|
Related Topics
|
Category: Stock Market and Kontoor Brands (KTB)
Date: 4 July 2020 Stock Price of Kontoor Brands: $17.30 We take a look at the 1st quarter earnings release of their 2020 fiscal year of Kontoor the owner of fashion brands Wrangler and Lee. How hard has the stock been hit by the Covid-19 pandemic? The group's revenue was down by -22% compared to 12 months ago and they made a loss of -$2.7 million for the quarter.
|
The COVID-19 global pandemic has had an unprecedented impact on the world including Kontoor’s operations and results. During the first quarter, we took decisive actions to support the health and welfare of our most important asset, our colleagues around the world, as well as to strengthen our financial flexibility-Scott Baxter, President and Chief Executive Officer"
About Kontoor Brands
Kontoor Brands, Inc. (NYSE: KTB) is a global lifestyle apparel company, with a portfolio led by two of the world’s most iconic consumer brands: Wrangler® and Lee®. Kontoor designs, manufactures and distributes superior high-quality products that look good and fit right, giving people around the world the freedom and confidence to express themselves. Kontoor Brands is a purpose-led organization focused on leveraging its global platform, strategic sourcing model and best-in-class supply chain to drive brand growth and deliver long-term value for its stakeholders
Overview of Kontoor's 1st quarter 2020 earnings report
The numbers below refers to the latest quarter unless specified otherwise:
- Total revenue: $504.498 million (down from $634.488 million from the same quarter of the previous year)
- Revenues decreased by -22% over the last 12 months
- Total cost and expenses: $504.662 million (down from $623.149 million for the same quarter of the previous year)
- Total cost and expenses decreased by -19% over the last 12 months
- Net los: -$2.71 million (down from $15.413 million for the same quarter of the previous year)
- Diluted loss per share: -$0.05 (down from $0.27 for the same quarter of the previous year)
- Dividend declared by Kontoor Brands: Dividend has been suspended due to the Covid-19 impact on their earnings
- Diluted weighted-average shares outstanding: 57.947 million (up from 56.648 million for the same quarter of the previous year)
- Cash and cash equivalents: $479.366 million
- Cash and cash equivalents per share: $8.27
- Cash and cash equivalents makes up 47.8% of Kontoor's market capital
- Cash and cash equivalents makes up 25.2% of Kontoor's total assets
- Receivables: $213.080 million
- Receivables makes up 11.2% of Kontoor's total assets
- Inventories: $488.750 million
- Inventories makes up 25.6% of Kontoor's total assets
- Cash used in operations : $45.417 million
- Cash used operations per share: $0.78
Kontoor Brand's management commentary on their 1st quarter 2020 earnings report
GREENSBORO, N.C.--(BUSINESS WIRE)-- Kontoor Brands, Inc. (NYSE: KTB), a global lifestyle apparel company, with a portfolio led by two of the world’s most iconic consumer brands, Wrangler® and Lee®, today reported financial results for its first quarter ended March 28, 2020, and updated its impacts and actions related to COVID-19.
“The COVID-19 global pandemic has had an unprecedented impact on the world including Kontoor’s operations and results. During the first quarter, we took decisive actions to support the health and welfare of our most important asset, our colleagues around the world, as well as to strengthen our financial flexibility,” said Scott Baxter, President and Chief Executive Officer, Kontoor Brands. “Through February, results were in line with our expectations, but as the quarter progressed, impacts from COVID-19 became more pronounced. We’ve implemented several strategic actions to help navigate the near-term challenges, while positioning the company for future success. These measures, which include the amendment of our credit facility and the related temporary dividend suspension, will provide strengthened liquidity that is paramount in these uncertain times and enable Kontoor to emerge from this crisis well positioned to best serve the future needs of our stakeholders.”
