Kontoor Brands’ sales and earnings picture isn’t as bad as it looks–or at least it’s going to get better, according to president and CEO Scott Baxter.
Speaking to analysts on a conference call reviewing third quarter results that saw significant declines in revenue and profit, Baxter said Wrangler “played a very specific role in our past ownership and that was important, and it did exactly what it needed to do.
Things have changed, now that Kontoor has separated from VF. Going forward, Baxter said, “as we look at this business and I look at what we need to do with that brand in the U.S. and globally, and for instance we both know that it’s not even in China, we’ve got an opportunity to go ahead and pick and choose really high quality wholesale partners going forward.”
Kontoor Brands was spun off from VF Corp. in May, bringing with it the core Wrangler and Lee brand, along with the Rock & Republic and outlet businesses.
Noting that Wrangler, excluding the impact of the Sears bankruptcy, saw U.S. wholesale revenue decline 3 percent in the quarter, the brand’s U.S. wholesale performance was flat year to date and “we expect revenue to improve in the fourth quarter,” Baxter said.
International growth is eyed as important for Wrangler, as well, and Baxter said, “We are on track to launch the Wrangler brand in China in the first quarter of 2020. Our go-to-market strategy will focus on digital, launching with a large digital partner in this brand. We’re encouraged by early consumer testing associated with our global Wear with Abandon ad campaign, which appears to be resonating well. The global campaign goes live in the region in February.”
Baxter also announced Wrangler’s collaboration with Nordstrom NYC, kicked off on Friday in Manhattan.
“Our fashion-forward Wrangler Heritage collection draws from our past and with modern styling pays tribute to our authentic Western legacy that’s synonymous with our name,” he said. “The event this weekend will also showcase our customization laser technology to personalize product. This technology allows us, or in the future our retail partners, to elevate the consumer experience through both customized design and heightened convenience.”
Asia and specifically China will be a focal point for international expansion overall. The Lee brand revenue increased 8 percent constant currency in China during the third quarter, including a 10 percent comp store increase, as it continues to leverage 20-plus years of business as a leading premium lifestyle brand in the region.
“We’re pleased by our year-to-date results and we are excited about the growth opportunities for our two iconic brands,” Baxter said.
Category extensions, which include expanding further into tops, outerwear and accessories, are being pursued aggressively for Lee and Wrangler. In addition, channel evolution, which includes taking both brands into select new points of wholesale distribution and direct-to-consumer, with a sharp focus on digital, is important.
Outdoor programs with Wrangler all-terrain gear, also known as ATG, recently launched, affording opportunities to extend into new distribution channels such as outdoor specialty and sporting goods. Also, tops collections for Wrangler and Lee created by a new design teams have sold well in upper tiers of distribution, with specialty stores and specialty dot-com, Baxter noted.
In addition, he said, “we remain significantly under-indexed in our T-shirt business.”
“Just to put the relative opportunity in perspective, in the U.S. we currently sell roughly 500 pairs of jeans for every one T-shirt sold,” Baxter said. “In contrast, some competitors sell as many as five T-shirts for every one pair of jeans sold. This is an obvious and material category opportunity that we intend to capture.”
Baxter said the strategic initiatives that have been implementing and the investments being making from quality of sales to talent to innovation “are driving improved profitability and significant cash generation that will fuel our growth.”
“We remain confident in our plans and our ability to deliver on these commitments,” he said. “Our resolve to successfully execute against our strategies to drive improved growth and enhance our brands over the long term remains focused and unwavering.”