KTB - Earnings call 3 2023 | Kontoor Brands, Inc.

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Operator

Greetings, and welcome to the Kontoor Brands Third Quarter 2023 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.It is now my pleasure to introduce your host, Eric Tracy, Vice President, Corporate Finance and Investor Relations.

Eric Tracy

Thank you, operator, and welcome to Kontoor Brands third quarter 2023 earnings conference call.Participants on today's call will make forward-looking statements. These statements are based on current expectations and are subject to uncertainties that could cause actual results to materially differ. These uncertainties are detailed in documents filed with the SEC. read in factors those to other language you contained disclosures reports. urge our cautionary risk and We Amounts at referred defined today's included to morning.Reconciliations be on available release an found on is was news of today's kontoorbrands.com. call dollar that our supplemental adjusted on which release, will GAAP basis, in measures which we amounts earlier the in clearly issued in to news adjusted the website this often can be tables financial excluded items this quantify provide management's to These why and tables and view of information investors. identify useful is otherwise Executive call on exclude me amounts constant and and Baxter; Officer foreign Unless Chief the noted, be which rates.Joining Chief referred exchange today's to Chair, Officer, Scott call in this currency, Joe appointed changes Alkire. currency will newly on are translation Kontoor Financial of impact President, in Brands

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

Scott Baxter

thanks for most call. Eric, notably, Thanks, expectations, on to we to with our share our pleased upside I'm our everybody QX above that top-line. and delivered results joining us

working the playbook duty which even a and as Joe challenging across a assume why And confident in of benefit and FX I'm wholesale is will our provide the in the Kontoor's in next we strategic with Our X%, more point backdrop. both a more particular detail macroeconomic also bit, evolution U.S. exceeded results bottom-line, the so increased operating about excluding phase on of on DXC. is plan.Global Kontoor charge, including strength revenue

business by outpace in the market, start the U.S. From third few and focuses accelerating QX. to strong we to on measured denim A ongoing POS the during quarter call-outs. during in our a market, continued Circana, share quarter. according notable and were U.S. to core wholesale market the driven which gains here U.S. the Within share total perspective, shipments

men's women's, And our we bottoms, XX X after And points and market respectively. share basis business we XXX XXX to by share to our Kontoor taken in the peers, basis outperformed by outperformed largest gains. select basis in see market closest XX Brands approximately For even XXX over the the competitor the months, last of aggressive points. over gained market Lee market, pricing by competitor continue our outpacing actions by points.Importantly, points and

our over For by month, over our example, men's the points, by men's largest while XXX outpaced Wrangler roughly XXX business bottoms last outperformed points. Lee's competitor

own.com, offsetting once brand's gains. in Globally, with more up across competitive our DXC XX%, led balanced Lee XX%. as strategic delivered of denim This Kontoor X%, choppiness in or beyond complemented innovation strength softness our and creation increasing XX% DXC part demand our in bit. increasing gains demand quarter. up Our while the the we reported to the a double-digit bottoms, by the XX% in Western design than our in and our our ex-China. experiencing Europe. basis large that product due than Lee increased international increased business quarter QX, by and separation. health, we in share a drives in of include And up international, the both own.com In core U.S., touch and expected again core Wrangler broad-based in is brands X% reported during did see China healthy investments strength creation Wrangler Outdoor global positive within remained gains more with QX, DXC I'll diversify X% And on across innovation, in platforms increasing XX% assortment with are and also female examples elevated brands category points saw on proof highlights in extensions, momentum.Further our

these quarter, of to and many China creating white are and international to for ongoing return Kontoor XX% in let me top-line of investments space XX% such innovation sustained that accretion will XX-month DXC each up over operate and represent as a us. accretive continue in growth more and on critical region businesses and our amplified detail. help plus.DXC for here the of diversified key growth from our creation, peers mature cycle segments and growth gross The very in touch these the thesis going fund anticipate the to significant areas talent, with QX the seeing of in and growth are And international to growth these afford trends only we as accelerate margin areas long-term.So much is still we these to that bit Importantly, in more forward enablers mix use last opportunities highly demand relative virtuous investment ahead a respectively. remains XX% structural differentiated KTB significant

next partnerships an for meaning jeans manner amplified activations signage First, about not with the Barbie monthly The on begin and content momentum attract and official American This an demand younger cheerleaders, with a continues. our creation selling Wrangler's brands Sandro, quarter efforts Heartland concert Rodini consumers, best X a but series. Wrangler down platform, ever. excited prints, ever further diversification our of authentic by opportunities took demand of social Inspired collection collaboration Stadium, as Mini does Wrangler, to Barbie featuring more be by while use years, put, we female was cowboys and as future the became iconic simply to retail QX, Texas combines Wrangler to Strategic media via creation in new remaining whole history. STAUD, partnership.And the X the AT&T collection Wrangler ], creation. globe. [ connection fastest in so only and brand-enhancing experienced demos QX, Dallas the across players build strategies promotions and XX-year the cowgirls, reach brand a Starting doubles QX we big as at in Cowboys. couldn't will powerful its on with heritage for the on demand support the elevated sponsorship has and bold advancing and integrated the with The America's brand.Also our team, and over new denim of cowboys to in made run the was

