Kontoor Brands, Inc.

Greetings and welcome to Contour Brands Q3 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the form of 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. I would now like to turn this conference over to your host, Mr. Eric Tracy, Vice President, Corporate Finance and Investor Relations. Thank you, sir. You may begin your presentation.

Thank you, Operator, and welcome to Contour Brand's third 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, non-cash impairment related to our Rockin' Republic trademark, 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 contourbrand.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 a 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. Also, given the impacts COVID-19 had on prior year results, we will provide select references to the same quarter in 2019 for additional context where appropriate. Joining me on today's call are Contour Brands Chair, President, and Chief Executive Officer, Scott Baxter, and Chief Financial Officer, Rustin Weldon. Following our prepared remarks, we will open the call for your questions. We anticipate the call will last about an hour. Scott? Scott?

Thanks, Eric, and hello to everyone joining us today. If you take one thing away from today's call, let it be this. Contour and our Wrangler and Lee brands are in a meaningfully different and advantageous place compared to our past. We are now uniquely positioned to win in the marketplace and to create future value for all our stakeholders. This was evident in our third quarter results, and it's even more evident in the confidence we have in raising our guidance for fiscal 21 and the momentum we see into holiday and fiscal 22. More on this in a bit. But simply put, our strategies are working. Our investments are yielding superior returns through the elevation of our brands, increasing permission to price, and accelerating growth. No doubt, the current macro environment is placing significant challenges on companies and people, and as we've stated, Contour is not immune. But we are keenly focused on controlling the controllables, and on the execution of our strategic playbook that has consistently proven itself in setting our foundation during Horizon 1 and now into Horizon 2, where we will look to catalyze growth. When we started the Contour journey almost three years ago, our top priority in establishing our organizational culture was to take care of each other. And while we could not have predicted the obstacles we would face in the ensuing years, we believe that this core tenet and the great experience of our team could help us not only navigate difficult times, but thrive through them. And I believe we have done just that. So I want to thank our colleagues around the world for the ongoing collaboration, teamwork, and resiliency, and continuing to take care and support one another. So how are our strategies driving near-term results? Let me provide some proof points from the third quarter that showcase our strategic emphasis on catalyzing growth across four key areas. elevating and accelerating our core U.S. business. Second, channel expansion, primarily in our D2C and digital ecosystem. Third, diversifying our product mix through category extensions, including outdoor, workwear, and T-shirts. And fourth, expanding the brands geographically with a focus on China. Overall, Global Contour reported a revenue increase of 12% compared to last year and 2% to 2019. Important to note, this included a negative high single-digit impact from strategic quality of sales actions within our VFO in India businesses. Excluding these actions, Global Contour reported revenue would have been up 11% over 2019, far outpacing the market. Our U.S. business during the third quarter increased 8%, not only to 2020, but also 8% to 2019. Again, this includes the impact of our proactive measures within our VFO operations. So excluding these actions, the U.S. business would have been up high teens in the third quarter compared to pre-pandemic 2019 levels. And what's crucial is that this growth is healthy, balanced, and broad-based across brands, categories, and channels. The U.S. was once again led by our rapidly evolving digital platforms, with U.S.-owned .com increasing 118% and digital wholesale increasing 237% compared to 2019. U.S. wholesale increased 15% during the quarter, with outsized performance within our Western business augmented by emerging new programs in outdoor, ATG, workwear, and female. In demonstrating the health of the Lee and Wrangler brands, our elevated position in the marketplace, and increasing ability to take price, our digital AURs are up high single digits in the U.S. year to date. Turning next to our global digital business, our results in the quarter highlight how our strategic investments are unlocking significant value and connecting us closer to our consumer more than ever before. Q3 saw great growth over last year but was even more impressive compared with 2019 with reported global own.com in digital wholesale increasing 88% and 182% versus pre-pandemic levels. And the runway for future growth remains significant as we are still highly