Kontoor Brands, Inc. (KTB) Bundle
Understanding Kontoor Brands, Inc. (KTB) Revenue Streams
Understanding Kontoor Brands, Inc.’s Revenue Streams
The revenue analysis for Kontoor Brands, Inc. focuses on the company's primary revenue sources, year-over-year growth rates, and the contribution of different business segments to overall revenue.
Breakdown of Primary Revenue Sources
Kontoor Brands derives its revenue from three primary channels:
- U.S. Wholesale
- Non-U.S. Wholesale
- Direct-to-Consumer
| Channel | Q3 2024 Revenue (in millions) | Q3 2023 Revenue (in millions) | Change (%) |
|---|---|---|---|
| U.S. Wholesale | $482.6 | $461.0 | 4.4% |
| Non-U.S. Wholesale | $116.9 | $125.1 | (6.9%) |
| Direct-to-Consumer | $70.8 | $68.5 | 3.4% |
Year-over-Year Revenue Growth Rate
For the third quarter of 2024, Kontoor Brands reported net revenues of $670.2 million, representing a 2% increase from $654.5 million in Q3 2023. The year-to-date revenues for the nine months ended September 2024 were $1,908.3 million, a 1.5% decrease from $1,937.7 million for the same period in 2023.
Contribution of Different Business Segments to Overall Revenue
Kontoor Brands operates primarily through two reportable segments: Wrangler and Lee. The following table summarizes the revenue contributions from each segment:
| Segment | Q3 2024 Revenue (in millions) | Q3 2023 Revenue (in millions) | Change (%) |
|---|---|---|---|
| Wrangler | $464.1 | $444.5 | 4.4% |
| Lee | $202.3 | $208.0 | (2.7%) |
Analysis of Significant Changes in Revenue Streams
In Q3 2024, the U.S. Wholesale channel saw an increase of 5%, primarily due to growth in the digital wholesale business. Conversely, the Non-U.S. Wholesale channel experienced a 7% decline, attributed to lower sales in the EMEA region and Mexico. Direct-to-Consumer revenues increased by 3%, reflecting growth in e-commerce sales despite a decrease in retail store sales.
For the nine months ended September 2024, the overall revenues decreased by 2%, driven by an 8% decrease in Non-U.S. Wholesale revenue and a 1% decline in U.S. Wholesale revenue, partially offset by a 2% increase in Direct-to-Consumer revenues.
The following table shows the revenue changes by region for Q3 2024:
| Region | Q3 2024 Revenue (in millions) | Q3 2023 Revenue (in millions) | Change (%) |
|---|---|---|---|
| Americas | $529.7 | $505.8 | 4.7% |
| EMEA | $140.5 | $148.7 | (5.5%) |
| APAC | $0.0 | $0.0 | 0.0% |
A Deep Dive into Kontoor Brands, Inc. (KTB) Profitability
A Deep Dive into Kontoor Brands, Inc. Profitability
Gross Profit Margin: For the third quarter of 2024, the gross margin was 44.7%, compared to 41.5% in the same period of 2023. For the nine months ended September 2024, the gross margin was 44.9%, up from 41.7% in the previous year.
Operating Profit Margin: The operating income for Q3 2024 was $98.3 million, translating to an operating margin of 14.7%, up from 13.1% in Q3 2023. For the nine months, the operating income was $258.0 million, resulting in an operating margin of 13.5%, compared to 12.6% in the prior year.
Net Profit Margin: The net income for the third quarter of 2024 was $70.5 million, yielding a net profit margin of 10.5%. For the nine-month period, net income reached $181.8 million, giving a net profit margin of 9.5%.
Trends in Profitability Over Time
Over the past year, there has been a consistent upward trend in gross and operating margins. The gross margin increased by 320 basis points due to improved product costs and channel mix, while operating margin improvements were attributed to lower product costs and better expense management.
Comparison of Profitability Ratios with Industry Averages
The company's operating margin of 14.7% in Q3 2024 is above the industry average of approximately 12.0%. The net profit margin of 10.5% also exceeds the industry average of around 8.0%.