Just Buffalo yesterday, York kicks takes National the [ hotspot, launch Bar again And Trace. of [Indiscernible] premium collab Vegas the December, ]. Rodeo. Finals launch Las in bourbon City New brand our teased at with with Wrangler the next it iconic at brand, a off over we once party week Ray's then

and to music on will December this her is as also a country Wrangler even bell X-night and Lainey the XX. Wilson, on weekend special the manifested music first to concert close to on and to However, by and record-breaking Wrangler marketing open off Lee host promises rodeo be iconic Lainey return importantly, a biggest our sponsored year the CMA her on stage.Now brand. wearing turning tremendous saw global nominations investment, female scheduled rodeo, bottoms endorsee, scale. out QX hop another of more superstar series in off quarter X flares

third sparked Lady quarter, women's Donnas, the and and Rider to iconic newest campaign made to the the Seliger first our by Who has women's new by shopped set denim its Mark line mid-September excitement modern was The denim and brand launched Lee today's for Jean, Invited in premium Lee The collection. inspired global Rider During You, launched women. and very most which our female fit,

develop partnership This savings. [ commitment leaned the a and for Ball brand is continues say, ROARINGWILD brand experiential that And Lee's demand the premium brands AURs accelerated DXC the positioned program, brands the as we distribution pipeline focus over with on event more that currently and hosted in the non-strategic consumers reduce given A the line, accretive across heavily diversified supply like Daydreamer audience.During international, make freshwater, celebrities perfect from channels Extreme We digital in to taking the accomplishment effectiveness in the Sheeran with recently continue to core the without took can are liters announced well collaborations spending share I productive as momentum increasing ] behind Lee we targeted. scale, the influencers and premium industry model, jeans zero growth, reach trend-right Indigood healthy addition, these example of our goal culturally talent, into XXXX Lux all other in particularly is with specialty.Retailers go-forward.You to But Lee to earlier relevant freshwater.Other Daydreamer brands tastemakers, accelerating. September, to Lux way; of points ATG to collection. LA well just simplify don't across the especially at such balance water our in that to an for design, important Z, brand's LA aesthetic our savings created cool Wrangler also the heat Needless that the launch finding ramping and play work partners diverse of amplifying key and highly our Extreme from support our are and key in digital manufacturing, and operating within Lee water in value X-week that love such we efficiencies, support both not also SoFi product Motion, Lee to of technologies ton diversify Indigood across towards as proposition billion to of carried me a Daydreamer's Dragon creation, and platforms.To with platform and incredible unique be momentum in platforms, into processes Fit as innovation such we evaluating printing, constantly world. QX, cutting-edge align shop up has one support amplify demonstrates surpassed and in a campaigns our into Fred our this cuts elevated western platforms others performance cost and innovation, investments, we we then am Ever in fund year over are and such QX of brand at as the Ed and Angler, in and around on will gives marketplace, of was Indigood Segal does and Amazon spend, further in also Stadium for confidence and up fishing offering, And X the follow. mixes ways of gives innovation we the California concert specialty Revolve. of the through Structurally one-of-a-kind Boulevard This as a attendees mistake, all which investing spend as of wholesale innovation save than distribution. Fred creates as standard geographies. are have a In as future Segal and heat Target extend an so innovation younger, water where U.S. doing XXXX, enhance growth great the with Sunset iconic to more Ultra sustainability continue the macro showcase does categories, to no a years turned within proud the using Ultra to XX as driving helps our separation way with challenges including delivering strategic only factors as world. our and a permission drive in Motion the and but to how over as important of Southern Walmart, chain. of

for Our we just of investments stages increase rest amplified our now of dividend. opportunity the evidenced proactive healthier to accelerate unlock good over actions tuned to examples are last recently Stay of also creating announced the value our actions to build.But help restructuring opportunity the quarter return taking to substantial generation, assured, transforming by shareholders, And are with which foundation significant in more beginning cash actions time. model these for inventory future here. are cash we as and to

over time. long-term vision Our optionality macro combination resilient a our support optionality, strategic environment, capital to should challenging when even powerful at remains Joe? allocation fundamentals our We our creates on more superior look during Day. robust. sharing forward a taken that with flow This Investor TSR cash