under indexed in this creative channel relative to our peers. Our new ERP platform will enhance our digital efforts as we globalize our operations We will continue to lean in on investments to achieve our goal of 10% digital penetration over the next three years. And while our channel of digital evolution has been extraordinary, we are equally excited by the performance of our tremendous expansion of new categories beyond denim, including outdoor, workwear, t-shirts, western, and female. While our foundation lies in denim, we are rapidly developing a more diversified portfolio that augments and enhances our core offerings. Within outdoor and our ATG line, we are leveraging great performance innovations to drive incremental penetration of existing retail partnerships, while also expanding into new points of distribution across the outdoor specialty and sporting goods channels, both domestically and abroad. During the third quarter, our U.S. outdoor business saw 50% growth compared to 2019. Our tests of ATG with Academy Sports here in the U.S. and Intersport in Europe are going very well. and we are excited about the opportunities for further expansion in these brand-elevating points of additional distribution for the line. Our workwear business is also seeing great momentum, as reflected in the third quarter results, with more than 60% growth in the U.S. compared to 2019, as we discussed on our last call. We've more than doubled our door count to over 3,000 stores for fall 21 compared to spring, with one of our key domestic retail partners, and we are really excited about the future opportunities this program affords us in the quarters to come. And the development of our T-shirt category is building momentum with significant new programs set for spring 22. In addition to these new outdoor workwear and T-shirt categories, our Wrangler Modern Female and Western Businesses in the U.S. are performing exceptionally well with substantial year-over-year growth during the quarter up more than 100% and 50% respectively. The broad-based third quarter performance across categories is a direct function of how investments are generating incremental business development opportunities for our brands. And finally, we continue to catalyze growth geographically with solid results in the quarter despite an uneven COVID environment across the globe Even with ERP go live in July, our European business saw nice year over year improvements of 19% constant currency compared with 2020 driven by digital brick and mortar reopening and new business development. And in China, our ongoing strategic investments continue to yield strong results. Reported third quarter revenue increasing 22% and up 14% in constant currency. You've heard from some regarding a broader slowdown in China. And while we haven't seen impacts to our business, we are obviously monitoring this closely. However, our brands are in distinctly advantaged positions in the market. Li has over two decades of experience in the region and is uniquely connected with the Chinese culture, while Wrangler is just getting started in China with significant white space ahead, affording us the opportunity to grow in the most productive manner. To fuel this growth across core channels, categories, and geographies, You've heard us talk quite a bit about investing behind key enablers. These pillars in supportive growth include enhancing and amplifying demand creation platforms, scaling product and manufacturing innovation with sustainability and ESG as our guiding tenets, unlocking efficiency and productivity gains for the implementation of global ERP supply chain in digital infrastructure, And last, leveraging our world-class talent to build a purpose-led, high-performance, and increasingly growth-minded culture. I'm going to focus my comments today on our demand creation efforts, while Rustin will provide greater insights with respect to our ERP implementation and supply chain. The reason I want to highlight our investments in demand creation is pretty straightforward. We are doing things with both the Wrangler and Lee brands that we've simply never done before. This is reflected in the brand's recently launched marketing campaigns. First with Lee, if you haven't had a chance to see our newly original campaign that launched in October, I would encourage you to go to lee.com to check it out. Hearing me talk about it simply doesn't do it justice. I promise you will be impressed at how this modern elevated brand expression brings the lead transformation to life in just how differently the brand is showing up in the marketplace. Produced in collaboration with preeminent photographer and creative director Mark Seliger and set for the title track Strut by Lenny Kravitz, the work celebrates and encourages those who push boundaries through creativity, ingenuity, and hard work. Our cast of originals reflects the multifaceted and diverse lead consumer. From climate warrior and fashion icon, Quanah Chasing Horse, to Venice Beach skateboarding legend, Hayden McKenna, The unique character and personality of each cast member reflects what has always made Lee original, the stories