Earnings call transcript Q2 2023

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Operator

Greetings, and welcome to the Kontoor Brands' Q2 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host Eric Tracy, VP, Corporate Finance and Investor Relations. Thank you.

You may begin, sir.

Eric Tracy

welcome Brands' and earnings quarter operator, call. conference you, to second Kontoor XXXX Thank call forward-looking will today's on Participants make statements. differ. actual These statements to to cause subject and expectations materially results are based uncertainties on that current are could These uncertainties are in documents the filed with detailed SEC. our read other reports. factors, cautionary to disclosures you language in contained urge risk We those and which was on in the defined to be issued referred clearly this call Amounts on an release that we will today's adjusted earlier morning. dollar basis, news

of Unless otherwise amounts today's the on GAAP and be constant rates. be call on exclude Adjusted in which These to provide impact in noted, will and kontoorbrands.com. amounts supplemental costs. Reconciliations view tables is at today's exchange currency items changes to of which impact to quantify this of management's translation measures amounts investors. found financial restructuring adjusted tables exclude information foreign news the available the in currency, website identify why included referred our in excluded to of is useful release,

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

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

Scott?

Scott Baxter

joining thanks us and of today's for Eric, all call. Thanks, on those

my three I'm comments today going areas. to focus on

strong in First, led by under-indexed uniquely share the that how international international. Most positioned results provides believe best I'll so quarter, gains second DXC in discuss continued KTB which on are business of is we key health in we believe we indication the highlights I'll thesis our APAC. importantly, touch including in investment and why momentum our from the brand DXC, the U.S., of given

demand efficiencies, over but growth and how in drive key reduce creation, term, how increasingly expected both outperformance amplified spend and time channels we quarter and near operating to support in action improved enablers. across to strategic helped to also critical fund like growth nonstrategic pillars, the share these I'd in and second market our have diversified accretive Second, geographies growth took the of categories, are which and here investments including

And is reaffirmed lastly, why I'll this not charges, before Kontoor's I'm the evidenced only macroenvironment, I the pass to accelerating perspective guidance, in glide provide but in quarter. on path excluding uneven third the topline our confident anticipate Rustin, our 'XX despite in we restructuring here in it

with provided commentary with our and I'm quarter. start delivered pleased me we Let that first second consistent to highlights on both call. expectations we from QX results quarter share our our largely

essentially a in was was strength the decrease offset particularly wholesale. in region, flat as Global year-over-year internationally, Kontoor China by revenue low single-digit U.S.

on the later, challenges touch turn quarter. Within more in and positive POS a third quarter I'll and as their strong softer retailers open continued dynamic with in begun but during to by here tempered buys. gains share fortunately, this shipments were the products cautious seasonal the U.S. remain bit has market, this to

second quarter. the outpace the key From share market, U.S. core perspective, A focuses which to measured Circana, few in we continued wholesale according denim business in our U.S. on the a total market to during callouts.

market largest our brands points, market the and XXX competitor last by the Kontoor XXX bottoms, by outperformed basis three months, men's basis outperformed the Kontoor in And and XXX For over points. approximately respectively.

gains factors. key a share a are Our the few in of function direct core

competitive across it design innovation, that First, demand investments the incremental brands separation. drives and reflects creation, in our

focus with and and pricing, were priced, strategic we second, mindful our newness very to much on incremental the elasticity consumer priced where a of with including support innovation using And we pricing. we understanding both how

will investment outlook. expand of discuss detail top community, I pricing, this of why terms mind our and when I appreciate the In more be in may for I

more a March in the want second highlight already to promotional 'XX. aggressive in pricing environment full of and year guidance provided I we this that half assumed However, the year of

as we to gains during of core, in nice also and distribution. category quarter second the share expansion new reach the diversify a continue extend the points our we saw to Beyond product portfolio

Global long the up increasing wallet T-shirts non-denim indication bottoms a and health while outdoor and our digits. XX%, delivered and respectively, single reported basis broad-based again high on business DXC highlights brand's of strength included was our share, Further consumer XX% in once quarter.

increasing U.S., DXC and X% last Lee increasing increased own.com mid-teens. grew the brands XX% growing with with In balanced DXC Globally, versus owned year. Wrangler both retail, XX% across X%, Kontoor and

accelerated a the with speaking business, of to And in to particular increasing And choppiness was by broad quarter offset Lee XX%. overall, APAC. increasing QX, XX% saw DXC increasing as as XX% international recovery wholesale growth gains last in well DXC in continued saw significant year. compared China return second increasing international Europe our as Wrangler in XX% up and XX% and

this our by prior healthier bit on periods and by touch later, but in be will encouraged and both impacted support wholesale investments a are we and lockdowns improvements the that and over will retail year businesses rates material Rustin restrictions, in future ongoing the while overall in marketplace growth quarter will time.

