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Denim-Centric Kontoor Brands Set to “Thrive” Starting in May

The separation of Kontoor Brands and the Wrangler, Lee and Rock & Republic brands from VF Corp. is on track to be completed in May, and the move is expected to set the brands up to “thrive.”

“Our teams across VF have made tremendous progress to prepare for the successful separation of Kontoor Brands from VF and this filing is a significant next step in this process,” Steve Rendle, chairman, president and CEO of VF, said. “We are highly confident that the separation is the best path forward for both organizations to achieve even greater potential and enhance long-term shareholder value.”

Scott Baxter, who has been named CEO of Kontoor Brands, said the filing is an important milestone in the process of establishing Kontoor Brands as an independent company.

“As we prepare for life as a separate, publicly traded organization, I am confident that Kontoor Brands is strongly positioned to thrive as a leader in the global apparel industry and deliver long-term value for all of our stakeholders,” Baxter said.

In an updated presentation on the planned separation, VF said it “enhances strategic and management focus, creates opportunity to focus investment on strategic priorities, provides flexibility to pursue independent strategies and paths to value creation, drives more efficient allocation of capital and aligns each company with its natural investor type.”

The brands of Kontoor, formerly the VF Jeans Coalition, had revenue of $2.7 billion for the year ended Dec. 29. Wrangler had revenue of $1.6 billion and Lee had $960 million, in 2018, the company said Monday in a filing with the Securities and Exchange Commission (SEC). Earnings before interest, taxes, depreciation and amortization (EBITDA) was $385 million, and the unit had an operating cash flow of $225 million.

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Kontoor Brands’ long-terms revenue growth potential was put at “low single digit, with a gross margin of 42 percent and an EBITDA margin of 14 percent. VF said both companies are expected to be well capitalized, with flexibility to fund growth priorities and capital allocation strategies. They also “continue to expect minimal dis-synergies on an ongoing basis.”

By breaking out on its own, Kontoor Brands has an opportunity to see significant benefits of scale and cost efficiencies as like-minded brands operate more cogently, the company said. It also has an “opportunity to pursue industry consolidation and strategic M&A over time.”

Led by its Wrangler and Lee brands, Kontoor will have a vertically integrated supply chain that produced or sourced more than 170 million units in 2018. The company said in its SEC filing, “Our product procurement and distribution strategies, combined with our internal manufacturing facilities and retail floor space management programs, allow us to maintain what we believe is a competitive advantage versus other apparel suppliers. Our supply chain is built to support large volumes and to meet customer needs while balancing cost and operational requirements.”

Kontoor will have 13 internal manufacturing facilities located in the Western Hemisphere, “where their proximity to our primary markets enables us to deliver inventory in a consistent and timely manner,” the company said.

The brands have a global footprint across 65 countries and will have their headquarters in Greensboro, N.C., where VF Corp. has long been based. Lee is moving from Kansas City and VF is moving to Denver.

VF said these companies have “longstanding global denim leadership” and “deep retail relationships across leading brick and mortar and e-commerce players.”

In addition, an independent Kontoor will have “opportunity to invest in and extend geographic footprint, with a focus on Asia,” and a chance to “expand distribution and extend into adjacent categories with a focus on digital.”