Wrangler jeans

Denim maker Kontoor Brands, parent company to the Wrangler, Lee and Rock & Republic brands, continues to struggle amid the pandemic.

The Greensboro, N.C.-based business released quarterly earnings Thursday before the bell, falling short on both the top and bottom lines and causing the stock to drop by more than 5 percent at the start of Thursday’s trading session.

“In a rapidly changing operating environment, we remain focused on navigating near-term impacts associated with the COVID-19 pandemic, while also positioning Kontoor for future success,” Scott Baxter, president and chief executive officer of Kontoor Brands, said in a statement. “During the second quarter, we successfully balanced managing through short-term challenges while taking proactive measures to drive competitive separation in the global marketplace. We strengthened our liquidity position, improved our financial flexibility and paid down debt, all while investing in growth and new business development opportunities.”

For the three-month period ending June 27, total revenues were $349 million, compared with $609 million a year earlier. By brand, Wrangler’s revenues were $252 million, down from $362 million the same time last year, while revenues at Lee were $86 million, compared with $207 million last year. Kontoor had a $33 million loss during the quarter as a result, compared with profits of nearly $38 million a year earlier.

Kontoor, which was spun off from VF Corp. in May 2019, has partnered, franchised, licensed and owned branded, non-branded and outlet stores throughout the world, but does the majority of its business through various wholesale channels and its e-commerce business. The wholesale channel, for example, represented about 85 percent of Kontoor’s global revenue during the company’s 2019 fiscal year.

Like most retailers, Kontoor temporarily closed all company-owned and operated locations in North America and Europe last March in response to the coronavirus pandemic, including VF outlets, Lee Wrangler outlets, Lee Wrangler Clearance Centers, Wrangler and Hometown Studio stores.

Stores in North America and Europe did not reopen until late May.

The company said the dramatic plunge in wholesale and store shutdowns caused the biggest declines in revenue during the quarter. In addition, Kontoor was subject to roughly $33 million of additional expenses thanks to timing shifts of shipments between the second and third quarters. The retailer’s e-commerce and digital businesses grew during the quarter, 48 percent and 36 percent, respectively. But it wasn’t enough to offset losses.

Despite the losses, Baxter told WWD that jeans remain a hot commodity, helping secure Kontoor’s future success in the market.

“The world is casualizing and we sit right there in that sweet spot,” Baxter said. “When you leave the house you need to get out of your pajamas and you need to put on some clothes. People always navigate to their jeans, because they’re so comfortable. But it’s going to be really hard to ask people to come back to the office after being away for such an extended period of time and ask them to dress formally again. Jeans have been an American staple for 200 years and it’s just part of everybody’s wardrobe, part of how we live now, globally.”

In addition to jeans being the new work uniform for many, Baxter added that Kontoor’s house of brands makes other categories, something the company plans to capitalize on moving forward with extended T-shirt and outdoor apparel categories.

This fall, Lee jeans will roll out in about 2,000 Walmart locations nationwide, while Wrangler moves forward with its plans to open its China business. The retailer also has collaborations with Fred Segal and Nordstrom, Coca-Cola and country music singer Diplo in the works.

“We sell a lot of tops for those people who want to look good on their Zoom calls,” he said, adding that people’s desire to be outdoors during the pandemic and the summer months was a “natural extension” for the outdoor apparel category.

There’s also the fact that three of Kontoor’s four biggest wholesale partners — Walmart, Target, Amazon and Kohl’s — are essential retailers and were therefore open during the U.S. shutdown.

Meanwhile, Baxter said the company will continue to amplify its digital presence.

“The consumer is moving that way,” he said. “People are going to have more confidence to shop digitally [post-COVID-19], because they’re going to have done some of it during this period of time and they’re going to feel more confident in their sizing and the product that they get and all that. So we are definitely investing in our digital business and digital capabilities moving forward.”

The retailer ended the quarter with $256 million in cash and equivalents and about $1.1 billion in debt. Inventory fell 20 percent year-over-year to $433 million. The company is not providing forward-looking guidance.

Kontoor’s stock, which closed down 5.3 percent to $20.13 a share Wednesday, is down more than 27 percent year-over-year.

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