Joseph Alkire

me a for Kontoor Scott, well Thank organization around family. honored I to us his and reunite to all to and strong have I'd as to built family stewardship special those also responsibility And want decline Kontoor He quarter. I and review express the the today. I to I the for be the will the serve have gratitude thank you I compared me Global appreciative as resource thank to the been review growth in is offset Rustin, and employees into let's for partially a place with my CFO globe you, the let before you feel today.Before wholesale all joining tremendous as like Scott, how transition. by And a business. as of quarter, come the best prior during missed. opportunity who strong am third foundation and Brands. U.S. am that DTC the third amount that transition to as Kontoor year I and extend say support has me thrilled a of him the the the the to Board revenue back all the and to in was wish both in retirement.With increased that, broad-based in international. X% in we

and gains our strength accounts channel, Direct-to-consumer channels.On with including digital. the a both XX% XX% revenue as and share in of brands. growth momentum performance strong regional by the market basis, increased reflected XX%. again results X%, increased quarter increased wholesale continued revenue strong key brands, POS evidenced distribution across third U.S. In Our from

In we levels a remains and expansion in also channel X%, expected, mainly while period.As China, top growth the And shipments are continue improve strategic addition strength as revenue POS holiday retailers more outdoor categories, international cautious, to core declined and and decreased bottoms to remain enter non-denim we towards in as driven as category inventory drove XX%. our priority. equilibrium balanced the which work in by

not reopenings recovery a a of in year discussed will be from we result and ago. last As quarter, lockdowns as COVID-driven linear the China

with terms of across retail entering strategic XX% and in an XXXX, have offset making accelerate levels And are underlying network region.In wholesale. increase outlook, foundation fourth levels. We China importantly, Inventory In are as decline Europe, growth as to potential in growth the the X% returned quarter. see to we due a in the was our in from investments of the anticipate DTC growth grow. we expect in which year, stronger year significant to than have more And next in long-term we improved. our more enter next our the fundamentals to in part in decreased revenue business normalized a we double-digit by region

brand revenue by business our we we environment the the Global macro categories both encouraged and outdoor remain the partnerships in are U.S., growth brands, across revenue region Wrangler in strategic wholesale near-term, innovation share wholesale with with by ongoing increased in been revenue both all driven mortar increased Wrangler by own.com in DTC. strength particular While the and XX% investments driven by we Lee. the demand Global brand the our have wholesale.Now expect strong the in In the to with in The in to landscape. X%, increasing The international X% and into Growth to market creation, to are a driven increased difficult of and non-denim XX%. increasing X%. XX% and retail for U.S. supported growth. and DTC strength diversification wholesale, increase to drive XX% brand's brands. increased in across by non-denim revenue momentum modest DTC growth investments brick own.com continues turning making targeted to bottoms. and gains was contributing strength drive platform.Turning continuing

and quarter the growth. revenue and denim, in Europe, growth international In with offset a U.S. in finally, well to decreased non-denim from X% decreased brick than up Lee XX%. revenue in In performed up revenue as Global channel direct-to-consumer X%.Turning decline DTC expected, wholesale XX% XX%, XX%. and contributed core also addition including was increase APAC, in gross non-U.S. more by perspective, increased in to decreased own.com a XX% bottoms growth to margin. wholesale wholesale. XX%. X%, mortar decreased while a In And

in and quarter back As implementation unanticipated shared release, to expense we identified point to XXX from by was The the ERP the in XXXX. the this periods. late duty dating charge an quarter issue impacted from morning's related prior arose was basis

our improve air impact These exiting negative as inventory XX.X%. and our focus year, proactive these the lower Excluding with generation. margin largely consistent reducing was margin we of expense the mix, of by versus in which levels to flat quarter versus quality inventory channel and through charge, of and as transitory prior increase gross pricing actions. duty have expense, gross non-core XXXX $XXX expectations. near-term, they a was position.While margin the inventory in impact additional The and a on driven million. inventory management increased aggressively included year clearing impact cash also Gross the the yield inventory actions excluding clean the costs on was last in the relate was actions margin freight.SG&A at such gross margin these Further, actions duty gross overall

as decreased offset of SG&A DTC and XX As costs as management income and versus adjusted basis partially operating last in as XX.X% expenses year. was revenue, SG&A leverage.Operating operating a Strategic distribution adjusted year. points million, percentage to to $XX charge, reported well in compared million $XX prior the were increased duty discretionary demand XX% of disciplined creation increase the income excluding an or of by investments

from Excluding adjusted a $X.XX XX.X%. increased EPS charge, The last was the quarter points year. compared margin to of to Earnings per the operating basis XX $X.XX duty $X.XX duty share negative charge. impact included

prior sheet. the of XX% duty ahead a increase expectations.Now balance charge, to year, EPS our Excluding turning representing versus QX was the our $X.XX,

management inventory expected made the progress and -- more to inventory than inventory compared due stronger decreased expected more made revenue than than on to quarter progress during expected actions. year. the quarter quarter XX% last we We inventory Third on the given

remain of growth our inventory inventory comfortable to our the plans. forward the and ability elevated, support quality While we levels with still are

approximately approximately $XX the to year on by to the million less million.We We $XXX or of cash the of $XXX debt of by with net $XXX hand. debt expect and end cash inventory quarter third levels decrease million million finished long-term

