Kontoor Brands (NYSE:KTB) Beats Q2 Expectations

Apparel company Kontoor Brands (NYSE:KTB) beat analysts’ expectations in Q2 CY2024, with revenue down 1.5% year-over-year to $606.9 million. The company expects full-year revenue to be around $2.6 billion, in line with analyst estimates. Non-GAAP earnings were $0.98 per share, an improvement from earnings of $0.77 per share in the same quarter last year.

Is it time to buy Kontoor Brands? Find out by accessing our full research report, it’s free.

Kontoor Brands (KTB) key events in the second quarter of calendar year 2024:

Income: $606.9 million vs. analyst estimates of $593 million (2.3% higher)
EPS (non-GAAP): $0.98 vs. analyst estimates of $0.88 (11.4% over)
Business confirmed its revenue forecast for the full year in the middle of the year worth 2.6 billion dollars
Earnings per share guidance (non-GAAP) for the full year is $4.80 at mid-year, beating analysts’ estimates by 1.6%
Gross Margin (GAAP): 44.7%, compared to 41% in the same quarter last year
Free cash flow of $90.53 million, an increase of 74.2% compared to the previous quarter
Market capitalization: $3.92 billion

“We delivered second-quarter results that exceeded our expectations with higher revenue, stronger gross margin growth and cash flow generation,” said Scott Baxter, president, CEO and chairman of Kontoor Brands.

Founded in 2019 after separating from VF Corporation, Kontoor Brands (NYSE:KTB) is an apparel company known for its high-quality denim products.

Clothing, accessories and luxury goods

In apparel and accessories, not only are styles changing more frequently than they did decades ago, as trends move through social media and the internet, but consumers are also changing the way they shop for goods, favoring omnichannel and e-commerce experiences. Some apparel, accessories and luxury goods companies have made a concerted effort to adapt, while those that are slower may be left behind.

Increase in sales

A company’s long-term performance can signal the quality of its business. Even a bad business can shine for a quarter or two, but a top-shelf business tends to grow for years. Kontoor Brands has struggled to generate demand for the past five years because its sales have been flat. This is a difficult starting point for our analysis.

At StockStory, we place the greatest emphasis on long-term growth, but in consumer goods, a stretched historical view may not account for a company riding on a successful new product or emerging trend. Kontoor Brands’ 1.2% annual revenue decline over the past two years is in line with a five-year trend, suggesting demand has been steadily declining.

Kontoor Brands’ revenue fell 1.5% year over year in the quarter to $606.9 million, but beat Wall Street estimates by 2.3%. Looking ahead, Wall Street is expecting sales to grow 3.7% over the next 12 months, an acceleration from the quarter.

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Money is everything

If you’ve been following 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 your bills.

Kontoor Brands has had average cash profitability over the past two years, which has limited the company’s ability to return capital to shareholders. Its free cash flow margin averaged 8.6%, which is below average for the consumer discretionary business.

Kontoor Brands’ free cash flow was $90.53 million in Q2, representing a margin of 14.9%. The company’s cash profitability declined, as it was 4.2 percentage points lower than in the same quarter last year, but is still above its two-year average. We wouldn’t read too much into the decline this quarter, as capital needs can be seasonal, leading to short-term fluctuations. Longer-term trends are more important.

Key takeaways from Kontoor Brands’ Q2 results

It was nice to see that Kontoor Brands beat analysts’ revenue and EPS expectations for the quarter. We were also pleased that full-year EPS guidance beat Wall Street estimates. Overall, the quarter seemed quite positive and shareholders should be optimistic. Shares were unchanged at $70.15 immediately after the report.

Is Kontoor Brands worth investing in right now? When making such a decision, it is important to consider the valuation, business features, as well as what happened in the last quarter. We have discussed this in our full research report, which you can read here, it is free.