Kontoor(US:KTB)2024-05-02 18:32Financial Data and Key Metrics Changes - The company reported a stronger-than-expected start to the year, with revenue, gross margin, and earnings all exceeding prior expectations [20][60][79] - Adjusted gross margin expanded by 270 basis points to 45.7%, driven by lower product costs and favorable channel mix [44][70] - Adjusted earnings per share (EPS) were $1.16, consistent with the prior year, with full-year EPS now expected to grow approximately 6% to 8% compared to the previous year [66][72] Business Line Data and Key Metrics Changes - Wrangler's global revenue decreased by 4%, primarily due to US wholesale, but was offset by growth in direct-to-consumer (DTC) channels, including 7% growth in digital and 10% in brick-and-mortar [63][64] - Lee's global revenue decreased by 9%, impacted by reduced shipments in US wholesale and seasonal business, but revenue was above expectations [65] - The tops business for Lee grew by 20%, now comprising over 10% of total business, indicating successful category expansion [43] Market Data and Key Metrics Changes - Wrangler's international revenue decreased by 13%, with European wholesale under pressure due to macroeconomic conditions, partially offset by double-digit DTC growth [42] - Lee's international revenue decreased by 5%, with Europe down 9% and APAC down 2%, but growth is still anticipated in APAC for the full year [80] - The company noted that point-of-sale (POS) improved for both brands, with ongoing market share gains and DTC strength [41][75] Company Strategy and Development Direction - The company is focused on creating a global multi-brand platform, simplifying the organization for increased efficiency, and freeing up investment capacity to accelerate growth [24][49] - Project Genius is underway to transform the organization, aiming to streamline decision-making and enhance operational efficiency [49][100] - The company is diversifying beyond denim, with significant growth in outdoor categories, which now represent approximately $200 million in business [28][64] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to deliver on 2024 objectives, citing a better-than-expected start to the year and improving visibility [74][90] - The near-term environment remains dynamic, but the company is operating from an offensive position, with expectations for strong value creation [37][90] - Management remains cautious about the overall retail environment, assuming no meaningful improvement in POS or inventory levels for the remainder of the year [85][129] Other Important Information - The company repurchased $20 million of stock during the quarter and declared a regular quarterly cash dividend of $0.50 per share [83] - Inventory levels decreased by 24% to $501 million, contributing to improved cash flow generation [66][59] - The company anticipates cash from operations to exceed $335 million for the year, reflecting stronger earnings growth [73][90] Q&A Session Summary Question: How has the quarter evolved since late February? - Management noted that they saw further improvement in POS and retailer inventories in March, which drove the majority of the revenue upside in the quarter [75][93] Question: What is the outlook for the seasonal business? - Management indicated that while the seasonal business faced some headwinds, they remain optimistic about their position and product offerings [76][94] Question: Can you provide an update on the international markets, particularly China? - Management acknowledged that China came out of the pandemic slower than expected but expressed confidence in future growth as inventory issues are resolved [113][141] Question: What are the expectations for gross margin and cash flow? - Management raised the full-year gross margin outlook to approximately 44.6%, driven by stronger-than-expected Q1 results and improved visibility [87][115] Question: How is the company approaching capital allocation? - Management emphasized a commitment to reinvesting in the business, growing dividends, and share repurchases, while also being open to M&A opportunities [132][145]