Kontoor Brands Reports 2023 Fourth Quarter and Full Year Results; Provides 2024 Outlook and Announces Project Jeanius Global Transformation

Fourth Quarter 2023 Highlights

Revenue of $670 million decreased 8 percent
Reported gross margin was 41.7 percent. Adjusted gross margin was 42.2 percent, including an unanticipated 90 basis point impact from an out-of-period duty charge. Excluding the duty expense, adjusted gross margin increased 230 basis points to 43.1 percent
Reported EPS of $1.21 compared to $0.91 in the prior year. Adjusted EPS of $1.28, including an unanticipated $0.07 charge from duty expense related to prior periods. Excluding the duty charge, adjusted EPS was $1.35 and increased 54 percent
Inventory of $500 million decreased 16 percent
The Company repurchased $30 million of shares under the prior share repurchase program and the Board of Directors approved a new $300 million share repurchase authorization
The Company’s Board of Directors declared a regular quarterly cash dividend of $0.50 per share

Full Year 2023 Highlights

Revenue of $2.61 billion decreased 1 percent
Reported gross margin was 41.7 percent. Adjusted gross margin was 41.9 percent, including a 60 basis point impact from the out-of-period duty charge. Excluding the duty expense, adjusted gross margin decreased 60 basis points to 42.5 percent
Reported EPS of $4.06 compared to $4.31 in the prior year. Adjusted EPS was $4.26, including a $0.19 charge from the previously disclosed duty expense related to prior years. Excluding the duty charge, adjusted EPS was $4.45
Cash from operations increased to $357 million
Adjusted return on invested capital was 27 percent
Through a combination of share repurchases and dividends, the Company returned a total of $139 million to shareholders during 2023

Full Year 2024 Financial Outlook

Revenue in the range of $2.57 billion to $2.63 billion, reflecting a decrease of 1% to an increase of 1%
Adjusted gross margin in the range of 44.2 percent to 44.4 percent, expanding 170 to 190 basis points compared to the prior year excluding the out-of-period duty charge
Adjusted operating income in the range of $372 million to $382 million, reflecting an increase of 7 percent to 10 percent compared to the prior year excluding the out-of-period duty charge
Adjusted EPS in the range of $4.65 to $4.75, reflecting an increase of 4 percent to 7 percent compared to the prior year excluding the out-of-period duty charge
Cash from operations is expected to exceed $325 million

Project Jeanius Global Transformation

Expected to result in $50 million to $100 million of gross profit improvement and SG&A savings on a run rate basis, with impacts starting in the fourth quarter of 2024
Impact of Project Jeanius not currently reflected in the 2024 financial outlook

Kontoor Brands, Inc. (NYSE: KTB), a global lifestyle apparel company, with a portfolio led by two of the world’s most iconic consumer brands, Wrangler® and Lee®, today reported financial results for its fourth quarter and full year ended December 30, 2023.

“Our POS performance in the U.S. outpaced shipments in the fourth quarter and resulted in continued market share gains. However, the U.S. wholesale environment was challenging as retailers managed inventory levels tightly against uncertain consumer spending patterns, which negatively impacted our revenue,” said Scott Baxter, President, Chief Executive Officer and Chair of Kontoor Brands. “We are pleased with our execution and the progress we made further reducing inventory levels, accelerating cash generation, and driving strong gross margin expansion and returns on capital.”

Fourth Quarter 2023 Income Statement Review

Revenue was $670 million, decreasing 8 percent (9 percent decrease in constant currency) compared to the prior year. Revenue decreases were primarily driven by retailer inventory management actions in the U.S., partially offset by gains in digital wholesale, China and DTC.

U.S. revenue was $538 million, decreasing 11 percent compared to the prior year. U.S. wholesale decreased 12 percent. Growth in digital wholesale and owned brick-and-mortar was more than offset by reduced wholesale shipments as retailers tightly managed inventory levels.

International revenue was $132 million, a 4 percent increase (flat in constant currency) compared to the prior year with growth in both DTC and wholesale. International direct-to-consumer increased 8 percent (6 percent increase in constant currency). China increased 23 percent (25 percent increase in constant currency), driven by gains in DTC and wholesale. Europe decreased 3 percent (9 percent decrease in constant currency), with growth in digital and owned retail more than offset by a decline in wholesale.

Wrangler brand global revenue was $461 million, a 9 percent decrease (10 percent decrease in constant currency) compared to the prior year. Wrangler U.S. revenue decreased 10 percent, driven by reduced wholesale shipments as retailers tightly managed inventory levels partially offset by growth in DTC and digital wholesale. Wrangler U.S. own.com increased 7 percent. Wrangler international revenue decreased 2 percent (7 percent decrease in constant currency), with increases in DTC more than offset by declines in wholesale.

Lee brand global revenue was $206 million, a 6 percent decrease (7 percent decrease in constant currency) compared to the prior year. Lee U.S. revenue decreased 14 percent driven primarily by reduced shipments to the wholesale channel as retailers tightly managed inventory levels, partially offset by growth in digital wholesale. Lee international revenue increased 8 percent (4 percent increase in constant currency) driven by DTC and wholesale growth in China.

Gross margin increased 90 basis points to 41.7 percent on a reported basis and increased 140 basis points to 42.2 percent on an adjusted basis compared to the prior year. Gross margin included an unanticipated 90 basis point negative impact from duty expense related to prior periods, as well as the impact from proactive inventory management actions. Excluding the duty charge, adjusted gross margin increased 230 basis points driven by the benefits from pricing, channel mix and lower product costs.

Selling, General & Administrative (SG&A) expenses were $204 million or 30.5 percent of revenue on a reported basis in the fourth quarter. On an adjusted basis, SG&A declined 5 percent to $202 million, or 30.1 percent of revenue, compared to the prior year. Investments in DTC and technology were offset by prudent management of discretionary expenses.

