I'll long-term sheet, XX% to $XXX quarter third more equivalence. and We increase XXXX. to bit. inventories with finished million in cash turning cash Now and to debt third of in year $XX million last balance touch

declared one debt, And previously directors increase. third times net by two announced, targeted leverage of month cash as two at trailing board per EBITDA of our a X% adjusted share, Our divided range ratio, was end a to our times. of within the dividend regular XX of net our quarterly $X.XX the quarter

our resilient environment challenging a our the macro operating to mentioned, commitment model, confidence superior in to in Scott our returns increase reflects cash even business As the deliver and our and shareholders.

Finally, $XX third under share the repurchase remaining our the we had end million quarter, of at authorization.

our mentioned now review we guidance. incorporated updated step to operating I'd the at into the top starting outlook line. and I key have specifics like Before factors the global these elements through updated onset, these how with our of environment the impacting we

categories this we to as inventory internal more want and inventory is quality well brand more styles manner Furthermore, competitors. in good XX% term, first, light our anticipate inventory manufacturing appropriate a impacting many his fact namely the and inventories second. extended will on size of our let's environment inventory inflation clear, emphasize the approximately cost As retailer lockdowns, improved wide adjusting the near A rebalancing of with starting Scott environment, discussed continue with US we broadly normalized Scott balanced position right global inflation and next following as became demand. thoughtful core face of few inventory while of quarter goods spending, of inventory, receipts chasing products The of a and combined confidence levels to and and want. chain promotional retailer and quarters, consumer remarks, expect that rebalancing, range marketplace. our heavier be we in mid-XXXX China on source a levels over than adjusting with will elevated there lead led is we supply across in several than But themes Channel action. demand points period more as in and in the relatively consumer the by would rebalancing, but actions This source our an are disruptions over the subsequent we be profitable third couple taking times in to mentioned. I are

the consumer for quarter While backdrop, encouraged we by the impacted by are to underlying fourth uncertain the healthy be brands. inflationary an our we expect demand environment,

the current environment. resonating deliver we value strong and investments to in the the consumer With

shipments progress continue point third gain to August. saw great seeing healthy In US we with in in combined a slower of with as specific on a the are we despite the we signs position, share impact of When contour inventory in point quarter, and after proof improving July fact, start the sale. already the

have XXXX. September shipments growing in US to Our versus September meaningfully quarter revenue trends accelerated with October date and both and

we on Regarding a continue brands. take for long-term view region the to China, both

As on Scott shortly margins, uncertainty. slower we in has we stated, also the while reopening light our been and impact reflecting outlook our of I accordingly cover prudent are gross has in current than as will an and anticipated this believe it is the

margin, we and supply chain quarter than to largest gross ocean we're to impacts year and the and price, seeing wages, the in on year and Moving offset contributor product category strategic freight, inflationary benefits decline the from over are mix. more commodities, a

still our for in brands be time. term. quarter, channels, place finally, global more have term costs our organization. set position SG&A, spend, on discipline in that very the investments environment, drivers sg saw the and and and and and the TSR historical sequential insight macro driven our updated such categories, areas headwinds year to and greatest in margin and and continue structural creative the potential are the as near when That and adjusted aforementioned a health geographies and of of plan. made data and in have full inventory over expansion third non-strategic expect remain moderating mixed will platform And QX seeing that ERP will elevated significant improving prudent, improvement culture both on freight gross performance over lead leverage guidance we foundation long-term levels, long-term relative as commodity current While in digital in over as the the investments actions, that are combined cost these near in a we years last for continue with prioritize to cotton And particularly example, such support have the light a much prices margin our to although input you for momentum said, we strong we as the the we three times. And a reflect to support progress will shifts we to

release, anticipated a in to in and these onto summarize, to costs. to and estimated The margin expected $X.XX shifts from of now updated negative charge Now be $XX pricing such excluding to X% currency. XXXX. continued are The per foreign point to ongoing mix low benefits single one to strategic a globalization gross one time capacity, details basis, million constant estimated impact and X% XXXX revenue an in approximate digit adjusted guidance approximately an associated expected of increase savings reported found expected compared can adjusted XX% is SG&A our geographic structural relocation excluding Adjusted initiatives one to to offset currency. increase time and rate in but updated currency Gross on charge now creative adjusted gross today's with our a XX.X% incremental efforts and European at includes channels share. digital, as The cost sgna, outlook, compared headquarter mix, revenue includes help to higher approximately incremental achieved additional EPS guidance downtime, foreign compared from of impacts margin is XXXX. an from margin the is