know, As Kontoor international growth are and areas key going of forward. for DXC you all

XX% positioned competitive And our mix, our BXC thesis many respectively. investment given relative Kontoor that space uniquely set. ahead, to still is in the XX% significant and last international white up and The make of only remains XX-month

of have diversified international international more in accretive still ahead operations. much DXC is The affords and growth that us. mature DXC very and We

as line growth innovation ongoing virtuous the cycle time. we accretion sustained use help talent, critical margin for long top This algorithm in supports growth to profitable demand more And continue fund technology, a enablers amplified and creating investments term. over will to structural creation, gross a growth such

upcoming areas holidays into the third these We 'XX. the and to see in quarter in opportunities lean into

our forward, model including We that taken also second actions the the will during quarter. go strategic be proactive with help evolve restructuring the for measures operating

margin to different but we challenging we our I a implementation towards Rustin spin will taken reducing driving but in with clear, want and in model to relative steps on ERP market, provide reallocate capital the gross because the spend, accretion a we've and more to at detail, we operating reaction be growth global of bolstering increasingly not complete, are augmenting where are focused were are investments. nonstrategic to TSR the stage efficiencies

respect our to from I'd brand elevating creation, With share and examples to some second activations pipeline. demand of quarter the like future

First, with the continues tastemakers build momentum Lee with setters new-to-file to and younger, brand. brand, into the attracting team the trend consumers

and offered will premium well Our at Angeles. women's that distribution select graphics DXC, Los made month, female-founded engagement to celebrates later its showroom LA-based the brand focused some Daydreamer, as with this made strong of continues celebrities stylist in Lee a And as is leading world's points American first-ever preparing of with influencers. partnership be including storytelling. Product yield products

including key fit as expanding Extreme Lee is it consumers into its also we expect to of sales Extreme half provides. innovation in year-end, By will look Motion. the denim history leading men's grow to and Motion U.S. by platforms, our over comfort

slated of South plan share Stay quarters. details leading our we to India is as countries in collaboration to these to bring And around exciting this voice Roaringwild Shanghai as its to markets Week with during over markets. with ability Lee's taken streetwear Korea such momentum partnering products we platform XXX to Fashion to globally, artists the the example amplify a Lee on of denim build in leverage And be celebrities Lee's China-based upcoming local coming anniversary. differentiated next is with and the tuned our and and years featured important to great world. growth year Pivoting brand, rising Asia,

Turning to Wrangler.

Lainey the performances. were as Music from musical of red endorsees we and the As music Johnson sponsorship artist Country Wilson, well our music of as carpet and Academy placement with Wrangler and Lainey the including was denim inaugural in show, -- to performances days female of Album in interviews the Wrangler of the with May, heart frilled you and take of the activity to home off Awards customization, we Row up awards, know, Leading kicked three media award Year incredible artist country four year. the in female brand with ambassador, Cody see prominent brand on artist

Rodini, half while new back consumers year. true particularly the staying only partnerships diversification brand. the strategies of and and younger including excited Wrangler's Mini I'm initiatives, platforms advance attract in about momentum kids with to these Star new our Wrangler's continues and female to the further

Cowboy for to two weeks. truly the is a launch had American a natural more what it is featured throughout be saw social you media series. include we denim this as earlier will Cowboys. authentic be will in couldn't activations Stadium, recently connection fit upcoming icons and incredible. on week, is Wrangler Stadium, official around brand the season of and announced planned And see we and the excited coming sponsorship the and concert The I AT&T throughout to is monthly and the chance This Dallas

And perspective going unique finally, positioning our some me let forward. provide on

strategic levels. greater actions model, quarter, inventory to proactive our efficiencies second the During operating enhance we our and took improve drive

POS reaffirmed of separation face balance the our in shipments. improving restructuring are of 'XX, helping gains, investments macro guidance, here actions and taken In more the the solid backdrop, in QX, the our these our competitive U.S. challenging a by assumption continued For macro for share despite headwinds, have strategic drive we as excluding particularly our evidenced

cost drivers and ongoing our as inventory landscape. into top and U.S., gross healthier Along assumes reduced production detail promotional this pressures, to international. growth opportunities. the including optionality stated factors driven to shifts to improving but and downtime expect full provide and to more I proof Rustin mid-single above both provides moderating accelerate algorithm. earlier, mix long-term will strategic lean accretive points trends, strong intact, digits year are Given our the input quarter-to-date our revenue and more this assumptions, QX from these greater margin by up investments outlook on structurally and with on we a near- DXC deflationary Combined, support line,

we and long catalyze to clean, 'XX more intend importantly, exit term. sustained well-positioned profitable to And growth

of improving inventory, We generation with move through allocation optionality will XXXX. balance on we and into increasing and cash support working down which coupled the as laser-focused the capital year should remain significant fundamentals

at our efforts Kontoor globe. tentatively the will their to around the sharing I quarter for stakeholders. always commitment especially Finally, our during the superior phase is and that incredible future forward our vision targeted confident Investor the for success. KTB I'm to We strategic strategic long-term team's Day, of drive in early execution thank on help playbook which want to go-forward to actions continued closing, look our all help colleagues XXXX. returns performance for strategic position of our that next drive results depends our

Rustin?

