Kontoor Reports Sales Decline Due to Inventory Challenges and European Market, Ups Full-Year Earnings Forecast Due to Higher Margins

Kontoor Brands reported a 5 percent sales decline in the first quarter, reducing the revenues to $631 million. The slump was a result of several factors, including inventory management actions by retailers in the U.S, a drop in seasonal product sales, and dwindling international sales, especially in Europe. For instance, Wrangler's US revenues experienced a 5 percent and 6 percent dip for general and wholesale revenues respectively. Any growth registered in owned brick-and-mortar stores was negated by the cutting down of wholesale shipments due to stringent inventory regulation by retailers, a move credited to Lee and Wrangler's ownership.

Similar trends were observed internationally, with a 7 percent fall in revenues amounting to $139 million. Europe led with a distressing 9 percent decline, despite a boost of 13 percent in direct-to-customer sales that was invalidated by a 13 percent fall in wholesale trade. Asia also saw a 7 percent drop, due to a 5 percent decline in wholesale and a 9 percent downturn in direct-to-customer trading. Non-US Americas declined by 2 percent, propelled by reduced wholesale operations. The only sector that did not record a downtrend was international direct-to-customer operations, holding steady despite increased digital sales of 10 percent, which was offset by a 5 percent decrease in owned brick-and-mortar stores.

Analyzed by brand, global revenue for Wrangler stood at $409 million, indicating a 3 percent downgrade, while Lee brand's worldwide revenue was pitched at $219 million, plummeting 9 percent from the previous year. The net income for the quarter which wrapped up on March 31 also fell 10 percent to $59.5 million when compared to the same period last year.

In spite of these setbacks, the management remains positive. Scott Baxter, the current president, CEO, and chair of Kontoor Brands, stated, “Our first-quarter financial scorecard was notably better than what we expected, underscored by the increase in revenue, gross margin, and cash flow." He went on to highlight the first-quarter market share gains and improvements in Point of Sale (POS) and retailer inventories.

Based on the strong start to the year and visibility into the expansion of the gross margin, Baxter announced an upward adjustment of the full-year earning expectations. The American denim manufacturer remains optimistic about the yearly projections due to the better-than-predicted results of the first quarter and a promising growth of gross margins for the rest of the year. The revenue for the year is projected to fall within $2.57 and $2.63 billion, signaling a change of 1 percent, when aligned with the previous outlook. In March, Kontoor Brands had appointed Tom Waldron as the chief operating officer, with his tenure starting from March 19.