$X.XX globalization our share in compared $X.XX $X.XX with to efforts headquarter Associated of European the to in share anticipated guidance prior $X.XX per to is close. to to of range relocation be per

our and confident agility in clearly As the proud and team Operator? remarks, execution in now will global operating our I couldn't the for remain business operator. while and separation drive resiliency delivering of turn call I returns all back to superior our to prepared competitive stakeholders. the earlier, we we be more a of concludes steadfast dynamic This discussed but our of environment, are

Operator

you. Thank

session. from We Guggenheim. Our will the question-and-answer question now [Operator questions. Please with Bob proceed instructions] your line be of conducting Drbul with first a comes

Bob Drbul

your couple you that about elaborate of in you when about talk in talked just about it, QX you think you're terms of first seeing? I be I acceleration Thanks. you the on A could little so ties together of you spend you're exactly can some trends, the quarter, if us. for guess would morning. little really, in sort questions. And, trends time more more one that, bit out, Good call guys. a helpful Hi the expecting what think talked a the pretty I fourth

Scott Baxter

It that and one. ahead go Bob Scott, Sure. I'll take

and a down saw things here and they QX working really the bit things are top we've You we but seeing as that. we line on standpoint we them, continued POS but tweaked thought aren't long in some China, and time, the in we that to been currency are of happening opening a some visibility have different acceleration we're a it's we for from that what little see fast that our of that so multitude happened, the as a lockdowns in get, seeing, strength wanted the it's

us little both know too, see addition chance bit that which but then of So I gets gives to in that, brands. confidence. we've the And share from seen to share nice gains, a gains everybody a

share we're we're ourselves creation the optimistic those back a optimistic doing really tie demand So about to that that gains. from and because we're work to of

conversation them elegant and really because know we're way by onto to is what mean seems hang with be to going how have we that talk to have to So, now working. we in consumer a that a I that our confidence those consumers

teams creation our Our in. folks demand in dialed really are

that's then new work. such business great I'm go there And do our out marketplace. gained So development and the our because really, relevance the continues to is piece team, really And in brands which with that. have really pleased other

than the retail to development, the some an but do other I'll partners some we our new from thing So have inventory business too much standpoint. they you tell cleaner were are of is visibility

to So improving. buy some are open dollars

we're by, the mention, one our really good quarterly additional it about So right? want categories in And our it's augmented the that of our us. of our standpoint. and our real growth we're the geographies it's and biz and that's of it's seeing been within I before, And is across, digital breadth course. because it channels talked seeing, trends US things we've that important too. to from core business, So But just with to strong

we've pleased ongoing had we're a t-shirts, those some here new like Specifically our while. that for with, of work ATG categories initiatives and really

is real relevance, is improve So really work our I synchronizing it and that in brands really teams creation we'll think the too our time. that are work we teams have share our some And demand economy right be feel gaining at there POS confident together design the done And will gaining the down boils all nice. the point and this in time at really it. as point to with

Bob. for thanks, question. So the Thanks

Operator

you. Thank

with to UBS. line Please Our Sole next with come proceed questions questions. Jay of your the

Mauricio Serna

guess the for down. more guidance. impact This ask Hi, of the if Wrangler about wanted hear Serna key take maybe more channel And could margin talk little bake of good wanted Jay on you put to questions. Mauricio with behalf brands our interested on you QX position the is How the a target, Sole. more. morning. hearing I please is to in gross primarily I'm capacity wholesale about Thanks partners in the side, taking like into and bit the

Rustin Welton

I'll take take the okay. Rustin. if It's will Okay, second Mauricio, the morning. Scott first that's part good and

actions the the work As of levels are QX The spoke that primary of. remarks, Mauricio that I margin we're there's release inventory downtime we gross both begin at three in QX Scott quarter to be to inventory spoke elevated in our and those by our impact gross look this that really the we and expected that in we Clearly demand to drivers to to, efforts about outlook will here our morning, address retailer margin. significant caused plants. elevated and incrementally our consumer indicated rebalancing inventory most down prepared and levels taking as softer affect proactive

