Wholesale Shines for Kontoor’s Wrangler and Lee Brands
Kontoor Brands Inc. is holding its own — and more.
While the corporate parent to Wrangler and Lee pulled back on its outlook for the year on Thursday, the company also reported top- and bottom-line gains for the third quarter and strength in both of its wholesale businesses.
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Wholesale has been a complaint of many brands as retailers have grown more cautious, but Kontoor is proving that — with the right price points, brands and presentation — it’s a business model that still works in a digital, direct-to-consumer age.
Kontoor’s gains could also figure well for its biggest retail partners, including Walmart, Target, Amazon and the Western wear merchants.
“We’re an affordable apparel company,” Scott Baxter, president, chief executive officer and chair, told WWD in an interview. “We are not going to break the bank… If you buy product from us, you get a great product from a trusted brand at a great price. So I think those things are really working for us in this environment.”
Third-quarter net profits increased 17 percent to $59.3 million from $51.1 million a year earlier.
The quarter included $13 million in unexpected duty payments after the company discovered it underpaid U.S. Customs as it switched its software system. Excluding the charge, adjusted earnings per share rose 10 percent to $1.22.
Revenues for the three months ended Sept. 30 increased 8 percent to $654.5 million from $606.5 million.
Wrangler revenues increased 9 percent to $445 million as Lee gained 5 percent to $208 million. Both brands were driven by wholesale sales and their own e-commerce sites.
Shares of Kontoor closed up 4.8 percent to $47.66, leaving the company with a market capitalization of $2.7 billion — showing some improvement from the roughly $2.2 billion valuation it garnered when it was spun off from VF Corp. in 2019.
In an unexpected turn, Kontoor has fared much better than VF, which was valued at more than $33 billion when it spun off its jeans business only to see its own market cap plummet to $5.8 billion amid a series of missteps and weakness at its Vans business.
Baxter, in turn, has taken a more methodical approach to winning, employing a Fashion 101 strategy.
That means having goods at the right price point with a strong value proposition and then backing them up with in-sync marketing, like Wrangler’s collaboration with “Yellowstone” actress and country singer Lainey Wilson.
Kontoor outpaced its market by 140 basis points in the quarter, according to U.S. data from Circana cited on a company conference call. That included a 170 basis-point spread on men’s bottoms and a 60 basis-point beat in women’s.
“We resonate with the consumer and then our demand creation is just really spectacular,” crowed Baxter. “The single most important thing for us has been the share gains that we’ve taken for both of our brands.”
Inventories are down 11 percent from a year ago and the CEO said that has freed up “a lot of cash for us to go ahead and market and build the brands.”
Kontoor pulled back on its outlook for the year and is now looking for adjusted EPS, excluding the duty change, of $4.50, down from the $4.55 to $4.75 previously projected.
And revenues are now expected to be up 1 percent where Kontoor had penciled in a low-single-digit increase.
But Baxter is still feeling bullish.
“There’ve been ups and downs in the economy, but the one thing that you can consistently count on is, people show up at the holidays,” he said. “They really do. And if you’ve got yourself in a favorable position like we do with our share gains and with our marketing, I think you put yourself in the driver’s seat relative to the holidays.”
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