Our EBITDA ratio net the end net was range. or quarter of leverage by targeted our within XX-month adjusted debt trailing at X.Xx divided the

'XX. net end $X.XX increase. of a dividend leverage the Board cash by as the We end at X% to regular outlook. we a quarterly third expect outlook under share, approximate previous finally, a our representing the to authorization. per announced, of declared And to to of the X.Xx quarter, previously share And Directors our our our in repurchase to third This did remaining expected of repurchase XXXX. had not increase. $XX approximately quarter.On million compares is low-single-digit of X% We Revenue shares compared increase

outlook updated following expectations. the includes Our

First, we quarter. to more anticipate environment a U.S. fourth in continue challenging macro the

third We We are are believe the do the positive given prudent quarter. with in delivered the it business plan the continued that conservatively encouraged the trends start have to pleased fourth quarter strength macro we and to POS uncertainty. however

adjusted China by we expect international quarter markets in as continued fourth Second, to stronger performance driven well DTC an outlook from growth as This the business.Gross our management is as duty basis, the margin relatively our well as the to global compares actions. XX.X% to expected prior including XX from in XX%. of on proactive XX.X% charge basis impact a point approximate inventory

strategic by quarter approximately in outlook inventory updated actions. a decrease XXX driven fourth structural ongoing mix, partially basis points, of costs, gross pricing offset input implies by management Our expansion and margin

DTC drive to look expect expansion. gross and costs we the on XXXX, mainly to of input mix, and visibility, based margin significant combination As structural international, lower current we margin

rate it and a earnings to investment in adjusted accelerated result we the expected compared is brands also at this increase behind XXXX. to capacity basis our expect strategy.SG&A now low-single-digit investing an provides on to While continue enterprise needed growth, to

while an the approximate and approximate We is charge. long-term in of to regard brands diligent EPS prioritize expected to $X.XX accretive will duty spending. capabilities on from now to basis, discretionary negative an $X.XX growth, adjusted continue with remaining including support our in investments impact

approximate the year charge, flow $XXX $X.XX.We Excluding full is to of operating year full million. duty adjusted expected EPS cash approximately expect

of year. with prior to a more representing the the end $XXX year to approximately than decrease inventory, expect XX% million We compared

we of We full supporting roughly allocation also based in to take liquidity, half profile of $XXX moments of with into outlook. $XXX next capital the year business million highlight to like fundamental hand expect move million significant the few and approximately on second updated year.I'd a end our on of 'XX XXXX and as optionality our cash

year we is the it making true trajectory of our have and from of business by Our our into quarterly business model. business representative standpoint, a that underlying half comparability more been next as the to of presents year.Looking cleaner this forward, the and results of expectations somewhat power volatile earnings the uniqueness a difficult picture our move at moving our understand one

expect XXX For to the X% growth, excluding gross double-digit and basis revenue earnings second operating of duty approximately half, expansion close margin the we and points charge, growth.

earnings macro accelerated gross we XXXX, next expect capital generation. generation.Additionally, least increase drivers of the we have levels at to over will significant support challenges and expansion, an cash expect year 'XX optionality. second our steady to contributing cash of balance of first further mainly in While state growth sheet carry and fundamentals, can half through inventory, margin that persist And the a allocation support into to achieve half more we

management, regardless environment.To we at some my remain wrap of offer with the to months disciplined driving continue to returns to rigorous couple have Kontoor. up, of the I'd total levers capital strong While deployment perspective sheet through stakeholders operating for on regard first we observations based and number will to a of like balance and pull

brands First, strong. confident returns in The I am capital. and Kontoor's are growth deliver on to sustainable opportunity

investing margin. to appropriately in space expansion significant opportunity is growth expand and are under-indexed focused significant a drive strategy. gross channels And there accretive categories.Second, there to We behind white through is

sustained margin greater SKU over support horizon a beyond is And operating fundamentally to and Further, we margin benefit identified that go model.Third, upstream strategy and margin as gross We to incremental we we our including to and global initiatives, long-term. international our our change driving net And gross expansion over benefits of next how input and supply medium are drive will we both chain a to such are previous have market the have visibility lower the These costs to number year. DTC working rationalization committed structural drivers evolving. expect downstream and business. efficiency capital in multi-year expectations. reductions will

pursue capacity will will importantly, over unfold improve for brands. profitability, and platforms, additional initiatives reduce our our multi-year of a transform number to create These and further We will horizon a leverage increase complexity, agility, our operating to and Kontoor. context unlock is these look more model at We strategic our time year.This Day significant important value. sharing the our Investor of for in topics forward next an plan updated on investment details initiatives

focused TSR. ahead on excited and concludes the fundamentals, confident back our the are to operator. to and growth place I turn will we the now We call execution the on in long-term chapter prepared the team I to drive creation have value am and for deliver Kontoor.This remarks. and next opportunities of partner

