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Kontoor Brands Beats 1st-Quarter Earnings Projections, but Posts Revenue Miss

·3 min read

Kontoor Brands Inc. (NYSE:KTB) released its first-quarter results before the market opened on May 7. The denim company that owns the Wrangler and Lee brands posted an earnings beat, but revenue fell short of expectations.

Earnings and revenue

The company posted quarterly earnings of 27 cents per share, down from 78 cents in the year-ago period. Analysts had forecasted earnings of 26 cents per share. Revenue declined 22% to $504 million, which was below analysts' projections.


Reflecting on the company's performance, President and CEO Scott Baxter said:


"The COVID-19 global pandemic has had an unprecedented impact on the world including Kontoor's operations and results. 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."



How did Wrangler and Lee fare?

On the global front, Wrangler recorded revenue of $303 million, which reflected a decline of 18% from the same period last year. Revenue slipped 14% in the U.S., primarily driven by the Covid-19 virus and planned removal or reduction of non-core programs.

By contrast, Wrangler's profit surged roughly 43% to $33.8 million. This was more than the $23.6 million reported in the year-ago quarter.

The Lee brand, which is densely distributed in China, saw revenue decline from $241 million in the previous year to $182 million. Profits plummeted 94% to $973,000.

As a precautionary measure against the coronavirus, Kontoor shut down all company-owned and operated stores in North America and Europe. This included Lee wrangler outlets, Lee Wrangler Clearance Centers and Wrangler Hometown studio stores. In China, however, the company has resumed operations with all the owned and partnered physical stores reopened.

Efforts to preserve liquidity

At the end of the quarter, Kontoor had cash and cash equivalents of $479 million. The company has borrowed $475 million under the revolving credit facility. In addition, it has temporarily halted its share repurchase program and suspended the quarterly dividend.

As part of its cost-saving measures, the company is reducing executives' salaries and giving the majority of its in-store and corporate associates time off work with no pay.

Guidance

Kontoor Brands did not provide 2020 guidance as the full impact of the Covid-19 virus is currently unknown.

Disclosure: I do not hold any positions in the stocks mentioned.

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This article first appeared on GuruFocus.