“The COVID-19 global pandemic has had an unprecedented impact on the world including Kontoor’s operations and results. During the first quarter, we took decisive actions to support the health and welfare of our most important asset, our colleagues around the world, as well as to strengthen our financial flexibility,” said Scott Baxter, President and Chief Executive Officer, Kontoor Brands. “Through February, results were in line with our expectations, but as the quarter progressed, impacts from COVID-19 became more pronounced. We’ve implemented several strategic actions to help navigate the near-term challenges, while positioning the company for future success. These measures, which include the amendment of our credit facility and the related temporary dividend suspension, will provide strengthened liquidity that is paramount in these uncertain times and enable Kontoor to emerge from this crisis well positioned to best serve the future needs of our stakeholders.”
COVID-19 Operational Impact Update
The Company’s first priority is to support the safety of its employees and consumers. Actions taken include enacting global travel restrictions for all employees, enabling remote-work flexibility, implementing enhanced cleaning and sanitation protocols in all facilities, and closing of owned retail stores globally.
Today, outside of Asia, the Company’s offices are essentially closed, with most associates successfully working remotely. The Company’s distribution centers around the world continue to operate and fulfill wholesale and DTC orders. All owned and partnership brick and mortar retail stores in China have re-opened, while owned retail stores in North America and Europe remain closed.
As discussed on the Company’s fourth quarter call, and consistent with expectations, February year-to-date revenue declined mid-single digits compared to adjusted results in the prior year with approximately one-third of the decline due to China as impacts from COVID-19 weighed heavily in the region. March revenue declined significantly, particularly in the U.S. and Europe, as retail and owned door closures and governmental stay-at-home orders increased. Given that the wholesale channel represented approximately 85 percent of the Company’s global revenue in 2019, continued customer door closures resulted in a material decline for April revenue, but digital trends have been improving in recent weeks. In the U.S., the Company’s largest online and brick and mortar retail partners are leaders in their respective channels of distribution. Although volumes have been reduced, sales to most of the Company’s largest customers are continuing.
To date, the Company has not experienced significant service disruptions to customers given its global, diversified supply chain network. As order volumes decelerated late in the first quarter, production in the Company’s owned manufacturing facilities was adjusted to align with demand and tightly manage inventory. As governmental conditions permit, the Company's owned manufacturing allows for flexing of production across diversified facilities and positions the Company to respond, with scale and speed, as demand warrants. In addition, a significant portion of the Company’s sourced finished products originate from various countries that are currently under governmental stay-at-home orders. Given long standing relationships with vendors, the Company continues to diligently monitor developments and work with partners to prioritize production to best align with demand.
Operational Actions Taken: Liquidity and Financing Update
Kontoor finished the first quarter with $479 million in cash and cash equivalents. Over the past sixty days, the Company has taken several proactive actions to enhance liquidity including the following:
Although Kontoor is focused on extremely tight expense controls during this extraordinary crisis, the Company remains committed to and has the capacity to fund investments behind key long-term strategic initiatives, including expenditures associated with the implementation of its new global ERP and information technology infrastructure. As COVID-19 is complex and evolving rapidly, the Company’s actions as outlined above may be subject to change. The Company is monitoring and complying with all governmental orders.
Outlook
As previously announced, and as a result of the uncertainty and significant business impacts caused by COVID-19, Kontoor has withdrawn its 2020 guidance provided on March 5, 2020, and is not providing an updated outlook at this time.
“The uncertainty of COVID-19 remains. I want to thank our colleagues around the world for their dedication and perseverance during this difficult time,” said Baxter. “We believe Kontoor’s key retail partners remain well positioned to navigate this environment. With more than 200 years of authentic heritage, our two iconic brands offer consumers a distinct value proposition. In addition, we are highly encouraged by significant new programs and distribution gains that are expected for the second half of 2020. Our iconic brands, coupled with our cost savings efforts and scaled, agile supply chain, position Kontoor well in the marketplace,” said Baxter.
