Kontoor Brands, Inc. a global lifestyle apparel company, with a portfolio led by two of the world’s most iconic consumer brands, Wrangler® and Lee®, recently published Financial Reports of First Quarter 2022, which ended on 2nd April 2022.
Scott Baxter, President, Chief Executive Officer, and Chair of Kontoor Brands said, “Our strategies continue to yield accelerating performance, with first-quarter results coming in above our expectations. We expect macroeconomic challenges will persist, with inflationary pressures, supply chain disruptions, and COVID lockdowns weighing on the operating environment. However, based on Kontoor-specific drivers, momentum across the business, and continued execution of our strategic playbook, we have confidence in raising our fiscal year revenue and EPS guidance.”
First Quarter 2022 Income Statement Review:
- Revenue was $680 million, a 4 percent increase on a reported basis, and 5 percent in constant currency, over the same period in the prior year. Revenue increases were primarily driven by strength in Digital, as well as continued positive trends in the U.S. wholesale business and solid performance in international markets. Compared to the first quarter of 2021, global own.com revenue increased by 38 percent, and digital wholesale increased by 24 percent.
- Gross margin decreased 130 basis points to 44.8 percent of revenue, compared to the first quarter of 2021. Gross margin decreased 140 basis points compared to the first quarter 2021 adjusted gross margin with near-term transitory expenses of 210 basis points more than offsetting structural margin improvements of 70 basis points. Based on strong demand during the quarter, transitory expenses, which include air freight for expedited shipments, were elevated as expected. Structural margins improved as impacts of pricing and favorable channel and product mix more than offset the impacts of inflationary costs, including cotton, ocean freight, and labor.
- Selling, General & Administrative (SG&A) expenses were $196 million on a reported basis, or 28.9 percent of revenue, down 290 basis points compared to the same period in the prior year. SG&A increased 110 basis points compared to the first quarter of 2021 adjusted SG&A. Higher demand creation, digital and IT investments, product development, and distribution expenses more than offset better-fixed cost leverage on improving revenue and lower compensation-related expenses.
- Operating income was $108 million on a reported basis. The operating margin increased 160 basis points to 15.9 percent of revenue. Operating margin decreased 240 basis points compared to the first quarter 2021 adjusted operating margin, driven by strategic investments to drive future accelerating revenue growth and higher transitory impacts to chase demand. These investments, transitory impacts such as air freight, and distribution expenses more than offset structural gross margin improvements and fixed cost leverage on improving revenue.
- Earnings Before Interest, Tax, Depreciation, and Amortization (EBITDA) was $118 million on a reported basis. EBITDA margin increased 170 basis points to 17.3 percent of revenue. EBITDA margin decreased by 220 basis points compared to the first quarter of 2021 adjusted EBITDA margin.
- Earnings per share were $1.40 on a reported basis compared to reported EPS of $1.09, and adjusted EPS of $1.43, in the same period in the prior year.
Inventory at the end of the first quarter of 2022 was $433 million, up 24 percent compared to the prior-year period. Q2’22 revenue growth is expected to be up 30 to 32 percent.