Operator

Today's Instructions] UBS. [Operator of is Serna coming question first Mauricio from

Mauricio Serna Vega

at actions, to 'XX just on then start now the improvement give really? about can to you year it? $X.XX sequential with duty us guide Maybe inventory the the EPS And expense, there. and it's around gross we more think fiscal the great color margin Should see

could make it? position way Is you that be of the you Still, out actions -- to out in is you want about more that inventory taken? to Just amplified a about clean really think seems the proactive come XXXX. really sure talk that and

Joseph Alkire

and duty I'll the inventory Maybe start I'll conversation. off kick Scott the it's let with Mauricio, Joe.

the primarily issue duty, the on specifically. relates prior yes, XXXX and periods, So to 'XX

late issue the ERP identified implementation. and the the we back quarter remarks, it prepared the in dates really to in stated we As

of presented helpful. of an get period duty may charge total a cost adjustment, to here was was $XX is on correction I we be timeframe sold prior and period. The of think perspective period error charge million goods but adjusted, several GAAP same charge X.X-year into billion of the over a the that the so dollars.So And why as won't accounting versus technicalities out as really just a over

representative baseline in was as EPS respectively we outlook. $X.XX about adjusted earnings appropriate think prior underlying and of forward. charge 'XX, more in And you as this for view not clearly, So contemplated $X.XX going the our

Scott Baxter

hygiene the for a investing tremendous our can back invest of a as that in cash We're is standpoint back and we in Mauricio, it from thanks business.And do people, know, our great. the about really in position Mauricio, wanted you brands Thanks, of then which amount this. the knew the broad-based this up could frees back in business Joe. we benefits Fantastic. beginning manufacturing And It business because question. little the you our to of this. what centers everything do business. an our does we thing We've We has put the optimizes could supply we downtime this, knew about in in we action every 'XX when we distribution the And to could bit, was do strength thought aspect is for clean is great. ourselves think what a it had and our that started position. And teams and we be and our chain, in process it year. for we to up. right our almost such which aggressive like with our It of

now, we're years. position.Joe, couple a 'XX. excited it's are about And heading in into inventory any lot stand we where comments standpoint from we right fantastic in a last But really of people additional there? for the So of an difficult been

Joseph Alkire

in by proactive. just were majority our remains Yes, business. the The over Scott actions, as And XX% maybe decisions of terms These a the were few. through be continue for of year. almost end of we'll much impact, these pretty more that respects, of terms our these In the But there. said, some inventory We're or so. to inventory actions, non-core this levels elevated These core, in actions right clearing inventory. evergreen. are the through We're normalize.

Operator

of Drbul is from The Guggenheim. coming next question Bob

Robert Drbul

I on. Congratulations. focus I'd Joe, X have guess, I to welcome back. really questions like

perspective, your Scott, of price you macro, different lot when one, touched first the points from distribution channels. now a and look The you at

strength of the of your talked sort I lot see in? consumer sort little you've on seems Can the it around you dynamics, the in seen that pricing around what and around weeks about give level sort point-of-sale more fourth you're bit like few the some maybe unfolding -- and next these a sort high competing quarter. Just share talk macro season?And you're of second in more had categories more just maybe us quarter. about you then you the of the as a anything gains It question even around is, seeing competition, about you the the the perspective third holiday and a the in the think share that gains recent the of

Scott Baxter

Sure.

We'll of But season.And bit the You and it important holiday talked here from toss a and a voice, question. little that think went our is into couple taken I start share I for holiday really will consumer both I'll to for think up that we're to in actually brands. been us But that has lot going have why mitigate a around that shows going a the years, 'XX. was over the consumer a we've which your about last the of season. good to hopefully on here of bet. The start I'll Thanks year Joe. to fact standpoint, the kind as be hear Bob. for little a macro to Good that going little it stressed here this of then bit on thought one. we've we the do always

estate a have been elevated One, our of what creation in real bigger in priced means us you demand value components are but our price, what's for our get really other distribution brands there's that more is a another X you see at about also we've So important that And you you really brands us. a taken brands is to for a from level. talk way. a see And standpoint. tremendous our good right, amount happening

into in Dallas them I our go where see saying, seeing I'm and to kick-off Lee? walking have consumers I'm this -- game. them hey, customers walking Wrangler our if We seeing and seeing I'm go So if big are Barbie them. are to I Limits. in them Austin have people to everywhere. are and collection. big Cowboys' big a City I

interesting on interesting X Bob, little and company positioned standpoint. from old for But with from good forward, we as are we've digital at ago. else. ourselves about So distance digital, a in in really we're price.So how I everybody to here we digital, as a our move a and world things as thought seeing one because there's us brands years people ourselves piece really we about really we we've remember really other a leading migrating DXC think some you lot that's been leading never talked invested you've us digital with journey And leading that's and this with the with that well

that got network investment extra on that we really we've cash and this that and of our did have the DXC we running. But that spending have dollars globally. we're so platform building up some and now we And

that, a us that out and to really we some we're addition competition. for our have the of both it's us of lot in key building platforms is our fairly ahead And pretty international too. In of those because evergreen new versus

about I consumer pricing? really why excited our going I'm our our that's we're this gains good share future pretty and feel and from going here.Joe, So comments about forward. how about own destiny moment to control any here

