Release Date: October 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Kontoor Brands Inc (KTB, Financial) exceeded expectations in Q3 2024 with accelerating revenue growth, improving profitability, and strong cash generation.
- Wrangler revenue grew by 4%, with significant market share gains in the US and global D2C growth of 10%.
- The company launched successful new products, such as the Cliffside utility pant and Outdoor Chino, contributing to a 12% year-to-date growth in the outdoor category.
- Kontoor Brands Inc (KTB) raised its earnings and cash flow guidance, reflecting strong business fundamentals and execution.
- Project Jeanius is on track to deliver $100 million in combined gross margin and SG&A savings, enhancing operational efficiency and profitability.
Negative Points
- Lee brand revenue decreased by 3%, with uneven macro conditions in Europe and Asia continuing to pressure the international business.
- Despite positive trends, retailers remain in a conservative posture with inventory management, impacting sales growth potential.
- Kontoor Brands Inc (KTB) anticipates modest product cost inflation and ongoing supply chain volatility in 2025.
- The company faces challenges in the international market, with Lee International revenue decreasing by 7% and Wrangler International revenue decreasing by 2%.
- The macroeconomic environment remains uncertain, with conservative retail inventory positions and no meaningful improvement in overall POS expected for the remainder of the year.
Q & A Highlights
Q: Can you elaborate on the drivers of revenue growth for 2025 and the timing of Project Jeanius savings?
A: Scott Baxter, CEO, explained that consumer preference for their products, strong POS performance, and investments in talent and innovation are key drivers. They expect revenue growth to be weighted towards the first half of 2025, while margin expansion will be more pronounced in the second half due to Project Jeanius savings. Joseph Alkire, CFO, added that they are confident in the business trajectory and will provide more specifics in February.
Q: Can you provide more details on Project Jeanius and its impact on the P&L?
A: Scott Baxter, CEO, outlined that Project Jeanius focuses on global supply chain transformation, back-end efficiencies, and commercial optimization. Joseph Alkire, CFO, mentioned that they expect $100 million in savings at full run rate, with a two-thirds focus on gross profit and one-third on SG&A. The savings will gradually build, with SG&A benefits in the first half of 2025 and gross margin savings in the second half.
Q: What improvements are being seen in the Lee brand, and what are the expectations for product cost inflation in 2025?
A: Scott Baxter, CEO, highlighted leadership changes and strategic focus on design and product development as key to Lee's performance improvement, especially in the female segment. Joseph Alkire, CFO, noted that while they expect a neutral product cost environment overall, there will be some inflation in labor and freight costs, with benefits from supply chain efficiencies and Project Jeanius.
Q: Can you discuss the incremental supply chain and inventory actions and their impact on gross margin?
A: Joseph Alkire, CFO, explained that they took proactive actions to secure inventory and improve balance sheet strength, resulting in a $6 million impact on operating profit. Despite this, they raised the full-year gross margin guidance by 30 basis points, reflecting strong underlying performance.
Q: How will Project Jeanius savings be allocated between reinvestment and earnings growth, and what is the capital allocation strategy moving forward?
A: Joseph Alkire, CFO, stated that while they have not declared new targets, Project Jeanius provides a path to higher targets. The capital allocation priorities remain reinvestment in the business, dividend growth, and share repurchases, with flexibility to adapt as needed.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
