Kontoor Brands, Inc.

Greetings and welcome to the Contour Brand's second quarter 2021 earnings call. At this time, all participants are in a listen-only mode. A 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. As a reminder, this conference is being recorded. It is now my pleasure to introduce Eric Tracy, Senior Director of Investor Relations. Thank you. You may begin.

Thank you, Operator, and welcome to Contour Brand's second 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 defined 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 impact 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 Weldon. Following our prepared remarks, we'll open the call for your questions. We anticipate this call will last about one hour. Scott?

Thanks, Eric, and thank you all for joining us today. The momentum Contour experienced to begin the year continued in the second quarter. with results coming in well above our expectations. Our performance in the quarter once again illustrates the power of the KTV model, which affords us the opportunity to not only deliver on our near-term goals, but also to continue to invest in the strategic growth catalyst outlined at our recent investor day. A huge thank you to our colleagues all around the world, and a special call-out to the teams engaged in the implementation of our ERP platform during the quarter, as their incredible efforts are helping to transform our organization. Hopefully, you had a chance to attend our recent Virtual Investor Day, where we communicated our strategic vision for catalyzing growth over the next three years. During Horizon 1, we optimized our model and set the foundation for growth As we execute on Horizon 2 strategies, we expect to leverage investments to drive more sustained, profitable growth. We expect to accelerate revenue, primarily driven by focusing on the following growth catalysts. First, enhancing and accelerating our core U.S. wholesale business. Second, elevating our D2C and digital ecosystem. Third, expanding the brands internationally, particularly in the China region. And fourth, diversifying our product mix through category extensions, including outdoor, workwear, and t-shirts. And to support this growth, we continue to invest behind critical TSR accretive enablers, including enhancing demand creation platforms, scaling product and manufacturing innovation with sustainability and ESG as our guiding tenet, unlocking efficiency and productivity gains through the implementation of our global ERP and digital infrastructure, and finally, leveraging our world-class talent to build a purpose-led, high-performance, and increasingly growth-minded culture. and we have increased optionality within our capital allocation strategy, which is reflected in the $200 million share repurchase program we announced today. Let me now share some highlights from the second quarter that demonstrate how these investments come to life and how our strategies are working. Overall, reported revenue increased 41% year-over-year, or 37% in constant currency. Rustin will take you through some of the puts and takes in a bit, but I would note that our top-line results exceeded our internal expectations. Most importantly, underlying momentum of the business continued to strengthen as revenue growth sequentially accelerated from the first quarter with broad-based performance across our brands, channels, and geographies. In the U.S., despite the timing shifts associated with the ERP implementation somewhat tempering our growth rates, We continue to see improving trends with both brands posting strong growth during the quarter compared to last year. Our brands continue to benefit from the incremental investments we are making within talent, marketing, product innovation, and design, all of which support elevated pricing and product, allowing us to win in our largest channel, U.S. wholesale. During the second quarter, we continue to elevate our branded demand creation platforms. Influencers such as Georgia Mae Jagger not only connect the Wrangler brand with the younger female consumer, but also fuels significant brand heat across distribution channels. Another great example of our enhanced marketing efforts is Wrangler's recently announced collaboration with iconic surf brand Billabong. The Billabong and Wrangler Collection launched in late July in anticipation of the back-to-school season with a second fall-inspired installment planned for September of 2021. The collection celebrates the best of both brands and is the exciting result achieved when you put a Western spin on a vintage surf. We launched with a heavy digital-first approach as well as paid social, influencers, and amplified PR. We're estimating over 95 million social media impressions around the launch, and this collab continues to highlight our diversifying distribution with products sold on branded sites and in Billabong stores and other specialty channels. And at Lee, during the second quarter, we launched a collaboration with streetwear brand The Hundreds. This collab masterfully blends the past with the present to achieve the perfect balance of classic workwear with a streetwear twist across denim, tees, hoodies, and outerwear. The collections are selling exclusively through the brand's digital platforms, as well as the hundreds LA store. After the successful debut, a second collection is scheduled to drop later this year. And the pipeline of collaborations for both brands is only getting stronger. We look forward to sharing some incredibly exciting fall holiday partnerships with you in the coming quarters. From a channel perspective, we continue to see strong returns on our investments in