Joseph Alkire

few a pricing, on Bob. just Yes,

There's to year. this the tailwind outlook a pricing been has prior on us really for compared fundamentally pricing front. different nothing the So

Scott And it's pricing is, we but at the past brands terms as factor performing years. of conversation with our always remains to retailers pull remain margin a front. over of levers in market POS pricing just number it very strong. are we the have is at on And were Performance one retail. strong. gross As share the of strategic These said, gains couple with

Operator

The of Roach next from question is coming Goldman Brooke Sachs.

Brooke Roach

changing that's on macro the little it on I be and Bob's a what's year, caused cautious more just Scott, to bit sounds bit in and little first more get of outlook that's wanted follow-up to the a sense question Is the more one channel of the little your or there a particular any region, half despite caution and type brands share like gains. year the of product causing next conservatism? ongoing of incremental strength into you this

Scott Baxter

Yes.

at the our Brooke, So cautious feel of still positive. about our still and be From standpoint all, POS the is strong business. to POS, continues not great really

where strong, order creation our right to you. creates have are Now is our more in an is and really go cautious and atmosphere be and their POS customer share all good our let hitting so might cylinders, so clear our products. on a ordering our now Because ahead But point. me be a you gains, it interesting gains bit really have demand what this little is here, patterns

been told about for really feel better feel that recently, good here the really feel we're than what's product I the team, now this creating, felt I years, business and I've I as our So CEO in decisions the I X I've making, never happening the here confident. I right mean, This we're now. team now. have these right business, brands,

there? from anything to add So me.Joe, not

Joseph Alkire

it. covered you think I No,

Brooke Roach

Joe. a outlook in changes Great. on And the How for additional you clearance might better gross then on actions? margin much Can you inventory seeing those some duty year levels your maybe contextualize XQ are still the And follow-up transitory of elaborate where are margin from beyond on then level charge? returning gross XXXX? for this headwind into headwinds in we see normalized can to visibility weighing margin you incremental the that

Joseph Alkire

Brooke. Sure,

charge, duty quarter, that the was margin actions was that So for the took the basis included That points. flat. excluding inventory the gross XX we management about

drivers when you And of expected. So the gross is transitory pretty of of higher.So really QX, much XX.X% off excluding outlook. or the XX exclude at about we biggest by driver still charge. of end expected price such And year, as input for That's full air Again, lower U.S. offset as impact we've continue our the are a the and points main we're the low year-over-year as said basis ongoing pricing wholesale. for we QX, expansion to that we a from strength year. costs you've embedded in next mix-related input year, importantly, there we actions really took. tightened that mix. flipping of the points little up got got really revenue into and the And will But the all think I in same inventory have But of quarter, range. outlook. duty the as but we've moderating we were about There's prior basis the still that XX.X% the XXX versus really costs, increased the higher bit costs those, as tailwind freight, fourth mix that margin drivers in

Operator

Fargo. question next Gaertner Will Wells coming of is The from

Frederick Gaertner

know you're you share cash this noticed I capital inventory So just quarter. any you improving here. -- your optionality to allocation you I discuss repurchases just have off, didn't Could here? significantly start so your generation,

maybe going you can you're forward? discuss thinking Just that how about

Scott Baxter

Yes.

the and Joe, ahead, I'll in go at end. So then maybe jump

Joseph Alkire

Yes, start maybe here, I'll Will.

the what priorities allocation share are unchanged. given in got performance and Organic So that business brands, did then superior you capital the on quarter, repurchases we saw maintaining the we've both and this reinvestment the M&A. front, which dividend, we have across

really margin as generation continuing improvement. down progress the pleased working the in So our further on on focus an is further. expect and good will next increase year to we with there front. inventory And the I in cash side.Leverage we're normalizes and capital shape. think we're recovers on inventory We're gross think near-term, I almost inventory come It

a So got of going an here, deploy remain We're disciplined in opportunity accretive but certainly lot TSR manner. we've optionality. a to capital more to really actively

Scott Baxter

if drive industry the with we in, about So a in things. about to this, like how quick that to makes what to if company be we're excited position Joe can and thing that do But you to be about and sheet in, that a position as are anything now, we're the just this to I in I me that and balance about world fact the we everything talked that able business.And right with other think to how need that is comment. pleased this do operate we've multiple said, the obviously. do agree you more we a think have think about we we the the think

