Kontoor(KTB) - 2025 Q1 - Quarterly Results

First Quarter 2025 Highlights In the first quarter of 2025, Kontoor Brands reported a slight 1% revenue decrease to $623 million, but demonstrated strong operational performance with a 200 basis point increase in adjusted gross margin to 47.7% and a 3% rise in adjusted EPS to $1.20 Q1 2025 Key Financial Metrics (vs. Prior Year) | Metric | Q1 2025 Value | Change vs. Prior Year | | :--- | :--- | :--- | | Revenue | $623 million | -1% | | Adjusted Gross Margin | 47.7% | +200 bps | | Adjusted Operating Income | $96 million | +4% | | Adjusted EPS | $1.20 | +3% | | Inventory | - | -12% | - The Board of Directors declared a regular quarterly cash dividend of $0.52 per share[4] First Quarter 2025 Detailed Performance The company's revenue of $623 million reflected a 1% decline, with a 2% decrease in global wholesale partially offset by 5% growth in direct-to-consumer (DTC), while profitability improved with adjusted gross margin expanding 200 basis points to 47.7% and adjusted operating income growing 4% to $96 million Revenue Analysis Total revenue for Q1 2025 was $623 million, a 1% decrease year-over-year (flat on a constant currency basis), driven by a decline in global wholesale partially offset by growth in the global direct-to-consumer channel Q1 2025 Revenue Performance by Channel and Geography | Category | Revenue | YoY Change (Reported) | YoY Change (Constant Currency) | | :--- | :--- | :--- | :--- | | By Channel | | | | | Global Wholesale | - | -2% | - | | Global Direct-to-Consumer | - | +5% | - | | By Geography | | | | | U.S. Revenue | $493 million | 0% | 0% | | International Revenue | $130 million | -7% | -3% | - In the U.S., direct-to-consumer revenue increased by 11%, driven by a 17% rise in digital sales, which partially offset a 4% decrease in brick-and-mortar retail[6] Brand Performance The company's two main brands showed divergent performance in Q1 2025, with Wrangler's global revenue increasing by 3% to $420 million, while Lee's global revenue decreased by 9% to $200 million Q1 2025 Global Revenue by Brand | Brand | Global Revenue | YoY Change (Reported) | | :--- | :--- | :--- | | Wrangler | $420 million | +3% | | Lee | $200 million | -9% | - Wrangler's U.S. revenue grew 3%, with a notable 14% increase in direct-to-consumer sales[8] - Lee's U.S. revenue fell 8%, driven by a 9% decrease in wholesale[9] Profitability and Expenses Adjusted gross margin expanded by 200 basis points to 47.7% due to lower product costs and operational efficiencies, leading to a 4% increase in adjusted operating income to $96 million and a 3% rise in adjusted EPS to $1.20 - Adjusted gross margin expansion was driven by benefits from lower product costs, Project Jeanius, supply chain efficiencies, and direct-to-consumer and product mix[10][11] Q1 2025 Profitability Metrics | Metric | Reported Value | Adjusted Value | YoY Change (Adjusted) | | :--- | :--- | :--- | :--- | | Gross Margin | 47.5% | 47.7% | +200 bps | | Operating Income | $73 million | $96 million | +4% | | Operating Margin | 11.8% | 15.4% | +70 bps | | EPS | $0.76 | $1.20 | +3% | - Reported and adjusted SG&A and operating income figures for the quarter include $8 million of incremental acquisition-related stock-based compensation expense[12][13] Balance Sheet and Liquidity The company maintained a solid financial position, ending the first quarter with $357 million in cash and $736 million in long-term debt, highlighted by a 12% year-over-year reduction in inventory to $443 million Key Balance Sheet Items (End of Q1 2025) | Item | Value | YoY Change | | :--- | :--- | :--- | | Cash and cash equivalents | $357 million | +66% | | Long-term debt | $736 million | -3% | | Inventory | $443 million | -12% | - The company declared a regular quarterly cash dividend of $0.52 per share and has $215 million remaining under its share repurchase program[16] Helly Hansen Acquisition Update The acquisition of Helly Hansen has received all required regulatory approvals and is expected to close at the end of May 2025, anticipated to contribute approximately $425 million to revenue, $37 million to adjusted operating income, and $0.20 to adjusted EPS for the full year 2025 Expected 2025 Financial Contribution from Helly Hansen | Metric | Expected Contribution | | :--- | :--- | | Revenue | ~$425 million | | Adjusted Operating Income | ~$37 million | | Adjusted EPS | ~$0.20 | | Cash Flow from Operations | ~$50 million | - The acquisition is expected to close at the end of May 2025, subject to customary closing conditions[17] - The company entered into a Second Amended and Restated Credit Agreement to fund the acquisition and has also entered into interest rate swap agreements to mitigate interest rate volatility[18] Updated Full Year 2025 Outlook Kontoor Brands has updated its full-year 2025 guidance to incorporate the pending Helly Hansen acquisition, projecting revenue to increase by 17-19% to a range of $3.06 to $3.09 billion and adjusted EPS to grow 10-12% to a range of $5.40 to $5.50 Updated Full Year 2025 Outlook | Metric | Updated FY2025 Range | YoY Growth | Helly Hansen Contribution | | :--- | :--- | :--- | :--- | | Revenue | $3.06 - $3.09 billion | 17% to 19% | 16% benefit ($425M) | | Adjusted Gross Margin | 45.9% - 46.1% | +80 to 100 bps | ~40 bps benefit | | Adjusted Operating Income | $437 - $445 million | 15% to 17% | ~$37 million benefit | | Adjusted EPS | $5.40 - $5.50 | 10% to 12% | ~$0.20 benefit | | Cash from Operations | > $350 million | - | Included | - The outlook does not include an estimated $50 million unmitigated impact from recently enacted tariff policy changes, which the company expects to begin offsetting in Q3 2025 and substantially offset over a 12 to 18-month period[20] - For Q2 2025, the company expects revenue of approximately $630 million and adjusted EPS of approximately $0.80, including the impact of Helly Hansen[22][24] Financial Statements This section presents the unaudited condensed consolidated financial statements for the first quarter ended March 29, 2025, including the Statement of Operations, Balance Sheet, and Statement of Cash Flows Condensed Consolidated Statements of Operations For the first quarter of 2025, net revenues were $622.9 million, a 1% decrease from the prior-year period, while operating income fell 13% to $73.3 million and net income declined 28% to $42.9 million Q1 2025 vs. Q1 2024 Statement of Operations Highlights (in thousands) | (In thousands) | Q1 2025 | Q1 2024 | % Change | | :--- | :--- | :--- | :--- | | Net revenues | $622,901 | $631,202 | -1% | | Operating income | $73,299 | $84,430 | -13% | | Net income | $42,882 | $59,507 | -28% | | Diluted EPS | $0.76 | $1.05 | -28% | Condensed Consolidated Balance Sheets As of March 29, 2025, Kontoor Brands reported total assets of $1.68 billion, with a significant increase in cash and cash equivalents to $356.7 million and a 12% decrease in inventories to $443.1 million Balance Sheet Highlights (As of March 2025 vs. March 2024) (in thousands) | (In thousands) | March 2025 | March 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | $356,710 | $215,059 | | Inventories | $443,070 | $501,341 | | Total assets | $1,675,679 | $1,661,437 | | Long-term debt | $735,640 | $759,246 | | Total equity | $426,672 | $387,193 | Condensed Consolidated Statements of Cash Flows For the three months ended March 29, 2025, the company generated $77.6 million in cash from operating activities, a significant improvement from $56.5 million in the prior-year period, resulting in a net increase in cash of $22.6 million Cash Flow Summary (Three Months Ended March) (in thousands) | (In thousands) | 2025 | 2024 | | :--- | :--- | :--- | | Cash provided by operating activities | $77,625 | $56,468 | | Cash used by investing activities | ($4,762) | ($6,432) | | Cash used by financing activities | ($37,876) | ($54,614) | | Net change in cash | $22,644 | $9 | Supplemental Financial Information This section provides additional financial details beyond standard GAAP reporting, including segment performance, constant currency comparisons, reconciliations of non-GAAP adjusted measures, disaggregation of revenue, and adjusted Return on Invested Capital (ROIC) Business Segment Information In Q1 2025, the Wrangler segment posted a 3% revenue increase to $420.2 million and a 16% rise in segment profit to $86.8 million, while the Lee segment experienced a 9% revenue decline to $199.9 million and an 8% decrease in segment profit to $32.4 million Q1 2025 Segment Performance (in thousands) | Segment | Revenues (in thousands) | % Change | Segment Profit (in thousands) | % Change | | :--- | :--- | :--- | :--- | :--- | | Wrangler | $420,246 | 3% | $86,848 | 16% | | Lee | $199,900 | -9% | $32,447 | -8% | Reconciliation of Adjusted Financial Measures The company provides reconciliations from GAAP to non-GAAP figures to exclude specific items, with Q1 2025 GAAP operating income of $73.3 million adjusted to $96.1 million and GAAP diluted EPS of $0.76 adjusted to $1.20 Q1 2025 GAAP to Adjusted Reconciliation Highlights (in thousands) | (In thousands) | GAAP | Adjustments | Adjusted (Non-GAAP) | | :--- | :--- | :--- | :--- | | Operating Income | $73,299 | $22,830 | $96,129 | | Diluted EPS | $0.76 | $0.43 | $1.20 | - Adjustments for Q1 2025 primarily consist of $12.5 million in restructuring and transformation costs and $19.2 million in acquisition-related costs for the Helly Hansen deal[53] Disaggregation of Revenue In Q1 2025, U.S. Wholesale remained the largest revenue channel at $446.9 million, while Direct-to-Consumer revenue grew to $77.0 million, and geographically, U.S. revenue was flat at $493.4 million as International revenue declined 7% to $129.5 million Q1 2025 Revenue by Channel and Geography (in thousands) | Category | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Channel | | | | U.S. Wholesale | $446,877 | $449,964 | | Non-U.S. Wholesale | $99,059 | $108,056 | | Direct-to-Consumer | $76,965 | $73,182 | | Geography | | | | U.S. | $493,360 | $492,011 | | International | $129,541 | $139,191 | Adjusted Return on Invested Capital (ROIC) The company's adjusted Return on Invested Capital (ROIC) significantly improved for the trailing twelve months ending March 2025, increasing to 32.2% compared to 25.1% in the prior-year period - For the trailing twelve months ended March 2025, the adjusted ROIC was 32.2%, a substantial increase from 25.1% in the comparable prior-year period[62]