Rustin Welton

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

the Scott our As we despite stated, consistent largely quarter second pleased our environment. expectations uneven were with are with results that

balance quarter the on touching our actions to discuss the I of the the For but took as begin I'm we from well outlook, QX. by to as would highlights call, going like during

on inventory. First,

of health the the in morning's inventory the As this cash us our generate sheet. meaningful made de-lever saw progress improving to we allowed further and you which position release, during in quarter, balance

like in we owned last proactive a the for allows effectively have we inventories. quarter manufacturing production, we internal discussed, As size managing including in is downtime these. discussed right more advantage times that to actions It took competitive

optimization manufacturing In our nimble footprint. addition, of it allows for

quarter, During only as aid our but we transfer normalizing in the our inventories select have efficiency. analysis in comprehensive of This ongoing of production to second part benefits streamline operational will not took supply to network our chain. an ongoing steps and will

see further will opportunities remarks. inventory my improve In which half to back in incremental now the in I later position, fact, we the year of discuss our

greater further measured remain primarily But these nonstrategic expense quarter create well Second, we playbook. impact quarter, options as will do efficiency will enable quarter, to as is we remarks. driving operating to view, spend. highly during in combined enhance allocation of optionality long-term executed on of corporate my areas invest with and restructuring the initiative, in business disciplined additional foundational capital increase as third controls investments. we these support a our the in I efficiencies to actions strategic that help the targeted functions during TSR. Combined, gains the prepared and superior focused we as discuss actions last this reducing Taking discussed

international year. Growth With a second flat that, decreased prior U.S. DXC was and to review X%. were decline U.S. wholesale. Global revenues slight in in the offset compared basis, by a revenue let's quarter. regional the On

more the XX% which with including in including Softness improving, in towards equilibrium. continue And to in the offset growth POS and strategic in channel both categories, wholesale DXC we continued was as long driven increases shipments works across momentum outpace while bottoms. see seasonals, the primarily U.S., channel In growth own.com. by declines outdoor non-denim growth than brands,

most quarter, International we in as increased trends significant in by revenues mark year-over-year increases last improving by driven EMEA. tempered China, second expected XX%, softness to strong declines somewhat the significantly discussed QX On we in the quarter. China, with

to China happened share precisely is pleased with this XX%. increasing what are We

year restrictions brands be for in impacted we will half, retailer will as the the And in encouraged improving while and the lockdowns prior region. the back recovery the comparisons quarter progress to linear QX, our are long-term not including by China supporting in inventories growth impact made continue and and we

In retailer weigh and EMEA, driven inventory in ongoing offsetting X%, region. tight inflationary double-digit headwinds on the more by DXC, revenues continue by wholesale, in macro growth decreased softness to controls driven than

tops, driven gains longs, Turning to our DXC U.S., of accounting non-denim revenue. Wrangler as categories. our brands. Once non-denim in global and revenue and brand non-denim X%, denim In by as Wrangler outdoor. into again, driven in XX% by penetration X% and increased well ongoing in of Global diversification for increased growth direct-to-consumer increased strength revenues XX% the

softness driven Global X%. to revenue wholesale more in Wrangler International decreased double-digit in revenue Lee. European decreased than X%, offsetting DXC.Turning by gains

more as Softness declined had impact relatively in growth DXC. seasonals in on XX% revenue in outsized a wholesale offset U.S. than Lee the decreases quarter. XX%

increased Partially double wholesale growth decreased EMEA, XX% in growth digits, own.com. X% increases in including by continued XX%. revenue offset DXC, China. APAC declines wholesale. strong declines double-digit revenues offsetting driven was by Lee In in in in DXC, including International increased broad-based growth

and U.S. increased including And a XX% increased global and finally, decreased in non-U.S. XX%, X% XX% perspective, wholesale wholesale brick-and-mortar. channel in own.com increase from a X%, a increase direct-to-consumer

to an margin Now XX%. basis Gross on adjusted XXX margin. to points gross decreased basis on

downtime support the of including normalization actions greatest As helped internal and had quarter the year-over-year second drive inventory in first the production, from improvement quarter, managing we in quarter. impact inventory. This as increased sequential to expected the discussed proactive last the

on weighed inflationary rates lagged further costs works through the impact margin of the input addition, as In P&L. pressures