We by aren't one thing just any. to tied

our you and one did As time. remarks, Joe's we big, my advantage, same and and really operating they're time ability environment especially day remarks in this just But big right multiple in increased we saw these have we was the the That position puts right that at a brands do at things thing the in prepared and and distinctive recently. dividend. the to age now. how us And with I being now think

Frederick Gaertner

just next mid-single-digit you're maybe low-single-digit to one you Can do still if cutting maybe to just the follow-up, cost SG&A, out? continue year so? opportunity discuss where And growth you're from in on there's taking And growth. to

Joseph Alkire

Yes, that. I'll take

and creation DTC is really priorities, more side. just reduction a strategic on no So And on the we're to change bit demand The investments outlook being environment. the overall discretionary innovation. in given our the the really cautious little expense

Operator

The is of from Stifel. next Duffy coming question Jim

Peter McGoldrick

is Welcome, This McGoldrick for on Joe. Peter Jim.

But million and with get flow you talk about sense drivers cash puts than operating the free guidance? guide. $XXX cash this a guidance item. inventory more flow. a was curious previously of to operating items I the managed I is the cash and on new of flow First Can recognize capital tightly working takes other the of anticipated, line

Joseph Alkire

Yes.

So business really Yes, of fourth a working in quarter I'll unwinding in inventory. we've doing? terms That's things; you of take got further X then that. Peter, gross driven margin how cash net so strong the are by pretty margin mainly mainly the generation. and recovery capital

we've $XXX for So got the year. about million

levels. in million of fourth overall that will in reduction quarter inventory roughly further somewhere $XXX and a we're or $XXX around think the $XXX be million million I

Peter McGoldrick

follow-up. one And Okay.

zoom discuss towards a potential gross outlook? And you we you prior margin might assessment can the updated think have the bridge As any margin out of XX% and financial the structural of the of potential? business, long-term capacity gross

Joseph Alkire

start. I'll

nothing different, So fundamentally Peter.

we algorithm intact. still I largely that see think

drivers margin structural in the in have DTC international. You'll

we those start unfold going then over we bear the about period. here, prepared disruption. we're to and initiatives And I a the couple longer year. details my some over of We'll capital normalize next related. we've margin fruit These those on a are years to inflation that in in more in what lost lot to more of got chain of talked costs of chain mid and share nature from see handful second input right? As But term that of those. on working remarks significant, will multi-year are past supply recover are half may And front the supply a other that gross net

Scott Baxter

reiterate here. And what I'd said Joe

a think I about as point lot ERP. knows we've there's talked went a team. one spin. a Obviously, that. We difficult very important through that everybody Then a really

As organization. ERP, space everyone knows, you up lot when it mine of a your takes an do entire for

back now a energy this that. energies a of And on effort team going bright end chain going into to a their has we're to of are times. lot focus talked supply put and that you've Now lot that Joe about really a of people, talented couple got

well we're to One going forward. and we of that great enhance going is do really it that's here the things about that already

So going that of lot on freed people we up got are see We some be opportunity Joe of focused has And that. time. to there, a we've as mentioned. their

Operator

next is coming from The of Kearney Barclays. question Paul

Paul Kearney

Joe, from hear you to good again.

by down It looks First, XXX have of operating can between the almost versus What I follow-up. two? basis brand? about XX? Wrangler you performance the margin was differential like margin points Then talk driver fell the a the the

Scott Baxter

the you're charge if you've numbers, in got duty reported there. looking Paul, at the embedded Yes.

some there's related that. there noise to So in

Paul Kearney

on wholly primarily Lee? that Is

Scott Baxter

No, it be both would brands.

Paul Kearney

Okay.

about how making the look I into as this next relative we you're to into Second, we year guess, low-single-digit and we the SG&A, investments that business? growth think about especially year, should SG&A think the given

Scott Baxter

Yes.

areas the to business. further in the to I demand plan in year. remarks the opportunities a to the bit context my I hold to just to on, little DTC, next think for talk about talked pretty from continue discretionary efficiency for those specific any expenses on prepared talked would to say, and on innovation, life continue that's year. creation do look construct where we'll and I in drive how distort come and We look guidance next line aggressively. that and of we'll about, about standpoint, leverage while we'll investment our But a towards hold we to we have going

Operator

is of Drbul next Guggenheim. question The coming from Bob

Robert Drbul

year in sort Can might you of and follow-up spend done level sort Lainey of as ever the think I just back talking or percentage But doing about are dollar it's jump about mean, next that and about that talk the And quarter, spend. demand creation, and Cowboys today? think just you how much where beyond? sort to you're current the I Wanted and proceed as the -- Wilson. just the of into this brand on as SG&A spend, the you