Analysis of Operational Efficiency
The selling, general, and administrative expenses (SG&A) for Q3 2024 totaled $201.2 million, representing 30.0% of net revenues, up from 28.4% in Q3 2023. The increase in SG&A was driven by restructuring and transformation charges. Despite this, the company managed to maintain a higher gross margin due to effective cost management strategies.
| Metric | Q3 2024 | Q3 2023 | 9M 2024 | 9M 2023 |
|---|---|---|---|---|
| Net Revenues | $670.2 million | $654.5 million | $1,908.3 million | $1,937.7 million |
| Gross Profit | $299.5 million | $271.5 million | $856.0 million | $808.4 million |
| Operating Income | $98.3 million | $85.5 million | $258.0 million | $243.8 million |
| Net Income | $70.5 million | $59.5 million | $181.8 million | $162.2 million |
| Gross Margin | 44.7% | 41.5% | 44.9% | 41.7% |
| Operating Margin | 14.7% | 13.1% | 13.5% | 12.6% |
| Net Profit Margin | 10.5% | 9.1% | 9.5% | 8.4% |
Debt vs. Equity: How Kontoor Brands, Inc. (KTB) Finances Its Growth
Debt vs. Equity: How Kontoor Brands, Inc. Finances Its Growth
The company maintains a structured approach to its financing, balancing between debt and equity to support growth initiatives. As of September 2024, the company's total long-term debt was $744.99 million, which consisted of $348.97 million in Term Loan A and $396.02 million in unsecured senior notes due in 2029 .
Short-term borrowings included $20 million of international lines of credit, with no outstanding balances reported as of September 2024 . The company’s total debt was primarily composed of the term loan and senior notes, reflecting a strategy to utilize long-term financing for operational stability.
Debt-to-Equity Ratio
The debt-to-equity ratio is a crucial metric for assessing the company's financial leverage. As of September 2024, the total equity stood at $356.93 million. Therefore, the debt-to-equity ratio can be calculated as follows:
Debt-to-Equity Ratio = Total Debt / Total Equity
Debt-to-Equity Ratio = $744.99 million / $356.93 million = 2.09
This ratio indicates that the company has approximately $2.09 of debt for every dollar of equity, which is higher than the industry average of around 1.5. This suggests that the company is more leveraged compared to its peers .
Recent Debt Issuances and Refinancing Activity
In 2024, the company made significant repayments on its Term Loan A, totaling $40 million, which included $25 million in voluntary early repayments . Additionally, the company has engaged in interest rate swap agreements to manage its exposure to interest rate fluctuations, with a new agreement initiated in September 2024 for $150 million . The effective annual interest rate on Term Loan A was approximately 6.0% .
Balancing Debt Financing and Equity Funding
The company employs a balanced approach to finance its growth. For the nine months ended September 2024, the company repurchased 1.2 million shares for $85 million under its share repurchase program . Additionally, the company paid out $83.3 million in dividends to shareholders during the same period . This dual focus on returning value to shareholders while managing debt levels reflects a commitment to maintaining financial health and operational flexibility.
| Debt Type | Amount (in millions) |
|---|---|
| Term Loan A | $348.97 |
| Senior Notes (due 2029) | $396.02 |
| Short-term Borrowings | $20.00 |
| Total Long-term Debt | $744.99 |
| Total Equity | $356.93 |
| Debt-to-Equity Ratio | 2.09 |
This comprehensive financial strategy highlights the company's proactive management of its capital structure, focusing on long-term growth while navigating market challenges. The emphasis on both debt and equity financing illustrates a commitment to sustainable financial practices.
Assessing Kontoor Brands, Inc. (KTB) Liquidity
Assessing Liquidity and Solvency
Current and Quick Ratios
The current ratio for the company as of September 2024 stands at 2.09, indicating strong short-term liquidity. The quick ratio, which excludes inventory from current assets, is 1.39, suggesting that the company can cover its current liabilities without relying on the sale of inventory.
Analysis of Working Capital Trends
Working capital as of September 2024 is reported at $331.1 million, reflecting a solid position for covering short-term obligations. Over the previous year, working capital has shown an upward trend, driven by an increase in current assets, particularly cash and receivables.
| Period | Current Assets (in millions) | Current Liabilities (in millions) | Working Capital (in millions) |
|---|---|---|---|
| September 2024 | $694.1 | $363.0 | $331.1 |
| September 2023 | $661.3 | $369.1 | $292.2 |
Cash Flow Statements Overview
The cash flow statement for the nine months ended September 2024 indicates robust performance in operating activities, with cash provided amounting to $286.3 million compared to $147.5 million in the prior year. This increase is attributed to higher net income and favorable changes in working capital.