Operating income was $75 million on a reported basis. On an adjusted basis, operating income was $81 million. Operating income included $6 million of duty expense related to prior periods. Excluding the duty charge, adjusted operating income was $87 million and increased 1 percent compared to adjusted operating income in the prior year. Adjusted operating margin of 12.1 percent increased 40 basis points compared to adjusted operating margin for the prior year. Excluding the duty charge, adjusted operating margin increased 120 basis points to 12.9 percent.

Earnings per share (EPS) was $1.21 on a reported basis and $1.28 on an adjusted basis compared to reported EPS of $0.91 and adjusted EPS of $0.88 in the prior year. EPS included an unanticipated $0.07 charge for duty expense related to prior periods. Excluding the duty charge, adjusted earnings per share was $1.35, increasing 54 percent compared to the prior year. EPS in the quarter was positively impacted by discrete tax items that are expected to lower the Company’s cash tax payments in future years.

Full Year 2023 Income Statement Review

Revenue was $2.61 billion, decreasing 1 percent compared to the prior year. Growth in DTC and U.S. digital wholesale was offset by retailer inventory management actions in the U.S. and softness in international markets.

U.S. revenue was $2.06 billion, decreasing 1 percent compared to the prior year. U.S. wholesale decreased 1 percent driven by retailer inventory management actions, partially offset by double-digit growth in digital wholesale. U.S. direct-to-consumer increased 6 percent driven by 7 percent growth in owned digital and 4 percent growth in owned retail.

International revenue was $547 million, a 2 percent decrease (3 percent decrease in constant currency) compared to the prior year. China decreased 7 percent (2 percent decrease in constant currency), with growth in DTC more than offset by a decline in wholesale. Europe decreased 2 percent (4 percent decrease in constant currency), with double-digit growth in owned retail and digital more than offset by a decline in wholesale.

Wrangler brand global revenue was $1.75 billion, flat compared to the prior year and supported by growth in categories such as outdoor, non-denim bottoms and female. Wrangler U.S. revenue was flat with growth in DTC and digital wholesale offset by retailer inventory management actions. Wrangler U.S. own.com increased 9 percent driven by growth in tops and Western. Wrangler international revenue increased 1 percent (1 percent decrease in constant currency).

Lee brand global revenue was $843 million, a 4 percent decrease compared to the prior year. Lee U.S. revenue decreased 4 percent due to retailer inventory management actions. Lee international revenue decreased 3 percent (4 percent decrease in constant currency).

Gross margin decreased 140 basis points to 41.7 percent on a reported basis and decreased 120 basis points to 41.9 percent on an adjusted basis compared to the prior year. Gross margin included a 60 basis point negative impact from the previously discussed duty expense related to prior years. Excluding the duty charge, adjusted gross margin decreased 60 basis points as benefits from pricing, channel mix and lower transitory costs such as air freight were offset by increased product costs and proactive inventory management actions.

Selling, General & Administrative (SG&A) expenses were $769 million or 29.5 percent of revenue on a reported basis. On an adjusted basis, SG&A of $760 million was approximately flat compared to adjusted SG&A in the prior year. As a percent of revenue, adjusted SG&A increased 10 basis points to 29.1 percent. Investments in DTC and technology, as well as increased distribution costs, were offset by tight control of discretionary expenses.

Operating income was $319 million on a reported basis and $334 million on an adjusted basis. Operating income included $14 million of previously discussed duty expense related to prior years. Excluding the duty charge, adjusted operating income was $348 million, or 13.3 percent of revenue compared to adjusted operating income of $372 million, or 14.1 percent in the prior year.

Earnings per share (EPS) was $4.06 on a reported basis and $4.26 on an adjusted basis compared to reported EPS of $4.31 and adjusted EPS of $4.49 in the prior year. EPS included a $0.19 charge for duty expense related to prior years. Excluding the duty charge, adjusted earnings per share was $4.45. Full year EPS was positively impacted by discrete tax items that are expected to lower the Company’s cash tax payments in future years.

Balance Sheet and Liquidity Review

The Company ended fiscal 2023 with $215 million in cash and cash equivalents, and approximately $0.8 billion in long-term debt.

Inventory at the end of fiscal 2023 was $500 million, down 16 percent compared to the prior year and in-line with expectations.

As of December 30, 2023, the Company had no outstanding borrowings under the Revolving Credit Facility and $493 million available for borrowing against this facility.

As previously announced, the Company’s Board of Directors declared a regular quarterly cash dividend of $0.50 per share, payable on March 18, 2024, to shareholders of record at the close of business on March 8, 2024.

Consistent with a commitment to return cash to shareholders, the Company repurchased $30 million of common stock during the fourth quarter. When combined with the strong dividend, the Company returned a total of $139 million to shareholders during 2023. The Company has $300 million remaining under its authorized share repurchase program.

Project Jeanius

The investments made over the past five years have enabled Kontoor Brands to become a standalone public company, strengthen its brands, reduce financial leverage, implement a global ERP solution and navigate an uneven operating environment. To meet the Company’s accelerated growth objectives while maintaining a strong financial profile, the Company has commenced Project Jeanius to unlock sources of capital to support increased investment in accretive growth opportunities, improve profitability and drive higher returns on capital.

Project Jeanius will simplify and transform processes, systems, and the Company’s global operating model, with particular focus on enhancing and optimizing the supply chain, reducing operating complexity and integrating the business across global shared services. The initiative will improve speed to market and agility, and leverage advanced data analytics to enhance business insights and decision making.

“This is one of the most important steps we have taken as a public company and will transform our organization from the legacy structure required at the spin to a best-in-class global multi-brand platform, while unlocking significant sources of capital. With our strong leadership team in place, we are able to take this step from a position of strength, and I am confident this will deliver the next chapter of Kontoor’s value-creation journey,” said Scott Baxter, President, Chief Executive Officer and Chair of Kontoor Brands.