Joseph Alkire

Yes. the want Bob, in jump start and numbers may here. to I'll on Scott

we'll that's to And we're demand and over an we're double-digit the That's impact our that in things quarter, the continue at excited some as So for creation rate increased quarter. which we doing, really a the had do time. you've the example, spend about. seen something of

overall expect would our total demand to a grow growth. we'll investment a above that increase. to I look as to revenue And to percent slightly So continue rate creation at

Scott Baxter

Wrangler the lot got now. a partner for to to I And make Everybody done I'm the in globally of be in Yes. and view all we're to that to be in really remiss on our going position I partner shout to real across time, intelligently, return.And to and center not from fun it's job, to all and around globe. about our outbound is us.So really every with people through X amount want, you I outstanding And and for our with Cowboys We a that's and to collabs used the wants in anything astounded come and tribute you increase the a that Bob, working it calls us. everything spend Lee, calls spend when like spend don't are of how investment of spend. the of doesn't and company other I driving it's would we're but things standpoint teams that And didn't because brands. But folks we some doing used lot Wilson, And about we're globe again. our going because I I my money the everything teams the Lainey things the a like And Holly how people hear that right from us really I you we're the a would one that go really money get to, jump you culturally it size that have this shared lead return And think forward. talked our the brands, thinking that about of investment. of if we won't want point day, think the that as creation think leaders I'm matter. Bridget And I give in demand if platforms to we lot here out a want big that our a and any of from could about, those things life, an on. and

that I we're lot think larger people on it, think than we're a much we see are impact culturally. can because things it that really such and do are you the greatly. benefiting an the really, doing would from than we And more having we're spend brands

wanted So to was sure just stated. that that make I

Operator

of from is question Serna UBS. Mauricio next The coming a follow-up

Mauricio Serna Vega

Great.

on wanted to Just things. follow-up X

-- about any actually there PFAS another like commented risk little you recently. the on sales maybe seeing DTC, on the at a that much the your on try And does How more you represent on you're follow-up bit of business? First, own.com can inventory. exposure the reduce have momentum then point? Do talk with wondering footprint increases the of some any Just that as to retailers a Spring age inventory to would starting if some likely have chemicals? national retailers that would 'XX, other exposure the brands

that approach how discounting Just affect could wondering your too? to

Joseph Alkire

So really And right let dot-com. now. the start our dot-com with yes, with business me we're pleased

growth, still that It's up forward our pretty what make we advertising we're pleased of ERP really the we've globally teams but and business think important see some there. marketing now. dot-com matching And that certainly benefit We've thing going well and from course you're dot-com of Chris sure behind we we're doing aspect. focused of together the put front I'm and digital on and and seeing and our that that marrying and want that and like a our I bright center good capabilities. lot are to the still up most there, guess, within that that super We've put everyone marrying done knows with I investment standpoint actually of really to a the I exceptionally us to you're a working out the system really new now built future.So and and in team. are our team

information. one, the the let get on we we'll in we'll And look that sure to have us make other pleased. really So And -- that back exactly correct you.

get to we'll you, Mauricio. So back

Operator

Fargo. Wells from Gaertner of is next The coming question Will

Frederick Gaertner

U.S. question on a wholesale. Just the

-- number lapping a next big a have you're You big quarter.

quarter in you are as next that the this how big year? of growth far spike about lapping as thinking as sort Just you're last

Scott Baxter

Yes.

done, sure your about I think, us you're we've sure well, the your talk you've at our is of which all making the that product, enhancing most important heard -- making product a category lot times, core extension. freshness thing

a instance, job in job done a Wrangler -- done our nice our our we've really So ATG nice T-shirt Angler business. really business, business, our for in for

good then us those lines talked categories real we strong and So in about, and We spot. also POS. estate all again, customers. enhance really demand I for We're marketplace. them are big winning the terrific I that because long really of pretty once this of quarter, is a combination. really grow well like They're you helping say a next creation that's really ancillary we that We've our together. partners. I They're of business.We're our time. will a the gaining been our think gaining work strong that in confident inventory with And the in POS. all feel And with our And share because powerful

inventory A+ that's So with what from going and standpoint, an got forward. over customers, there, we've on our heading we're focused inventory

what like seeing a I'm I So bit. quite

Operator

back time, this to comments. over At you. for to like turn I'd it Scott closing Thank

Scott Baxter

all Really and about to care company. our everyone. Well, healthy thanks of again and safe spending thank for you to questions you, and the season, I appreciate time wish and a wanted forward interest with holiday look next you happy, thoughtful all your today quarter.

make of We glad us. team in I'm we've forward all have we're I you team look the of And are I sure to to the you got terrific more working have our know with in a we'll lot that a hard And in sharing doing really and going right lot future. confidence things. forward, here a and confidence

So thanks everyone.

Operator

for you participation. thank gentlemen, and This Ladies event. your concludes today's

of your You at may lines log-off webcast day. the your enjoy disconnect and this the rest and time,

Kontoor Brands (KTB) 2 Nov 232023 Q3 Earnings call transcript