In incremental obviously in headwind due seeing lockdowns. with for the I that COVID of our we've demand related sales Maya on three pronounced. going about. are the to softer Scott? margins, adverse the, The is to in that in, final the in us that's date impact drivers And are seen fourth the sales to we've to the think but continue the those be quarter on by most a Mauricio, FX point mix China impact we're again, the, to lower primary addition, downtime what the a seeing geographic being to then, an last we consumer caused we, impacts impact talked due inflationary anticipate sort that in

Scott Baxter

and ahead customers, take our Hi, is a that in to Mauricio, our really partner the a, you? contour to with it's not work Wrangler target's individual material commentary for how experienced are this a and since of tell that. continue any brand, our you go to like one denim practice, the accounts. I'll we is, with all unless talk we teams. we'll great some but there, for and there's marketplace, assortment do we haven't as what will about need to don't question. continue our Thanks of we as optimize their I but discuss, accounts, general It's material us, in issues top

great have outdoor strive but go perform relationship work have with and there growth, to, other and tees. a too, outsized we'll ahead we'll enhance while the we work also that to and We categories

and international we'll picture at the complimentary own also big continue a expansion it's d drive our our to also TOC time. So and same

Mauricio, So thanks

Mauricio Serna

Thanks so good and luck. much

Operator

you. Thank

Wells line questions with of next Please with Fargo. the your Our Will Gardner proceed from questions. come

Will Gardner

Hey guys. Maybe, start controls, thanks cost we pretty they've with maybe they, impressive. taking been my the for Thanks. questions.

out You, you're, costs, it's now sort low spend. what, you've high digit discuss, your of a down that, from what's guidance. just single of digits, Maybe non-strategic strategic single those come taken versus sg

Scott Baxter

morning, take Will and ahead Rustin, good Yeah, go that. I'll

to macro areas we of there wanted second You, fund controls in as, we we and a digital a were half sure demand second think strategic expense as and a to items that the call cuts Certainly really control And we on, really were as that's quarter continued look a expense taking tighter tight investment really seeing indicated make in we as, softer on will, and important backdrop indicated expected the I XX. and such non-strategic at creation. distinction. discretionary using as we

we TSR select would opportunities. We expect, the term all capabilities. given that lockdowns as kind intend of we And evaluate we market lens and dislocations some invest caused, of And the softening challenges think term to around third COVID near the globe, a investments. have affecting you consumer are to there related use near that quarter, on investment are adversely to the played returns out to our expected I are continue demand, the in as continue going will as behind brands some

point to needed. really So have in and you've take also as indicated we're control we in at contour, the remarks, capabilities. invest accordingly reprioritizing I as a I prepared from away But we again, strong to the our but continue think seen will key brands bias cost us for

Will Gardner

on and could up, mortar, sounds the another and maybe Europe these how do many do then Europe just Asia? up guess, and, many follow you brick have have the you're in new like, of making and And I you you in the globally the I going how leverage to us follow stores if sort stores and push it region just are big maybe now a in Asia, how in stores

Scott Baxter

sure, Yeah, sure problem. No will.

that made beginning. think talked we've traction. So, an investments have that two, opportunity horizon and yeah, about the digital and component and mortar sure that from brick brick forward and things to mortar need done to we to and the with compliment consumer really presence that really to talked a one also it's the lead Horizon the and really strategic standpoint, make our presence. and omni have a strong very continuing going that But with our that, strategy we and see that's we we've going we we good lot is for being of shopping because And we were one appropriate and strong a that and seen a strong compliment a about have nice we and from

globe. see the and rolling concept we're little going new of to think too. kind And, with concept important, to presence out because of we've the with franchise embraced just team of our country, initiative was this Asia, this Europe and of importantly, been just to and to out But it relative is opportunity now and the We've over We've of specifically which excuse it in in around multiple and as and, asking has our it nicely, really tweaked a that a there really has also, in opportunity dual States leverage and our roll is We that had. that talk that roll I have it's we think me, and have really life. Europe them. is here more and, really and the embraced for branded partners, it really have excellence really product. we're heard XXX there's brands chance created and it's, So to me the out it's we about really like we we legs and what stores seeing we've great in come Asia consumer real retail the business going there's and have you brands done a, rest become it doors much an had but it really interesting, we've, United some relevant we're the learnings visit a in more program. Europe strong is because, a, there. the But really in partners our our more a ongoing nice it, bit

into it's stores company significant. our bigger our our you we go the of relative to our to programs, morphing that programs, augment with, power dynamic and pretty and ATG. much two So work we're And wear a when more t-shirt brands, our now,

So we more have a offering. much broad

So also it able see really that. consumer helps, it the helps be to to for us and

So we're really pleased with that.

