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Category: Stock Market and Kontoor Brands
Date: 12 November 2019 Stock Price: $36.15 We take a look at the 3rd quarter earnings release of their 2019 fiscal year of Kontoor the owner of fashion brands Wrangler and Lee.
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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 3rd quarter 2019 earnings report
The numbers below refers to the latest quarter unless specified otherwise:
- Total revenue: $638.138 million (down from $704.246 million from the same quarter of the previous year)
- Revenues decreased by -9% over the last 12 months
- Cost of Revenues: $607.110 million (up from $608.962 million for the same quarter of the previous year)
- Cost of revenues decrease by -0.3% over the last 12 months
- Net income: $14.502 million (down from $71.018 million for the same quarter of the previous year)
- Diluted earnings per share: $0.25 (down from $1.25 for the same quarter of the previous year)
- Dividend declared: $0.56
- Dividend yield: 6.2%
- Diluted weighted-average shares outstanding: 57.410 million (up from 56.648 million for the same quarter of the previous year)
- Cash and cash equivalents: $40.804 million
- Cash and cash equivalents per share: $0.71
- Cash and cash equivalents makes up 1.96% of Kontoor's market capital
- Cash and cash equivalents makes up 2.57% of Kontoor's total assets
- Receivables: $302.582 million
- Receivables makes up 19.1% of Kontoor's total assets
- Inventories: $545.426 million
- Inventories makes up 34.4% of Kontoor's total assets
- Stockholders equity: $55.571 million
- Stockholders equity per share: $0.96
- Kontoor is trading at 37.7 times its stockholders equity which is well outside the expected range of between 2 and 4 times that most firms tend to trade at
- Cash generated from operations (for 9 months): $579.775 million ($31.4 million of abnormally large amount under due from former parent is excluded)
- Cash generated from operations per share (for 6 months): $0.54 (using the $31.4 million which we believe the more accurate reflection of the group's cash generating abilities
Kontoor Brand's management commentary on the results and earnings guidance
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 third quarter ended September 28, 2019.
“Third quarter 2019 results were in line with our expectations, as we continued to execute on our strategy of setting the foundation for long-term operational success,” said Scott Baxter, President and Chief Executive Officer, Kontoor Brands. “We’re beginning to realize the benefits of the previously announced restructuring and cost-savings initiatives, while we continue to stabilize and globalize our organization. And, we're improving the quality of our sales, including exiting unprofitable points of distribution, changing business models and rationalizing underperforming SKUs. These actions create the building blocks for healthy, sustainable future growth.”
“Third quarter 2019 results were in line with our expectations, as we continued to execute on our strategy of setting the foundation for long-term operational success,” said Scott Baxter, President and Chief Executive Officer, Kontoor Brands. “We’re beginning to realize the benefits of the previously announced restructuring and cost-savings initiatives, while we continue to stabilize and globalize our organization. And, we're improving the quality of our sales, including exiting unprofitable points of distribution, changing business models and rationalizing underperforming SKUs. These actions create the building blocks for healthy, sustainable future growth.”
Kontoor Brands’ outlook for the fiscal year ended December 28, 2019, is as follows:
Reaffirmed 2020 to 2021 Financial Roadmap
- Adjusted EBITDA is now expected to be in the lower half of our previously announced range of $340 million to $360 million, reflecting a high-single digit to low-double digit decline compared with full-year 2018 adjusted EBITDA.
- Revenue is still expected to exceed $2.5 billion, reflecting a mid-single digit decline compared with full-year 2018 adjusted revenue. Excluding the negative impact of foreign currency exchange rates, impacts of a prior year U.S. retailer bankruptcy and strategic business exits, full-year 2019 revenue is expected to be relatively consistent with full-year 2018 adjusted revenue. The Company continues to expect second half revenue to improve relative to the first half of 2019, with the fourth quarter benefiting the most from strategic actions and the fourth quarter 2018 customer bankruptcy comparison.
- Capital Expenditures are still expected to range between $55 million and $65 million, including approximately $30 million to $40 million to support the design and implementation of a global enterprise resource planning (ERP) system. As previously announced, the global ERP system implementation is expected to require approximately $80 million to $90 million of capital investment during a two-to-three-year period and is expected to result in significant efficiencies and cost savings, once fully implemented.
- Other full-year assumptions include an effective tax rate of approximately 24 percent. Interest expense should be approximately $40 million in 2019, or $60 million on an annualized basis.
- We anticipate the total reduction in long-term debt for fiscal 2019 will be approximately $100 million.
Reaffirmed 2020 to 2021 Financial Roadmap
- Revenue is expected to increase at a low-single digit compound annual growth rate (CAGR) over the period.
- Adjusted EBITDA is expected to increase at a mid-single digit CAGR over the period.
- Capital Expenditures are expected to range between $105 million and $110 million in aggregate over the two-year period.
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 $40.50 and its currently trading at $36.15. A loss for Kontoor stockholders of -10.7% since listing. The group is trading at closer to its 52 week high of $41.75 than it is to its 52 week low of $25.78 which to us is an indication that the short term sentiment and momentum of Kontoor's stock is positive.
Recent coverage Kontoor Brands
The extract below touches on Kontoor's latest dividend announcement as obtained from TheStreet.com
Kontoor Brands, Inc. (NYSE: KTB) today announced that its Board of Directors has declared a regular quarterly cash dividend of $0.56 per share of its common stock. The cash dividend will be payable on December 20, 2019, to shareholders of record at the close of business on December 10, 2019.
Kontoor Brands, Inc. (NYSE: KTB) today announced that its Board of Directors has declared a regular quarterly cash dividend of $0.56 per share of its common stock. The cash dividend will be payable on December 20, 2019, to shareholders of record at the close of business on December 10, 2019.
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 $31.70 a stock (which is slightly lower than our 2nd quarter 2019 earnings report valuation of Kontoor).
We therefore believe the stock is overvalued at its current price and we would not recommend long term fundamental or value investors invest into the stock at its current price, but rather look to enter the stock at least 10% below our target (full value) price of $31.70. Therefore a good entry point into Kontoor Brands would be at $28.50 or below. We expect the stock of Kontoor to pull back from current levels to levels closer to our target (full value) price in coming weeks and months
We therefore believe the stock is overvalued at its current price and we would not recommend long term fundamental or value investors invest into the stock at its current price, but rather look to enter the stock at least 10% below our target (full value) price of $31.70. Therefore a good entry point into Kontoor Brands would be at $28.50 or below. We expect the stock of Kontoor to pull back from current levels to levels closer to our target (full value) price in coming weeks and months
Next earnings release of Kontoor Brands
It is expected that Kontoor Brands will release their 4th quarter and full fiscal 2019 earnings towards the middle of February 2020