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Category: Stock Market and Kontoor Brands
Date: 9 March 2020 Stock Price: $29.98 We take a look at the 4th quarter earnings release of their 2019 fiscal year of Kontoor the owner of fashion brands Wrangler and Lee. The stock is currently trading at a dividend yield of over 7%
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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 4th quarter 2019 earnings report
The numbers below refers to the latest quarter unless specified otherwise:
- Total revenue: $652.611 million (down from $726.233 million from the same quarter of the previous year)
- Revenues decreased by -10% over the last 12 months
- Total cost and expenses: $594.064 million (down from $656.617 million for the same quarter of the previous year)
- Total cost and expenses decreased by -10% over the last 12 months
- Net income: $28.573 million (down from $51.902 million for the same quarter of the previous year)
- Diluted earnings per share: $0.50 (down from $0.92 for the same quarter of the previous year)
- Dividend declare by Kontoor Brands: $0.56
- Dividend yield of Kontoor Brands: 7.47%
- Diluted weighted-average shares outstanding: 57.867 million (up from 56.648 million for the same quarter of the previous year)
- Cash and cash equivalents: $106.808 million
- Cash and cash equivalents per share: $1.85
- Cash and cash equivalents makes up 6.16% of Kontoor's market capital
- Cash and cash equivalents makes up 7% of Kontoor's total assets
- Receivables: $228.449 million
- Receivables makes up 15.1% of Kontoor's total assets
- Inventories: $458.101 million
- Inventories makes up 30.2% of Kontoor's total assets
- Stockholders equity: $69.257 million
- Stockholders equity per share: $1.19
- Kontoor is trading at 25.19 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 the full fiscal year): $777.788 million
- Cash generated from operations per share (for the full fiscal year): $13.44 (including a large amount due from the parent).
- Cash generated from operations per share (for the full fiscal year excluding the large amount due from the parent): $3.96
Kontoor Brand's management commentary on their 4th quarter 2019 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 fourth quarter and full year ended December 28, 2019.
“2019 has been a year of transformational change for our organization, our leadership teams and our employees around the globe. Since our spin-off in May of 2019, we have been successfully executing on our Horizon 1 strategic initiatives, making excellent strides in setting the foundation for more profitable, and sustainable, long-term growth,” said Scott Baxter, President and Chief Executive Officer, Kontoor Brands. “As we look to 2020, we remain sharply focused on the continued optimization and globalization of our operating model.”
Baxter added, “Our strong cash flow generation has allowed us to pay a superior dividend while also significantly de-levering our balance sheet, by paying down debt well ahead of guidance, during the first seven months post-separation. This robust cash flow will continue to be an important pillar in support of our evolving capital structure, further enhancing our financial flexibility in 2020 and beyond.”
This release refers to “adjusted” amounts that exclude the impact of restructuring and separation costs, changes in our business model, a non-cash impairment charge related to our Rock & Republic® trademark and other adjustments. This release also refers to “constant currency” amounts. These adjustments are further described in the Non-GAAP Financial Measures section below. All per share amounts are presented on a diluted basis.
“2019 has been a year of transformational change for our organization, our leadership teams and our employees around the globe. Since our spin-off in May of 2019, we have been successfully executing on our Horizon 1 strategic initiatives, making excellent strides in setting the foundation for more profitable, and sustainable, long-term growth,” said Scott Baxter, President and Chief Executive Officer, Kontoor Brands. “As we look to 2020, we remain sharply focused on the continued optimization and globalization of our operating model.”
Baxter added, “Our strong cash flow generation has allowed us to pay a superior dividend while also significantly de-levering our balance sheet, by paying down debt well ahead of guidance, during the first seven months post-separation. This robust cash flow will continue to be an important pillar in support of our evolving capital structure, further enhancing our financial flexibility in 2020 and beyond.”
This release refers to “adjusted” amounts that exclude the impact of restructuring and separation costs, changes in our business model, a non-cash impairment charge related to our Rock & Republic® trademark and other adjustments. This release also refers to “constant currency” amounts. These adjustments are further described in the Non-GAAP Financial Measures section below. All per share amounts are presented on a diluted basis.
2020 Full Year Outlook
“As a new publicly traded company, we believe it is important to understand the underlying fundamentals of our business, and therefore our outlook for 2020 excludes the impact of the COVID-19 coronavirus. We believe this most accurately reflects our business model, but we also think it is important to provide investors context with respect to potential coronavirus impacts,” Baxter said, which are outlined below.
