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Category: Stock Market and Kontoor Brands
Date: 17 September 2019 Stock Price: $34.59 We take a look at the 2nd 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 latest earnings report
The numbers we are interested in (for the quarter):
- Total revenue: $609.746 million (down from $663.856 million from the same quarter of the previous year)
- Revenues decreased by -8% over the last 12 months
- Cost of Revenues: $556.226 million (up from $588.122 million for the same quarter of the previous year)
- Cost of revenues decreased by -5% over the last 12 months
- Net income: $37.986 million (down from $60.458 million for the same quarter of the previous year)
- Diluted earnings per share: $0.67 (down from $1.07 for the same quarter of the previous year)
- Diluted weighted-average shares outstanding: 56.695 million (up from 56.502 million for the same quarter of the previous year)
- Cash and cash equivalents: $76.687 million
- Cash and cash equivalents per share: $1.32
- Cash and cash equivalents makes up 3.9% of Kontoor's market capital
- Cash and cash equivalents makes up 4.82% of Kontoor's total assets
- Receivables: $254.049 million
- Receivables makes up 15.99% of Kontoor's total assets
- Inventories: $538.168 million
- Inventories makes up 33.88% of Kontoor's total assets
- Stockholders equity: $82.168 million
- Stockholders equity per share: $1.44
- Kontoor is trading at 24 times its stockholders equity
- Cash generated from operations for 6 months: $53.399 million
- Cash generated from operations per share for 6 months: $0.942
Kontoor Brand's management commentary on the results and earnings guidance
GREENSBORO, N.C. - Aug. 8, 2019 - 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 second quarter ended June 29, 2019. Kontoor became an independent, publicly traded company on May 23, 2019. “The restructuring and cost savings actions we’ve taken to simplify and stabilize the organization are paying off and are setting the foundation for improved profitability in the second half of 2019 and beyond,” said Scott Baxter, President and Chief Executive Officer, Kontoor Brands. “We will remain disciplined in our approach and focused on our total shareholder return goal of 8 to 10 percent supported by an industry leading dividend.”
Wrangler® brand global revenue decreased 8 percent to $364 million on a reported basis, down 7 percent in constant currency, largely driven by international performance. U.S. revenue declined 3 percent due to timing shifts of shipments and the customer bankruptcy. Adjusted global revenues declined 8 percent. Excluding currency and the impact of the customer bankruptcy, Wrangler® adjusted revenue would have been down 6 percent in the quarter. Of note, excluding the bankruptcy, Wrangler’s U.S wholesale performance was up 2 percent in the first half of 2019, and we anticipate global sales to accelerate in the second half of this year.
Lee® brand global revenue decreased 5 percent to $207 million on a reported basis, down 3 percent in constant currency. Adjusted global revenues declined 5 percent. Excluding currency and the impact of the customer bankruptcy, Lee® adjusted revenue would have increased 1 percent in the quarter.
Full Year 2019 Outlook Reaffirmed
“We have the pieces in place and see a clear path to achieving our long-term revenue growth, margin improvement, and cash generation goals,” said Baxter. “These improvements start to gain traction in the second half of 2019 as our business model changes and cost improvement initiatives begin to take hold.”
Kontoor Brands’ outlook for the fiscal year ended December 28, 2019, remains unchanged:
• Revenue is 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. First half reported revenue declined mid-single digits and the company expects second half revenue to improve, with the fourth quarter benefiting the most from strategic actions and the Q4 2018 customer bankruptcy comparison.
• Adjusted EBITDA is expected to range between $340 million and $360 million, reflecting a midsingle digit to low double-digit decline compared with full year 2018 adjusted EBITDA. As anticipated, the impacts of strategic actions and the prior year U.S. retailer bankruptcy weighed on our second quarter performance. We expect to see improved second half performance as benefits from restructuring and cost savings initiatives begin to more fully manifest. As planned, inventory levels are expected to remain elevated during the third quarter of the year due to the inventory built during the second quarter in anticipation of plants closed. The company expects second half adjusted EBITDA to be more weighted to the fourth quarter.
• Capital Expenditures are 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. 4
• 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.
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 period
Wrangler® brand global revenue decreased 8 percent to $364 million on a reported basis, down 7 percent in constant currency, largely driven by international performance. U.S. revenue declined 3 percent due to timing shifts of shipments and the customer bankruptcy. Adjusted global revenues declined 8 percent. Excluding currency and the impact of the customer bankruptcy, Wrangler® adjusted revenue would have been down 6 percent in the quarter. Of note, excluding the bankruptcy, Wrangler’s U.S wholesale performance was up 2 percent in the first half of 2019, and we anticipate global sales to accelerate in the second half of this year.
Lee® brand global revenue decreased 5 percent to $207 million on a reported basis, down 3 percent in constant currency. Adjusted global revenues declined 5 percent. Excluding currency and the impact of the customer bankruptcy, Lee® adjusted revenue would have increased 1 percent in the quarter.
Full Year 2019 Outlook Reaffirmed
“We have the pieces in place and see a clear path to achieving our long-term revenue growth, margin improvement, and cash generation goals,” said Baxter. “These improvements start to gain traction in the second half of 2019 as our business model changes and cost improvement initiatives begin to take hold.”
Kontoor Brands’ outlook for the fiscal year ended December 28, 2019, remains unchanged:
• Revenue is 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. First half reported revenue declined mid-single digits and the company expects second half revenue to improve, with the fourth quarter benefiting the most from strategic actions and the Q4 2018 customer bankruptcy comparison.
• Adjusted EBITDA is expected to range between $340 million and $360 million, reflecting a midsingle digit to low double-digit decline compared with full year 2018 adjusted EBITDA. As anticipated, the impacts of strategic actions and the prior year U.S. retailer bankruptcy weighed on our second quarter performance. We expect to see improved second half performance as benefits from restructuring and cost savings initiatives begin to more fully manifest. As planned, inventory levels are expected to remain elevated during the third quarter of the year due to the inventory built during the second quarter in anticipation of plants closed. The company expects second half adjusted EBITDA to be more weighted to the fourth quarter.
• Capital Expenditures are 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. 4
• 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.
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 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 $34.59. A loss for stockholders of -14.59% since listing. The group is trading at close to the mid point between its 52 week low and 52 week high, which shows short term momentum and sentiment towards the stock at this point in time is neutral.
Recent coverage Kontoor Brands
The extract below touches on Kontoor, the article was obtained from Zacks
Investors interested in the Textile - Apparel industry may consider a better-ranked stock like Kontoor Brands, Inc. (KTB - Free Report) , which carries a Zacks Rank #2 (Buy).
Read the full article here
Investors interested in the Textile - Apparel industry may consider a better-ranked stock like Kontoor Brands, Inc. (KTB - Free Report) , which carries a Zacks Rank #2 (Buy).
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 $32.90 a stock. 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 $32.90. Therefore a good entry point into Kontoor Brands would be at $29.60 or below.