Kontoor Brands Inc.’s first quarterly report as a publicly traded company found the Greensboro jeans manufacturer with a significant year-over-year decline in net income.
Kontoor completed its spin-off out of VF Corp. on May 23, focused on the Lee, Rock and Republic and Wrangler brands.
The quarterly report reflects Kontoor’s financial performance while part of VF for the first quarter of fiscal years 2018 and 2019.
For example, the jeanswear business within VF had $79.7 million in net income in the first quarter of 2018. For the first quarter of 2019, Kontoor had $15.4 million.
The main reasons for the year-over-year decline in net income were higher operating expenses and restructuring costs taken by VF before the spinoff was completed.
Revenue was $648.3 million in the first quarter of 2019, down 3% from a year ago. Wrangler sales rose 1% to $369.9 million, while Lee sales fell 8% to $241.5 million.
Meanwhile, Kontoor’s cost of goods sold was $401 million, up 5%, while selling, general and administrative expenses were $222.1 million, up 14%.
Kontoor spent much of the report projecting its financial performance for the rest of fiscal 2019.
Kontoor projects its announced restructuring will generate more than $50 million in total savings.
“We believe Phase 1 actions will reduce costs by $20 million to $25 million on an annualized basis, which we expect will accelerate in the second half of 2019 and be complete by the end of 2020,” the company said.
“Phase 2, beginning in 2021, is expected to further leverage improved global processes and systems generating additional savings.
Actions already completed include: exited unprofitable markets in select European and South American countries; streamlined supply-chain operations, including closing three owned manufacturing facilities in Mexico; consolidated and relocated select facilities and operations; and redesigned commercial organizations in the U.S. and Asia.
Kontoor’ full-year guidance remained largely unchanged:
- Revenue is expected to exceed $2.5 billion, reflecting a mid-single digit decline compared with full-year 2018 adjusted revenue.
- Capital expenditures are expected to range between $55 million and $65 million, including $30 million to $40 million to support the design and implementation of a global enterprise resource planning system.
The system is expected to require $80 million to $90 million of capital investment during a two-to-three year period.
Kontoor intends to pay a quarterly cash dividend of 56 cent a share — a level that several analysts have said should be attractive to dividend investors.
“Our financial model is based on durable and consistent free cash flow and a commitment to improved operational performance,” said Scott Baxter, the company’s chief executive and president.
“An essential element of that model is a compelling dividend yield, supported by a 60 percent target-payout ratio.”