Kontoor Brands (NYSE:KTB) Surprises With Q1 Sales

Kayode Omotosho /
2024/05/02 6:58 am EDT

Clothing company Kontoor Brands (NYSE:KTB) reported results ahead of analysts' expectations in Q1 CY2024, with revenue down 5.4% year on year to $631.2 million. The company expects the full year's revenue to be around $2.6 billion, in line with analysts' estimates. Its non-GAAP profit of $1.16 per share was flat year on year.

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Kontoor Brands (KTB) Q1 CY2024 Highlights:

  • Revenue: $631.2 million vs analyst estimates of $607.9 million (3.8% beat)
  • EPS (non-GAAP): $1.16 vs analyst estimates of $0.91 (27.8% beat)
  • The company reconfirmed its revenue guidance for the full year of $2.6 billion at the midpoint
  • Gross Margin (GAAP): 45.2%, up from 43% in the same quarter last year
  • Free Cash Flow of $50.82 million, down 75% from the previous quarter
  • Market Capitalization: $3.46 billion

“Our first quarter results were stronger than expected, driven by higher revenue, gross margin, and cash flow,” 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

Examining a company's long-term performance can provide clues about its business quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Kontoor Brands's revenue was flat over the last five years.

Kontoor Brands Total Revenue

Within consumer discretionary, product cycles are short and revenue can be hit-driven due to rapidly changing trends. That's why we also follow short-term performance. Kontoor Brands's annualized revenue growth of 1.3% 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 2.8% year-on-year growth. Because this number aligns with its revenue growth during the same period, we can see Kontoor Brands's foreign exchange rates have been steady.

Kontoor Brands Year-On-Year Constant Currency Revenue Growth

This quarter, Kontoor Brands's revenue fell 5.4% year on year to $631.2 million but beat Wall Street's estimates by 3.8%. Looking ahead, Wall Street expects sales to grow 1.5% over the next 12 months, an acceleration from this quarter.

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Cash Is King

If you've followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and 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 7.2%, subpar for a consumer discretionary business.

Kontoor Brands Free Cash Flow Margin

Kontoor Brands's free cash flow came in at $50.82 million in Q1, equivalent to a 8.1% margin. This result was great for the business as it flipped from cash flow negative in the same quarter last year to cash flow positive this quarter.

Key Takeaways from Kontoor Brands's Q1 Results

We were impressed by how significantly Kontoor Brands blew past analysts' EPS expectations this quarter, driven by outperformance in its constant currency revenue growth and gross margin. It also reduced its inventory levels by 24% year on year. Looking ahead, Kontoor Brands raised its full-year EPS guidance, a great sign for investors (especially amongst a weaker consumer discretionary market backdrop). Overall, we think this was still a really good quarter that should please shareholders. The stock is up 4.8% after reporting and currently trades at $65.05 per share.

Kontoor Brands may have had a good quarter, but does that mean you should 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.