Kontoor Brands, Inc. · NYSE:KTB
Kontoor Brands — Investor Presentation (April 2019)
52 slides from Kontoor Brands's investor presentation, Apr 26, 2019
Slide 1: Kontoor Brands Investor Presentation
Kontoor Brands Investor Presentation April 26, 2019
Slide 2: Disclaimer
Disclaimer Certain written and oral statements included in this presentation are "forward- looking statements" within the meaning of the federal securities laws. Forward-looking statements are made based on our expectations and beliefs concerning future events impacting Kontoor Brands and therefore
Slide 3: Introductions and Agenda
Introductions and Agenda KONTOOR BRANDS ATTENDEES AGENDA 1. Kontoor Brands Investment Thesis Scott Baxter President, CEO, Board Member 2. Our Brands and Business Rustin Welton 3. Our Strategy Vice President, CFO 4. Financial Overview Eric Tracy Senior Director, Investor Relations 5. Conclusion 3
Slide 4: 4
4
Slide 5: Our Commitment
Our Commitment Always a Becoming Great Company a Great Stock § Iconic brands § TSR focus and targeting § Strong cash flow generation leading dividend payout § Industry leader § Stable and loyal long-term § Advantaged supply chain investor base § Winning team and culture § Multiple, attractive value-
Slide 6: Compelling Opportunities to Unlock Value
Compelling Opportunities to Unlock Value § Target paying a best-in-class dividend § Invest behind strategic and operational priorities § Pursue a broader set of product, channel and geographic opportunities for Wrangler® and Lee® brands § Build and incentivize a world-class team with a global mindse
Slide 7: Kontoor is an Attractive Investment Opportunity
Kontoor is an Attractive Investment Opportunity STRONG FINANCIAL MODEL SHAREHOLDER-FOCUSED CAPITAL DEPLOYMENT Strong dividend policy Compelling, durable & consistent cash flow Compelling dividend yield funded by >$300M in annual operating cash flows 60% target payout Healthy margin expansion Committ
Slide 8: Recent Headwinds Addressed…Now Positioned for Success
Recent Headwinds Addressed…Now Positioned for Success Revenue Adjusted $2.9B Revenue (-$180M / -16%) $2.7B Episodic Events (-$50M / -10%) Rest of Strategic Actions Business (+$15M / < 1%) § N.A. challenged § Argentina business § Continued solid retailers reduction and performance of core subsequent
Slide 9: Focus on Horizon 1 Execution to Set a Strong Foundation for Horizon 2 Success
Focus on “Horizon 1” Execution to Set a Strong Foundation for “Horizon 2” Success Drive long-term TSR Drivers advantages Dividend, margin and growth driven Accelerate the Kontoor model Optimize the Dividend and business margin driven Dividend driven Time Horizon Today Near-Term Medium-Term Long-Term
Slide 10: Assumptions Underlying Long-Term TSR Goals
Assumptions Underlying Long-Term TSR Goals… 1 – 2% 8 – 10% 2 – 3% ~5% Dividend Margin Revenue Share Multiple M&A Total Yield Expansion Growth Repurchase Expansion Shareholder Return 10
Slide 11: Supported by Horizon 1 Capital Allocation Priorities
…Supported by Horizon 1 Capital Allocation Priorities 1 2 DIVIDEND DEBT PAYDOWN Targeted Payout: ~60%1 Long-Term Adjusted Gross Leverage2 Target <3x >$1 billion of cash flow2,3 generated between 2016 and 2018 1 Subject to approval by the Board of Directors of Kontoor Brands. 2 Definitions of non-GAA
Slide 12: Highly Experienced Management and Board With a Sharp Focus on Total Shareholder Return
Highly Experienced Management and Board With a Sharp Focus on Total Shareholder Return SENIOR MANAGEMENT INDEPENDENT BOARD MEMBERS Scott Baxter Robert Shearer President & Chief Executive Officer, Board Member Chairman Rustin Welton Richard Carucci Vice President & Chief Financial Officer Board Membe
Slide 13: Our Brands & Business
Our Brands & Business 13
Slide 14: Kontoor Brands at a Glance
Kontoor Brands at a Glance § Two iconic and authentic brands in Wrangler® and Lee® with 200 combined years of heritage § Vertically integrated supply chain producing or sourcing >170mm units in 2018 § Deep retail relationships across leading brick & mortar and e-commerce players § Revenue and margin
Slide 15: Well Positioned in an Attractive Market
Well Positioned in an Attractive Market LEADING U.S. AND INTERNATIONAL $100BN1 GLOBAL JEANSWEAR MARKET MARKET POSITIONS § Attractive market size and growth over time #2 U.S. Jeans Company2 #1 U.S. Men’s Jeans Company2 - ~4% historical CAGR and ~5% projected CAGR Kontoor Brands Kontoor 11% - Within t
Slide 16: Powerful Brands
Powerful Brands Iconic 70-year American brand deeply Global brand celebrating 130 years of rooted in the Western lifestyle heritage that delivers trend-forward styles § Anchored in the U.S. with global reach § Global presence with leading market positions § Products reflect today’s style, fit and fi
Slide 17: Presence Across Distribution Channels Aligns with Core Strengths
Presence Across Distribution Channels Aligns with Core Strengths Other4 § Key relationships span 25+ years 6% Branded DTC3 11% § Leader in Western specialty § Sophisticated logistics, planning and merchandising approach U.S. Wholesale1 § Manufacturing and distribution proximity in Western 61% Hemisp
Slide 18: Diverse Geographic Presence Grounded In The U.S.