Project Jeanius is a multi-year initiative and the Company expects to realize between $50 million and $100 million of gross profit improvement and SG&A savings on a run rate basis over the course of the program, a portion of which will be reinvested into strategic priorities to accelerate growth. The Company anticipates the impact from Project Jeanius to begin in the fourth quarter of 2024, with more significant benefits expected in 2025 and 2026. The Company’s 2024 outlook does not yet reflect the anticipated impact of Project Jeanius.

2024 Outlook

“Our outlook for this year reflects strong gross margin expansion and operating earnings growth, strong cash generation, best-in-class returns on capital and significant capital allocation optionality. Although we anticipate the operating environment will remain challenging over the near term, we enter 2024 from a position of strength,” said Scott Baxter, President, Chief Executive Officer and Chair of Kontoor Brands.

“And, to build on our momentum, we initiated Project Jeanius to further enhance our operating efficiency while simultaneously creating significant capacity to invest behind our brands and strategic priorities to accelerate growth. The future is bright for Kontoor Brands and we are committed to driving superior returns and value creation for all stakeholders,” added Baxter.

The Company’s 2024 outlook includes the following:

Revenue is expected to be in the range of $2.57 billion to $2.63 billion, reflecting a decrease of 1 percent to an increase of 1 percent compared to the prior year. The Company expects growth from strategic initiatives, expanded distribution and ongoing market share gains to be offset by conservative retailer inventory management and continued challenging macroeconomic conditions. The Company anticipates these challenges to be most pronounced in the first half of 2024, with first half revenue declining at a mid-single digit rate compared to the prior year. In the first quarter, the Company expects a revenue decline of approximately 9 percent compared to the prior year reflecting tight retailer inventory management and a conservative approach to seasonal product.

Adjusted gross margin is expected in the range of 44.2 percent to 44.4 percent, increasing 170 to 190 basis points compared to adjusted gross margin in the prior year, excluding the out-of-period duty expense. Gross margin expansion is driven by the benefits of mix as well as lower input costs. The Company anticipates stronger gross margin expansion in the first half of 2024, with first half gross margin expanding more than 250 basis points compared to the prior year. In the first quarter, the Company expects gross margin in the range of 44.0 percent to 44.2 percent.

Adjusted SG&A is expected to increase at a low- to mid-single digit percentage compared to adjusted SG&A in the prior year. The Company will continue to invest in its brands and capabilities in support of long-term profitable growth, including demand creation, DTC, and international expansion, while remaining disciplined with discretionary expenses.

Adjusted operating income is expected to be in the range of $372 million to $382 million, reflecting an increase of between 7 percent and 10 percent compared to adjusted operating income in the prior year excluding the out-of-period duty expense, including double-digit growth beginning in the second quarter.

Adjusted EPS is expected to be in the range of $4.65 to $4.75, reflecting an increase of 9 percent to 12 percent compared to adjusted EPS in the prior year. Excluding the out-of-period duty expense in 2023, adjusted EPS is expected to increase between 4 percent and 7 percent, including an approximate 5 percentage point headwind from a higher tax rate. The Company anticipates first half 2024 adjusted EPS to be relatively consistent with the prior year on a dollar basis. In the first quarter, the Company expects adjusted EPS of approximately $0.90.

Capital Expenditures are expected to be approximately $40 million.

The Company expects an effective tax rate of approximately 20 percent. Interest expense is expected to approximate $35 million. Other Expense is expected to be in the range of $12 million to $14 million. Average shares outstanding are expected to be approximately 57 million, excluding the impact of share repurchases.

The Company expects cash flow from operations to exceed $325 million driven by the combination of accelerated earnings growth and a continued normalization of inventory.

This release refers to “adjusted” amounts from 2023 and 2022 and “constant currency” amounts, which are further described in the Non-GAAP Financial Measures section below. All per share amounts are presented on a diluted basis. Unless otherwise noted, “reported” and “constant currency” amounts are the same. Amounts as presented herein may not recalculate due to the use of unrounded numbers.

As previously disclosed, management identified and corrected inaccuracies in processing certain transactions with U.S. Customs and Border Protection (“U.S. Customs”) arising from the implementation of the Company’s ERP system. These inaccuracies resulted in underpayment of duties owed to U.S. Customs for the 2021 to 2023 periods. Full year 2023 results include a $14 million charge related to prior years, and fourth quarter 2023 results include a $6 million charge related to prior annual and interim periods.

Webcast Information

Kontoor Brands will host its fourth quarter and full year 2023 conference call beginning at 8:30 a.m. Eastern Time today, February 28, 2024. The conference will be broadcast live via the Internet, accessible at https://www.kontoorbrands.com/investors. For those unable to listen to the live broadcast, an archived version will be available at the same location.

Non-GAAP Financial Measures

Adjusted Amounts - This release refers to “adjusted” amounts. Adjustments during 2023 represent charges related to strategic actions taken by the Company to drive efficiencies in our operations, which included reducing our global workforce, streamlining and transferring select production within our internal manufacturing network and optimizing and globalizing our operating model. Adjustments during 2022 represent charges related to the globalization of the Company’s operating model and relocation of the European headquarters. Additional information regarding adjusted amounts is provided in notes to the supplemental financial information included with this release.

Constant Currency - This release refers to “reported” amounts in accordance with GAAP, which include translation and transactional impacts from changes in foreign currency exchange rates. This release also refers to “constant currency” amounts, which exclude the translation impact of changes in foreign currency exchange rates.

Reconciliations of these non-GAAP measures to the most comparable GAAP measures are presented in the supplemental financial information included with this release that identifies and quantifies all reconciling adjustments and provides management's view of why this non-GAAP information is useful to investors. While management believes that these non-GAAP measures are useful in evaluating the business, this information should be viewed in addition to, and not as an alternate for, reported results under GAAP. The non-GAAP measures used by the Company in this release may be different from similarly titled measures used by other companies.