behind those who wear them. The campaign went live in North America in October and includes most all media platforms, with a heavy lean towards digital that will run on streaming services such as Disney and Hulu, as well as high-impact display in key social media platforms, including the brand's launch on TikTok. And for those of you in New York, we've also introduced Lee Originals on the streets of the city where originality and creativity thrive via strategic out-of-home media in Soho, Bushwick, and Williamsburg. The global campaign will be supported by existing and new collaborations and partnerships with key influencers. We are excited about Lee's recent launch and newest partnerships with iconic brand Pendleton. This limited edition just dropped this week and reimagines essentials from the brand's combined 200-plus years in American apparel. Each pair of jeans is made in the U.S. with some of the last remaining selvedge denim from Cone Denim's White Oak Mill in Greensboro, North Carolina. And this is just the beginning of Lee's new brand messaging and repositioning. We couldn't be more excited to share what's on the horizon in the quarters to come. Turning to the Wrangler demand creation platform, the brand's newest global ad campaign, For the Ride of Life, debuted in September in North America with live coverage on the NFL network. The campaign will also run on retail, digital, and social media platforms across North America and Europe. And our collaborations with the Wrangler brand just keep building. We had the initial launch of our Billabong and Wrangler collab in August with a second drop in September. timed perfectly for back to school, the partnership helped drive significant brand awareness with 1.7 million videos created on TikTok using our summer mashup hashtag. And beginning this fall, Wrangler is officially partnering with Yellowstone for much of the anticipated new season of the highly acclaimed Most Watched series on cable TV. Wrangler will always be a symbol of authentic Western fashion. The Wrangler and Yellowstone collaboration came to fruition after much of the denim apparel was organically seen on the show's beloved characters. Collaborating with Paramount Network's Yellowstone brings the lifestyle we've embodied for decades into the spotlight, allows us to reach a new audience that is now learning what it means to evoke the cowboy spirit. We're thrilled to be able to add a layer of authenticity to the closets of Yellowstone fans as appreciation for the Western lifestyle continues to surge in popularity in mainstream culture and fashion. Augmenting our collabs, the brand continues to partner with key influencers that reach a younger, more diverse consumer base. For Spring 22, Georgia Mae Jagger will continue her role as lead brand ambassador and the female face of Wrangler. And we are thrilled to announce our partnership with R&B Grammy-winning musician Leon Bridges, The two-season collaboration will launch in spring of 22 with Leon as the face of Wrangler's men's global product line, followed by a fall limited edition collaboration of key denim and western styles inspired by iconic silhouettes from our archives in Leon's personal style. Finally, as we look to 2022, our demand creation efforts only build in support of commemorating the Wrangler brand's 75th anniversary. We have a year-long celebration planned to honor Wrangler's historic presence in music and fashion, while also highlighting the courage, optimism, and triumph of Western culture. Let me close with this. As you can see, there is a lot to be excited about, with many proof points that our strategies and investments are fueling broad-based strength across our business. We will continue to amplify these strategic investments, particularly in demand creation and digital during the fourth quarter in support of our planned accelerating top line growth algorithm. And while we are extremely proud of how we've navigated the last few years in establishing a solid foundation of which to build, despite the turbulent macro environment, I want to share a few thoughts on why we are even more confident about what lies ahead. Rustin will provide more details, but a few items based on our current views that support this confidence as we look to 2022. First, We expect fiscal 22 revenue to accelerate above the long-term target of mid-single digits we established at our recent investor day, with particular strength in the first half of low double digits. And second, despite macro inflationary pressures, we anticipate 22 gross margins to be at or above 21 levels. We possess a powerful combination of accelerating fundamental drivers and increasing capital allocation optionality, that afford us the opportunity to deliver consistent near-term results while continuing to invest in our business and fund shareholder-friendly actions, including our recent dividend increase of 15%, as well as opportunistic share repurchases during the third quarter. As I said to start, Contour is in a unique position of strength in the marketplace, and we look forward to executing and delivering superior future TSR for all of our stakeholders. Rustin?