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Kontoor Seeing Supply Chain Benefits From Project Jeanius
Vicki M. Young
5 min read
Global direct-to-consumer and U.S. wholesale growth helped Wrangler and Lee parent Kontoor Brands Inc. best Wall Street’s third quarter consensus expectations.
The gains were enough for Kontoor to raise its full-year outlook, with adjusted earnings per share (EPS) expected at $4.83, versus the prior outlook of $4.80, on a revenue estimate of $2.60 billion. Kontoor said it expects adjusted EPS of $1.31 for the fourth quarter.
Kontoor said it expects its growth momentum to continue into 2025, driven by “continued market share gains, category expansion and new distribution.” It said revenue growth could rise by 4 percent in the first half of 2025.
“Adjusted gross margin expansion is expected to be driven by the benefits of structural mix, supply chain initiatives, and Project Jeanius, partially offset by modest product cost inflation and the impact of ongoing supply chain volatility,” Kontoor added.
Project Jeanius is Kontoor’s initiative to transform its global operating model, as well as enhance and optimize its supply chain. The jeanswear company said on Thursday that the benefits from the three-year plan are expected to be weighted in the second half of 2025 as its supply chain initiatives “begin to scale.” That will result in modest Selling, General & Administrative (SG&A) benefits in the first half, with accelerating benefits in the second half driven by combined gross margin and SG&A initiatives. Gross margin expansion is expected to result from increased investment in growth priorities such as “demand creation, category expansion, international expansion and direct-to-consumer.”
“In our core bottoms and shorts business, Wrangler gained 90 basis points of market share in the US, according to Circana. This marks our 10th consecutive quarter of market share gains in our largest market,” Kontoor chairman, president and CEO Scott Baxter told investors during a company conference call.
He said the quarter saw Wrangler’s launch of its Cliffside Utility pant and outdoor Chino, which Baxter said were off to a strong start. “We continue to advance our product development capabilities that are driving increased penetration in this large and growing category, as well as expanded distribution opportunities within sporting goods retailers,” the CEO said. “Year-to-date, outdoor has grown 12 percent, and we continue to expect double-digit increases for the year.” The company also relaunched Denim at Target in the quarter.
Baxter also said that the early market response to its new female fit innovation Bespoke was “very encouraging” and that share demand “exceeded our high expectations.” He said the company will scale Bespoke in 2025. Bespoke is a line developed by women for women and it uses fabric that has superior stretch and shape retention. Also launching in the quarter was its collection with country star Lainey Wilson, the brand’s single largest collaboration to date. Between Bespoke and the Lainey Wilson collaboration, Baxter said Wrangler’s “female business grew double digits.”
Revenue at Lee slipped in part due to uneven macro conditions in Europe and Asia, while U.S. sales “inflected positive,” with particular strength in its female business that grew 10 percent, Baxter said. Research in consumer insights and refreshed brand segmentation is drawing in younger and female consumers. That work led to the development of Lee Layers, the top performing new program of the season. Lee Layers is a women’s line available at Walmart. Also driving growth in the quarter was Lee’s premium Ever Fit platform. Also helping the brand reach younger consumers, while driving category extensions, were several successful Lee x collaborations with Forever 21, Oliver Cabell and Stutterheim.
Baxter also said acceleration of growth in the fourth quarter will come from the launch of Lee x. First up will be the Lee x Move, a collection of denim, non-denim and tops. That will be followed by Lee x Lite in the first half of 2025. Lite features a denim fabric innovation from Kontoor that allows for lighter weight denim. “Lee x is a true platform that will provide innovation at scale and support our return to growth,” the CEO said.
He said Project Jeanius is on track to deliver $100 million of combined gross margin and SG&A savings. Global sourcing transformation is expected to optimize the business for its evolving growth strategies, as well as drive greater efficiency in Kontoor’s sourced vendor network, Baxter said. He added that back-end efficiencies will leverage an improved shared platform across both brands. And on the commercial optimization front, Baxter said Kontoor will be able to drive increased speed-to-market and improved product development.
“As I’ve stated in the past, Project Jeanius is one of our most significant and important undertakings as a public company,” Baxter said. “The work we are doing will transform our organization to a best-in-class, global multi-brand platform while unlocking significant sources of value.”
For the third quarter ended Sept. 28, net income jumped 18.5 percent to $70.5 million, or $1.26 a diluted share, from $59.5 million, or $1.05, a year ago. Net revenues rose 2.4 percent to $670.2 million from $654.5 million in the same year-ago quarter.
On an adjusted basis, diluted EPS was $1.37. Wall Street was expecting adjusted diluted EPS of $1.26 on revenue of $663.5 million.
The company said U.S. revenue rose 5 percent to $530 million, while wholesale revenue also rose 5 percent, driven by expanded distribution, market share gains and strength in point-of-sale, partially offset by retailer inventory management actions. In addition, direct-to-consumer rose 5 percent, helped by 9 percent growth in digital that was partially offset by a 2 percent slip in brick-and mortar retail. International revenue fell 5 percent to $141 million, while international wholesale fell 7 percent and direct-to-consumer was flat. Wrangler brand global revenue rose 4 percent in the quarter to $464 million, while Lee brand global revenue decreased 3 percent to $202 million. The balance of revenue came from sales and licensing of Rock & Republic, other company-owned brands and private label apparel.
For the nine months, net income rose 12.1 percent to $181.8 million, or $3.22 a diluted share, from $162.2 million, or $2.85, a year ago. Net revenues slipped 1.5 percent to $1.91 billion from $1.94 billion.