$XXX transitory and air well on the of basis strategic an these offsetting normalization million costs, prior as freight. as year. increase Somewhat versus was such or a SG&A were as mix the headwinds million adjusted pricing expense $X

increased a controls. tight by creation offset Strategic As XX.X%. percent adjusted demand and investments to of SG&A basis partially points in DXC XX revenue, were expense

$X.XX of Earnings per included charge in year. share associated the period basis onetime tax the $X.XX prior tax relocation of in headquarters. assets was of compared related discrete our a $X.XX on with same an to The remeasurement adjusted deferred to quarter European the the

Now turning to sheet. our balance

from the compared inventories XX% to and Compared quarter XX%. last improved to in quarter. XX% up Second increase year inventories XXXX, increased were sequentially the first QX

and As discussed, were downtime we actions while the to second be in planned quarter, completed continue the production will proactive.

which We inventory greater in feel and see good about the quality million of the primarily the our an remains to optimize year. by inventory reduction of levels expect end inventory, core $XX of opportunity now and styles additional

net the of working we in long-term our As with equivalents. I million outlook, $XX in conversion. our focused touch quarter second capital on remain drive to cash million will actively and managing We finished on cash less and debt cash debt or $XXX

end to was a Board X.Xx, of previously as cash $X.XX our of EBITDA of range net the Xx at targeted Our Xx. trailing ratio share. first our announced, net And the declared within divided by of quarterly or Directors adjusted debt XX-month dividend leverage regular per quarter

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

to Now our XXXX, is expected with outlook. low anticipated increase second to now still half. revenue at on first half single-digit above over percentage be to Revenue a

Our guidance following the expectations. embeds

quarter. U.S. brands. challenging outlook, stronger anticipate macro across said, relatively to growth back trends our the to environment continue half, a we more with we That in the particularly in U.S. now First, prior the fourth both QX see in compared

linear the Second, be XXXX recovery China previously, will and have as in I re-openings. mentioned given lockdowns not

quarter fourth be quarter. by offset revenue growth third the more the than expect decline in we such, to As

continue China we growth performance. year, in half and the the expect to above second half revenue first For

to revenue an And XXXX. based improving XX.X% a continued on XX.X% strong is trends, XX% POS quarter we of to margin expect gains, U.S. to finally, share compared increase in to quarter-to-date in well in as at rate. on Gross mid-single-digit basis shipments be range as expected adjusted the third

and favorable margin half. to continue anticipate growth to increasing broadly the driven back by rates support in We improving DXC rates, mix international penetration

flowing quarter quarter, to in we before input in tailwind a quarter. last discussed second peak pressures quarter. saw anticipate the ease as fourth inflecting will the in P&L Additionally, cost significantly We inflation third through the the

SG&A expect we in expansion the a gains expected As year-over-year adjusted continue greatest on the to result, in the second to a in quarter. margin at with SG&A compared is gross increase half, fourth rate adjusted mid-single-digit basis to XXXX. an

the separation support choppy pronounced third holiday we rates to planning distort We growth to a continue investments as most and environment. in in in quarter of support XXXX are upcoming

in will our growth. continue to we make and long-term to drive discussed, have brands profitable investments we As capabilities

These DXC creation, and demand support will focused international initiatives expansion.

This is an still adjusted charges expected with basis, by in tight partially $X.XX range with on the to excluding quarter. be cost in consistent prior associated offset will of $X.XX to outlook, restructuring be second the controls. the EPS $X.XX the

adjusted anticipate the and margin to driven growth in EPS SG&A the the strongest the in the third by to continue discussed quarter, amplified We fourth dynamics gross be year-over-year quarter. investments

Finally, I the with quarter around Despite against confidence another guidance. expectations the uneven want drove year our in and our team's our Scott's comments strong full our strategic environment, gives our echo us colleagues and consistent initiatives to thank globe. execution

capital driving the improving investments. back half and through we the allocation our cash on brands optionality laser-focused of year, remain enter while profitable we As supporting growth, strategic expanding generation

is sharing long-term Scott for Investor which tentatively more we targeted our mentioned, our XXXX. opportunities look As at to on forward early Day,

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

Operator

Please from question Bob with Guggenheim. proceed. Drbul [Operator Instructions] Our first is

Bob Drbul

I Good actually. and a thanks the for have few morning, questions.