While the Company is not providing full-year 2020 guidance at this time, additional perspective and assumptions are as follows:
The Company’s first priority is to support the safety of its employees and consumers. Actions taken include enacting global travel restrictions for all employees, enabling remote-work flexibility, implementing enhanced cleaning and sanitation protocols in all facilities, and closing of owned retail stores globally.
Today, outside of Asia, the Company’s offices are essentially closed, with most associates successfully working remotely. The Company’s distribution centers around the world continue to operate and fulfill wholesale and DTC orders. All owned and partnership brick and mortar retail stores in China have re-opened, while owned retail stores in North America and Europe remain closed.
As discussed on the Company’s fourth quarter call, and consistent with expectations, February year-to-date revenue declined mid-single digits compared to adjusted results in the prior year with approximately one-third of the decline due to China as impacts from COVID-19 weighed heavily in the region. March revenue declined significantly, particularly in the U.S. and Europe, as retail and owned door closures and governmental stay-at-home orders increased. Given that the wholesale channel represented approximately 85 percent of the Company’s global revenue in 2019, continued customer door closures resulted in a material decline for April revenue, but digital trends have been improving in recent weeks. In the U.S., the Company’s largest online and brick and mortar retail partners are leaders in their respective channels of distribution. Although volumes have been reduced, sales to most of the Company’s largest customers are continuing.
To date, the Company has not experienced significant service disruptions to customers given its global, diversified supply chain network. As order volumes decelerated late in the first quarter, production in the Company’s owned manufacturing facilities was adjusted to align with demand and tightly manage inventory. As governmental conditions permit, the Company's owned manufacturing allows for flexing of production across diversified facilities and positions the Company to respond, with scale and speed, as demand warrants. In addition, a significant portion of the Company’s sourced finished products originate from various countries that are currently under governmental stay-at-home orders. Given long standing relationships with vendors, the Company continues to diligently monitor developments and work with partners to prioritize production to best align with demand.
Operational Actions Taken: Liquidity and Financing Update
Kontoor finished the first quarter with $479 million in cash and cash equivalents. Over the past sixty days, the Company has taken several proactive actions to enhance liquidity including the following:
- Drew down $475 million from its revolving credit facility prior to amendment;
- Amended the terms of its credit facility to provide future period covenant relief and increased flexibility, but requiring netted cash not to exceed $250 million;
- Suspended payment of a quarterly dividend on a temporary basis in conjunction with the amended credit facility. The payment of a dividend has been a foundational element of the Kontoor investment thesis and Total Shareholder Return (TSR) model, and the Company’s Board of Directors is committed to re-establishing a dividend as soon as appropriate;
- Announced temporary salary reductions for senior management and other key leaders as well as a reduction in fees for the Board of Directors;
- Implemented temporary furloughs for certain personnel in retail stores, distribution centers, and corporate and regional offices;
- Suspended merit increases for the Company’s global workforce; and
- Executed operating expense savings initiatives and select capital expenditure reductions.
Although Kontoor is focused on extremely tight expense controls during this extraordinary crisis, the Company remains committed to and has the capacity to fund investments behind key long-term strategic initiatives, including expenditures associated with the implementation of its new global ERP and information technology infrastructure. As COVID-19 is complex and evolving rapidly, the Company’s actions as outlined above may be subject to change. The Company is monitoring and complying with all governmental orders.
Outlook
As previously announced, and as a result of the uncertainty and significant business impacts caused by COVID-19, Kontoor has withdrawn its 2020 guidance provided on March 5, 2020, and is not providing an updated outlook at this time.
“The uncertainty of COVID-19 remains. I want to thank our colleagues around the world for their dedication and perseverance during this difficult time,” said Baxter. “We believe Kontoor’s key retail partners remain well positioned to navigate this environment. With more than 200 years of authentic heritage, our two iconic brands offer consumers a distinct value proposition. In addition, we are highly encouraged by significant new programs and distribution gains that are expected for the second half of 2020. Our iconic brands, coupled with our cost savings efforts and scaled, agile supply chain, position Kontoor well in the marketplace,” said Baxter.