For forward-looking non-GAAP measures included in this filing, the Company does not provide a reconciliation to the most comparable GAAP financial measures because the information needed to reconcile these measures is unavailable due to the inherent difficulty of forecasting the timing and/or amount of various items that have not yet occurred and have been excluded from adjusted measures. Additionally, estimating such GAAP measures and providing a meaningful reconciliation consistent with the Company’s accounting policies for future periods requires a level of precision that is unavailable for these future periods and cannot be accomplished without unreasonable effort.

About Kontoor Brands

Kontoor Brands, Inc. (NYSE: KTB) is a global lifestyle apparel company, with a portfolio led by two of the world’s most iconic consumer brands: Wrangler® and Lee®. Kontoor designs, manufactures and distributes superior high-quality products that look good and fit right, giving people around the world the freedom and confidence to express themselves. Kontoor Brands is a purpose-led organization focused on leveraging its global platform, strategic sourcing model and best-in-class supply chain to drive brand growth and deliver long-term value for its stakeholders. For more information about Kontoor Brands, please visit www.KontoorBrands.com.

Forward-Looking Statements

Certain statements included in this release and attachments are "forward-looking statements" within the meaning of the federal securities laws. Forward-looking statements are made based on our expectations and beliefs concerning future events impacting the Company and therefore involve several risks and uncertainties. You can identify these statements by the fact that they use words such as “will,” “anticipate,” “estimate,” “expect,” “should,” “may” and other words and terms of similar meaning or use of future dates. We caution that forward-looking statements are not guarantees and that actual results could differ materially from those expressed or implied in the forward-looking statements. We do not intend to update any of these forward-looking statements or publicly announce the results of any revisions to these forward-looking statements, other than as required under the U.S. federal securities laws. Potential risks and uncertainties that could cause the actual results of operations or financial condition of the Company to differ materially from those expressed or implied by forward-looking statements in this release include, but are not limited to: macroeconomic conditions, including inflation, elevated interest rates, recessionary concerns and fluctuating foreign currency exchange rates, as well as continuing global supply chain issues and geopolitical events, continue to adversely impact global economic conditions and have had, and may continue to have, a negative impact on the Company’s business, results of operations, financial condition and cash flows (including future uncertain impacts); the level of consumer demand for apparel; reliance on a small number of large customers; supply chain and shipping disruptions, which could continue to result in shipping delays, an increase in transportation costs and increased product costs or lost sales; intense industry competition; the ability to accurately forecast demand for products; the Company’s ability to gauge consumer preferences and product trends, and to respond to constantly changing markets; the Company’s ability to maintain the images of its brands; increasing pressure on margins; e-commerce operations through the Company’s direct-to-consumer business; the financial difficulty experienced by the retail industry; possible goodwill and other asset impairment; the ability to implement the Company’s business strategy; the stability of manufacturing facilities and foreign suppliers; fluctuations in wage rates and the price, availability and quality of raw materials and contracted products; the reliance on a limited number of suppliers for raw material sourcing and the ability to obtain raw materials on a timely basis or in sufficient quantity or quality; disruption to distribution systems; seasonality; unseasonal or severe weather conditions; the Company's and its vendors’ ability to maintain the strength and security of information technology systems; the risk that facilities and systems and those of third-party service providers may be vulnerable to and unable to anticipate or detect data security breaches and data or financial loss; ability to properly collect, use, manage and secure consumer and employee data; foreign currency fluctuations; disruption and volatility in the global capital and credit markets and its impact on the Company's ability to obtain short-term or long-term financing on favorable terms; legal, regulatory, political and economic risks; changes to trade policy, including tariff and import/export regulations; the impact of climate change and related legislative and regulatory responses; compliance with anti-bribery, anti-corruption and anti-money laundering laws by the Company and third-party suppliers and manufacturers; changes in tax laws and liabilities; the costs of compliance with or the violation of national, state and local laws and regulations for environmental, consumer protection, employment, privacy, safety and other matters; continuity of members of management; labor relations; the ability to protect trademarks and other intellectual property rights; the ability of the Company’s licensees to generate expected sales and maintain the value of the Company’s brands; the Company maintaining satisfactory credit ratings; restrictions on the Company’s business relating to its debt obligations; volatility in the price and trading volume of the Company’s common stock; anti-takeover provisions in the Company’s organizational documents; and fluctuations in the amount and frequency of our share repurchases.

Many of the foregoing risks and uncertainties will be exacerbated by any worsening of the global business and economic environment. More information on potential factors that could affect the Company's financial results are described in detail in the Company’s most recent Annual Report on Form 10-K and in other reports and statements that the Company files with the SEC.

KONTOOR BRANDS, INC.

Condensed Consolidated Statements of Operations

(Unaudited)

Three Months Ended December

Twelve Months Ended December

(Dollars in thousands, except per share amounts)

2023

2022

Change

2023

2022

Change

Net revenues

669,800

731,608

(8)%

2,607,472

2,631,444

(1)%

Costs and operating expenses

Cost of goods sold

390,390

432,886

(10)%

1,519,635

1,497,076

Selling, general and administrative expenses

203,969

214,089

(5)%

768,568

777,703

(1)%

Total costs and operating expenses

594,359

646,975

(8)%

2,288,203

2,274,779

Operating income

75,441

84,633

(11)%

319,269

356,665

(10)%

Interest expense

(10,018

)

(9,804

)

(40,408

)

(34,919

)

16%

Interest income

1,717

324

430%

3,791

1,352

180%

Other (expense) income, net

(1,611

)

1,225

(232)%

(10,753

)

(3,962

)