a Can There's I significant and pretty in just bit industry, talk driver talked of one the creation. seems more demand thinking creation? accelerating. why the of about question one the Are just quarter up we so talk happening look is correctly? this in more have pipeline, confident little to in you a you're when you outlook? the the confidence, I I'll investments the And after your a space, first second you've but And gains you're these. what's actually then demand you guidance that Thanks. guess the around a reiterating about. is on key share little is The sort about more, third be in Can follow at

Scott Baxter

in you? the with quarter Hi, Scott, are I to guess how start, see take through Bob, started would go momentum Bob, and second we quarter. ahead that. the really I'll I that

second nice a some to environment but So important, experienced everybody done sluggish we and share really share right. that gains, our that thinking more started making We're as really of our it of important we've product. gains which, a see gains about strategic are from even because demand standpoint. yours like share knows, gains We're intelligent are pricing are pricing in creation. really more We're question share become happening great really strategically

also aspects, that coming quarter think about I creation We're new retailers. DXC to the demand that the third about she's are think and Cowboys right Lainey But these our the when and our brings POS. all up brand align shipments about and the with. work our I initiative, our expanding team where quarter I at our team with the think now momentum third ambassador Dallas our into it done some of got collabs as joining our right We've starting and are Wilson

fit of Limits. but an now of we on Music get working American Z Country Austin a a and great before this brand done events hadn't calls used calls with Trace we and before, Dragon people we the nice sponsoring outbound, think make like to which inbound Stark, but said lot us receiving and City we're West really that the Awards, now And I like for in, and Academy I've it's Coast, really the Ball and Buffalo

things, and the globally, really and taking good third of product that good us Those they rest like with the give that Motion the really going Extreme year. platform into along now we're confidence quarter

as with bit happy little you up we've we're really taken see, So momentum standpoint guidance a taking. and feeling pretty that our from And the rev a positive.

Bob Drbul

one Got And it. question. I just more

Scott Baxter

Demand -

Bob Drbul

ahead. go Yes,

Sorry.

Scott Baxter

more a from know creation was - going to say just I question ask. you got standpoint to one demand wanted I you've

Bob Drbul

it bit, like a how like it you sort this with Cowboys, but you're the seems the a it guess for good to and mean ties pretty partnership to I -- going will of I creation a demand it's weren't can Yes. seems how Wrangler. perfect in be little execute but authentic just But it? structured dealers talk available,

Scott Baxter

sure. Yes, for

for really no, the something we've certainly like but the a dealers know it my up phone So I the Cowboys think were us. Bob, love fit dealers, when I well, good from blows really sense. It really get of messages I that from Cowboys, And get of I makes smart when messages lot a folks. us lot folks a basically, are, move. a the has was from done

important about to for partnership whether you for series. way to through and in market is market it be to a when And angle a in it's be respect. concert related that it. going platform about us to going be for activation of a Texas it's really a on this social big that from we single and stadium, every We've us sports us kind great really think thought media, the is it's going got

to football off. So we're to happy kicks and can't as in of really about it bring season the year life it here rest the the really wait

team the the things. the of spin-off the versus of that before. seeing think on those some acceleration lot now we're and what experiencing again, of thinking because I and I think But baked Bob. proud And of a that we're we business, now Thanks move, really really into leading so. the we're edge really of different of business smart examples after So the our did I'm here are

Bob Drbul

Scott. Thanks

Operator

you. Thank

proceed. Our next Fargo. with is question Will from Gaertner Wells Please

WillGaertner

back-to-school baking little one after bit months? they're have last how a said two, heard I are the that. XX price and pricing back environment then the my taken there. holiday? Hi just more a the in we guys. XX about And Thanks the more you have number guess, over to competitors number you follow-up much And for in of promotional sort dynamics Maybe could I one, walking taking We've questions. and talk pricing.

Scott Baxter

over Well, we've made But little the really our a just marketplace. consumer. to I'll marketplace. it and We about we know the put the like taking the our ahead lot I to our turn consumer then don't very really smart well thought Rustin? comment been I'll go pricing Rustin really can. where start and We're like been that that, pricing. finish. bit We earlier, and around the blanket into really few approach, consistent this. understand we've We last and about elasticity a that We we're of in over years. thinking And

Rustin Welton

Yes. kind Thanks as said, just guys. to Well, a consumers remain Good morning. value. Scott offering we on focused of continue compelling

you think, So benefits about of for our charged products. price as received Will, on all

So very certainly strategic approach pricing from perspective. a

with and our really said Scott the how prepared are with we've seen U.S., the in the gains in brands POS the pleased and As been the last resonating question, share we've strength consumers. remarks

about outlook, demand as our intend think XXXX. holiday third to of up we that So dial in support the we in creation in quarter

aspect really of that your price. is strong important an maintaining Keeping brands

embedded though, the did our assume half. certainly throughout Will, been year, do challenging our the it our consistent As in outlook guidance been indicate, has That's more Scott back environment and we assumptions. in a and in

last So environment. more kind talked the of the in softness due bit U.S. quarter, promotional international in tempered the by in in about being a a to half part back you'll recall we strength little

bit little now equilibrium strength and cautious more incremental find challenging. QX see that So better shipments remain we be that as a the QX and POS will in

about environment tried promotional thoughtful the be So we're but encountering. also not pricing we've just to

