North Carolina-based Kontoor Brands, Inc. (NYSE: KTB) designs, manufactures and sells apparel under the Wrangler, Lee and Rock & Republic brand names. It also operates a chain of factory outlets called VF Outlet.
The company sells jeans, pants, shirts, jackets, shorts and accessories for men and women in more than 70 nations across the world.
The COVID-19-related restrictions and supply chain disruptions have significantly impacted the company with the KTB stock down 20.5% over the past six months, 14% year-to-date and 14.4% over the past year. However, Kontoor Brands does not expect these issues to impact its performance in full-year 2022 and has reaffirmed its guidance for the year.
Guidance Update
The company first issued the 2022 guidance, along with its results for the fourth quarter of 2021, on March 1. It should be noted that Kontoor Brands’ full-year 2022 guidance surpassed estimates then. Let us see how does it fare now.
The apparel company continues to expect GAAP EPS to range from $4.65 to $4.75, compared to the consensus estimate of $4.59. Full-year revenue is likely to total $2.7 billion, in line with the consensus estimate.
Revenue, in the first half of the year, is projected to witness a year-over-year increase in the low-teens range.
Further, it expects GAAP EPS to be in the range of $1.15 to $1.25 in the first quarter, below the consensus estimate of $1.51. Revenue is expected to range from $650 million to $660 million versus the consensus estimate of $691.67 million.
For the second quarter, Kontoor Brands expects GAAP EPS to lie between $1.25 and $1.35, and revenue to range from $640 million to $650 million. This is the only period in which analysts’ expectations are below KTB’s projections. The consensus estimates for GAAP EPS and revenue stand at $0.95 and $599.82 million, respectively.
In relation to the company’s exposure to the Ukraine-Russia crisis, Scott Baxter, the President, CEO and Board Chair at Kontoor Brands, said, “We do not own or operate a direct business in Russia or Ukraine. Third-party relationships in these countries are not material to Kontoor’s European business and are de-minimis to overall Kontoor revenue; however, we will continue to monitor the situation closely.”
Wall Street Weighs In
After the company reaffirmed its guidance, Guggenheim analyst Robert Drbul updated his projections for Kontoor Brands.
For 2022, he expects revenues of around $2.7 billion, gross margin of 44.7%, operating margin of 14.3% and EPS of $4.70.
Drbul anticipates the lifestyle clothing firm to report revenue of $2.8 billion and EPS of $5.30 in 2023. Gross and operating margins are likely to come in at 46% and 15.2%, respectively.
For the first quarter of Fiscal 2022, the analyst expects revenue to total $655.8 million, down from the earlier estimate of $729.6 million. He anticipates EPS of $1.20, lower than the previous projection of $1.35 per share.
On the contrary, Drbul has raised the revenue and EPS estimates for the second quarter of Fiscal 2022 and expects them to come in at $646.7 million and $1.30 per share, respectively.
Meanwhile, for the next few years, he expects Wrangler and Lee brands to report revenues of $600 million on the back of growth in the work, T-shirts and outdoor segments.
Drbul expects the Wrangler brand to reach revenue of $1.7 billion in 2023 from $1.4 billion last year. The brand will particularly be focused on China during this period to ensure that the country accounts for 10% of Kontoor Brands’ total sales in 2023 from less than 7% last year.
Similarly, he projects revenues from Lee to jump from $700 million in 2020 to $1 billion in 2023.
Drbul said, “With ~$1 billion targeted cumulative cash from operations, KTB is positioned to have significant optionality as it relates to capital allocation. This provides an opportunity to return excess cash to shareholders, pursue strategic M&A, and/or effect share repurchase.”
The analyst has maintained a Buy rating on KTB with a price target of $75 (72% upside potential).
Overall, the stock has a Strong Buy consensus rating based on 4 Buys and 1 Hold. The average Kontoor Brands price target of $63.20 implies 45% upside potential. Shares are currently trading close to the annual low of $39.75.
Website Traffic
TipRanks’ Website Traffic Tool, which uses data from SEMrush Holdings (NYSE: SEMR), the world’s biggest website usage monitoring service, offers insight into KTB’s performance.
According to the tool, compared to the previous year, KTB’s website traffic registered a nearly 15% decline in global visits in February. Moreover, the website traffic has decreased 5.3% year-to-date against the same period last year.
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