The Wrangler and Lee brands' parent posted more revenue growth as it recovers from the early impacts of the still ongoing COVID-19 pandemic.

Kontoor Brands says denim isn’t going out of style

It’s the message the North Carolina-based parent of the Wrangler and Lee brands sought to project in its first-quarter 2021 earnings, where it reported revenues of $652 million. That represents a 29 percent increase from the same time last year, when the COVID-19 pandemic began to spread, resulting in some temporary lockdowns in early attempts to curb the spread of the virus. 

The company’s net income in the three months ended April 3 was $65 million, up from a $2.7 million loss the same time last year. The company’s adjusted earnings per share were $1.43.  

In light of its progress, Kontoor also revised its guidance for 2021, saying it expects adjusted earnings per share to fall between $3.70 and $3.80 and also projects a higher gross margin. The company expects to spend roughly up to $50 million in capital expenditures and anticipates a 22 percent effective tax rate, according to a statement.

The company said its supply chain strategy in recent years has helped to insulate it from some of the effects of the ongoing pandemic. Since its spin off from VF Corp. in 2019, the company has moved toward owning a significant portion of its supply chain, Kontoor Brands chief executive officer Scott Baxter told WWD Thursday. Currently, more than a third of its production comes from its own internal manufacturing in Mexico and South America. 

“For us, that’s a really big advantage, that we control that production … and it’s close by,” he said. “And also, just having that ability from a speed advantage, having that ability from a cost advantage, having the ability from an innovation advantage, just gives us a big advantage going forward, so we’re really pleased with that, from a strategic standpoint.” 

Baxter also credited the experience of its supply chain team in navigating the ongoing COVID-19 crisis, which has accelerated in parts of the world including India. In the U.S. itself, where vaccination rates are slowing, there are still some 44,510 new reported COVID-19 cases daily and nearly 800 deaths a day from the virus, according to the Johns Hopkins University tracker. 

“I think experience really matters in situations like this, and I just have to call on our supply chain team and the experience they have,” Baxter said. “I feel really confident about our position.”  

Nonetheless, the company conceded that the ongoing pandemic continues to pose uncertainties and that it has still “continued to negatively impact the company’s first-quarter 2021 results in select markets and channels.” 

“We continue to execute the strategic playbook we’ve communicated, as structural margin gains support focused investments in demand creation, infrastructure and technologies,” Baxter said in a statement. “As we transition into our next horizon, the stage is set for us to pivot to growth.”

The company attributed its growth to improvements in its web site and digital wholesale revenues, and increases in the revenues of both its Wrangler and Lee brands. Wrangler’s revenues overall rose 31 percent to $399 million this quarter, while the Lee brand’s revenue rose 37 percent to $250 million, the company said. 

The closing of a number of VF outlet stores last year as part of certain restructuring efforts led to drops in other global revenues, the company said.

On a call with analysts Thursday morning, Baxter articulated the company’s strategy in recent years as aimed at ramping up its U.S. wholesale business, reaching consumers through more channels, expanding internationally with a focus on China and diversifying its product mix. The company’s U.S. business accounts for roughly 75 percent of its overall business.

“Our performance in the quarter demonstrates how the powerful combination of strategic investment and solid execution come together to yield improving fundamentals,” Baxter said on the call. “We think this quarter provides a great example of the opportunities ahead.” 

The company said it also expects continuing demand for casualwear and denim as consumers’ dressing habits have shifted after a year of distancing and remote work for white collar employees. 

“Denim is really nice, from this standpoint, and it really works well because you can dress denim up very easily to go out at night, denim looks great during the workday…you can be very casual with it, too,” he said. “It’s so versatile. We make lots of different types of silhouettes, and have lots of different fabrications, and we’re on the forefront of design and innovation here at Kontoor Brands.”