Kontoor Brands (NYSE:KTB) Misses Q4 Revenue Estimates, Stock Drops

Jabin Bastian /
2024/02/28 7:03 am EST

Clothing company Kontoor Brands (NYSE:KTB) fell short of analysts' expectations in Q4 FY2023, with revenue down 8.4% year on year to $669.8 million. The company's full-year revenue guidance of $2.6 billion at the midpoint also came in 4.2% below analysts' estimates. It made a non-GAAP profit of $1.28 per share, improving from its profit of $0.88 per share in the same quarter last year.

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Kontoor Brands (KTB) Q4 FY2023 Highlights:

  • Revenue: $669.8 million vs analyst estimates of $725.9 million (7.7% miss)
  • EPS (non-GAAP): $1.28 vs analyst expectations of $1.37 (6.4% miss)
  • Management's revenue guidance for the upcoming financial year 2024 is $2.6 billion at the midpoint, missing analyst estimates by 4.2% and implying -0.3% growth (vs -0.5% in FY2023)
  • Free Cash Flow of $193.2 million, up from $27.57 million in the previous quarter
  • Gross Margin (GAAP): 41.7%, up from 40.8% in the same quarter last year
  • Market Capitalization: $3.56 billion

“Our POS performance in the U.S. outpaced shipments in the fourth quarter and resulted in continued market share gains. However, the U.S. wholesale environment was challenging as retailers managed inventory levels tightly against uncertain consumer spending patterns, which negatively impacted our revenue,” said Scott Baxter, President, Chief Executive Officer and Chair of Kontoor Brands.

Founded in 2019 after separating from VF Corporation, Kontoor Brands (NYSE:KTB) is a clothing company known for its high-quality denim products.

Apparel, Accessories and Luxury Goods

Within apparel and accessories, not only do styles change more frequently today than decades past as fads travel through social media and the internet but consumers are also shifting the way they buy their goods, favoring omnichannel and e-commerce experiences. Some apparel, accessories, and luxury goods companies have made concerted efforts to adapt while those who are slower to move may fall behind.

Sales Growth

A company's long-term performance can indicate its business quality. Any business can enjoy short-lived success, but best-in-class ones sustain growth over many years. Kontoor Brands's revenue was flat over the last five years. Kontoor Brands Total RevenueWithin consumer discretionary, a long-term historical view may miss a company riding a successful new product or emerging trend. That's why we also follow short-term performance. Kontoor Brands's annualized revenue growth of 2.6% over the last two years is above its five-year trend, suggesting some bright spots.

Kontoor Brands also reports sales performance excluding currency movements, which are outside the company’s control and not indicative of demand. Over the last two years, its constant currency sales averaged 4.2% year-on-year growth. Because this number is higher than its revenue growth during the same period, we can see that foreign exchange rates have been a headwind for Kontoor Brands. Kontoor Brands Year-On-Year Constant Currency Revenue Growth

This quarter, Kontoor Brands missed Wall Street's estimates and reported a rather uninspiring 8.4% year-on-year revenue decline, generating $669.8 million of revenue. Looking ahead, Wall Street expects sales to grow 4.7% over the next 12 months, an acceleration from this quarter.

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Cash Is King

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can't use accounting profits to pay the bills.

Over the last two years, Kontoor Brands has shown mediocre cash profitability, putting it in a pinch as it gives the company limited opportunities to reinvest, pay down debt, or return capital to shareholders. Its free cash flow margin has averaged 7.3%, subpar for a consumer discretionary business.

Kontoor Brands Free Cash Flow Margin

Kontoor Brands's free cash flow came in at $193.2 million in Q4, equivalent to a 28.8% margin and up 195% year on year.

Key Takeaways from Kontoor Brands's Q4 Results

We struggled to find many strong positives in these results. Its full-year revenue guidance missed and its revenue fell short of Wall Street's estimates. Overall, this was a mediocre quarter for Kontoor Brands. The company is down 5.4% on the results and currently trades at $60 per share.

Kontoor Brands may have had a tough quarter, but does that actually create an opportunity to invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.