171%

Income before income taxes

65,529

76,378

(14)%

271,899

319,136

(15)%

Income taxes

(3,242

)

24,773

(113)%

40,905

73,643

(44)%

Net income

68,771

51,605

33%

230,994

245,493

(6)%

Earnings per common share

Basic

1.23

0.93

4.13

4.40

Diluted

1.21

0.91

4.06

4.31

Weighted average shares outstanding

Basic

55,955

55,485

55,961

55,744

Diluted

56,982

56,666

56,931

56,962

Basis of presentation for all financial tables within this release: The Company operates and reports using a 52/53 week fiscal year ending on the Saturday closest to December 31 each year. For presentation purposes herein, all references to periods ended December 2023 and December 2022 correspond to the 13-week and 52-week fiscal periods ended December 30, 2023 and December 31, 2022, respectively. References to December 2023 and December 2022 relate to the balance sheets as of December 30, 2023 and December 31, 2022, respectively. Amounts herein may not recalculate due to the use of unrounded numbers.

KONTOOR BRANDS, INC.

Condensed Consolidated Balance Sheets

(Unaudited)

(In thousands)

December 2023

December 2022

ASSETS

Current assets

Cash and cash equivalents

215,050

59,179

Accounts receivable, net

217,673

225,858

Inventories

500,353

596,836

Prepaid expenses and other current assets

110,808

100,396

Total current assets

1,043,884

982,269

Property, plant and equipment, net

112,045

104,465

Operating lease assets

54,812

51,029

Intangible assets, net

12,497

13,361

Goodwill

209,862

209,627

Deferred income taxes

75,081

67,282

Other assets

137,258

154,228

TOTAL ASSETS

1,645,439

1,582,261

LIABILITIES AND EQUITY

Current liabilities

Short-term borrowings

—

7,280

Current portion of long-term debt

20,000

10,000

Accounts payable

180,220

206,262

Accrued liabilities

171,414

196,989

Operating lease liabilities, current

21,003

19,898

Total current liabilities

392,637

440,429

Operating lease liabilities, noncurrent

36,753

31,506

Deferred income taxes

5,611

6,919

Other liabilities

74,604

70,031

Long-term debt

763,921

782,619

Commitments and contingencies

Total liabilities

1,273,526

1,331,504

Total equity

371,913

250,757

TOTAL LIABILITIES AND EQUITY

1,645,439

1,582,261

KONTOOR BRANDS, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

Twelve Months Ended December

(In thousands)

2023

2022

OPERATING ACTIVITIES

Net income

230,994

245,493

Adjustments to reconcile net income to cash provided by operating activities:

Depreciation and amortization

38,046

37,126

Stock-based compensation

16,725

21,891

Other, including working capital changes

70,784

(220,925

)

Cash provided by operating activities

356,549

83,585

INVESTING ACTIVITIES

Property, plant and equipment expenditures

(27,366

)

(18,375

)

Capitalized computer software

(10,018

)

(10,022

)

Other

(1,754

)

(1,721

)

Cash used by investing activities

(39,138

)

(30,118

)

FINANCING ACTIVITIES

Borrowings under revolving credit facility

288,000

163,000

Repayments under revolving credit facility

(288,000

)

(163,000

)

Payment of deferred financing costs

—

(298

)

Repayments of term loan

(10,000

)

—

Repurchases of Common Stock

(30,111

)

(62,494

)

Dividends paid

(108,574

)

(103,661

)

Proceeds from issuance of Common Stock, net of shares withheld for taxes

284

(11,700

)

Other

(7,297

)

7,246

Cash used by financing activities

(155,698

)

(170,907

)

Effect of foreign currency rate changes on cash and cash equivalents

(5,842

)

(8,703

)

Net change in cash and cash equivalents

155,871

(126,143

)

Cash and cash equivalents – beginning of period

59,179

185,322

Cash and cash equivalents – end of period

215,050

59,179

KONTOOR BRANDS, INC.

Supplemental Financial Information

Business Segment Information

(Unaudited)

Three Months Ended December

% Change

% Change Constant

Currency (a)

(Dollars in thousands)

2023

2022

Segment revenues:

Wrangler

460,959

509,277

(9)%

(10)%

Lee

205,836

218,628

(6)%

(7)%

Total reportable segment revenues

666,795

727,905

(8)%

(9)%

Other revenues (b)

3,005

3,703

(19)%

Total net revenues

669,800

731,608

(8)%

(9)%

Segment profit:

Wrangler

83,882

95,124

(12)%

Lee

20,675

19,219

Total reportable segment profit

104,557

114,343

(9)%

Corporate and other expenses

(30,260

)

(28,158

)

Interest expense

(10,018

)

(9,804

)

Interest income

1,717

324

430%

467%

Loss related to other revenues (b)

(467

)

(327

)

43%

Income before income taxes

65,529

76,378

(14)%

Twelve Months Ended December

% Change

% Change Constant

Currency (a)

(Dollars in thousands)

2023

2022

Segment revenues:

Wrangler

1,754,130

1,745,805

—%

Lee

842,520

874,366

(4)%

Total reportable segment revenues

2,596,650

2,620,171

(1)%

Other revenues (b)

10,822

11,273

(4)%

Total net revenues

2,607,472

2,631,444

(1)%

Segment profit:

Wrangler

307,521

321,173

(4)%

Lee

98,148

121,056

(19)%

(18)%

Total reportable segment profit

405,669

442,229

(8)%

Corporate and other expenses

(96,075

)

(88,932

)

Interest expense

(40,408

)

(34,919

)

16%

Interest income

3,791

1,352

180%

187%

Loss related to other revenues (b)

(1,078

)

(594

)

81%

83%

Income before income taxes

271,899

319,136

(15)%

(14)%

(a) Refer to constant currency definition on the following pages.