Diverse Geographic Presence Grounded In The U.S. § Winning with leading retailers in the U.S. International 27% § Diverse denim presence in international markets § Lee® is a leading denim brand in China U.S. 73% § Opportunities in Europe and greater Asia Source: Form 10 filing unless otherwise noted
Slide 19: Leveraging Supply Chain Competitive Advantages
Leveraging Supply Chain Competitive Advantages INTEGRATED SUPPLY CHAIN IS A KEY ADVANTAGE… …WITH OPPORTUNITIES FOR EXPANSION >170mm Units Supplied in 2018 § Globalization of supply chain model § Assess and adjust internal ~38% manufacturing capacity (~65mm units) ~62% § Conduct global supply chain (
Slide 20: Fueling Innovation As A Key Driver To Growth
Fueling Innovation As A Key Driver To Growth ELEVATE DESIGN & GROW CONSUMER BASE & INNOVATION ENERGIZE THE BRANDS NEW CATEGORIES § Focus on heritage and § Lifestyle association to raise § Products to attract new style trend brand desirability consumers (women and younger generations) § Applied resea
Slide 21: Elevating Demand Creation
Elevating Demand Creation ENGAGING WITH SOCIAL MEDIA INFLUENCERS USING CELEBRITIES TO ELEVATE BRAND IMAGE Bella Hadid Olivia Culpo Dwayne Johnson Eddie Peng 21
Slide 22: Our Strategy
Our Strategy 22
Slide 23: Reconfiguring Our Global Approach
Reconfiguring Our Global Approach VF PORTFOLIO MANAGEMENT STAND-ALONE KONTOOR APPROACH § Focused management team instilling an § Independently operating Jeanswear business energized culture units across three regional offices § Unified global brand and product approach § Customer strategies and bran
Slide 24: Kontoor Brands Strategic Priorities
Kontoor Brands Strategic Priorities 1 Scale advantage in our core denim business Sustainable Accelerate positions in high value segments, growth 2 channels and geographies Consistent and strong cash flow generation Build advantaged positions to reach new 3 consumers Healthy margin expansion Drive un
Slide 25: Scale Our Advantage in Core Men's Denim Business
1 Scale Our Advantage in Core Men’s Denim Business § Drive industry-leading innovation § Elevate demand creation § Leverage leading supply chain § Continue to grow in high-margin channels 25
Slide 26: Accelerate Positions in High-Value Segments, Channels, Geographies
2 Accelerate Positions in High-Value Segments, Channels, Geographies § Implement a global product engine § Increase presence across high ROI digital channels § Expand in select geographies 26
Slide 27: Build Advantaged Positions to Reach New Consumers
3 Build Advantaged Positions to Reach New Consumers § Grow new categories and segments § Foster world-class design § Maintain consumer focus 27
Slide 28: Drive Unwavering Focus on Margin Expansion and Capital Efficiency
4 Drive Unwavering Focus on Margin Expansion and Capital Efficiency § Focus on margin accretive opportunities § Streamline global operations § Implement cost-savings initiatives § Efficiently allocate capital 28
Slide 29: Create an Engaged and High-Performing Team With a TSR / Ownership Culture
5 Create an Engaged and High-Performing Team With a TSR / Ownership Culture § Activate a high-performance culture § Instill TSR / ownership processes, culture and mindset § Enhance corporate social responsibility 29
Slide 30: Financial Overview
wakes wads! AS Shae ‘ial Overv lew 30
Slide 31: Long Track Record of Strong Financial Performance
