Kontoor Brands, Inc.

Greetings. Welcome to Contour Brand's first quarter earnings call. At this time, all participants are in listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note that this conference is being recorded. At this time, I'll turn the conference over to Eric Tracy, Senior Director of Investor Relations. Eric, you may now begin.

Thank you, Operator. and welcome to Contour Brand's first quarter earnings conference call. Participants on today's call will make forward-looking statements. These statements are based on current expectations and are subject to uncertainties that could cause actual results to materially differ. These uncertainties are detailed in documents filed with the SEC. We urge you to read our risk factors, cautionary language, and other disclosures contained in those reports. Amounts referred to on today's call will often be on an adjusted dollar basis. which we clearly define in the news release that was issued earlier this morning. Adjusted amounts exclude the impact of restructuring and separation costs, business model changes, and other adjustments. Reconciliations of gap measures to adjusted amounts can be found in the supplemental financial tables included in today's news release, which is available on our website at contourbrands.com. These tables identify and quantify excluded items and provide management's view of why this information is useful to investors. Unless otherwise noted, amounts referred to on this call will be in constant currency, which exclude the translation impacts of changes in foreign currency exchange rates. Constant currency amounts are intended to help investors better understand the underlying operational performance of our business, excluding the impacts of shifts in currency exchange rates over the period. Joining me on today's call are Contour Brands President and Chief Executive Officer, Scott Baxter, and Chief Financial Officer, Rustin Welton. Following our prepared remarks, we'll open the call for questions. We anticipate the call will last about an hour. Scott?

