For the fourth quarter, Kontoor Brands reported revenue of $732 million, up 7% or 9% at constant currency from the prior year period.
The company said revenue increases were mainly driven by strength in domestic and digital wholesale, somewhat offset by reductions in the international market with the ongoing impacts of lockdowns and restrictions in China weighing on the quarter.
For the full year, revenue was $2.63 billion, up 6% or 8% at constant currency from the prior year.
The company added that revenue increases were mainly driven by strength in digital as well as US wholesale strength, offset by a drop in wholesale outside the US, with the ongoing impacts of lockdowns and restrictions in China weighing on the year.
“We ended 2022 strong as Q4 revenue and EPS were significantly above our plan. Despite unprecedented macroeconomic challenges, we are meeting many of our long-term goals, with 2022 revenue and earnings ahead of our Investor Day targets,” said Scott Baxter, chairman, CEO and chairman of Kontoor Brands in a statement.
Kontoor Brands Q4 Earnings Highlights
For the fourth quarter, US revenue was $605 million, up 16% year-over-year, with gains in the Wrangler and Lee brands.
US wholesale increased by 17%, including US digital wholesale strength of 66% compared to last year. These gains were augmented by the continued strength of own.com US revenue, which increased 19% year-over-year.
International revenue was $127 million, down 20% or 12% in constant currency from the prior year period. China is down 33% or 25% in constant currency, driven by the impacts of Covid lockdowns and restrictions in the region. Europe was down 15 percent or 4 percent at constant currency, with wholesale pressures more than offsetting gains at constant currency on the DTC.
Global Wrangler brand revenue was $509 million, up 15% or 16% at constant currency, with Wrangler US revenue up 19%, driven primarily by increased US wholesale shipments, with broad base and category strength, including western, outdoor, workwear and t-shirts. Wrangler international revenue declined 17 percent or 9 percent at constant currency, with gains in DTC more than offset by reductions in wholesale channels.
Global revenue for the Lee brand was $219 million, down 6% or 3% at constant currency. Lee’s US revenue increased 5% compared to the same period last year, driven mainly by digital. Globally, non-jeans categories such as t-shirts saw significant year-over-year gains in the quarter. Lee’s international revenue declined 21% or 13% at constant currency, mainly driven by reductions in China due to the impact of Covid restrictions.
Other global revenues were $4 million, down 19% year-over-year.
Gross margin decreased 200 basis points to 40.8% of revenue compared to the prior year period. Compared to fourth quarter 2021 adjusted gross margin, gross margin decreased by 180 basis points. Operating income was $85 million on a reported basis and $86 million on an adjusted basis. Adjusted operating margin of 11.7 percent increased 110 basis points.
EBITDA was $95 million on a reported basis and $93 million on an adjusted basis. Adjusted EBITDA margin of 12.7 percent increased 60 basis points.
Earnings per share were 91 cents on a reported basis and 88 cents on an adjusted basis compared to reported earnings per share of 75 cents and adjusted earnings per share of 88 cents for the same period last year.
Kontor Brands annual performance review
Annual revenue in the United States was $2.07 billion, up 11% from last year, with gains in the Wrangler and Lee brands. US wholesale is up 11% from 2021, including strength in digital wholesale, which is up 23% from last year. own.com US revenue increased by 23% compared to 2021.
International revenue was $557 million, down 8% or 1% at constant currency from the prior year. China is down 23 or 20 percent at constant currency compared to 2021, driven by the impacts of Covid lockdowns and restrictions on the region. Europe was down 5% or up 7% in constant currency year-on-year as the DTC boosted gains in constant currency.
Global Wrangler brand revenue was $1.75 billion, up 11% or 12% at constant currency, driven by Wrangler global own.com and US wholesaler, which was up 25%. Wrangler US revenue increased 13% compared to last year. US Wrangler.com is up 27 percent from last year. Wrangler international revenue decreased 1% or increased 8% at constant currency compared to 2021.
Lee brand global revenue was $874 million, down 1% or up 1% at constant currency year-over-year. Lee’s US revenue increased 7%, driven primarily by digital. US Lee.com is up 13 percent over the past year. Lee’s international revenue was down 12% or 6% at constant currency from 2021, driven primarily by reductions in China due to the impact of Covid lockdowns.
Other global revenue was $11 million, down 17% year-over-year.
Gross margin was 43.1% of revenue, down 160 basis points. Operating income was $357 million on a reported basis and $372 million on an adjusted basis. Adjusted operating margin of 14.1 percent decreased 10 basis points. EBITDA was $390 million on a reported basis and $402 million on an adjusted basis. Adjusted EBITDA margin of 15.3 percent decreased 30 basis points compared to 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 adjusted EPS of $4.28 a year earlier.
Kontoor Brands expects fiscal 23 revenue to increase by a single percent
For 2023, the company said, revenue is expected to increase by a low single-digit percentage from 2022, with growth fairly even between the first and second half.
The company expects first-half growth to be driven by the US, with continued momentum in POS, equity gains and digital, somewhat tempered by softness in China as the region continues to recover from Covid lockdowns and restrictions.
During the second half of 2023, the company assumes that the macro conditions of consumer demand will be more challenged in the US, with the full reopening of the China market.
Gross margin is expected to be in the range of 43.5% to 44%, up 40 to 90 basis points compared to the gross margin of 43.1% in 2022. EPS should be in the range of 4.55 dollars to 4.75 dollars.