(b) We report an "Other" category to reconcile segment revenues and segment profit to the Company's operating results, but the Other category does not meet the criteria to be considered a reportable segment. Other includes sales and licensing of Rock & Republic®, other company-owned brands and private label apparel.

KONTOOR BRANDS, INC.

Supplemental Financial Information

Business Segment Information – Constant Currency Basis (Non-GAAP)

(Unaudited)

Three Months Ended December 2023

As Reported

Adjust for Foreign

(In thousands)

under GAAP

Currency Exchange

Constant Currency

Segment revenues:

Wrangler

460,959

(2,141

)

458,818

Lee

205,836

(2,966

)

202,870

Total reportable segment revenues

666,795

(5,107

)

661,688

Other revenues

3,005

—

3,005

Total net revenues

669,800

(5,107

)

664,693

Segment profit:

Wrangler

83,882

(13

)

83,869

Lee

20,675

(107

)

20,568

Total reportable segment profit

104,557

(120

)

104,437

Corporate and other expenses

(30,260

)

(30,266

)

Interest expense

(10,018

)

(10,013

)

Interest income

1,717

119

1,836

Loss related to other revenues

(467

)

—

(467

)

Income before income taxes

65,529

)

65,527

Twelve Months Ended December 2023

As Reported

Adjust for Foreign

(In thousands)

under GAAP

Currency Exchange

Constant Currency

Segment revenues:

Wrangler

1,754,130

(3,104

)

1,751,026

Lee

842,520

(1,858

)

840,662

Total reportable segment revenues

2,596,650

(4,962

)

2,591,688

Other revenues

10,822

10,823

Total net revenues

2,607,472

(4,961

)

2,602,511

Segment profit:

Wrangler

307,521

(275

)

307,246

Lee

98,148

1,506

99,654

Total reportable segment profit

405,669

1,231

406,900

Corporate and other expenses

(96,075

)

(38

)

(96,113

)

Interest expense

(40,408

)

(40,412

)

Interest income

3,791

3,877

Loss related to other revenues

(1,078

)

(1,087

)

Income before income taxes

271,899

1,266

273,165

Constant Currency Financial Information

The Company is a global company that reports financial information in U.S. dollars in accordance with GAAP. Foreign currency exchange rate fluctuations affect the amounts reported by the Company from translating its foreign revenues and expenses into U.S. dollars. These rate fluctuations can have a significant effect on reported operating results. As a supplement to our reported operating results, we present constant currency financial information, which is a non-GAAP financial measure that excludes the impact of translating foreign currencies into U.S. dollars. We use constant currency information to provide a framework to assess how our business performed excluding the effects of changes in the rates used to calculate foreign currency translation. Management believes this information is useful to investors to facilitate comparison of operating results and better identify trends in our businesses.

To calculate foreign currency translation on a constant currency basis, operating results for the current year period for entities reporting in currencies other than the U.S. dollar are translated into U.S. dollars at the average exchange rates in effect during the comparable period of the prior year (rather than the actual exchange rates in effect during the current year period).

These constant currency performance measures should be viewed in addition to, and not as an alternative for, reported results under GAAP. The constant currency information presented may not be comparable to similarly titled measures reported by other companies.

KONTOOR BRANDS, INC.

Supplemental Financial Information

Reconciliation of Adjusted Financial Measures - Quarter-to-Date (Non-GAAP)

(Unaudited)

Three Months Ended December

(In thousands, except for per share amounts)

2023

2022

Cost of goods sold - as reported under GAAP

390,390

432,886

Restructuring costs (a)

(3,437

)

—

Adjusted cost of goods sold

386,953

432,886

Selling, general and administrative expenses - as reported under GAAP

203,969

214,089

Restructuring costs (a)

(2,097

)

(869

)

Adjusted selling, general and administrative expenses

201,872

213,220

Other (expense) income, net - as reported under GAAP

(1,611

)

1,225

Restructuring benefits (a)

—

(2,983

)

Adjusted other expense, net

(1,611

)

(1,758

)

Diluted earnings per share - as reported under GAAP

1.21

0.91

Restructuring costs (benefits) (a)

0.07

(0.03

)

Adjusted diluted earnings per share

1.28

0.88

Net income - as reported under GAAP

68,771

51,605

Income taxes

(3,242

)

24,773

Interest expense

10,018

9,804

Interest income

(1,717

)

(324

)

EBIT

73,830

85,858

Depreciation and amortization

10,641

9,299

EBITDA

84,471

95,157

Restructuring costs (benefits) (a)

5,534

(2,114

)

Adjusted EBITDA

90,005

93,043

As a percentage of total net revenues

13.4

12.7

Non-GAAP Financial Information: The financial information above has been presented on a GAAP basis and on an adjusted basis. EBIT, EBITDA and adjusted presentations are non-GAAP measures. See “Notes to Supplemental Financial Information - Reconciliation of Adjusted Financial Measures" at the end of this document. Amounts herein may not recalculate due to the use of unrounded numbers.

KONTOOR BRANDS, INC.

Supplemental Financial Information

Reconciliation of Adjusted Financial Measures - Year-to-Date (Non-GAAP)

(Unaudited)

Twelve Months Ended December

(In thousands, except for per share amounts)

2023

2022

Cost of goods sold - as reported under GAAP

1,519,635

1,497,076

Restructuring costs (a)

(5,791

)

—

Adjusted cost of goods sold

1,513,844

1,497,076

Selling, general and administrative expenses - as reported under GAAP

768,568

777,703

Restructuring costs (a)

(8,536

)

(15,609

)

Adjusted selling, general and administrative expenses

760,032

762,094

Other expense, net - as reported under GAAP

(10,753

)

(3,962

)

Restructuring benefits (a)

—

(2,983

)

Adjusted other expense, net

(10,753

)

(6,945

)

Diluted earnings per share - as reported under GAAP

4.06

4.31

Restructuring costs (a)

0.20

0.18

Adjusted diluted earnings per share

4.26

4.49

Net income - as reported under GAAP

230,994

245,493

Income taxes

40,905

73,643

Interest expense

40,408

34,919

Interest income

(3,791

)

(1,352

)

EBIT

308,516

352,703

Depreciation and amortization

38,046

37,126

EBITDA

346,562

389,829

Restructuring costs (a)

14,327

12,626

Adjusted EBITDA

360,889

402,455

As a percentage of total net revenues

13.8

15.3

KONTOOR BRANDS, INC.