WillGaertner

actions maybe to took you around the that Maybe some drive how some driving actions the guys on of those to can just just going And to impact be nonstrategic some and speak for restructuring, what the rationale efficiencies. sort of efficiencies margins? and are spend

Scott Baxter

big a and a if you when spun you But like way we system how growth. start And little and shame and and with structure look and we time that that's company off back lot spin about lot over then and you a Sure, implementation. Will, ERP structured what the us parent you four this how And company organization company off thought little growth, to off of for it that went through company, that now done. it, I'll we like we're journey don't positive your about We going ago, about during years exactly your in a we a parent our We bit off Rustin. step really for if spin from. sometimes on use think to did. think our and that's really we hand a thinking about spent

We're our really all those to greater creation ahead move put utilize big We about investment bring it today, future, you've those made and is ourselves we're to into standpoint, our to that thinking investments heard now. how that we demand ready we're to good go into in and from This upon and we position. going to mentality add? anything going and But to all design, the a we've additional about agenda. all savings, going investment, embark are a really that that push talent brands, efficiency, forefront. Rustin, now really forward, we're right going make that sure that

Rustin Welton

bps by say, remarks quarter, XX about in Yes. at gross the in I'd bps you affected the by about XXX and $X.XX. the margin charges SG&A in EPS then Will, just prepared the saw quarter

shifting think I real virtuous that us we're SG&A takeaway a cycle. you've spend And lot into the is driving that heard the dollars really strategic about will spend. really nonstrategic talk as from

forward. greater So support line incremental moving unlocking are brands in really growth sustainable, and investments healthier top growth our going to that efficiencies, more those allowing those enablers that for

WillGaertner

guys. it pass up. Thank you. I'll Thanks

Rustin Welton

Will. Thanks

Operator

Thank you.

with is question Jim Stifel. Duffy next Please from proceed. Our

Jim Duffy

actually Good to everyone. but want discuss, picture understand nice related opportunities Thank a through big I to comments. Scott, just near-term months the of work you environment. context dynamics year. elaborate what trends the versus on in to recent you. make morning, Are trends in as the POS the lot in Really sure can you've about difficult characterized environment. improving A comments of earlier a I challenging trends your of near-term backdrop

risk particularly of And do historical inventory channel I improving and replenishment. guess question stand between replenishment? yes, weeks on further what's POS I'm versus the in the the And interested hand? Where is disconnect

Scott Baxter

couple I that think a there's things intersecting here. are of

in momentum, brought we're shipments from marketplace. that, right. the and as values. good we are the great to a this and doing seeing done which the becomes we've demand really talked we pricing are to that, now, us. addition fact, haven't really really rest great now POS got important addition are aligning that of creation head But that products into but stems got that But great really year, We've you've we've that into which the we with previous, for about You're lot, in some

and You've on been got than up. back and China coming stronger now it has open international

a as deal big continue move throughout And that our competitors we that's on put continue So forward the for we're invest rest to of and year, all going to us. pressure the of really And have in how going we're invest, is we our to important now. an that really that to going factor and right relative think that, maintain going forward that DXC. Jim, we we're healthy balance to to

Jim Duffy

XX% the fourth correct with be category, structural the -- you that Day? about by Investor P&L and costs that? you and are And for progress with on gross with see XXXX margin And environment higher deliberate be outlined the to with freight in quarter, inventory respect Can still expectations it I deflationary if seems in higher Thanks. this you consuming comments of a as margin. some costs? it other do may, Rustin, of All a the associated more through really mind where pricing you opportunity the then am the I great should on the gross at like in question the context about to cotton inventory.

Rustin Welton

Good Jim. Thanks morning. Yes.