Kontoor Brands’ outlook for the fiscal year ended January 2, 2021, which includes a 53rd week, compared to adjusted 2019 is as follows:
“As a new publicly traded company, we believe it is important to understand the underlying fundamentals of our business, and therefore our outlook for 2020 excludes the impact of the COVID-19 coronavirus. We believe this most accurately reflects our business model, but we also think it is important to provide investors context with respect to potential coronavirus impacts,” Baxter said, which are outlined below.
Kontoor Brands’ outlook for the fiscal year ended January 2, 2021, which includes a 53rd week, compared to adjusted 2019 is as follows:
- Revenue is expected to be largely consistent with full year 2019 adjusted revenue, with branded Wrangler® and Lee® revenue anticipated to increase low-single digits while other non-strategic revenues are expected to decline double-digits due to ongoing planned reductions in non-branded VF Outlet™ and Rock & Republic®. The 53rd week is expected to contribute approximately one half of a point to full year revenue.
The negative impact of 2019 strategic business exits, quality-of-sales initiatives and lower revenue associated with non-strategic lines of business is expected to contribute up to 3 points of headwind to full year 2020 revenue with the majority occurring during the first half of the year. In addition, timing shifts between the second quarter and third quarter shipments are anticipated.
Due to these reasons, first half revenue is expected to decline. Revenue is expected to grow in the second half based on the moderating headwinds from restructuring and quality-of-sales actions, benefits of expanding programs and points of distribution, as well as the timing of shipments, with the strongest revenue growth expected during the fourth quarter. - Gross margin is expected to be in the range of 41.0 percent to 41.5 percent compared with full year 2019 adjusted gross margin of 40.8 percent, driven by ongoing restructuring and quality-of-sales initiatives, as well as structural mix shifts to more accretive DTC and international businesses.
- Adjusted EPS is expected to be in the range of $3.55 to $3.65 compared with full year 2019 adjusted EPS of $3.84. Adjusted EPS excludes expenses primarily related to the implementation of the global ERP system and information technology infrastructure. 2020 includes an additional five months of interest expense that impacts full year adjusted EPS by approximately $0.23 compared with 2019 adjusted EPS, which will negatively impact first half 2020 comparisons.
- Cash flow from operations is expected to be greater than $325 million, with significant financial flexibility in support of continued aggressive debt paydown, superior dividend payments and the funding of capital expenditures and implementation costs related to a new global ERP system and information technology infrastructure.
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 $29.98. That's a loss for Kontoor stockholders of -26.5% since listing. The group is trading at closer to its 52 week low of $25.78 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.
Recent coverage Kontoor Brands
The extract below discusses the latest regarding one of Kontoor Brands' brands as obtained from TheStreet.com
GREENSBORO, N.C ., March 3, 2020 /PRNewswire/ -- Lee ®, the iconic American apparel brand known for its innovative apparel solutions, today announced new Spring 2020 offerings for its Vintage Modern Collection, which includes women's jeans inspired by the brand's historic archives. In time for festival season, Lee's Vintage Modern is now available online with new retail partners, including Nordstrom and Madewell.
" Lee's Vintage Modern Collection is much loved by consumers and influencers, bringing to life the brand's storied history while creating a fresh approach to the legendary details and quality product Lee is known for," said Betty Madden, VP, Global Design, Lee.
Read the full article here
GREENSBORO, N.C ., March 3, 2020 /PRNewswire/ -- Lee ®, the iconic American apparel brand known for its innovative apparel solutions, today announced new Spring 2020 offerings for its Vintage Modern Collection, which includes women's jeans inspired by the brand's historic archives. In time for festival season, Lee's Vintage Modern is now available online with new retail partners, including Nordstrom and Madewell.
" Lee's Vintage Modern Collection is much loved by consumers and influencers, bringing to life the brand's storied history while creating a fresh approach to the legendary details and quality product Lee is known for," said Betty Madden, VP, Global Design, Lee.
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 $34.10 a stock (which is slightly higher than our 3rd quarter 2019 earnings report valuation of Kontoor).
We therefore believe the stock is undervalued at its current price. 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 $34.10. Therefore a good entry point into Kontoor Brands would be at $30.70 or below.
We expect the stock of Kontoor to tick up from current levels to levels closer to our target (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. 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 $34.10. Therefore a good entry point into Kontoor Brands would be at $30.70 or below.
We expect the stock of Kontoor to tick up from current levels to levels closer to our target (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 1st quarter 2020 earnings towards the middle of June 2020