Kontoor Brands, Inc. Q4 FY2024 earnings call

Key Points

• 2024 was a banner year for Kontoor, with connection to more consumers, accelerated brand investments, and initiation of Project Jeanius.
• Wrangler had strong performance in 2024, with global revenue growth, market share gains, successful campaigns, and growth in various segments like Female and Outdoor.
• Lee was in a year of strategic planning and focus, with new creative vision, new product platforms, and efforts to improve brand performance.
• Project Jeanius had ERP implementation complete, team structure in place, and progress made, with expected savings target raised to 100 million and now in execution phase with upside potential.
• Tariffs evaluation: Approximately 25% of 2025 U.S. production volume from Mexico, with unmitigated impact to operating profit in 2025 around $50 million if tariffs implemented at 25% level, and mitigated impact expected to be lower with actions to offset in 2026.

Wrangler global revenue increased 9%. Strength was broad-based with growth in every channel and geography, including 9% growth in both the U.S. and international, 9% growth in wholesale and D2C, 19% growth in Female, and 29% growth in Outdoor. Lee global revenue decreased 5%, U.S. revenue decreased 6%, driven by a decline in wholesale partially offset by double-digit growth in D2C. Lee's performance was below expectations as challenges in the mid-tier channel pressured wholesale revenue more than anticipated. Lee international revenue decreased 4%, with declines in wholesale offsetting growth in D2C.

Guidance

• Full-year revenue expected to increase 1% to 3% with approx 1% headwind from stronger U.S. dollar.
• Adjusted gross margin expected to be 45.3% to 45.5%, increase of approx 20 to 40 basis points from 2024.
• EPS expected to be in range of $5.20 to $5.30, increase of 6% to 8%.
• Cash from operations anticipated to exceed $300 million.
• Outlook excludes Helly Hansen contribution and tariff impact.

Risks

• Tariffs: Approximately 25% of 2025 U.S. production volume from Mexico, unmitigated impact to operating profit in 2025 around $50 million if tariffs implemented at 25% level, with mitigated impact expected to be lower and offsetting actions to be taken within 12 to 18 months.

Q: Ike Boruchow from Wells Fargo asked about Lee's D2C and wholesale performance and gross margin expansion.

A: Joe Alkire responded on gross margin, Scott Baxter and Tom Waldron discussed Lee's transformation and product resonation.

Q: Jim Duffy from Stifel asked about Project Jeanius gross margin benefits scaling in 2026 and Helly Hansen accretion.

A: Scott Baxter talked about Helly Hansen seasonality and accretion, Joe Alkire discussed Jeanius gross margin optimization.

Q: Brooke Roach from Goldman Sachs asked about Lee's distribution footprint transition and investment in demand creation.

A: Tom Waldron spoke about Lee's distribution expansion and Joe Alkire and Tom Waldron discussed investment cadence.

Q: Paul Kearney from Barclays asked about Lee's consumer insight and tariffs impact.

A: Tom Waldron discussed Lee's consumer segmentation and Joe Alkire talked about tariffs impact timing and mitigation.

Q: Mauricio Serna from UBS asked about consumer health and Wrangler brand momentum.

A: Scott Baxter spoke about consumer conservatism and Tom Waldron discussed Wrangler's market share gains and brand equity campaign.