So you outlined it near terms some in the perfectly. of of term,

came through the about. cost pressures we second P&L peak in quarter as So input really had the talked the

third pressures of So to cost input here, that in easing the easing kind before a we see inflecting those in the tailwind quarter fourth.

kind think that's So pressures about inflationary how evolution I of those sort forward. coming of of would the

retail of sort imbalances. And in disruptions. the including term, challenges, you're Jim, had inflation, think I certainly Investor longer terms since inventory 'XX, our I sort Day aware, some continued we've say, May would of as chain of periods supply significant record transitory of of in

of I transitory is I remain place. outlined. those opportunities structural the key some impacts the think the and to drivers going But back just we're that of in So see half to the real year, continue as in

rev, Scott his months DXC under-indexed about and DXC the of international XX our said to prepared as be about XX% continue, international remarks, in in in XX%. last We over

reach additional won't that and and certainly morning that Investor opportunity 'XX, as that conditions this we opportunities upcoming gross normalize. provide Jim, changed mix continue for those had to some those an structural I levels have So margin improvements XX% there, out plus to the outlined but not we'll beyond guide color Day. see But at certainly are certainly,

Operator

you. Thank

UBS. Our next with is from question Please proceed. Mauricio Serna

Mauricio Serna

there generation QX, Great. Maybe opportunities little for and Thanks the improvement conversion thoughts guess, a it second that year-over-year. have? further good flow on very inventory, declines the your the taking working more you half. you lead any I with first, and inventory, better our speak like cash how like there's in that cash bit that questions. how it expecting, are in on to opportunities about for the will like the down you'll on moderation progress that the seems could And

imply following you the positive margin already affecting that speak that to pressure margin. year-over-year up Thank quarter gross the input Maybe way highly just the what QX out you. about it's you you're I for different QX. on more strongest like QX? and cost, skewed you're to be about it cost but less begin is in gross like thinking moderation about or from then from very expand you're QX could margin, talked I know like in should the about it like the gross again, factors know inflecting even pressures, seems talking like And calling it like or

Rustin Welton

Mauricio. Yes. take those. go I'll and morning, ahead Good

So the side, I'll inventory start there. on

the finished we were levels. Certainly in year back So from we've XX% certainly, made of there, certainly the up and pleased second where XX% inventory the half with versus previous the the year. first last quarter the we progress quarter, improvement then pre-COVID XX%s in up and at of XXXX versus XX%

steps So continue we're here continuing and took drive sequential improvement aggressive that we quarter really to second that in the had see to that. to outlined

inventory prepared by those From core end an be as said the reduction primarily our moving again, inventory, the opportunity feel million and of optimize in now we greater of proactive. the good those styles remarks, $XX expect We our quality inventory forward, in of levels about to year. see remains we'll continue and to additional

end to heat business. a that our both with in inventory POS levels in to finish continue we the better we're the year some brand strongest prior of majority America, alignment The historic strength and for and days where now inventory year below about, and is and the North see expect the of Scott talked QX to projecting QX

comment So here. important I most about made, perhaps generation the the Mauricio, think is cash you

generation So driving optionality driving cash that's that working in and really increasing the improvement, this there. out the capital inventory back just allocation the half is reduction capital

more margin QX mentioned tailwind to gross we and pleased date, gross peak hitting bit projected We ease moving second with do half. of where we're back with to in gains expect made I fourth as to year-on-year the If inflation, margin, shift a kind kind the greatest the over then here fourth in quarter gross that we in the back quarter seeing into of about indicated. So again, in inflation inventory projected progress a again, margin, expansion the you little inflect the half in quarter. to

though, importantly, really question from as highlight expect mentioned into that structural half growth we that see in to significantly and continuing drivers, I stored want international as intact remain remain the in talked such here and areas. we Jim, to about, accretive and investment our DXC under-indexed the our Scott back Really as we continue the margin on in I to these areas those 'XX

accretive affords of that diversified a are growth growth really algorithm of And us margin time. much ahead this again, us. much still that And the there more over gross opportunities really supports profitable very and

important here, managing back through we Thanks again, look again, in certainly intact half, those remaining future. journey Mauricio. near-term a on So the the but drivers structural will sort as the which are pieces, transitory of to really improve

Mauricio Serna

you. Thank

Operator

Thank you.

Goldman Roach is Please from Brooke Sachs. question with proceed. next Our

Brooke Roach

thank And morning. work in Good was outlook you your as growth tops. so non-denim elaborate on I hoping much could outdoor for for you're questions. and taking categories you seeing that such our

categories? gains the tougher compares? wins as some double-digit second additional half As against do of ahead in you work ahead, And you into start distribution these growth sustainable are you look these to see

Scott Baxter

I'll for and question Brooke, Brooke. spent Thanks we off. time This some that. kicked the Yes a is take Yes, Scott. we lot those of

energy As that are last those to and hired of we've you some remember Day, we the Investor really those great some and a product, talent built in fact in we good some addition our and that we've seeing behind put categories. effort in in lot momentum

see at fair they're globally But also you've they're our big really very they've forward, and seen, here been key And we and good family, those do in accelerating. adding of the really building both products value, well that and a lot we're is bringing customers, going a white as domestically space, very working categories price, too. operating well, those the with into

history. lot So are we've we're there, to with our what categories related in those consumers lined our us up really always of makes a that sense in done

sure. forward confidence for lot those have for categories So of going a

Brooke Roach

in you're could on progressing. in Great. little international. what that terms of I how and if recovery just more bit the brand seeing Thanks. And follow a is momentum I you talk hoping China could up was about

prepared in I going growth and seeing wouldn't that the that thinking this and curious I'm think days margins but mentioned remarks the you're the forward? recovery business in recovery of be early you're about what you in necessarily linear, how

