Kontoor(US:KTB)2022-05-05 18:54Financial Data and Key Metrics Changes - Global revenue increased by 5% compared to the previous year, driven by strong performance across brands and categories [11][34] - Earnings per share (EPS) was $1.40, slightly down from $1.43 in the same period last year on an adjusted basis [45] - Gross margin decreased by 140 basis points compared to the adjusted gross margin last year, impacted by inflationary pressures and elevated transitory costs [41][44] Business Line Data and Key Metrics Changes - Wrangler brand revenue increased by 4%, with significant growth in western and workwear categories [37] - Lee brand revenue increased by 7%, with U.S. revenue up by 9% driven by demand at wholesale and digital channels [39] - The core denim long bottoms business was up 8%, while workwear increased nearly 40% and T-shirts were up over 70% [13] Market Data and Key Metrics Changes - U.S. revenue increased by 4%, while international revenue grew by 9%, with EMEA showing a 19% increase [34][36] - In China, revenue was up 3% reported and 1% in constant currency despite COVID lockdowns [16] - European revenue increased by 19%, driven by strength in digital and direct-to-consumer channels [15] Company Strategy and Development Direction - The company is focusing on diversifying distribution channels and expanding into new categories such as outdoor and workwear [12][13] - Investments in digital platforms are reshaping the business model, with significant growth in digital sales [12][18] - The company plans to amplify investments in critical growth enablers such as digitization, demand creation, and talent [17][29] Management's Comments on Operating Environment and Future Outlook - Management acknowledged ongoing macroeconomic challenges, including inflation and supply chain disruptions, but expressed confidence in the company's strategies [8][9] - The company raised its full-year revenue guidance to approximately 10% growth, reflecting strong brand momentum despite challenges in China and EMEA [53][56] - Management emphasized the importance of controlling internal factors, such as product development and demand creation, to navigate the current environment [64] Other Important Information - The company repurchased $23 million in common stock during the quarter, with approximately $100 million remaining under the share repurchase authorization [48] - First quarter inventories increased by 24% compared to last year, as the company chased demand [46] - The company has generated over $600 million in operating cash flow since the start of 2020, allowing for debt reduction and shareholder returns [32] Q&A Session Summary Question: Can you elaborate on the confidence to raise full-year guidance given macro uncertainty? - Management attributed confidence to strong momentum from the previous year and structural changes made within the company, positioning it well for current consumer trends [61][62] Question: How many Lee stores are in China and what is the expectation for demand normalization? - Management indicated that the business in China is healthy, with strong brand presence in Tier 1 cities and optimism for future growth as conditions normalize [74][76] Question: What is the outlook for European performance and any changes in expectations? - Management noted strong first-quarter performance in Europe but anticipated some pressure in Q2 due to timing shifts related to ERP implementation [108] Question: Can you discuss the drivers of sequential improvement in gross margin? - Management highlighted structural margin enhancements and strategic pricing as key drivers, while also acknowledging transitory costs impacting margins [90][92]