by In the fourth quarter, Kontoor Brands reported revenue of $732 million, up 7 or 9 percent in constant currency compared to the same period last year.
The company said the revenue growth was mainly due to the strength of domestic wholesale and digital sales, somewhat offset by declines in international markets, with the continued impact of lockdowns and restrictions in China impacting the quarter.
For the full year, revenue was $2.63 billion, up 6 or 8 percent in constant currency over the previous year.
The company added that the increase in revenue was mainly due to the strength of the digital market as well as the strength of US wholesale, offset by the decline in wholesale outside the US, with the continuing impact of lockdowns and restrictions in China weighing heavily on the year.
“We ended 2022 well as fourth quarter and EPS revenues significantly exceeded our plan. Despite unprecedented macroeconomic challenges, we are meeting many of our long-term goals, with 2022 revenue and earnings exceeding our Investor Day goals,” Scott Baxter, president, CEO and chairman of Kontoor Brands, said in a statement.
The most important results of Kontoor Brands Q4
Fourth quarter U.S. revenue was $605 million, up 16 percent over the same period last year, with both the Wrangler and Lee brands gaining in value.
U.S. wholesale increased 17 percent, including U.S. digital sales up 66 percent over last year. These gains were bolstered by the continued strength of US proprietary services revenue, which was up 19 percent over the same period last year.
International revenue was $127 million, down 20 or 12 percent in constant currency compared to the same period last year. China fell 33 percent or 25 percent in constant currency, driven by the effects of Covid lockdowns and restrictions in the region. Europe fell 15 percent or 4 percent in constant currency, with wholesale pressures more than offsetting constant currency gains in DTC.
Wrangler brand global revenue totaled $509 million, up 15 or 16 percent in constant currency terms, with Wrangler U.S. revenue up 19 percent, driven primarily by increased U.S. wholesale shipments, with broad channel and category strength including Western, outdoor clothing, workwear and t-shirts. Wrangler’s international revenue fell 17 percent or 9 percent in constant currency, with gains in DTC more than offset by declines in wholesale channels.
Lee’s brand global revenue was $219 million, down 6 or 3 percent in constant currency terms. Lee’s U.S. revenue grew 5 percent over the same period last year, driven primarily by digital technology. Worldwide, non-denim categories such as T-shirts saw significant year-over-year growth in the quarter. Lee’s international revenue fell 21 percent or 13 percent in constant currency terms, mainly due to reductions in China due to the impact of Covid restrictions.
Other global revenue was $4 million, down 19 percent from the same period last year.
Gross margin fell 200 basis points to 40.8 percent of revenue compared to the same period last year. Compared to the adjusted gross margin in the fourth quarter of 2021, the gross margin decreased by 180 basis points. Operating income was $85 million on a reported basis and $86 million on an adjusted basis. The adjusted operating margin of 11.7 percent was up 110 basis points.
EBITDA was $95 million on a reported basis and $93 million on an adjusted basis. The adjusted EBITDA margin of 12.7 percent was up 60 basis points.
Earnings per share were 91 cents on a reported basis and 88 cents on an adjusted basis compared to a reported EPS of 75 cents and an adjusted EPS of 88 cents in the same period last year.
Year-round overview of Kontor Brands results
Full-year U.S. revenue was $2.07 billion, up 11 percent from last year, with both the Wrangler and Lee brands gaining in value. U.S. wholesale grew 11 percent from 2021, including strength in digital wholesale, which grew 23 percent from last year. U.S. own.com revenue up 23 percent from 2021
International revenue was $557 million, down 8 percent or 1 percent in constant currency from the previous year. China is down 23 or 20 percent in constant currency compared to 2021, driven by the effects of Covid lockdowns and restrictions in the region. Europe was down 5 percent or up 7 percent in constant currency over the previous year, with DTC driving constant currency gains.
Global revenue for the Wrangler brand was $1.75 billion, an 11-12 percent increase in constant currency, driven by U.S. wholesale and global Wrangler own.com growth of 25 percent. Wrangler’s U.S. revenue was up 13 percent over last year. US Wrangler.com grew 27 percent compared to last year. Wrangler’s international revenue was down 1 percent or up 8 percent in constant currency compared to 2021.
Lee’s global brand revenue was $874 million, a 1 percent decrease or 1 percent increase in constant currency over the previous year. Lee’s U.S. revenue grew 7 percent, driven primarily by digital technology. US Lee.com grew 13 percent compared to last year. Lee’s international revenue fell 12 percent or 6 percent in constant currency terms from 2021, mainly due to reductions in China due to the impact of Covid lockdowns.
Other global revenue totaled $11 million, down 17 percent from the previous year.
Gross margin was 43.1 percent of revenue, down 160 basis points. Operating income was $357 million on a reported basis and $372 million on an adjusted basis. The adjusted operating margin of 14.1 percent was down 10 basis points. EBITDA was $390 million on a reported basis and $402 million on an adjusted basis. The adjusted EBITDA margin of 15.3 percent was down 30 basis points from the prior year.
Earnings per share were $4.31 on a reported basis and $4.49 on an adjusted basis compared to $3.31 and an adjusted EPS of $4.28 in the previous year.
Kontoor Brands expects FY23 revenue to grow by just one percent
The company said 2023 revenue is expected to grow at a low single-digit percentage over 2022, with fairly balanced growth between the first and second halves.
The company expects growth in the first half to be driven by the US, with sustained momentum in points of sale, share gains and digitization, somewhat dampened by softness in China as the region continues to recover from Covid lockdowns and restrictions.
The company assumes that in the second half of 2023, the macroeconomic conditions of consumer demand will be more at risk in the US and the Chinese market will be fully reopened.
Gross margin is expected to be between 43.5 and 44 percent, an increase of 40 to 90 basis points from a gross margin of 43.1 percent in 2022. EPS is expected to be in the range of $4.55 to $4.75.
