Kontoor Brands, Inc. Q3 FY2024 earnings call

• Wrangler's third quarter results exceeded expectations with accelerating revenue growth, improving profitability, and strong cash generation. Gained 90 basis points of market share in the US core bottoms and shorts business. Launched Cliffside utility pant, outdoor chino, and had strong response to bespoke female fit innovation and Laney Wilson collaboration. - LEAD/Lee saw revenue decrease 3% sequentially but improved in the US with positive revenue inflection. Female business was strong, and there were successful collaborations. Upcoming Lee X launch to support return to growth. - Project Genius is progressing well with three major areas: global sourcing transformation, back-end efficiencies, and commercial optimization, on track to deliver $100 million in savings.

Wrangler: Global revenue grew 4%, with 5% growth in the US and 10% growth in global D2C. Year-to-date, outdoor has grown 12%. Female business grew double-digits. Key launches include Cliffside utility pant, outdoor chino, bespoke female fit innovation, Laney Wilson collection, and Wrangler global equity campaign. Denimat target re-launch is off to a good start. LEAD/Lee: Global revenue decreased 3%, but in the US, revenue inflected positive with 2% growth in wholesale. Female business grew 10%. Successful collaborations during the quarter. Upcoming launch of Lee X Move collection in Q4 2024 and Lee X lite in H1 2025. Project Genius is progressing well, aiming for $100 million in combined gross margin and SG&A savings.

• Full-year revenue expected to be $2.6 billion, consistent with prior outlook midpoint. Q4 revenue ~$695 million (+4%). Gross margin raised to 45.1% from ~44.8%, operating income expected $385 million, EPS $4.83. - Preliminary 2025 guidance: 4% revenue growth in first half of 2025. Project Genius benefits to start in H1 2025 for SG&A savings and in H2 for gross margin savings. - Full-year EPS growth negatively impacted by higher tax rate, but normalized for tax, Q4 EPS expected to increase ~20%.

• Uncertain macro conditions impacting international business, especially in Europe and Asia. - Supply chain volatility, which led to proactive supply chain and inventory actions. - Product cost inflation expected in 2025, with a neutral overall environment but some puts and takes.

Q: Ike Boruchow asked about 2025 commentary and revenue growth shape.

A: Scott Baxter and Joe Alkire discussed that revenue growth is driven by market share gains, category expansion, and strong momentum in outdoor and female, with 4% growth expected in first half of 2025.

Q: Jim Duffy inquired about Project Genius mechanics.

A: Scott Baxter and Joe Alkire explained Project Genius has three categories: global supply chain transformation, back-end efficiencies, and commercial optimization, with $100 million in savings expected at full run rate, SG&A savings in H1 2025 and gross margin savings in H2.

Q: Bob Drbul asked about Lee performance improvement and product cost inflation.

A: Scott Baxter talked about Lee's leadership and early wins in female business, while Joe Alkire discussed product cost inflation being neutral overall with first-half and second-half dynamics.

Q: Mauricio Serna asked about incremental supply chain and inventory actions and Project Genius savings flow.

A: Joe Alkire explained the $6 million incremental impact from supply chain and inventory actions, and Project Genius savings will be a gradual build with SG&A savings in H1 2025 and gross margin savings in H2.

Q: Paul Kearney asked about operating margin target and capital allocation.

A: Scott Baxter said they're on track to achieve prior targets, with capital allocation priorities including reinvesting in the business, growing the dividend, and share repurchases.

Q: Lia Yang asked about gross margin adjustments and Project Genius costs.

A: Scott Baxter mentioned gross margin adjustments related to supply chain transition and Project Genius specifics to be laid out in February.