Thanks, Eric, and thank you all for joining us. Let me state at the outset, we will intentionally keep our prepared comments a bit tighter today, as we look forward to articulating greater detail on our evolving strategies with you at our upcoming Investor Day in a few weeks on May 24th. But today, we are really pleased to share our first quarter results, results that continue to accelerate across nearly all areas of our business. Our performance in the quarter demonstrates how the powerful combination of strategic investments and solid execution come together to yield improving fundamentals, and we think this quarter provides a great example of the opportunity ahead as we are just getting started. As always, I want to start by thanking our global team with a special call-out to those colleagues working on our ERP implementation. It is this dedication to excellence by our employees around the world that is at the core of this quarter's strong performance and is why I am so confident in Contour's future. We have much more work to be done, and we will remain humble and focused on areas within our control, but I know our colleagues are committed to delivering on our strategic plans. Over the last two years, we have consistently communicated the following strategy to drive more profitable and sustained growth over the longer term. First, enhance and accelerate our core U.S. wholesale business. Second, elevate our direct connection with consumers through channel expansion focused on involving our D2C and digital ecosystem. Third, Thoughtfully extend our reach around the globe, prioritizing opportunities within the China region. And fourth, diversify our product mix through category extensions, amplifying outdoor, workwear, and t-shirts. And in support of these long-term growth opportunities, we have also discussed where we are distorting TSR accretive investments in enablers, including elevating and prioritizing the highest ROI demand creation platforms, scaling product and manufacturing innovation with a sustainability and ESG thread throughout, unlocking productivity through the implementation of our global ERP and digital infrastructure to generate improved data analytics and consumer insights, and finally, developing world-class talent to build a high-performance, purpose-led, and increasingly growth-minded culture. Let me now share some of the highlights from the first quarter that provide great proof points of how these strategies and investments are paying off. Overall, reported revenue increased 29% over the first quarter last year. It is important to note that even with timing of shipments ahead of our regional ERP implementation, we saw significant top-line upside to our internal expectations. I would also point out that compared to the first quarter of 2019, we experienced 3% growth, and this growth would have been even greater excluding quality of sales and strategic exits we've made over this time period. So a great sign of our business not only normalizing, but accelerating on a two-year basis. Our U.S. business continued to see strengthening trends, with both Lee and Wrangler up compared to last year. And importantly, compared to 2019 as well, we saw strength across both the U.S. wholesale and digital channels. While fiscal stimulus has certainly contributed to increases in domestic consumer spending, Our brands are absolutely benefiting from investments across marketing, product innovation, and design, all of which are allowing us to take share and drive higher AURs in the marketplace. According to NPD, the Wrangler and Lee brands continued to see strong share gains, another quarter of outpacing the market. It's pretty straightforward. Our investments are working. Within demand creation, Wrangler introduced Georgia May Jagger as the face of its women's heritage denim collection, allowing us to reach a younger female consumer and driving significant brand heat that cascades from premium to value. And at Lee, a heightened emphasis on social media channels as well as collaborations with high-profile influencers are driving gains across engagement, traffic, and conversions. If you haven't seen the recent InStyle shoot on Instagram featuring Jennifer Lopez wearing newly designed Lee products, I would encourage you to take a look. And I would add this was organic. What an incredible statement and brand-elevating moment for Lee. We remain committed to amplifying our demand creation efforts with a focus on the TSR bolstering areas, and this includes digital. We continue to see strong returns on our investments in transforming our digital ecosystem. While Q1 experienced great growth over 2020, more impressive were U.S. digital gains relative to 2019, with Own.com increasing 70% in digital wholesale up 132%. Given the accretive nature of this channel, financially and strategically, we will continue to distort investment dollars to drive elevated and sustained growth in digital. More details to come on the building blocks for this growth at our investor day in a few weeks. We also continue to invest in talent as well. Across global positions, including design and marketing, we are building a world-class team with an increasing focus on developing the growth-oriented organizational mindset. In addition, over the past few months, we have also welcomed two new members to our board of directors. Today, we announced the appointment of Mark Schiller, the president and CEO of the Hain Celestial Group. And in March, we welcomed Rob Lynch, the president and CEO of Papa John's, as we further build out our team and capabilities. Both Mark and Rob will bring incredible experience and insights to our board. Turning to our investments within innovation, our foot remains on the gas pedal. During the first quarter, we expanded one of our key sustainability platforms into good. to include additional water savings technologies. We also recently announced a collaboration with Panda Biotech to accelerate the commercialization and scale capabilities of hemp grown in the U.S., another proof point of our commitment to be a leader in the sustainability and ensure responsibility sourcing all over the globe. Momentum in our outdoor line ATG is only increasing, taking the Wrangler brand to additional channels and extending our reach to new consumers. Elevated design within Lee is also driving increasing permission for the brand to play in premium points of distribution. And we know enhanced innovation supports pricing and the mixing up of AURs, a critical component of brand health. By now, I'm sure most of you have heard or read of the potential emergence of a denim cycle. We think about this a bit differently as we realize cycles by definition are finite in nature. So we are most focused on structural change, not cyclical trends. This speaks to the very investments we are making in the brand, investments that not only allow us to participate in casualization or denim cycles, but actually drive them. So not only take share, but expand the marketplace. And we are doing just that in our core and within our largest market. And outside of the U.S., we continue to see improvement despite an uneven macro environment. Europe revenue is down 5% on a constant currency basis. While we expect conditions to remain difficult in Europe, the evolution of our digital platform and new business development programs should help somewhat mitigate near-term headwinds and position us for success in the region over the longer term. And in China, our ongoing strategic investments continue to yield accelerating results. with first quarter revenue seeing triple-digit increases year-over-year and 20% constant currency growth compared with 2019. With a premium lifestyle offering, strong collaborations and partnerships with key local influencers, the Lee brand continues to build on its leading denim position in the region. And we are pleased to share that the Wrangler launch in China has been very successful, exceeding our expectations to date building momentum throughout the quarter, and setting the foundation for scale growth over time. Finally, let me provide an update on new business development. As we've discussed over the last several quarters, despite the challenging environment, we've remained on the offense to take our brands into new points of distribution driven by diversified incremental category extensions. Our lead business with Walmart continues to gain momentum with increased category offerings this spring and solid visibility to the fall order book. Turning to our Wrangler ATG line within North America, we continue to build in the core mass channel but also expand within a new channel such as outdoor specialty and sporting goods. Shields, a premium sporting goods retailer, is a perfect example of where the ATG line can take the Wrangler brand. Launching this spring, and extending to additional stores this fall. And finally, we are thrilled to announce today a new development in our Wrangler Workwear business, where we recently won a significant new program with a key domestic retail partner. More to come on this and other exciting expansions, but this certainly represents a tremendous opportunity for the work business and a testament to how our investments support category extensions, channel diversification, and new business development wins. Before I hand it over to Rustin, let me close with this. Over the last few years, we have strived to do what we say, deliver near-term results while continuing to invest in the long-term. And we're doing just that. We couldn't be more excited to share greater details on our go-forward plans and evolving strategies at our Investor Day in a couple of weeks. So we look forward to it and hope all of you can join us.