Long Track Record of Strong Financial Performance REVENUE1 & ADJUSTED EBITDA MARGIN2 ($ in billions) $2.9 $2.8 $2.9 $2.9 $2.9 $2.9 $2.8 $2.6 $2.7 $2.7 $2.7 18.3% 17.7% 18.6% 17.6% 12.7% 13.7% 15.6% 14.2% 15.7% 15.4% 14.4% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Recession Cotton inflat
Slide 32: Dissecting Recent and Expected Performance Drivers
Dissecting Recent and Expected Performance Drivers PROJECTED vs. OVERALL KTB Relative Relative Revenue RECENT REVENUE GROWTH Growth Margin Digital Wh olesale + + Digital DTC + + U.S. Specialty & Work + + Wran gler U.S. Mass Neutral Neutral International (ex. CASA & Digital) + + U.S. Challenged Retai
Slide 33: Full Year 2019 and Longer-Term Outlook
Full Year 2019 and Longer-Term Outlook FY 2019 FY 2020-2021 $: >$2.5bn Low single-digit increase Revenue YoY Growth %: Mid single-digit decline CAGR Adj. Growth1 %: Low single-digit decline to flat $: $340mm to $360mm Adjusted EBITDA2 Mid single-digit increase CAGR YoY Growth %: Low double-digit to
Slide 34: Restructuring & Cost Savings Programs Underway
Restructuring & Cost Savings Programs Underway DRIVE COST REDUCTIONS AND GLOBAL EFFICIENCIES VIA PHASE 1 PLAN Phase 1 Restructuring Initiatives § Exit unprofitable channels / markets § Streamline and simplify supply chain operations (e.g. Argentina) (e.g. internal trucking fleet) § Consolidate facil
Slide 35: Conservative Capital Structure with Attractive Cash Flow Opportunities
Conservative Capital Structure with Attractive Cash Flow Opportunities PRO FORMA CAPITALIZATION1 Conservative balance sheet with ($ in millions) moderate opening leverage $100 Cash and Cash Equivalents Revolver ($500, undrawn) - Significant opportunities for cash unlock (i.e. working capital optimiz
Slide 36: Significant Working Capital Opportunity
Significant Working Capital Opportunity 200 111 130 COMMENTARY 99 110 93 § Elevated inventory due to: 150 90 - Product line expansion to support new products and 70 growing channels 100 106 50 101 102 - Retailer bankruptcies 30 - Increasing number of sourced units 50 10 - Strategic purchases of raw
Slide 37: Kontoor is an Attractive Investment Opportunity
Kontoor is an Attractive Investment Opportunity STRONG FINANCIAL MODEL SHAREHOLDER-FOCUSED CAPITAL DEPLOYMENT Strong dividend policy Compelling, durable & consistent cash flow Compelling dividend yield funded by >$300M in annual operating cash flows 60% target payout Healthy margin expansion Committ
Slide 38: Questions & Discussions
Questions & Discussions 38
Slide 39: Appendix
Appendix 39
Slide 40: Wrangler Performance And Drivers
Wrangler® Performance And Drivers Wrangler® FINANCIAL SNAPSHOT POSITIONING AND PERFORMANCE COMMENTARY (revenue in $bn) $1.6 $1.6 $1.6 § Stable and profitable performance across core customers, channels and geographies § Strong leadership positions in historically core channels (e.g., mass and wester
Slide 41: Lee Performance And Drivers
Lee® Performance And Drivers Lee® FINANCIAL SNAPSHOT POSITIONING AND PERFORMANCE COMMENTARY (revenue in $bn) $1.1 $1.0 $1.0 § Leveraging innovation to drive differentiation at a compelling value § Unifying brand messaging and positioning to drive broader 2016 2017 2018 consumer appeal § Regaining sh
Slide 42: Overview Of Wrangler Riggs and Rock & Republic
Overview Of Wrangler Riggs® and Rock & Republic® WRANGLER RIGGS® OVERVIEW ROCK & REPUBLIC® OVERVIEW A specialty workwear brand A premium denim and contemporary lifestyle brand § Introduced in 2003, Riggs Workwear ®, the brand offers powerful § In 2012, VF granted Kohl’s exclusive rights to sell all
Slide 43: Integrated Supply Chain Built to Support Volume and Replenishment
