Restructuring costs have reduced Kontoor's net income; company beats analysts' profit forecasts again | Business

Kontoor has completed its split from VF Corp. May 23, focusing on the Lee, Rock and Republic and Wrangler brands.

The report released Thursday reflects the financial performance of Kontoors while being part of VF for the fourth quarter of fiscal 2018.

For example, Kontoor reported net profit of $ 28.7 million in the fourth quarter, while the jeanswear business at VF had net income of $ 51.9 million in the fourth quarter of 2018.

Kontoors' diluted profit for the quarter just ended was 50 cents per share. Earnings, adjusted for one-time costs and restructuring costs, were 97 cents per share

The expected average profit was 90 cents by two analysts polled by Zacks Investment Research. Analysts generally do not include one-time earnings and expenses in their forecasts.

The company assumed 47 cents during the quarter: 28 cents for other adjustments reflecting accounting changes and the exit from certain distribution operations in India; and 19 cents related to the exit from unprofitable markets in Europe, changes to its business model for the regions of Central and South America and the loss of income resulting from the shutdown of the production of VF.

The company said in August 2019 that it has moved from a wholesale strategy to a licensed strategy in Argentina, Chile, Israel and Russia.

Revenues decreased 10% to $ 652.6 million, while total costs and operating expenses also decreased 10% to 594.1 millions of dollars. Interest expense was $ 13.9 million compared to $ 192,000 when it was part of VF a year ago.

Scott Baxter, President and CEO of Kontoors, said in a statement that the company is staying the course after a year of transformational change for our organization, our management teams and our employees around the world.

We have made great progress in laying the groundwork for more profitable and sustainable long-term growth, he said.

Baxter stressed the importance for Kontoor to continue paying down its debt well in advance of the forecast.

Kontoor had $ 913 million in debt as of December 28, 2019, down $ 127 million since its release from VF. It plans to reduce debt by an additional $ 125 million in 2020.

This strategy helps reduce our interest expense, clean up our balance sheet and create more opportunities with our cash flow, said Baxter. Were satisfied with the pace.

This solid cash flow will continue to be an important pillar in support of our evolving capital structure, further improving our financial flexibility in 2020 and beyond, he said.

Kontoor continued to feel the ripple effect from one of its major U.S. retail clients entering bankruptcy protection in the fourth quarter of 2018.

Sales of Wrangler fell 6% to $ 417 million, while sales of Lee fell 12% to $ 201.6 million. Sales in the other category, mainly Rock & Republic and VF Outlet sales, fell 36% to $ 34 million.

Sales in the United States fell 8% to $ 517 million, while international sales fell 17% to $ 136 million.

Tax charges for Kontoors were $ 15.1 million compared to $ 20.6 million a year ago.

The drop in the federal corporate tax rate that came into effect on January 1, 2018 has had a ripple effect for U.S. companies with significant international sales, including Kontoor, Hanesbrands Inc., Herbalife Ltd . and Unifi Inc.

The tax reform included the taxation of certain foreign income from U.S.-based companies that had not been taxed before. Companies spent the 2018 and 2019 fiscal years adjusting to the tax changes.

Kontoors' initial forecast for fiscal year 2020 includes a flat projection of revenue after adjustment to account for restructuring changes that are expected to contribute to a year-over-year decline in the first half.

Adjusted earnings for fiscal 2020 are expected to be between $ 3.55 and $ 3.65, down from $ 3.84 for fiscal 2019.

Stifel analyst Jim Duffy said investors should be careful with the guidance for fiscal year 2020, as this number does not reflect the impact on the profits of the coronavirus.

Taking into account the financial impact of the effect of the coronavirus on supply and demand, we believe that the real guide lies below this range.

The long-term global brand opportunity for Wrangler and Lee remains, with an imminent and indefinite stroke of coronavirus masking an already difficult visibility for a return to growth.