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Wrangler and Lee Parent Kontoor Stock Rises in Public Debut, Sowing Seeds for Expansion

There’s a new jeans giant in town and on the New York Stock Exchange.

Kontoor Brands Inc. completed its separation from VF Corp. on Thursday and is now a global, independent, publicly traded company, headquartered in Greensboro, N.C. Kontoor Brands shares begin trading under the ticker symbol “KTB.”

The stock opened at $35.51 per share and rose 3.9 percent on the day to close at $38.60 on a day that saw the Dow Jones Industrial Average fall 286 points, 1.11 percent. The company listed its market capitalization as $2.19 billion after the day’s trading.

Kontoor’s core brands are Wrangler and Lee—with a combined history of more than 200 years—and Rock & Republic, as well as the VF Outlet business. Wrangler saw $1.6 billion in net sales in 2018 and was the No. 2 men’s denim brand in the U.S. and the top denim brand in the mass channel. Net sales at Lee reached $1 billion last year, and it was the leading denim brand in China and India.

The company has said it expects to maintain revenue of roughly $2.5 billion in 2019, and then see low single digit growth in 2020 and 2021. The initial outlook for Kontoor Brands’ first fiscal year, which ends Dec. 28 has adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) ranging between $340 million and $360 million, reflecting a mid-single-digit to low double-digit decline, compared with full year 2018 adjusted EBITDA.

“This is a historic day for everyone connected with Kontoor as we now accelerate to the next stage of our journey as a public company,” Scott Baxter, president and CEO of Kontoor Brands, who previously served as vice president and group president of Americas West, where he was responsible for overseeing brands including The North Face and Vans.

“Since the separation from VF was first announced last August, we have planned for this moment and we are fully prepared to succeed. We are grateful to the VF and Kontoor teams that worked collaboratively to stand-up this terrific organization,” Baxter said. “We have a historic opportunity ahead of us. We are confident that Kontoor and its brands are positioned for value-creating performance.”

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Kontoor is focused on pursuing five strategic priorities. The first is to scale its advantage in the core denim business. It also wants to accelerate its positions in high-value segments, channels and geographies; build advantaged positions to reach new consumers; drive an unwavering focus on margin expansion and improving capital efficiency; and create a highly engaged and performance-driven team.

The company has a vertically integrated supply chain producing or sourcing more than 170 million units in 2018, executives said in an earlier investor presentation, noting that it has “deep retail relationships across leading brick and mortar and e-commerce players” and a global footprint across 65 countries.

Kontoor said it is determined to deliver consistent and reliable shareholder returns through solid execution and an efficient long-term total shareholder return (TSR) operating model, underpinned by strong margins and cash flow generation. The long-term TSR model assumes an approximate 5 percent dividend yield, 2 percent to 3 percent margin expansion and 1 percent to 2 percent revenue growth, equating to 8 percent to 10 percent annualized returns.

The separation was achieved through the distribution of 100 percent of the shares of Kontoor Brands to holders of VF common stock. VF shareholders entitled to receive the distribution received a book-entry account statement or a credit to their brokerage account reflecting their ownership of Kontoor Brands common stock.

The distribution of Kontoor Brands’ shares was completed after the market close on May 22, with VF shareholders receiving one share of Kontoor Brands common stock for every seven shares of VF common stock held at the close of business on the record date of May 10.

In addition to Baxter, who was previously group president of VF’s Jeanswear Americas business, Kontoor’s executive leadership team consists of Rustin Welton, vice president and chief financial officer (CFO); Tom Waldron, vice president and global brand president for Wrangler; Chris Waldeck, vice president and global brand president for Lee; Laurel Krueger; vice president, general counsel and corporate secretary; Sara Bland, vice president and chief strategy officer, and Scott Deitz, vice president of investor and corporate relations.

Robert Shearer, who was senior vice president and CFO of VF from 2005 to 2015, is chairman of the board of directors. The rest of the board is made up of Kathleen Barclay, previously senior vice president of human resources of The Kroger Co.; Baxter; Richard Carucci and Juliana Chugg, who have been members of VF’s board since 2009; Shelley Stewart Jr., formerly chief procurement officer at E. I. du Pont de Nemours & Co.; Randy Fortenberry, who is Kontoor’s vice president of global supply chain, and Scott Shoener, vice president and chief human resources officer.

“Our board of directors and executive leadership team feature a unique range of management experience, both from within VF and from other leading multi-national companies and global brands,” Baxter said. “Our team’s depth and breadth of experience and extensive sector knowledge will help to drive the success of our company. I look forward to working with this talented group to establish Kontoor as a respected, thriving, independent, publicly traded company.”

Posting on his Linkedin page, Baxter said, Kontoor Brands enters the public arena “with the benefit of established, global brands, long-standing partnerships with leading global retailers and deep brand loyalty with millions of consumers around the world.”

“As we grow our new company, our key areas of focus will include aggressively growing our direct-to-consumer distribution and further expanding our global footprint,” he said. “We will work to deliver consistent and reliable shareholder returns through great execution and an efficient operating model.”

Kontoor rival Levi Strauss went public in March, raising $623.3 million from its IPO for expansion and bringing its market cap to around $6.6 billion. Still pending is the split of Old Navy from Gap Inc., which would potentially give another key denim player impetus for expansion.