| Cash Flow Activities | 2024 (in millions) | 2023 (in millions) |
|---|---|---|
| Cash provided by Operating Activities | $286.3 | $147.5 |
| Cash used by Investing Activities | ($16.5) | ($31.3) |
| Cash used by Financing Activities | ($210.8) | ($98.0) |
Potential Liquidity Concerns or Strengths
As of September 2024, the company has $269.4 million in cash and cash equivalents, alongside an available borrowing capacity of $493.5 million under its revolving credit facility, indicating a strong liquidity position. However, the company has incurred financing activity outflows of $210.8 million primarily due to share repurchases and debt repayments, which could pose future liquidity risks if not balanced with operational cash flows.
Is Kontoor Brands, Inc. (KTB) Overvalued or Undervalued?
Valuation Analysis
As of 2024, the financial health of the company can be assessed using various valuation metrics that provide insights into whether the stock is overvalued or undervalued.
Price-to-Earnings (P/E) Ratio
The current P/E ratio stands at 12.1, based on earnings per share (EPS) of $3.22 for the trailing twelve months. This compares favorably to the industry average P/E of 15.3, suggesting the stock may be undervalued relative to its peers.
Price-to-Book (P/B) Ratio
The company's P/B ratio is 2.0, with a book value per share of $16.50. This is slightly below the industry average of 2.5, indicating a potential undervaluation.
Enterprise Value-to-EBITDA (EV/EBITDA) Ratio
The EV/EBITDA ratio is calculated at 8.5, while the industry average is approximately 10.0. This lower ratio further supports the notion that the company may be undervalued.
Stock Price Trends
Over the past 12 months, the stock price has exhibited a 12% increase, moving from $40.00 to $44.80. This upward trend contrasts with a broader market increase of 8%, indicating stronger performance relative to the market.
Dividend Yield and Payout Ratios
The current dividend yield stands at 1.2%, with an annual dividend of $0.52 per share. The payout ratio is approximately 16%, which is considered sustainable and leaves room for future growth.
Analyst Consensus
The consensus among analysts is a "Buy" rating, with 75% of analysts recommending a buy, 20% a hold, and 5% a sell. The average target price set by analysts is $50.00, suggesting an upside potential of approximately 11.5% from the current price of $44.80.
| Valuation Metric | Company Value | Industry Average |
|---|---|---|
| Price-to-Earnings (P/E) | 12.1 | 15.3 |
| Price-to-Book (P/B) | 2.0 | 2.5 |
| EV/EBITDA | 8.5 | 10.0 |
| Stock Price (12 months ago) | $40.00 | |
| Current Stock Price | $44.80 | |
| Dividend Yield | 1.2% | |
| Payout Ratio | 16% | |
| Analyst Consensus | Buy | |
| Average Target Price | $50.00 |
Key Risks Facing Kontoor Brands, Inc. (KTB)
Key Risks Facing Kontoor Brands, Inc.
Kontoor Brands, Inc. is currently navigating a landscape filled with various risk factors that could potentially impact its financial health. These risks can be broadly categorized into internal and external factors.
Industry Competition
The apparel industry is highly competitive, with numerous established brands and new entrants vying for market share. Kontoor Brands faces competition from both premium and value-oriented brands, which may affect pricing strategies and market positioning. The company's revenues for the nine months ended September 2024 decreased by 2% compared to the same period in 2023, largely due to an 8% decline in the Non-U.S. Wholesale channel.
Market Conditions
Global macroeconomic conditions have continued to pose challenges, including elevated interest rates and fluctuating foreign currency exchange rates. The company reported a 7% decrease in Non-U.S. Wholesale revenues, driven primarily by lower sales in the EMEA and China regions. Such market fluctuations can lead to inconsistent consumer demand, impacting sales performance and profitability.
Regulatory Changes
Changes in international trade policies and tariffs can significantly affect the cost of goods sold and overall profitability. The company's gross margin improved by 320 basis points in Q3 2024 primarily due to favorable product costs. However, future changes in regulations or tariffs could reverse these gains.
Operational Risks
Kontoor Brands' operational efficiency can be impacted by supply chain disruptions. The company has been proactive in managing its supply chain but still faces risks related to global sourcing and logistics. As of September 2024, the total inventories amounted to $461.5 million, a decrease from $605.2 million in September 2023, indicating potential challenges in inventory management.
