Kontoor Warily Eyes Recovery From COVID-19 Impact

Sindhu Sundar
·3 min read

Kontoor Brands said it’s showing signs of recovering from the economic impacts of the ongoing coronavirus pandemic.

The North Carolina-based lifestyle and denim brand company reported third-quarter net revenues were $583 million, a 9 percent decrease from $638 million last year. It made a $60.8 million profit for the quarter compared to $14.5 million in the third quarter last year, and its adjusted earnings per share also rose, to $1.33 from 95 cents last year.

For the three-month period ending Sept. 26, Wrangler’s revenues were $347 million, a roughly 6 percent drop. The brand’s U.S. revenue increased 2 percent, thanks in part to what the company said was a shift of $33 million in shipments from the second quarter to the third. Lee brand’s revenues decreased 8 percent to $214 million, though its U.S. revenues increased 10 percent.

Kontoor’s overall U.S. revenues for the quarter stayed flat to last year, at $455 million. Kontoor said while it continued to feel the effects of COVID-19 on its international business, with international revenue down about 30 percent to $128 million, its businesses in China and Europe have shown signs of recovery over the quarter and are projected to continue on that trajectory.

However, the pandemic continues to surge in waves, with between 70,000 and 80,000 new daily cases now reported in the U.S., according to the Johns Hopkins case tracker, and France and Germany implemented more lockdowns to curb the swell of cases, and the uncertainty of the toll of the virus continues.

“Our strategic actions delivered strong results in the quarter and are enhancing the Kontoor operating model focused on more profitable and sustainable long-term growth,” said Scott Baxter, president and chief executive officer.

“Investments in our brands, people and partnerships drove significant sequential top-line improvement, while restructuring, quality-of-sales initiatives and accretive mix shifts supported solid gross margin increases,” he said. “And, importantly, our robust cash-flow generation allowed us to continue to aggressively pay down debt, while also providing the opportunity to reinstate a quarterly dividend in the fourth quarter of 2020, a key tenet of our total shareholder return model.

“Our accomplishments during the third quarter are a direct reflection of our colleagues’ incredible efforts, and I want to thank them for their tremendous contributions throughout these dynamic times,” he said.

Kontoor ceo Scott Baxter told WWD on Thursday that the company weathered the pandemic in part because some of its largest customers included retailers who were considered essential businesses, including Amazon Inc., Target Corp. and Walmart Inc.

“It was extremely important, and worked out really well, so we were very appreciative of that,” Baxter said. “The fact that we’re a global player is really important, too, so as China came back online quicker than others, because they were the first one to go in, that certainly helped.”

Baxter said also the company’s denim offerings cater to customers’ shifting styles during the lockdown era, in what he called “a broader trend of casualization.”

“We’re really sitting in a sweet spot globally now, as people are not going back to what I would kind of call dress wear,” he said. “This pandemic has not forced, but given, the people an opportunity to be casual. Yet you have to balance that with looking good, you have to balance that with being able to go outside and having great confidence in your appearance.”

In a call with analysts Thursday afternoon, Baxter and Kontoor chief financial officer Rustin Welton said the company had made strides throughout its business, in terms of revenue, margins and cash flows.

“We drove continued sequential improvement in our brand performance, enhanced profitability and generated significant cash, allowing for an aggressive debt pay down, while improving our overall liquidity position,” Welton said on the call.

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