Scott Baxter

and there, might that to we're few recovery is to or going out operate we've we're I starting But two roll us, our how kick initiative, really have got significant increasing and retail strong the saw, which XX%. a we're as I Rustin. going and I'll doors really you us and for think meaningful in start, look over with really how and a partner to But key forward. is comments then QX, it going Rustin to

it's really for initiative a going big us. So forward

We brings who really marketplace. of an incredible the have a there, amount we're leader experience new Gina, excited about, in

for to with there. our do well. So a deal really resonate They But really the us that's consumer also. well forward, going big continue brand

and largest anything about to add? optimistic for brand, sure, healthy. product very doing marketplace related Our to Rustin, really long-term going forward. the extremely well outlook people, Teams

Rustin Welton

that's full year. creates year-over-year comparisons the certainly, add, the quarter, just some whether the noise, I'd quarter second or Yes. the third

are growth. in growth remarks that more the by did We we're the declines half. quarter expecting back fourth in will We expecting the offset than that QX that be mention prepared

significant shutdowns you think as back, key Brooke, pretty by some in in some QX So was jurisdictions marked China.

and you in and quarter 'XX really markets. if for of lockdowns holiday by many prepare marked to additional was fourth wholesale will, our partners QX Certainly, certainly, kind a of reopening, unexpected some select starting then

those year-over-year comparisons factors. by affected So those really are

country. Brooke heard on because of to about quarter-to-quarter a locations necessarily You've going jurisdictions is these China play basis be of that's several not quarters to in across us out. talk of or for within now, kind linear different or compares the continuing some the uniform Certainly, recovery

the move So the really have improving we're which of continue it on to as across long mentioned, forward. is of play opportunities the brands with important, retail market both progress we're choppy. we But inventories, to made that retailers kind really pleased kind going as Scott is game with and this in

Brooke Roach

much. very you pass I'll it Thank on.

Operator

Thank you.

with is question proceed. Kearney next Paul from Barclays. Our Please

Paul Kearney

of you're It kind thanks particular. is of the Lee and in U.S. Lee from the should some more for underperformed taking gravitate wholesale some I and I'm your in wholesale. towards the how question everyone, that seasonal more Hi, seeing U.S. U.S. looks Wrangler the of you about Thanks. Wrangler on mentioned. customers know my think business whether year? Lee also like we My of question. curious brand remainder is versus for

Rustin Welton

I'll Paul, go and morning. Good take Yes Rustin. that. ahead it's

DXC being down U.S. mentioned, up single the high second So digits. teens as down by high in kind with was quarter, wholesale XX% you of driven really Lee

currently in U.S. So across the channel, be brands channel particularly here than see DXC to the a of bit continuing little sort both the wholesale stronger

or quarter remarks, due the in really And and at the part both as Paul, for most U.S. a was was Lee and seasonals. mentioned, that quarter. the on during we have quarter. you lot significantly in across typically here so seasonal male but of prepared business a seasonals the were said of Lee, as most large genders, quarter the large second second that that has the the categories, for female. across difficult patterns of did weather the last in Certainly, gotten XX a most both as shift look market, So our seasonal across changed our warmer, quarter. U.S., cooler And specifically is in outsized over And it has as it's the as know, we impact for challenged the that relatively you days to which

the are for brand in confident strong are the a We brand. anticipating and QX

I indicated, the said U.S. in Scott think I third growth in expected we we quarter. the in -- as or brands as to see both

normalized that in partners conditions have of Lee and equilibrium For then better see retail a and just healthier kind And wholesale really channel. a particularly more inventory shipments finding strength POS quarter-to-date, key in specifically, we being position.

second So but of feel the certainly good about timing quarter, the the seasonals impact on brand.

Paul Kearney

you. Thank Great.

Operator

Thank you.

this there questions Scott time, at back call Baxter for am the are no to As I turning closing further comments.

Scott Baxter

you again forward here we Take appreciate we Thanks. and Thanks, everybody. talking look third happy and care, the soon. forward everyone, your the summer, your speaking questions rest and healthy look quarter. and to safe and to our company. really to Have upcoming with Thanks, a of you and engagement to in

Operator

today's your teleconference. participation. you concludes This Thank for

may disconnect lines. your now You

Kontoor Brands (KTB) 3 Aug 232023 Q2 Earnings call transcript