Kontoor Brands (KTB) 1 Aug 24 2024 Q2 Earnings call transcript
2min read Kontoor Brands, the parent company of Wrangler and Lee, recently held its second quarter 2024 earnings call, highlighting a strong performance that outpaced expectations. The call, led by CEO Scott Baxter, CFO Joe Alkire, and Vice President of Corporate Enterprise Strategy and Investor Relations Michael Carapidian, provided insights into the company's financial health and strategic direction.
Market Share Gains and Gross Margin Expansion
One of the most notable takeaways from the earnings call was the company's continued market share gains and gross margin expansion. Wrangler, in particular, saw revenue growth of 1%, driven by gains in nearly every channel and region. The brand's core bottoms in shorts business gained nearly 100 basis points of market share in the U.S., signaling a robust consumer response to its product offerings. Additionally, the non-denim business, which includes outdoor and MTs, grew 14% in the quarter, demonstrating the brand's versatility and appeal across various categories.
Lee, on the other hand, saw a 6% decline in revenue, but the company attributed this to a sequential improvement and macro pressures in Europe and Asia. Despite the decline, Lee's core bottoms and shorts business gained approximately 20 basis points of market share in the U.S., indicating a positive trend in consumer preferences.
The gross margin expansion was a significant achievement for Kontoor Brands, with a 420 basis point increase in the second quarter. This expansion was driven by a combination of factors, including lower input costs, product mix, and efficiencies in the supply chain. The company's focus on controlling its environment, creating great product, and marketing effectively in a challenging macroeconomic landscape has paid off, as it continues to outperform in the U.S. market.
Strategic Investments and Future Outlook
Kontoor Brands also announced strategic investments in both Wrangler and Lee, including a new TV commercial and a collaboration with Hey Dude across both apparel and footwear. These initiatives, coupled with the company's confidence in its products and market positioning, indicate a strong focus on growth and brand expansion.
The company's outlook for the second half of the year is optimistic, with expectations of revenue growth accelerating for both brands. The confidence in this growth is driven by the company's ability to gain market share, expand into new categories, and capitalize on strong consumer demand. The strategic investments, combined with a focus on product innovation and consumer insights, position Kontoor Brands well for future success.
Financial Highlights and Guidance
The earnings call also provided an update on the company's financial performance, with revenue declining 1% in the second quarter. However, the company's adjusted gross margin expanded to 45.2%, reflecting the benefits of lower input costs, product mix, and supply chain efficiencies. The company also reported an increase in operating earnings and earnings per share, highlighting its strong financial position.
Looking ahead, Kontoor Brands raised its full-year gross margin, earnings, and cash flow guidance, indicating confidence in its strategic initiatives and financial health. The company also plans to make incremental investments in both brands, further underscoring its commitment to growth and market share gains.
Challenges and Future Direction
Despite the positive outlook, Kontoor Brands acknowledged the challenges facing the industry, including macro pressures in Europe and Asia and inventory management issues in certain regions. However, the company's strategic focus on product innovation, consumer insights, and market positioning positions it well to navigate these challenges and continue its growth trajectory.
The company's commitment to Project Genius, a strategic initiative aimed at driving operational efficiencies and improving profitability, is a testament to its long-term vision. The planned $100 million in annualized savings, coupled with a focus on cash generation and capital allocation, demonstrate a strategic approach to maximizing shareholder value.
Conclusion
Kontoor Brands' second quarter 2024 earnings call painted a picture of a company that is not only weathering the challenges of the current macroeconomic environment but also capitalizing on opportunities for growth. The company's market share gains, gross margin expansion, and strategic investments in product innovation and consumer insights position it well for future success. With a strong financial position and a clear focus on growth, Kontoor Brands is poised to continue its momentum into the second half of the year and beyond.