Kontoor Brands, Inc.

Greetings and welcome to Contour Brand's fourth quarter earnings conference 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. I would now like to turn the conference over to your host, Eric Tracy, Vice President of Corporate Finance and Investor Relations. Thank you, and over to you, sir.

Thank you, Operator, and welcome to Contour Brand's fourth quarter and fiscal 2021 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. Adjustments during the fourth quarter and fiscal years 2021 and 2020 primarily represent costs associated with the company's global ERP implementation and information technology infrastructure build out. Adjustments during the fourth quarter and fiscal year of 2019 primarily represent restructuring and separation costs, a non-cash impairment charge related to our Rock and Republic trademark, and other adjustments. Reconciliation 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 stated, growth rates are in constant currency compared to the fourth quarter of 2020. Also, given the impacts of COVID-19 had in our prior year results, we will provide select references to the same period in 2019 for additional context where appropriate. Joining me on today's call are Contour Brands President, Chief Executive Officer, and Chair of the Board, Scott Baxter, and Chief Financial Officer, Rustin Welton. In addition, we'll also be joined by Tom Waldron, Global Brand President of Wrangler, and Chris Waldeck, Global Brand President of Lee. Following our prepared remarks, we'll open the call for questions. We anticipate this call will last about an hour. Scott?

Thanks, Eric, and thank you all for joining us today. As Eric mentioned, our global brand presidents, Tom Waldron and Chris Waldeck, will be joining us for this year-end review. We believe these year-end calls provide a great opportunity to have them share insights from the past year, as well as go-forward strategies for each of their respective brands. You'll hear more from them in a bit. Let me first provide some thoughts at a contour level, as I'm pleased to share our strong results for the fourth quarter and full year. And I'm even more excited to discuss the building momentum of our brands and how our Horizon 2 strategy begins to take hold, which gives me great confidence in what lies ahead. Our solid fundamental performance during 2021 was driven by the incredible spirit, perseverance, and effort of our teams around the world. I want to thank each and every one of our Contour colleagues whose resilience and dedication to excellence allowed us to not only deliver near-term results, despite the ongoing macroeconomic challenges, but also set the foundation for a brighter future ahead. Contour is not immune to the obstacles facing companies and individuals around the world, but I wouldn't want to face these tests with any other team. At Contour, we truly do win together. I said this on our last call, and I have even greater confidence today, Contour and our Wrangler and Lee brands are now uniquely positioned to win in the marketplace, to drive more sustainable and profitable long-term growth, and to create future value for all of our stakeholders. What gives me this confidence? First, the proof points from our fourth quarter and full year 21 performance. If you look at our results relative to our initial 21 guidance, we delivered significant upside for the year on all fundamental metrics. Revenue of $2.48 billion represented roughly 150 million or seven points of upside to our original guide, even while supply chain challenges weighed on the top line. Gross margin of 44.6% came in almost 200 basis points ahead of our original guidance, despite incurring higher transitory freight costs as we chased strong demand. As a result, our EPS of $4.28 for fiscal 21 was 73 cents or 21% above our initial guide. And what I love is that this outperformance was really broad-based and accelerated from the first half to the second half of the year compared to 2019. Total contour reported revenue increased 6% for the full year and 13% In Q4, excluding the impacts of our proactive strategic actions taken with our VFO in India businesses late last year. Investments in innovation, demand creation, and elevated design helped drive significant share gains in both the Wrangler and Lee brands versus 2019, with increasing AURs domestically. This is a tremendous sign that our strategies to enhance our core U.S. wholesale business are working. allowing us to elevate brand equity, mixing into higher price points, and having greater permission to take incremental price. To augment this core, we continue to extend our reach into new accretive channels of distribution, including premium specialty, outdoor, sporting goods, and the rapid evolution of our digital platforms. Compared to 2019, our digital wholesale business grew 85%, and our own .com grew 74%. Here again, too, AUR gains our powerful story of increasing brand health, experiencing low double-digit growth over 19 in US-owned .com. At year-end, our own .com reached 6% penetration, nearly doubling from just two years ago, and is well on track to hit our investor day target of 10% penetration. The evolution of our digital ecosystem is a direct function of the incredible talent we've added to the organization and enhanced demand creation for our brands. Further diversifying our product portfolio, new category expansion continues to play a huge role in catalyzing top line growth. Again, it's really important to understand the breadth of category strength beyond our core. across outdoor with our performance ATG line, work, tops and tees, as well as female and Western. Just an incredible range of product momentum. With respect to our Western business, Tom will provide more detailed insights, but we believe this is more than just a trend. Similar to our view on denim, not just being a cycle, but part of a larger casualization movement, we see our Western business not just participating in, but driving a movement towards freedom of expression, authenticity, and connection to the outdoors. A critical piece of our Catalyzing Growth Playbook, Extensions into New Categories, is well ahead of schedule in delivering outsized, incremental business for Contours. And while we love the strong U.S. performance we are seeing, geographic expansion propels new, diversified, and accretive growth as well. Europe saw further wholesale improvement in the quarter as countries opened up, which supported the gains from our evolving digital platform in the region. Compared to 2019, Europe was up 12% for the quarter. In China, despite the much-discussed uneven market conditions, we once again experienced nice growth in the region. with Q4 reported revenue of 25% compared to 2019 or 13% in constant currency. We will continue to monitor macro complexities going forward, seeking to optimize productivity in the region near term while positioning both brands to capture the significant market opportunities long term. Before I turn it over to Tom and Chris, let me close with this. Contour is increasingly well positioned to win. This is demonstrated by our fourth quarter in 2021 results and even more by our building momentum as evidenced by our fiscal 22 guidance in which we expect high single digit top line growth. Rustin will provide further details, but this guidance assumes prolonged macro headwinds continue into 22. Said another way, Our solid outlook would have been even stronger if not for expected ongoing transitory impacts from demand outstripping supply and inflationary pressures. These accelerating fundamentals include 22 revenue of around 2.7 billion, which as a reminder was our fiscal year 23 target established at investor day. So we expect to achieve this goal a full year ahead of our initial plan. Even as we assume continued macro challenges, we are in fact catalyzing growth, and we're doing this by investing in critical growth enablers, including demand creation, ESG, innovation, and an increasingly purpose-led, consumer-centric organizational mindset, all of which are incrementally different from how these brands were previously run. Importantly, this future growth should be more profitable, driven by enhanced AURs and mix shifts to accretive areas such as digital and international. This improving operating model, when combined with our increasing cash flow optionality, should allow us to continue to deliver superior returns to all of our stakeholders. Before I turn it over to Tom, On behalf of all of us at Contour, we want to acknowledge the deeply saddening events that have unfolded in Ukraine over the last week and sincerely hope that you and your families around the globe are safe and healthy. Tom?