Kontoor Brands Inc. (NYSE: KTB) reported Q4 EPS of $0.97, $0.05 better than the analyst estimate of $0.92. Revenue for the quarter came in at $653 million versus the consensus estimate of $683.26 million.

GUIDANCE:

Kontoor Brands Inc. sees FY2020 EPS of $3.55-$3.65, versus the consensus of $3.64.

• Revenue is expected to be largely consistent with full year 2019 adjusted revenue, with branded Wrangler® and Lee® revenue anticipated to increase low-single digits while other non-strategic revenues are expected to decline double-digits due to ongoing planned reductions in non-branded VF Outlet™ and Rock & Republic®. The 53rd week is expected to contribute approximately one half of a point to full year revenue.
• The negative impact of 2019 strategic business exits, quality-of-sales initiatives and lower revenue associated with non-strategic lines of business is expected to contribute up to 3 points of headwind to full year 2020 revenue with the majority occurring during the first half of the year. In addition, timing shifts between the second quarter and third quarter shipments are anticipated.
• Due to these reasons, first half revenue is expected to decline. Revenue is expected to grow in the second half based on the moderating headwinds from restructuring and quality-of-sales actions, benefits of expanding programs and points of distribution, as well as the timing of shipments, with the strongest revenue growth expected during the fourth quarter.
• Gross margin is expected to be in the range of 41.0 percent to 41.5 percent compared with full year 2019 adjusted gross margin of 40.8 percent, driven by ongoing restructuring and quality-of-sales initiatives, as well as structural mix shifts to more accretive DTC and international businesses.
• Adjusted EPS is expected to be in the range of $3.55 to $3.65 compared with full year 2019 adjusted EPS of $3.84. Adjusted EPS excludes expenses primarily related to the implementation of the global ERP system and information technology infrastructure. 2020 includes an additional five months of interest expense that impacts full year adjusted EPS by approximately $0.23 compared with 2019 adjusted EPS, which will negatively impact first half 2020 comparisons.
• Cash flow from operations is expected to be greater than $325 million, with significant financial flexibility in support of continued aggressive debt paydown, superior dividend payments and the funding of capital expenditures and implementation costs related to a new global ERP system and information technology infrastructure.

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