Scott Baxter is building something new at Kontoor Brands Inc. — using some familiar elements in the fashion business toolkit.
The company, which is parent to Wrangler and Lee and was spun out of VF Corp. in 2019, owns about 40 percent of its supply chain with facilities in Mexico and Honduras, and still does a considerable bit of its business at wholesale.
And Baxter, who is president, chief executive officer and chair, said Kontoor is now benefiting those aspects of its operations — elements many brands have deemphasized in recent years.
Baxter told WWD that Kontoor has managed to “win with the winners,” selling to Walmart, Amazon and Target, and also has been able to use its Western hemisphere production capacity to help bring new looks to market, be “very strategic” with pricing and maneuver its way through the COVID-19 supply chain backups.
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“For us, it’s a matter of rolling those trucks over the border from Mexico into the U.S.,” Baxter said. “We could control the flow of inventory.”
And that has worked for Kontoor. On Tuesday, the company said its net profits increased 188 percent last year to $195.4 million, or $3.31 a diluted share, up from $67.9 million, or $1.17, in 2020. Revenues for the year ended Jan. 1 increased 18 percent to $2.5 billion from $2.1 billion.
The fourth quarter showed more modest growth, with net income up 2 percent to $43.9 million, or 75 cents, as revenues increased 3 percent to $681.1 million. Adjusted earnings 88 cents a share came in ahead of the 79 cents analysts projected.
And while the outlook for next year is solid and above analysts expectations, calling for earnings per share ranging from $4.65 to $4.75 with a high-single-digit revenue increase, investors were wanting something more.
On a down day for the market, shares of Kontoor fell 9.3 percent to $44.96.
Much of Kontoor’s business comes in at lower price points, but Baxter described the company as brand heavy with powerhouses Lee and Wrangler that are building in new categories, including outdoor styles.
“People use our brands every day, they use those brands for work and play, everyday,” he said. “We sell all of our product at very, very good price points for a really high-quality product. We have mastered the value/pricing equation.”
And, like others in the causal sphere, Baxter sees a market that will only continue to come his direction.
“We feel really good about the consumer,” he said. “People are getting back out. You need a new wardrobe as you get back out. You gained or lost some weight. Some of your clothes aren’t in fashion anymore or they’re not the styles that you want anymore.
“People are coming back to the office casual, that’s a big component,” he said. “You’ve been casual in your house for two years, people adjust and are not wanting to go ahead and dress up every single day.”
Kontoor has been rather thoroughly stress tested in its short life as a stand-alone company and Baxter said it has built up some new muscles that will help continue to grow through whatever comes next for the consumer world.
“Our history as a public company, I think, if anything, it’s taught us to be really resilient,” Baxter said. “It’s taught us to be really nimble, it’s taught us to not take anything for granted.”
Kontoor spun out of VF right into the Trump-era trade fights with China and, well, almost everyone else. Then came the pandemic and the COVID-19 shutdowns, which led to the supply chain troubles.
Now, the company is watching warily as Russia’s invasion of Ukraine plays out. Already, the human toll has been steep and the economics are still sorting themselves out, with Western players moving to isolate Russia financially.
While the company does have relationships with some distributors in the region, Baxter said it has no direct connections and is watching the situation, thinking first about the people impacted, then about any potential business impact and hoping it all resolves quickly.
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