Kontoor(US:KTB)2025-02-25 16:20Financial Data and Key Metrics Changes - Kontoor Brands reported a 5% increase in global revenue for Q4 2024, with adjusted gross margin expanding by 160 basis points to 44.7% driven by lower input costs and mix [38][46] - Adjusted earnings per share (EPS) increased by 2% year-over-year to $1.38, and excluding a discrete tax benefit from the prior year, adjusted EPS increased by 23% [46][47] - Cash from operations reached approximately $370 million, allowing the company to return nearly $200 million to shareholders through dividends and share repurchases [13][50] Business Line Data and Key Metrics Changes - Wrangler's global revenue increased by 9% in Q4 2024, with notable growth across all channels, including 19% growth in the female segment and 29% in outdoor products [39][26] - Lee's global revenue decreased by 5% in Q4, with a 6% decline in U.S. revenue primarily due to challenges in the wholesale channel, although D2C showed double-digit growth [41][31] - Non-denim categories, including tops and t-shirts, grew mid-single digits, contributing to approximately one-third of global revenue [11] Market Data and Key Metrics Changes - The U.S. market saw a 9% growth in Wrangler's revenue, while Lee's performance was impacted by a decline in wholesale, which was partially offset by strong D2C growth [39][41] - In Europe, revenue declined by 1%, with growth in D2C offset by wholesale declines, while APAC revenue decreased by 4% but showed modest improvement compared to expectations [44] Company Strategy and Development Direction - Kontoor Brands is focused on executing Project Jeanius, which aims to enhance operational efficiencies and create investment capacity for growth, with expected savings of over $100 million [14][51] - The company is exploring shop-in-shop concepts in key retailers to elevate brand presence and enhance consumer experience [11] - The addition of Helly Hansen is anticipated to further strengthen the company's multi-brand platform and drive value creation [18][100] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in navigating the current uncertain environment, highlighting the strength of their operational model and the benefits of Project Jeanius [18][72] - The consumer environment is described as cautious, with concerns over economic conditions impacting spending behavior [142] - For 2025, the company expects revenue growth of 1% to 3%, with a focus on managing inventory levels and adapting to market conditions [60][64] Other Important Information - The company achieved a net leverage ratio of 1.0 times, indicating a strong balance sheet position [48] - Inventory decreased by 22% to $390 million, achieving an annual turnover target of approximately 3.5 times [47] - The board approved a quarterly cash dividend of $0.52 per share, reflecting a commitment to returning capital to shareholders [50] Q&A Session Summary Question: Details on Lee's performance and D2C growth - Management explained that Lee's D2C growth reflects new product introductions resonating with consumers, while wholesale challenges are being addressed through strategic changes [75][80] Question: Gross margin expectations and seasonal dynamics - Management clarified that gross margin is expected to increase by 30 basis points in Q1, with a moderation in Q2 due to seasonal dynamics and product cost inflation [76][78] Question: Insights on consumer segmentation for Lee - Management indicated a shift towards targeting a more fashion-conscious consumer, moving away from overly aspirational segments that did not resonate with the core audience [131] Question: Impact of potential tariffs on operations - Management discussed the potential $50 million unmitigated impact from tariffs, with plans in place to mitigate this through supply chain adjustments and pricing strategies [58][120]