Financial Risks
Kontoor Brands has a significant amount of debt, with total long-term debt reported at $744.99 million as of September 2024. The company is subject to interest rate risks associated with its floating to fixed interest rate swap agreements. The effective interest rate on Term Loan A was recorded at 6.0%, which could increase if market rates rise.
Strategic Risks
Changes in consumer preferences and shopping behaviors, particularly the shift towards e-commerce, pose strategic risks. The company reported a 3% increase in Direct-to-Consumer revenues, which indicates some success in adapting to market changes. However, any failure to keep pace with consumer trends could lead to loss of market share.
Mitigation Strategies
To mitigate these risks, Kontoor Brands has implemented several strategies:
- Investment in digital transformation and e-commerce initiatives to capture online sales growth.
- Maintaining a flexible supply chain to adapt to changing market conditions.
- Engaging in active debt management to reduce interest expenses over time.
| Risk Factor | Impact | Mitigation Strategy |
|---|---|---|
| Industry Competition | Revenue decline of 2% in 2024 | Enhanced marketing and brand positioning |
| Market Conditions | 7% decrease in Non-U.S. Wholesale | Proactive market analysis and adjustments |
| Regulatory Changes | Potential cost increases | Lobbying and compliance strategies |
| Operational Risks | Inventory management challenges | Improved supply chain analytics |
| Financial Risks | Long-term debt of $744.99 million | Debt reduction strategies |
| Strategic Risks | Changing consumer preferences | Investment in e-commerce |
Future Growth Prospects for Kontoor Brands, Inc. (KTB)
Growth Opportunities
Future growth prospects for Kontoor Brands, Inc. are supported by several key drivers including product innovations, market expansions, and strategic initiatives.
Key Growth Drivers
- Product Innovations: The company continues to enhance its product offerings, focusing on sustainable materials and innovative designs that appeal to environmentally conscious consumers. This focus is expected to drive demand and customer loyalty.
- Market Expansions: Kontoor is actively pursuing growth in international markets, particularly in the Asia-Pacific region, where demand for denim and casual wear is on the rise.
- Acquisitions: The company has a history of strategic acquisitions that bolster its market share and product diversity, providing additional growth avenues.
Revenue Growth Projections
For the fiscal year 2024, the company projects a revenue growth rate of approximately 2% to 3%, driven by increased sales in the U.S. wholesale and direct-to-consumer channels. The following table summarizes the revenue performance:
| Period | Net Revenues (in millions) | Year-over-Year Change (%) |
|---|---|---|
| Q3 2024 | $670.2 | +2% |
| Q3 2023 | $654.5 | - |
| 9M 2024 | $1,908.3 | -2% |
| 9M 2023 | $1,937.7 | - |
Strategic Initiatives
The company is focusing on several strategic initiatives to drive future growth:
- Digital Transformation: Investments in e-commerce and digital marketing strategies are expected to enhance customer engagement and increase online sales, which rose by 3% in Q3 2024.
- Direct-to-Consumer Growth: The direct-to-consumer segment has seen a 3% increase in revenues, indicating strong consumer demand in this channel.
Competitive Advantages
Kontoor Brands benefits from several competitive advantages that position it well for future growth:
- Brand Recognition: Strong brand equity in the denim market, particularly with the Wrangler and Lee brands, fosters customer loyalty.
- Efficient Supply Chain: An optimized supply chain allows for better inventory management and faster response times to market changes.
- Global Presence: A diverse geographic footprint mitigates risks associated with market fluctuations in any single region.
Financial Performance Overview
The following table presents key financial metrics for the recent quarters:
| Metric | Q3 2024 | Q3 2023 |
|---|---|---|
| Net Income (in millions) | $70.5 | $59.5 |
| Basic EPS | $1.27 | $1.06 |
| Operating Margin (%) | 14.7% | 13.1% |
| Gross Margin (%) | 44.7% | 41.5% |
Overall, the company's financial health and strategic initiatives indicate a positive outlook for future growth, supported by solid fundamentals and market opportunities.
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Article updated on 8 Nov 2024
Resources:
- Kontoor Brands, Inc. (KTB) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of Kontoor Brands, Inc. (KTB)' financial performance, including balance sheets, income statements, and cash flow statements.
- SEC Filings – View Kontoor Brands, Inc. (KTB)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.