US sales boost Kontoor to 162% hike in second-quarter profit; manufacturer lowers fiscal 2022 earnings guidance | Local

Kontoor Brands Inc.’s ability to capitalize on increasing US consumer demand for apparel amid supply chain challenges led to a 162% increase in second-quarter net income to just under $62 million.

However, the manufacturer said Thursday it has lowered its fiscal 2022 adjusted earnings guidance from a range of $4.75 to $4.85 to a range of $4.40 to $4.50.

It listed projections of 6% revenue growth, compared with an initial 10% growth estimate, “with the third quarter experiencing greater pressure relative to the fourth quarter, due to COVID-19 lockdowns in China and retailer inventory rebalancing.”

Kontoor also cited one-time expenses of about $18 million — representing a combined 25-cents on earnings per share — tied to the rollout of globalization initiatives and relocating its European headquarters to Geneva, Switzerland.

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Typically investors react to lowered earnings guidance by sending the share price down.

However, Kontoor’s share price was up as much as 3.9% in morning trading to $39.32.

Kontoor is focused on the Lee, Rock and Republic and Wrangler brands. In addition to its Greensboro headquarters, it has a major distribution center in Mocksville with 360 employees.

Second-quarter diluted earnings were $1.08 a share, while adjusted earnings were $1.09.

The average earnings forecast was $1.04 by one analyst surveyed by Zacks Investment Research. Analysts typically do not include one-time gains and charges in their forecasts.

Revenue was up 25% to $613.6 million, which represented a 34% increase in Wrangler sales to $417.9 million and a 10% boost in Lee sales to $193 million.

Although Lee products are sold on Amazon, it is focused more on department stores, such as Kohl’s. Scott Baxter, the company’s president and chief executive, said that the dynamic is changing after introducing Lee products into at least 2,000 Walmart stores.

“In a highly dynamic macroeconomic environment, supply chain challenges and inflationary pressures accelerated during the quarter,” Scott Baxter, Kontoor’s chairman and chief executive, said in a statement.

“While these factors tempered our top line a bit sooner than expected, we were still able to deliver strong 27% revenue growth and 57% adjusted earnings growth … in line with our earnings per share guidance.”

Kontoor is far from alone among manufacturers struggling with labor and supply chain challenges during 2022.

The list so far includes several other manufacturers with Triad operations, such as Caterpillar Inc., Egger Woods Products LLC, Hayward Industries, Insteel Inc., and Raytheon Technologies Corp.

Baxter said Kontoor “anticipates that macro conditions will remain challenging, particularly as retailer inventories are rebalanced and inflation weighs on overall consumer demand.”

“However, we are confident that our strategies, continued brand momentum and efficient operating model will fuel further competitive separation over time.”

Capital expenditures remain projected in the range of $35 million to $40 million.

During the third quarter of 2021, Kontoor’s board of directors authorized a share-repurchase program worth up to $200 million. The program was launched without an expiration date.

Kontoor reported spending $40 million on share repurchases during the second quarter after spending $123 million in the first quarter, $65 million in the fourth quarter and $10 million in the third quarter.


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