transforming our digital ecosystem, as evidenced by our second quarter performance. Q2 saw great growth over last year, but was even more impressive compared with 2019, with both global and US-owned.com increasing more than 80%, and digital wholesale increasing more than 100%. As we outlined at our investor day, we remain highly under-indexed, relative to our peers in this accretive channel, and we will continue to distort investments to drive towards our goal of 10% penetration over the next three years. We also continue to benefit from investments in new categories, such as outdoor, workwear, and t-shirts. With nearly $150 billion in total addressable markets, these categories represent significant opportunity for the incremental business. The new categories also augment and diversify the collection beyond our core Denims Bottoms business and do so in a highly organic way. Within outdoor and our ATG line, we've established a brand positioning and value equation that is a true white space in the market, and we are beginning to scale distribution within outdoor specialty and sporting goods channels, both domestically and abroad. As examples, we are excited to announce two great new partners for ATG. We are currently testing with Academy Sports in the US and Intersport in Europe, both brand enhancing incremental points of distribution for the ATG line. We also have some exciting new sports specialty product introductions on the horizon. This includes our Wrangler Angler line, focused on the rapidly growing fishing market that is expected to launch in the coming quarters. In t-shirts, a 100 billion plus addressable market, there are three key areas we are aggressively pursuing. logo, lifestyle, and licensed tees. Tees are a natural category extension with a pair of jeans. We are just getting started in realizing the significant opportunity ahead of us. Leveraging the strong brand heritage of both Ali and Wrangler brands, we believe there are clear pathways to create great product that will resonate with current loyalists and attract new consumers. We recently won new t-shirt programs with both Wrangler and Lee with a key domestic retail partner, including selling in over 1,700 doors with store expansion to come in 22. Our workwear business is also experiencing great momentum with potential for strong expansion in the quarters and years to come. In the specialty and farm channel, we continue to see strong organic growth opportunities for our Wrangler rigs product lines. These retail segments have shown resiliency throughout the pandemic, and we believe we can continue to scale with new products for men and women in this tier of distribution. And finally, we expect to significantly increase our recently launched Wrangler Workwear program with a major US retailer this year. In fact, we will more than double our door count with this key domestic partner from spring 21 to fall 21, taking us into over 3,300 doors. This is a great testament to how additional investments in category expansion are generating incremental business development opportunities for our brands. We expect growth from our outdoor, work, and t-shirt categories to add over $200 million in revenue or contour over the next three years. And finally, let me turn to how our investments in geographic expansion played out in the second quarter. We continue to see improvements despite an uneven macro environment, our European business saw significant year-over-year improvements up over 250% in constant currency compared with 2020 and over 40% in constant currency compared with 2019, driven by digital and timing of shipments ahead of our European ERP go-live. While we expect conditions to remain difficult in Europe, The evolution of our digital platform and new business development programs should help 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 great results, with reported second quarter revenue increasing 20% year-over-year and up 10% in constant currency. Importantly, trends in the region accelerated throughout the quarter, largely dictated by some phasing within wholesale. Digital in the region remained extremely strong, up 33% to last year and 67% to 2019 on a constant currency basis. 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 the launch of the Wrangler brand in China continues to gain momentum, exceeding our expectations to date, building momentum throughout the quarter and setting the foundation for scaled growth over time. Before I hand it over to Rustin, let me close with a few comments about the balance of 2021. We continue to operate in a very fluid and uncertain environment that includes restrictions in select locations, inflationary pressures, and global supply chain disruptions. And as we have repeatedly said, we are not immune to these macroeconomic challenges. However, As we highlighted at Investor Day, our operating model has been resilient. We believe consumers migrate to trusted, quality, value-oriented brands like Wrangler and Lee in times of uncertainty. And in fact, we continue to see solid momentum across both our brands. Accordingly, we intend to distort and amplify brand enhancing investments in the second half in areas like demand creation, digital, and international expansion to accelerate momentum in 2022 while leveraging our differentiated global supply chain to chase incremental demand and mitigate or minimize global disruptions where possible. We believe Contour resides in a unique position of strength as our accelerating fundamentals coupled with increasing optionality of our capital allocation strategy provides a powerful combination that should unlock significant value for our stakeholders. Rustin?