And quickly more we consumers our of but where of lot bit globe. to we we fun my get but to for things commentary the in labor that fruits nicely. some actually, can of look as share sure little see some we you're are commentary the is too, out, kind Rustin's work our and so going the and we detail work responding that pretty a, are, do. this these detail So have a going a of make with more that on really aware pleased the And across here we'll forward more future roll in

for thanks the So question

Will Gardner

AUCs and general maybe year, thinking can And about take Sure, into and XX, just next squeeze just, into, maybe said, AURs guiding one you just next not I And you are and know how could if but year? you puts discuss, FX absolutely. you're and I just in the

Scott Baxter

Yeah. and we, as indicated, you We'll won't guide. specifically address, we

most it in of spikes in, P&L. cost input takes couple second talked as continue front in an being the begin these as of of indicated. say pressured place the from Certainly 'XX as 'XX, you top work the first to commodity pressured the I your gross as levels of things some think top pronounced inflation I in in prepared as already certainly certainly inventory We've in to bottom I downtime particularly perspective, of light half cost inflation remarks the expect how from to cotton he past cost, from the and to more through of little address, cost on spike about first we takes of impacts some the would will, in be XX QX, think input then to and higher maybe year, half the QX into on we'll improving from of the move the the downtime a see half QX. in first the see elevated think work it's continued at indicated, perspective. thoughtfully, type elevated year of we bit those the And we around of call, to least. and about as that of those about impacts a QX kind expect quarters know of, to to on when Particularly half you that and Scott expect but a We and, think we margin the markets fair more in a the provide of and situation. color further, lag manufacturing a made QX, P&L of the and do level about detail line through questions little downtime about inventory half

and improvements, savings and about. initiatives, will mix us inflation of driven be by pricing you've transitory as the the, cost talk structural lower downtime costs, kind freight, consistently by strategic However, heard air tempered

So the first at as we're 'XX. color dimensionalizes thinking about hopefully to of that provides little how more a least half and will

Operator

you. Thank

proceed Our questions with Sachs. Roach with next Please the of questions. from Goldman Brooke line come your

Brooke Roach

how particular? the Rustin, relative look for then you a much macro? clearance of if the expect Could that you as a the thanks color through on provide is thinking growth US for color And level? ahead, on as opportunity through morning. continue you as thank the much think, categories, provide that sell wondering whether outsize in Scott. outperformance to emerging follow to or just additional of you you you helpful offset more over your inventory of that's through expectations And looked on as course in bit the as that slow the maybe the downtime for a any up can questions, growth against share or plants. at at that'd has incremental that in that you've some color our so helpful. working much in you gains you should cadence the additional context taking Thank inventory, little the be which bit And super had was your you. Good there helped provided that so how And are on of current that some could on the share I, you how from pressures quarters you macro next to rebalance drive level you're work few the more we about provide gains I little

Scott Baxter

from hear you. to for Thanks the Brooke. Good questions,

go ahead So I'll and start take and the obviously. then one Rustin second will

every in really category they this embarked could spinning talk landlocked that us So were knew I, how seasonal that new of heard off presence is that And teams do. we as from And yet started And and important and thing we great every in come kind then and upon over categories see pretty then already t-shirts. had that knew And of we work with those. time. group a in company becoming brands, that think of the also I the about, build brands that we outdoor foothold the embarked, evolved away like little with three we brand, specifically you've of went I product locked. those kind time about upon a had is we, us, we much two which into we've think we the but the I great bit a and we quarter we went for I is thing all into are really

we've that seen for out. so we've seeing gained the what confidence consumer have all Brooke, great So line? Are are continue those. the yes, we those? categories, and is in three But gives of us POS also to and us evolving all the those? acceleration both seen, in roll yes three customers, going answer our the then to to Yes, is that great more thing is we're we And those product us of are in we distribution gaining And in Yes. new confidence

