Kontoor sales dip on inventory woes and Europe, raises full-year earnings outlook on improved margins

Kontoor Brands on Thursday said revenue for the first quarter fell 5 percent to $631 million, hit by retailer inventory management actions in the U.S., a decrease in seasonal product sales, and lower international sales, particularly in Europe.

U.S. revenue fell 5 percent $492 million, with U.S. wholesale revenue falling 6 percent. Growth in owned brick-and-mortar stores was more than offset by reduced wholesale shipments as retailers tightly managed inventory levels, said the owner of Lee and Wrangler.

Likewise, international revenues fell 7 percent $139 million. Europe decreased 9 percent, with 13 percent growth in direct-to-consumer, more than offset by a 13 percent decline in wholesale.

Asia decreased 7 percent, with a 5 percent decrease in wholesale, and a 9 percent decrease in direct-to-consumer. Non-U.S. Americas decreased 2 percent, driven by a decline in wholesale.

International direct-to-consumer was flat, with 10 percent growth in digital, offset by a 5 percent decrease in owned brick-and-mortar stores.

By brand, Wrangler global revenue was $409 million, a 3 percent decrease, while Lee brand global revenue was $219 million, a 9 percent decrease compared to the prior year.

Net income for the quarter ending March 31 fell 10 percent to $59.5 million, compared to the prior-year period.

​“Our first quarter results were stronger than expected, driven by higher revenue, gross margin, and cash flow,” said Scott Baxter, president, chief executive officer and chair of Kontoor Brands.

“We are pleased with another quarter of market share gains and the improvement we saw in POS and retailer inventories over the course of the first quarter. As a result of our strong start to the year and increased visibility into gross margin expansion, we are raising our full year earnings outlook.”

Looking ahead, the American denim maker said it is raising its full-year earnings outlook driven by better-than-expected first quarter results and stronger gross margin expansion for the balance of the year.

Revenue is expected to be in the range of $2.57 to $2.63 billion, reflecting a decrease of 1 percent to an increase of 1 percent compared to the prior year, consistent with the prior outlook. 

In March, Kontoor Brands announced the appointment of Tom Waldron to the role of chief operating officer, effective March 19.