Supplemental Financial Information

Summary of Select GAAP and Non-GAAP Measures

(Unaudited)

Three Months Ended December

2023

2022

(Dollars in thousands, except per share amounts)

GAAP

Adjusted

GAAP

Adjusted

Net revenues

669,800

731,608

Gross margin

279,410

282,847

298,722

As a percentage of total net revenues

41.7

42.2

40.8

Selling, general and administrative expenses

203,969

201,872

214,089

213,220

As a percentage of total net revenues

30.5

30.1

29.3

29.1

Operating income

75,441

80,975

84,633

85,502

As a percentage of total net revenues

11.3

12.1

11.6

11.7

Earnings per share - diluted

1.21

1.28

0.91

0.88

Twelve Months Ended December

2023

2022

(Dollars in thousands, except per share amounts)

GAAP

Adjusted

GAAP

Adjusted

Net revenues

2,607,472

2,631,444

Gross margin

1,087,837

1,093,628

1,134,368

As a percentage of total net revenues

41.7

41.9

43.1

Selling, general and administrative expenses

768,568

760,032

777,703

762,094

As a percentage of total net revenues

29.5

29.1

29.6

29.0

Operating income

319,269

333,596

356,665

372,274

As a percentage of total net revenues

12.2

12.8

13.6

14.1

Earnings per common share - diluted

4.06

4.26

4.31

4.49

Non-GAAP Financial Information: The financial information above has been presented on a GAAP basis and on an adjusted basis. These adjusted presentations are non-GAAP measures. See “Notes to Supplemental Financial Information - Reconciliation of Adjusted Financial Measures" at the end of this document.

KONTOOR BRANDS, INC.

Supplemental Financial Information

Disaggregation of Revenue

(Unaudited)

Three Months Ended December 2023

Revenues - As Reported

(In thousands)

Wrangler

Lee

Other

Total

Channel revenues

U.S. Wholesale

369,611

103,609

2,756

475,976

Non-U.S. Wholesale

38,099

58,203

—

96,302

Direct-to-Consumer

53,249

44,024

249

97,522

Total

460,959

205,836

3,005

669,800

Geographic revenues

U.S.

416,310

118,526

3,005

537,841

International

44,649

87,310

—

131,959

Total

460,959

205,836

3,005

669,800

Twelve Months Ended December 2023

Revenues - As Reported

(In thousands)

Wrangler

Lee

Other

Total

Channel revenues

U.S. Wholesale

1,418,102

440,690

10,149

1,868,941

Non-U.S. Wholesale

181,766

246,873

428,649

Direct-to-Consumer

154,262

154,957

663

309,882

Total

1,754,130

842,520

10,822

2,607,472

Geographic revenues

U.S.

1,549,051

500,816

10,812

2,060,679

International

205,079

341,704

546,793

Total

1,754,130

842,520

10,822

2,607,472

KONTOOR BRANDS, INC.

Supplemental Financial Information

Disaggregation of Revenue

(Unaudited)

Three Months Ended December 2022

Revenues - As Reported

(In thousands)

Wrangler

Lee

Other

Total

Channel revenues

U.S. Wholesale

420,004

119,674

3,478

543,156

Non-U.S. Wholesale

39,990

53,610

—

93,600

Direct-to-Consumer

49,283

45,344

225

94,852

Total

509,277

218,628

3,703

731,608

Geographic revenues

U.S.

463,595

137,601

3,703

604,899

International

45,682

81,027

—

126,709

Total

509,277

218,628

3,703

731,608

Twelve Months Ended December 2022

Revenues - As Reported

(In thousands)

Wrangler

Lee

Other

Total

Channel revenues

U.S. Wholesale

1,423,757

460,799

9,903

1,894,459

Non-U.S. Wholesale

183,714

266,201

903

450,818

Direct-to-Consumer

138,334

147,366

467

286,167

Total

1,745,805

874,366

11,273

2,631,444

Geographic revenues

U.S.

1,542,593

521,636

10,370

2,074,599

International

203,212

352,730

903

556,845

Total

1,745,805

874,366

11,273

2,631,444

KONTOOR BRANDS, INC.

Supplemental Financial Information

Disaggregation of Revenue

(Unaudited)

Three Months Ended December

2023

2022

2023 to 2022

(Dollars in thousands)

As Reported under GAAP

% Change Reported

% Change Constant Currency

Wrangler U.S.

416,310

463,595

(10)%

Lee U.S.

118,526

137,601

(14)%

Other

3,005

3,703

(19)%

Total U.S. revenues

537,841

604,899

(11)%

Wrangler International

44,649

45,682

(2)%

(7)%

Lee International

87,310

81,027

Other

—

—%

Total International revenues

131,959

126,709

—%

Global Wrangler

460,959

509,277

(9)%

(10)%

Global Lee

205,836

218,628

(6)%

(7)%

Global Other

3,005

3,703

(19)%

Total revenues

669,800

731,608

(8)%

(9)%

Twelve Months Ended December

2023

2022

2023 to 2022

(Dollars in thousands)

As Reported Under GAAP

% Change Reported

% Change Constant Currency

Wrangler U.S.

1,549,051

1,542,593

—%

Lee U.S.