right times those we're so that categories. with And seeing in now tough even

to consumer So us those. the is that it permission in says giving me

putting And and there's so power because that bit the to we're going think in we So the in allowing behind kind that us play add that consumer guiding and the in Wrangler demand that. platforms of go ahead just the us us of in of ahead and think has gave the, we're the to fish to little go Angler then do to a the right? mix, and that brands confidence that a to the big opportunity that brands that, category creation

team you offer for does really too, the and appropriate that the of to really categories. one that think, in be I these would know we certainly that it compelling think and, a value I me Now, let reasons is

just players are play start in good from outdoor, we standpoint So So with that really that offer name. place, good price some of with really think if we in positioned a product the, a we under a category, are right? great the let's you about, other but

even are made that they well which in brand, good folks times to product is tough a us in also a really really by up showing because but the trusted it's really places So, important. turning it's shop,

online. going they can they it's be, and to where are, also then So where they're get it

about have it's because more the hear work addressable that we us, a important yet. ahead be confidence and the and I little future. most the as expansion do in most and I teams and categories, that. But business, single think big the So about the a, said thoughtful it relative and how these in really business, lot business, relative a I of addressable just for create you're product have And we're the about the have pipeline us the market got real foothold, some of done about that approached how front and think commentary just this. not opportunity thing outdoor of to to thing, we'll the in big teams are us relative going in we're I bit commentary excited There's got my in the go we've and a to we think to pretty small great ahead important and it just about the to t-shirt

So, you ahead that meetings. continue to love in go again, we'll up in We'd our, bring we more quarterly our that share of with as our calls. to

everybody wants loud you about question that clear more hear next a the talk little and of can to to so where more bit that. everybody thank, hear and, do bring and little an kind has thanks We an, I more it, and will to the maybe color definitely it time and, there a what for and I'll I and we're going. idea But that understands over we're doing Russ. turn

Rustin Welton

well as for joining. question thanks for Great. Good the Thanks and morning Brooke.

we we was and year up step that inventory prior levels. inventory XXX about pre finish pandemic a the back to XX% million and did about as in little about So, quarter think to XX% bit,

in last our year of drivers on as elevated the, I be so discuss remarks, the consumer in it there's on after r And to just both you the I increase, the impact But reasons third our inventory the a demand, and heard, retailer including inflationary clear were demand implementation. for chasing Scott lot quarter rebalancing. e is p and US we want the prepared

times You spoke, drivers cost source Scott growth on are we improved spoke us about. as agent speak And inflation these heard meet availability of as just seeing goods then lead extension some inventory well. to about category

little avoid dilutive our us and to clearing levels than balance. your, originally mentioned in real heavier so receipts are to take that channels quarter third drive in anticipated. Brooke, down proactive back And a I as orders we a us in the in differentiator future to think downtime in by So, ability taking protecting downtime adjusting and brand and product were to better because actions your question, plants our executing allows receipts bring is health. it you

inventory and about as core I XX% our the inventory think So, of good the think quality styles. is inventory specifically, we of with the

size so that And to goods over with several quarters right more are appropriate the accessed our given that profitable position in next is of a much intend than and we the manner distressed. inventory sort that brand more

terms of more expect to dollar improve Thanks bro. and in that cadence, the about ask by to sequentially you levels In basis inventory historic a know do question, we and be I back mid-XXXX. your historical on

Operator

Thank you.

with Please Our with comes Barclays. Kearney questions. line next from Paul your questions the of proceed

Paul Kearney

Hi everyone. Good my morning. Thanks question. for taking

sizing Thanks? pressure from XX? low of of wholesale, the of you right terms a was US Or retailers are as, we to kind out of, we improve was, here? start QX into point in it think the should anticipating On as further and

Scott Baxter

out think standpoint top I And do sophisticated beginning to retailers in was great in so figured from of the have think job a addressing their also. And that. because that they've and that just, partners our I the too. think QX to we mean, tier. pressure great how inventory these of the mitigate are, we are done starting really Well, really that, it's folks qX, in,

that pyramid done or part I think sit the is with job. pyramid important you really the where in a And customers. the with then most you they've where in that retailer think nice we So sit

we've And how big ATG demonstrated of they customers a share. the and gaining the because why the part have to we're because to for floor several to customers, and Wrangler So on on important the turn Lee over your their important consumers? become to vernacular last brands reason they their they years, why big are extremely the have floor. is And have be our be and and

