Despite another lockdown looming in certain areas of the world, Kontoor Brands’ Wrangler and Lee businesses exceeded financial expectations in Q2. In an earnings call on Thursday, the company reported that Wrangler brought in $311 million in revenue for a 24 percent increase since last year, while Lee brought in $176 million for a 105 percent increase. Revenue across all brands totaled $491 million for a 41 percent increase, fueling executives’ confidence for the future.
“We believe consumers migrate to trusted quality, value-oriented brands like Wrangler and Lee in times of uncertainty. And in fact, we continue to see solid momentum across both our brands,” said CEO Scott Baxter.
To sustain this momentum, the company is diversifying its offerings through strategic product extensions, focusing on increasingly popular categories like outdoor, workwear and T-shirts. Baxter said the new categories present nearly $150 billion in total addressable markets, and are a natural addition to the brands’ current offerings.
The booming outdoor category puts the Wrangler ATG line in an optimal position for expansion, and the brand is swiftly taking action with the introduction of two new distribution partners: American sporting goods store chain Academy Sports and Swiss sporting goods retailer Intersport. Specifically, consumers are spending much of their time outdoors fishing—an activity Wrangler is celebrating with its Wrangler Angler collection announced on Investor Day in May. Launching next year, the collection aims to be the go-to apparel choice for fishing garb for men and women.
Also launching in 2022 is a series of Wrangler and Lee T-shirt programs launching in partnership with an unnamed “key domestic retail partner.” The program will consist of logo, lifestyle and licensed T-shirts that are slated to sell in more than 1,700 doors. According to Rustin Welton, executive vice president and chief financial officer at Kontoor Brands, the T-shirt category presents a unique opportunity for the denim-focused brands.
“Our competitors can sell as many as five T-shirts for every pair of jeans, but for us it’s almost the inverse,” he told Rivet. “So it’s an area we’re starting to invest in that has significant market opportunity.”
Similarly, Wrangler plans to increase its recently launched workwear program with the same retailer, which will more than double its door count and take the brand into more than 3,300 doors by fall. Baxter expects the outdoor, workwear and T-shirt categories to add over $200 million in revenue for Kontoor over the next three years.
The brands’ collaborations are also crucial for expansion efforts, as proven with a successful Wrangler and Georgia May Jagger collection that helped drive engagement from younger demographics. A recent partnership with Billabong showed similar engagement, with a popular West-meets-surf story that led the labels to develop a second installment for September.
Lee’s success with its The Hundreds collaboration also inspired a second collection’s creation. Sold exclusively through digital platforms and at The Hundreds L.A. store, a new range of denim, T-shirts, hoodies and outerwear is slated to drop later this year.
CEO Scott Baxter said that the shift to casualization is “not cyclical” but will continue to fuel the brands’ relevance over time—a sentiment shared by fellow heritage denim brand CEO Chip Bergh, who has previously stated that the industry is seeing a “denim resurgence” in post-pandemic consumerism.
Kontoor also expects to drive revenue with geographic expansion, specifically in China, which reported a 20 percent increase in revenue since last year. Currently, Kontoor Brands’ geographic breakdown of revenue is 75 percent domestic and 25 percent international, with China representing less than 7 percent. In May, the company set a goal to drive that number to 10 percent by 2023. Though Lee has had a strong, premium presence in the region for more than 20 years, Wrangler was just recently introduced at the end of 2020 through a digital partnership with Alibaba Group’s Tmall e-commerce site, and shows promising signs for growth.
Europe is also a key region for the brands, as the business is up 250 percent compared to 2020 and up 40 percent compared to 2019—likely due to easing lockdowns and timing shifts overseas.
The company’s Europe business is likely to get a boost following the implementation of a new ERP and IT infrastructure project, which just recently went live in Europe following its release in North America. According to Welton, these implementations represent significant milestones for Kontoor, as they have “both short- and long-term implications on operations.”
While many apparel brands experience major supply chain disruptions, Kontoor’s diversified supply chain gives it a competitive advantage. Still, Baxter noted the company is “not immune to these macroeconomics,” and anticipates “elevated transitory costs such as freight” later this year.
Looking ahead, the company is on the path to meet or exceed the financial goals it recently set during its first Investor Day.
“The updated fiscal 2021 outlook puts us well on track, if not ahead of plan, to deliver on our three-year financial targets,” Welton said.