Kontoor Brands Inc. is becoming the master of demand creation in the denim space.
Kontoor’s collaboration with singers and its tapping into music awards shows and festivals for Wrangler, not to mention innovative products and brand expansion evolving Lee‘s outdoor evolution, has helped the denim firm deepen brand awareness with consumers.
“Wrangler’s momentum continues with product and demand creation platforms that are elevating the brand like never before,” Kontoor chairman and CEO Scott Baxter said. “While wholesale pressures are impacting the near-term, as expected, the strength of our DTC business and point of sale outperformance are real proof points. Wrangler is winning with the consumer.”
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Baxter, who provided an update during the company’s first-quarter earnings conference call on Thursday, said Wrangler’s global direct-to-consumer business grew 8 percent. And the brand continues to diversify beyond denim—half the business is now outside of denim bottoms—to build on market share gains. Outdoors is now a $200 million business, and the brand has a “strong pipeline of demand creation platforms and collaborations.”
Baxter said Lainey Wilson’s first collection will become available later this year, and is “on track to become the largest global collaboration to date,” Baxter said, adding that Wrangler continues with with successful collaboration with Staud in the second quarter, which helps the brand reach the younger female consumer.
“And we are amplifying the brand with events at the ACM Awards and Stagecoach, where we are the official denim sponsor. These are great examples of how we are building momentum throughout the year with demand creation, investments that fit together and deepen the connection with our consumers,” Baxter said.
Kontoor’s Lee brand also experienced softness at wholesale due to retailers’ tight management of inventory levels. Baxter said the brand’s innovation platforms are showing some green shoots, particularly with the younger female consumer as the men’s business continues to expand with innovations focused on comfort.
As for demand creation in Lee, Baxter said the heritage collection and iconic rider platform are helping to expand the brand’s reach while being supported by new marketing campaigns. Other initiatives are in tops, which is on track to deliver double-digit growth for the year, and Lee Golf, which launches in the second quarter with “innovative fabrications that are appealing to a broad range of male consumers,” Baxter said.
Lee Golf is part of the brand’s move into the outdoor space. Lee will also launch Lee X later this year, a platform consisting of non-denim tops and bottoms.
Baxter said point of sale has improved for both brands and that they have continued to gain market share. As for Project Jeanius, Kontoor’s multiyear initiative to improve profitability via savings of between $50 million to $100 million that was disclosed in February, Baxter said current plans are eyeing the higher end of the savings range.
“That will structurally raise our profitability ceiling while significantly increasing our investment capacity to drive more profitable growth over time,” the CEO said. “While the near-term environment remains dynamic, we are operating from an offensive position. We are off to a better than expected start and have improving visibility to the balance of the year.”
Net income fell 10.2 percent to $59.5 million for the three months ended March 30, or $1.05 a diluted share, on a net revenue decrease of 5.4 percent to $631.2 million. But adjusted diluted earnings per share (EPS) was $1.16, and that was better than the 90 cents Wall Street was expecting on revenue of $609.1 million.
Kontoor raised its full-year earnings outlook due to better-than-expected first-quarter results and expectations of stronger gross margin expansion for the balance of the year. Joe Alkire, executive vice president and CFO, told investors on the call that gross margin expansion exceeded company expectations, driven by lower product costs and channel mix. Gross margin in the quarter increased 220 basis points to 45.2 percent.
Adjusted EPS was guided to the range of $4.70 to $4.80, versus prior outlook of $4.65 to $4.75 in February. The revenue forecast for the year remained unchanged in the range of $2.57 billion to $2.63 billion.