So as good, and our are share our before, good. is stated happy really that gains POS about I up, it's trending we're

really we're that. about happy So

big day really So the in work open customers and a continue you if sure every presence that so our with a really are Thanks. we make to keep that us there our in, hard good when grow place have puts we good feel to about to that. presence and

Paul Kearney

I a Thanks. quick follow just up.

private at seeing kind you seeing what competition, retailers, maybe any retailers, position where changed seeing private all you're label and with your whether change and year? with label customers and your with with it's in you're pyramid the past of are you the pricing Thanks. your leaning of on, talk whether about they're, on more Speaking can over they're price the

Scott Baxter

good both no that problem. then from conversation so years, right? plus private significant create label for so Sure, important that's There from job. a we've we Paul. are that where way global Yes. a a brands against national big our a for spinoff energy And private the we a here. brand, standpoint. right? few with label our we've, to couple XX are always distinctive a So And and standpoint been we've a national accelerated factors were really really competing done One, prior real brands. we've excitement pretty campaigns, differentiator years and around last in in we're

So a big we strong many will ourselves five didn't we we weren't, them as between I closer that, brands. brands as and have have little behind standpoint. and a from private the the, truly a ago say we've voice spending marketing we weren't a put should because differential were bit to those a dollars years label we

questions in I Will, was or couple in I heard talked So really Will really me a one you way. the things about, now our ago think it believe sophisticated of with say to this priced brands important, sharp. the with is of I addition that and where we are was a it But that fact do that, really that

we price pricing our We really of some So a under, brands fall well. our competitors from really standpoint.

price seeing for asking when consumer brand, our really really brand, good they're the point. in, they're they a know comes our So

point when brand gotten they know with good have good at really recognize migrate ahead ours in, to and and a price go global that So a they they've to choice a a to a and value. that really pick they it's really between have trust they they because

well So path we like our know from think continue positioning, that we for global brand down to and a us. strategic differentiator and like We're where we consumers about we really that it are works that. going our there's a how

So.

Paul Kearney

I just Great, more, thank you. more there. And squeeze in one can if one

you on allocation just on all, ability macro can just shares how headwinds. the comment strategy, lastly Thanks. that changing, you're to to continue and, and thinking capital the kind repurchase with maybe of Just your all about

Scott Baxter

ahead that. go I'll take Yeah, and Paul and rest

not the, you about recently of our we increase about statement quarterly talked board uncertain a optionality model, in I you, think optionality, in how that $XX about you I about talked million about, to cash the, state remain this aspects that in model. important saw year First option our the critical in we we think business is and of and, generation shares. talked generation our an cash and the qX, of really And strong which down We've that's we quarter cash creating conversion shares allocation priority and any moving dividend. Near forward. as And the in saw did an foremost, but capital remains directors as going lot we our have important the really the, the and feel on levels. work we've repurchased share during environment. Paul, a repurchase approved and generating the in inventory repurchase is term with X% a really

allocation remaining buying we're warrant. approximately to million $XX that have share use going repurchase cash We talked flows offset excess priorities, share opportunistically And as, little shares to capital as while dilution under authorization. as continue a conditions bit about, repurchased and to, our market

to though, in I foremost to going we're and most First think thing away, continue take invest important to and the the that's brands Paul.

affords really think generation. to that as repurchase we've share the going a, m our in lay As I option cash as that's made out, the optionality the and creation, business, But increasing there that that dividend, you always our fundamental heard be strategic with first demand improvement in having that's investments with you Paul. the option. out we Scott couple the model like the Thanks well when

Operator

to to are questions this back at There any Baxter would comments. over you. Scott Thank closing turn further I call for like now time. no CEO, the

Scott Baxter

Well, a us everybody much to But the this all how season. your spend our us And certainly to also hope wanted that we appreciate and, for a chat company you enjoy wanted time we safe of chance together. of forward today. holiday support, to thanks to, to and look in joining and your I again a get your have be, to everybody continued Have happy won't a for interest nice know because we wish we today. day course and I healthy support and everyone. and before thanks holidays, I

Operator

you. Thank teleconference. appreciate does participation. This concludes your today's We

lines disconnect Enjoy this time. rest your at may your You day. the of

Kontoor Brands (KTB) 3 Nov 222022 Q3 Earnings call transcript