500,816

521,636

(4)%

Other

10,812

10,370

Total U.S. revenues

2,060,679

2,074,599

(1)%

Wrangler International

205,079

203,212

(1)%

Lee International

341,704

352,730

(3)%

(4)%

Other

903

(99)%

Total International revenues

546,793

556,845

(2)%

(3)%

Global Wrangler

1,754,130

1,745,805

—%

Global Lee

842,520

874,366

(4)%

Global Other

10,822

11,273

(4)%

Total revenues

2,607,472

2,631,444

(1)%

Non-GAAP Financial Information: The financial information above has been presented on a GAAP basis and on a constant currency basis, which is a non-GAAP financial measure. See “Business Segment Information – Constant Currency Basis (Non-GAAP)" for additional information on constant currency financial calculations.

KONTOOR BRANDS, INC.

Supplemental Financial Information

Adjusted Return on Invested Capital (Non-GAAP)

(Unaudited)

(In thousands)

Twelve Months Ended December

Numerator

2023

2022

Net Income

230,994

245,493

Plus: Income taxes

40,905

73,643

Plus: Interest income (expense), net

36,617

33,567

EBIT

308,516

352,703

Plus: Restructuring costs (a)

14,327

12,626

Plus: Operating lease interest (b)

1,190

1,000

Adjusted EBIT

324,033

366,329

Adjusted effective income tax rate (c)

Adjusted net operating profit after taxes

274,378

282,240

Denominator

December 2023

December 2022

December 2021

Equity

371,913

250,757

148,138

Plus: Current portion of long-term debt and other borrowings

20,000

17,280

249

Plus: Noncurrent portion of long-term debt

763,921

782,619

791,317

Plus: Operating lease liabilities (d)

57,756

51,404

57,188

Less: Cash and cash equivalents

(215,050

)

(59,179

)

(185,322

)

Invested capital

998,540

1,042,881

811,570

Average invested capital (e)

1,020,711

927,226

Net income to average debt and equity (f)

20.9

24.7

Adjusted return on invested capital

26.9

30.4

Non-GAAP Financial Information: Adjusted return on invested capital ("ROIC") is a non-GAAP measure. We believe this metric is useful in assessing the effectiveness of our capital allocation over time. ROIC may be different from similarly titled measures used by other companies. Amounts herein may not recalculate due to the use of unrounded numbers.

(a) See “Notes to Supplemental Financial Information - Reconciliation of Adjusted Financial Measures" at the end of this document.

(b) Operating lease interest is based upon the discount rate for each lease and recorded as a component of rent expense within "Selling, general and administrative expenses" in the Company's statements of operations. The adjustment for operating lease interest represents the add-back to earnings before interest and taxes ("EBIT") based upon the assumption that properties under our operating leases were owned or accounted for as finance leases. Operating lease interest is added back to EBIT in the adjusted ROIC calculation to account for differences in capital structure between us and other companies.

(c) Effective income tax rate adjusted for restructuring costs and the corresponding tax impact. See “Notes to Supplemental Financial Information - Reconciliation of Adjusted Financial Measures" at the end of this document.

(d) Total of "Operating lease liabilities, current" and "Operating lease liabilities, noncurrent" in the Company's balance sheets.

(e) The average is based on the "Invested capital" at the end of the current period and at the end of the prior year period.

(f) Calculated as "Net income" divided by average "Debt" and "Equity." "Debt" includes the current and noncurrent portion of long-term debt as well as other short-term borrowings. The average is based on the subtotal of "Debt" and "Equity" at the end of the current period and at the end of the prior year period.

KONTOOR BRANDS, INC. Supplemental Financial Information Reconciliation of Adjusted Financial Measures - Notes (Non-GAAP) (Unaudited)

Notes to Supplemental Financial Information - Reconciliation of Adjusted Financial Measures

Management uses non-GAAP financial measures internally in its budgeting and review process and, in some cases, as a factor in determining compensation. In addition, adjusted EBITDA is a key financial measure for the Company's shareholders and financial leaders, as the Company's debt financing agreements require the measurement of adjusted EBITDA, along with other measures, in connection with the Company's compliance with debt covenants. While management believes that these non-GAAP measures are useful in evaluating the business, this information should be considered supplemental in nature and should be viewed in addition to, and not as an alternate for, reported results under GAAP. In addition, these non-GAAP measures may be different from similarly titled measures used by other companies.

(a) During the three months ended December 2023, restructuring costs included $3.3 million related to streamlining and transferring select production within our internal manufacturing network, $1.5 million related to optimizing and globalizing our operating model and $0.7 million related to reductions in our global workforce. During the twelve months ended December 2023, restructuring costs included $7.3 million related to reductions in our global workforce, $4.5 million related to streamlining and transferring select production within our internal manufacturing network and $2.5 million related to optimizing and globalizing our operating model.

During the three months ended December 2022, restructuring costs included a net benefit of $2.1 million related to the globalization of the Company's operating model and relocation of the European headquarters, including a pension curtailment gain of $2.6 million. During the twelve months ended December 2022, restructuring costs included a net charge of $12.6 million related to the globalization of the Company's operating model and relocation of the European headquarters, including a pension curtailment gain of $2.6 million.

During the three months ended December 2023 and December 2022, total restructuring costs resulted in a corresponding tax impact of $1.5 million and $(0.3) million, respectively. During the twelve months ended December 2023 and December 2022, total restructuring costs resulted in a corresponding tax impact of $3.0 million and $2.5 million, respectively.

View source version on businesswire.com: https://www.businesswire.com/news/home/20240228028929/en/

Investors: Michael Karapetian, (336) 332-4263 Vice President, Corporate Development, Strategy, and Investor Relations Michael.Karapetian@kontoorbrands.com

Media: Julia Burge, (336) 332-5122 Director, External Communications Julia.Burge@kontoorbrands.com

Kontoor Brands (NYSE:KTB)
過去株価チャート
から 11 2024 まで 12 2024