Lee and Wrangler have legs yet — and now that they’re out on their own, they’ve been able to stretch them out.
Housed under the Kontoor Brands Inc. umbrella since their 2019 spinoff from VF Corp., both of the denim brands have not only transversed the pandemic, but are giving consumers and Wall Street a new and maybe unexpected look.
Kontoor saw third-quarter profits rise 4 percent to $63.4 million, or $1.07 a diluted share, from $60.8 million, or $1.05 a year earlier. Adjusted earnings of $1.28 a share exceeded the $1.03 analysts projected. And revenues for the three months ended in September increased 12 percent to $652.3 million.
Less than a year after being set out on its own, the company faced COVID-19 and more or less powered through. Scott Baxter, president and chief executive officer, told WWD in an interview that the spin off set the brands free to ramp up their marketing to match their peers and find new customers.
“These are big businesses that were under a really big umbrella at VF,” Baxter said, noting that Vans and The North Face appropriately got a lot of attention at the company that moved its headquarters to Denver.
“This business, the denim business that we had, wasn’t getting any of that investment,” said Baxter, who started running the denim businesses under VF in 2011. “All they needed was some investment in the brands.”
Spinoffs are kind of having a moment right now, with more CEOs and investors figuring a kind of counterintuitive math where a company cut in half is worth twice as much. Richard Baker is working on something along those lines with Saks Fifth Avenue, which spun off its dot-com business and is now looking to take it public at a much higher valuation. Inspired by the move, activist investor Jana is pushing for Macy’s Inc. to do the same.
While spinoffs can amount to a cut and run corporate strategy, where the best parts of the business press on and the rest languishes — they can also help support something that was there and needed some TLC. Kontoor seems to be an example of that.
“You have to have some real high-quality brands to do it with,” Baxter said. “You have to have the right asset that could be mined. And even though you have the right asset, you have to have the right strategy.”
A big part of that is giving the brands a voice they couldn’t afford at VF.
“We’ve never done a global ad campaign before,” Baxter said. “Now we’re reaching a global audience.”
If Lee and Wrangler were seen by some as part of the background — inexpensive brands sold at discount stores — they are now working to claim their status as “iconic American denim” brands, ramping up digital advertising and more.
Lee worked with photographer and creative director Mark Seliger on the Lee Originals campaign, which features Quannah Chasinghorse, Levi Dylan, Kenya Kinski-Jones, Haden McKenna and more. The brand also recently collaborated with Pendleton with a line “celebrating American craftsmanship.”
Wrangler, in addition to expanding its outdoor offering and launching into China, is collaborating with Billabong, launching in and doing more to project its message to the world.
Baxter said Billabong would have never called when the brand was under the VF umbrella.
“We do have a little broader audience we found out when we spun off,” he said. “We do have this culture of folks that are very tied to what’s happening in the avant garde. We’re finding those people again.”
That has the company both pitching Western wear as a growing trend and, with its Lee Originals campaign, giving a shout out to the Bushwick section of Brooklyn.
Kontoor is doing it with a business that, in the most recent quarter, drew 69.3 percent of its revenues from wholesale accounts — a counterintuitive mix in a world that is direct-to-consumer obsessed.
But Baxter said the plan is to “win with the winners” and that Walmart, Target, Amazon, Kohl’s and Boot Barn were among the winners.
As of right now, Kontoor seems to be among the winners, too.
The company raised its outlook for the year and is now looking for sales to rise by a percentage in the high teens to a range of $2.47 billion to $2.48 billion. Adjusted earnings per share are slated to come in at $4.15 to $4.20, instead of the $3.90 to $4 previously projected.
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