Kontoor Brands Signals It’s Rounding a Corner

Sindhu Sundar
·6 min read

Kontoor Brands is picking up the pace during the pandemic.

The denim company, whose brands include Wrangler and Lee, said Tuesday that revenue for the fourth quarter of 2020 was $661 million, a 1 percent increase, while adjusted earnings per share for the quarter were $1.23, a 27 percent increase.

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In the three months ended in December, the company reported a climb in net income to $43 million, up 50 percent from the same period in 2019. The company’s revenues were pulled up by growth in both the Wrangler and Lee brands, among other things, Kontoor said. Wrangler’s revenue overall for the quarter was $448 million, a 7 percent increase from last year, growth stemming in part from improving revenues in the U.S., where sales rose 8 percent.

The company continues to promote its Wrangler brand’s collections. On Monday, Wrangler said it had brought on model Georgia May Jagger, whose parents are Rolling Stones frontman Mick Jagger and model Jerry Hall, to represent its Women’s Heritage Collection that launched in the fall.

The revenues for the Lee brand were $204 million for the quarter, an uptick of 1 percent from last year.

“Revenue increases were primarily driven by strength in digital, including [our] own dot-com and digital wholesale, as well as improved performance across the Wrangler U.S. wholesale business and accelerating trends in International markets,” the company said.

For 2020 overall, the company’s revenues dropped 18 percent to $2.1 billion, marking the impact of temporary lockdowns and store closures early in 2020 that a number of states had implemented to help prevent the spread of COVID-19. But the lockdowns were short-lived, and the pandemic is still ongoing, with a death toll of more than 514,660 in the U.S. according to the Johns Hopkins University tracker.

“We finished 2020 with great momentum, a testament to our teams’ unwavering focus on execution throughout this unprecedented year,” the company’s chief executive officer Scott Baxter said in a statement Tuesday.

“Our strong fourth-quarter performance is also a result of the strategic measures we’ve taken over the last two years, allowing us to not only navigate near-term challenges, but also position the company for success in 2021 and beyond,” he added. “Focused investments in brand-enhancing initiatives, technology and talent are setting the stage for an exciting next phase of our journey in which we expect accelerating long-term sustainable growth.”

Despite its sunny projections for 2021, including a revenue increase in the “low double-digit range” from 2020 and estimated adjusted earnings per share in the $3.50 to $3.60 range, the company said it would continue to account for the pandemic persisting through the year.

“The company continues to take the necessary, proactive steps to accommodate a prolonged COVID-19 operating environment,” Kontoor said.

In a call with analysts on Tuesday, Kontoor’s executives emphasized the company’s growth momentum and the strength of its offerings, particularly on the Wrangler and Lee fronts.

Wrangler’s successful soft launch in China puts it on the path to a broader launch there this spring, said Tom Waldron, executive vice president and global brand president, Wrangler.

“We will have a more robust full launch on track for this spring when the consumer environment will be healthier,” he said on the call. “We will be measured, tested and learn through this initiative.”

Wrangler has also been expanding its audience through television collaborations with cult hit sci-fi shows “Rick and Morty” and “Stranger Things,” executives said on the call. The Wrangler website archly promotes its “Rick and Morty” pieces as indestructible against lasers and the “NX-5 Planet Remover” from the show’s universe.

“It’s a combination of really great product, fueled by design and innovation, and then really great storytelling,” Waldron said. “We mentioned ‘Rick and Morty,’ we mentioned ‘Stranger Things,’ [we’re] making sure that we’re connecting with younger consumers and that’s just pulling through from a consumer demand standpoint.”

Company executives also addressed more earthly concerns about supply chain and port disruptions during the pandemic, pointing to the company’s efforts to diversify its chain. Roughly 66 percent of its production comes from some 225 facilities in more than 20 countries, said Rustin Welton, the company’s chief financial officer. Its projections for 2021 also factor in continued supply chain issues as the pandemic extends, he said.

“We’re not immune to the challenges that are taking place in the operating environment whether that’s port congestions, higher freight rates or labor shortages,” Welton said on the call.

“And rest assured, we’re aggressively working to minimize those impacts including intentional port diversifications,” he said.

Kontoor’s stock was at $46.44 in mid-morning trading, up roughly 6.4 percent, having outperformed Wall Street estimates.

“We believe the company has been on the defense since being spun off as they have focused on improving the team, investing in technology and exiting unprofitable or lower profit markets and distribution channels,” said Brian Yarbrough, senior analyst at Edward Jones, in a statement after the earnings call.

“We now believe the company is well positioned to go on the offense and accelerate sales growth through investments in e-commerce, adding distribution channels, product line extensions and further white space within China,” he said. “We believe the larger percentage of growth coming from company-owned websites and exiting the lower margin channels will help drive accelerated earnings growth.”

CEO Baxter told WWD Tuesday evening that the company’s business strategy during the pandemic has involved having some safeguards early on, when it borrowed additional capital that it since prioritized for repayment. But the company also stuck to its strategy, including investments in its e-commerce business that are paying off, he said.

“We had the foresight to hunker down a little bit, we had to borrow a little bit of additional capital,” he said. “We worked really hard to make sure we allocated our capital correctly, doing the right thing and sticking to our strategy. We knew we had a good strategy because it was already working pre-pandemic.”

The company has said it has prioritized its e-commerce business, investing in technology, talent and marketing. In the second quarter of last year, it went live on a new e-commerce platform in the U.S. and in Europe. In the fourth quarter, the company’s U.S. own dot-com business was up 50 percent, while its digital wholesale in the U.S. was up 75 percent.

“The key, I think, was making those investments in spite of the pandemic, and clearly, we’re starting to see the benefits from that,” CFO Welton told WWD.

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