Kontoor Brands Q4 Earnings: Further Upside Is Justified From Here

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Before nan marketplace opened connected February 28th, nan guidance squad astatine Kontoor Brands (NYSE:KTB) announced financial results covering nan last 4th of nan company's 2022 fiscal year. Results that exceeded expectations connected some nan apical and bottom lines, mixed pinch higher-than-expected guidance for nan 2023 fiscal year, resulted successful shares of nan institution spiking, closing up 19.9% for nan day. This is awesome news for shareholders, but now is nan infinitesimal to return a measurement backmost and reassess nan firm's wide basal condition. Fundamentally, shares of nan business are still rather inexpensive connected an absolute basis. But they aren't arsenic inexpensive arsenic they were and they are looking person to reasonably weighted compared to akin firms. Factoring each nan information successful together, I would make nan lawsuit that nan institution astir apt still does connection immoderate upside imaginable from here. But clearly, nan easy money has already been made.

A robust 4th from Kontoor Brands

Back successful nan mediate of November of past year, I revisited my bullish thesis connected Kontoor Brands. The company, which produces starring manner brands for illustration Wrangler and Lee, had up to that constituent knowledgeable a spot of pain, particularly connected nan bottommost line. Even successful spite of that pain, however, I felt arsenic though shares of nan business looked incredibly cheap. This provided immoderate wiggle room moreover successful nan arena that nan basal information of nan business continued to worsen. Given really inexpensive shares were, I could not thief but to complaint nan business a ‘buy’ to bespeak my position astatine nan clip that nan banal should importantly outperform nan broader marketplace for nan foreseeable future. Fast guardant to today, and now shares are up an awesome 24.1% compared to nan 0.2% diminution knowledgeable by nan S&P 500 complete nan aforesaid model of time.

Kontoor Brands Financials

Author - SEC EDGAR Data

This return disparity has been driven successful ample portion by nan basal information released erstwhile guidance announced financial results covering nan last 4th of nan firm’s 2022 fiscal year. Revenue, for starters, came successful strong, totaling $731.6 million. In summation to coming successful 7.4% higher than nan $681.1 cardinal nan institution reported for nan last 4th of 2021, it besides came successful higher than what analysts expected to nan tune of $65.1 million. Interestingly, maturation would person been moreover stronger had it not been for overseas rate fluctuations. That took astir 2% disconnected nan company's apical line. The home wholesale and integer operations of nan institution fared peculiarly good successful nan last quarter. In nan U.S. market, income spiked 16% twelvemonth complete year, while wholesale gross present astatine location changeable up 17%. Both of nan company's apical brands fared well. But nan existent victor of nan 2 was Wrangler, pinch gross spiking 15% compared to nan 6% emergence associated pinch nan Lee marque name.

On nan bottommost line, nan image for nan institution was besides bullish. Net income came successful astatine $51.6 million. That's 17.5% higher than nan $43.9 cardinal reported 1 twelvemonth earlier. On a per-share basis, nan institution generated a profit of $0.91. This was really $0.24 per stock higher than what analysts expected for nan quarter. On an adjusted basis, nan $0.88 per stock nan institution reported came successful $0.21 per stock higher than expected. Interestingly, this betterment successful profitability came moreover successful spite of nan company's gross profit separator contracting slightly. This was much than offset, however, by a simplification successful selling, general, and administrative costs arsenic a percent of sales. Tight controls of discretionary expenses, mixed pinch little compensation costs and a alteration successful in installments nonaccomplishment provisions offset higher distribution expenses and an summation successful strategical investments that nan institution made successful IT. Other profitability metrics were somewhat mixed. Operating rate flow, for instance, shrank from $74.5 cardinal successful nan last 4th of 2021 to $70.9 cardinal successful nan last 4th of 2022. Even if we set for changes successful moving capital, it would person dipped from $55.6 cardinal to $54.3 million. The only different profitability metric that improved was EBITDA. According to nan information provided, it came successful astatine $93 cardinal compared to nan $82.5 cardinal reported 1 twelvemonth earlier.

Kontoor Brands 2022 Financials

Author - SEC EDGAR Data

For nan 2022 fiscal twelvemonth successful its entirety, nan image for nan institution was rather positive. Revenue of $2.63 cardinal exceeded nan $2.48 cardinal that nan institution reported for its 2021 fiscal year. Net profits jumped from $195.4 cardinal to $245.5 million. Admittedly, operating rate travel did worsen successful this lawsuit arsenic well, dropping from $283.9 cardinal to $83.6 million. But if we set for changes successful moving capital, it would person risen from $270.6 cardinal to $304.5 million, while EBITDA for nan institution expanded from $386.8 cardinal to $402.5 million.

For 2023, guidance said that gross should proceed climbing. The wide maturation complaint should beryllium a spot slower, coming successful astatine nan debased single-digit rate. Earnings per share, meanwhile, should full astir $4.55 and $4.75. This was nan first really breathtaking news for nan institution if you disregard nan header news related to gross and profits. By comparison, analysts were expecting net for 2023 of $4.36. At nan midpoint of management's latest guidance, this implies that nan institution should make nett profits successful 2023 of $265.1 million. No guidance that was of a substantive quality was fixed erstwhile it came to different profitability metrics. But if we presume that they will summation astatine nan aforesaid complaint that nett profits are forecasted to, we would expect adjusted operating rate travel of $328.8 cardinal and EBITDA of $434.6 million.

KTB banal Trading Multiples

Author - SEC EDGAR Data

Taking each of this data, it becomes easy to worth nan firm. In nan floor plan above, you tin spot really pricing is for nan 2021, nan 2022, and nan 2023 fiscal years. Given that we are still early into 2023, it's champion to trust connected nan pricing of nan institution utilizing nan information reported for 2022. In this case, nan institution is trading astatine a price-to-earnings aggregate of 11.8. The value to adjusted operating rate travel aggregate should beryllium 9.5, while nan EV to EBITDA aggregate should travel successful astatine 9. As portion of my analysis, I besides compared nan institution to 5 akin businesses. On a price-to-earnings basis, these companies ranged from a debased of 4.6 to a precocious of 43.5. In this case, only 2 of nan 5 firms are cheaper than it, while different 1 is tied pinch it. Using nan value to operating rate travel approach, we get a scope of betwixt 7.3 and 33.2. In this case, only 1 of nan 5 firms was cheaper than our target. On nan different hand, utilizing nan EV to EBITDA approach, nan scope would beryllium from 4.8 to 12.1. In this scenario, Kontoor Brands was cheaper than only 1 of nan 5 firms.

Company Price / Earnings Price / Operating Cash Flow EV / EBITDA
Kontoor Brands 11.8 9.5 9.0
Canada Goose Holdings (GOOS) 43.5 31.5 12.1
Capri Holdings Limited (CPRI) 9.4 11.4 6.9
Oxford Industries (OXM) 12.2 15.3 7.6
Carter's (CRI) 11.8 33.2 7.5
G-III Apparel Group (GIII) 4.6 7.3 4.8


When I past wrote astir Kontoor Brands precocious past year, I knew that shares warranted upside. But I ne'er would person guessed that nan activity higher would person been this quick. Frankly, I'm some amazed and happy by this development. As to whether aliases not nan institution still makes consciousness to bargain into astatine this moment, I would opportunity that shares are still fundamentally charismatic connected an absolute basis. They aren't arsenic inexpensive arsenic they were, and they look person to reasonably weighted compared to akin firms. But considering that nan business continues to grow and that shares are moreover cheaper connected a guardant ground compared to what galore mightiness person expected, I would opportunity that further upside from present makes sense.

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