Integrated Supply Chain Built to Support Volume and Replenishment INTERNAL MANUFACTURING FOOTPRINT Mexico Nicaragua Coyote Delicias LaRosita Jiménez Saucillo San Pedro Torreon Izamal Managua Acanceh San Marcos Tekax Masatepe City Owned Manufacturing Leased Manufacturing DISTRIBUTION FOOTPRINT Prague
Slide 44: Overview of VF Outlet
Overview of VF Outlet VF OUTLET ™ OVERVIEW While VF-branded and third-party branded merchandise is not a strategic focus, Kontoor Brands remains committed to optimizing profitability in VFO stores § Kontoor Brands operates VF Outlet™ stores in both premium outlet malls and traditional value-based lo
Slide 45: Kontoor Brands, Inc. Non-GAAP Definitions
Kontoor Brands, Inc. Non-GAAP Definitions Financial information contained in this presentation includes certain financial measures that are calculated and presented on the basis of methodologies other than in accordance with generally accepted accounting policies in the United States of America (GAA
Slide 46: Revenue Reconciliation
Revenue Reconciliation 52 WEEKS ENDED ($ in millions) 12/31/16 12/30/17 12/29/18 Revenue (Jeanswear segment revenue reported by VF) $2,737.7 $2,655.4 $2,534.1 (a) Other category 108.0 113.1 125.2 (b) Wrangler® RIGGS segment reclassification - - 62.2 (c) Carve-out accounting adjustments 80.8 61.6 42.
Slide 47: 2016-2018 EBITDA, Adjusted EBITDA and Adjusted Pre-Tax Income Reconciliations
2016-2018 EBITDA, Adjusted EBITDA and Adjusted Pre-Tax Income Reconciliations (Non-GAAP) 52 WEEKS ENDED ($ in millions) 12/31/16 12/30/17 12/29/18 EBIT (Jeanswear segment profit reported by VF) $491.9 $421.9 $361.7 (a) Other category (4.4) (3.1) (0.5) (b) Depreciation & amortization 51.2 56.8 31.0 (
Slide 48: Reconciliation Notes
Reconciliation Notes a) For the 52 weeks ended December 31, 2016 and December 30, 2017, represents the historical Jeanswear reportable segment as reported in the VF Form 10-K for the fiscal year ending December 31, 2016 and December 30, 2017, respectively. For the 52 weeks ended December 29, 2018, r
Slide 49: 2016-2018 EBIT, EBITDA and Adjusted EBITDA Reconciliation
2016 - 2018 EBIT, EBITDA and Adjusted EBITDA Reconciliation (Non-GAAP) 52 WEEKS ENDED ($ in millions) DECEMBER 31, 2016 DECEMBER 30, 2017 DECEMBER 29, 2018 Kontoor Brands Net Income (GAAP) (as reported in Form 10) $315.0 $116.2 $263.1 Income taxes 95.5 243.0 77.0 Related party interest income, net (
Slide 50: 2008 to 2015 Financial Metrics
2008 to 2015 Financial Metrics Fiscal Year Ended ($ in millions) 2008 2009 2010 2011 2012 2013 2014 2015 Revenue (Jeanswear segment revenue plus Other category segment revenue both as $2,887.6 $2,632.6 $2,652.0 $2,843.4 $2,914.8 $2,934.8 $2,928.5 $2,914.6 reported by VF in 10-K filings) EBIT (Jeansw
Slide 51: Reconciliation of Cash Used by Operating Activities to Adjusted Cash Provided
Reconciliation of Cash Used by Operating Activities (GAAP) to Adjusted Cash Provided by Operating Activities (Non- GAAP) 52 WEEKS ENDED ($ in millions) 12/29/18 Kontoor Brands Cash used by operating activities (per Form 10) ($96.3) Separation adjustments 46.3 (a) Restructuring & transaction costs 26
Slide 52: Gross Adjusted Leverage Reconciliation
Gross Adjusted Leverage Reconciliation ($ in millions) 2018 ADJUSTED EBITDAR 2018 Adjusted EBITDA $385.6 (+) Rent Expense 40.8 Total 2018 Rent Adjusted EBITDAR $426.4 ($ in millions) RENT ADJUSTED DEBT Total Debt $1,050.0 (+) 4x Rent Expense 163.3 Total Rent Adjusted Debt $1,213.3 Total Gross Adjust