While the Company is not providing full-year 2020 guidance at this time, additional perspective and assumptions are as follows:
- The Company continues to take the necessary, proactive steps to accommodate a prolonged COVID-19 environment. Negative impacts on revenue, operating income and EPS are anticipated to be most pronounced in the second quarter of 2020.
- Although the Company is not guiding on the impact of COVID-19 in the second half of 2020, underlying revenue and gross margins in the second half of 2020 are expected to benefit from new programs and distribution gains, as well as improvement of impacts from 2019 restructuring and quality-of-sales actions.
- Due to predictions of a prolonged economic downturn, the Company has performed stress testing for various demand scenarios during 2020 and believes the actions previously covered in the liquidity and financing update support liquidity requirements and provide operating flexibility.
Kontoor Brands (NYSE:KTB) stock price history
The image below, obtained from Google, shows the stock price history of Kontoor (NYSE: KTB) since its listing in May 2019. And its not been a very good day for Kontoor investors since the group's listing. At listing it was trading at close to $40.80 and its currently trading at $17.30
That's a loss for Kontoor stockholders of -57.5% since listing. The group is trading at closer to its 52 week low of $12.90 than it is to its 52 week high of $43.23 which to us is an indication that the short term sentiment and momentum of Kontoor's stock is negative at this point in time.
That's a loss for Kontoor stockholders of -57.5% since listing. The group is trading at closer to its 52 week low of $12.90 than it is to its 52 week high of $43.23 which to us is an indication that the short term sentiment and momentum of Kontoor's stock is negative at this point in time.
Recent coverage Kontoor Brands
The extract below discusses the latest regarding one of Kontoor Brands' brands as obtained from Finance.yahoo.com
Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors' consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Kontoor Brands, Inc. (NASDAQ:KTB).
Kontoor Brands, Inc. (NASDAQ:KTB) shareholders have witnessed an increase in hedge fund sentiment recently. Our calculations also showed that KTB isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). Video: Watch our video about the top 5 most popular hedge fund stocks.
Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. Our research has shown that hedge funds' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 58 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. ]
Read the full article here
Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors' consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Kontoor Brands, Inc. (NASDAQ:KTB).
Kontoor Brands, Inc. (NASDAQ:KTB) shareholders have witnessed an increase in hedge fund sentiment recently. Our calculations also showed that KTB isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). Video: Watch our video about the top 5 most popular hedge fund stocks.
Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. Our research has shown that hedge funds' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 58 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. ]
Read the full article here
Kontoor Brands (NYSE: KTB) latest stock valuation
So based on the earnings report of Kontoor Brands (NYSE: KTB) and what do we value Kontoor Brands (KTB) stock at? Based on the earnings reported and the fiscal guidance provided by the group our valuation model provides a target (full value) price for Kontoor Brands at $26.60 a stock (which is down significantly from our 4th quarter 2019 earnings report valuation of Kontoor).
We therefore believe the stock is undervalued at its current price of $17.30. We usually recommend that long term fundamental or value investors look to enter a stock at least 10% below our target (full value) price of $26.60 Therefore a good entry point into Kontoor Brands would be at $23.90 or below.
We expect the stock of Kontoor to tick up from current levels to levels closer to our target price (full value price) in coming weeks and months (once all the market panic regarding the Coronavirus has blown over).
We therefore believe the stock is undervalued at its current price of $17.30. We usually recommend that long term fundamental or value investors look to enter a stock at least 10% below our target (full value) price of $26.60 Therefore a good entry point into Kontoor Brands would be at $23.90 or below.
We expect the stock of Kontoor to tick up from current levels to levels closer to our target price (full value price) in coming weeks and months (once all the market panic regarding the Coronavirus has blown over).
Next earnings release of Kontoor Brands
It is expected that Kontoor Brands will release their 2nd quarter 2020 earnings towards the middle of August 2020