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Clothing company Kontoor Brands (NYSE:KTB) beat analysts' expectations in Q2 CY2024, with revenue down 1.5% year on year to $606.9 million. The company expects the full year's revenue to be around $2.6 billion, in line with analysts' estimates. It made a non-GAAP profit of $0.98 per share, improving from its profit of $0.77 per share in the same quarter last year.
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Kontoor Brands (KTB) Q2 CY2024 Highlights:
- Revenue: $606.9 million vs analyst estimates of $593 million (2.3% beat)
- EPS (non-GAAP): $0.98 vs analyst estimates of $0.88 (11.4% beat)
- The company reconfirmed its revenue guidance for the full year of $2.6 billion at the midpoint
- EPS (non-GAAP) Guidance for the full year is $4.80 at the midpoint, beating analysts' estimates by 1.6%
- Gross Margin (GAAP): 44.7%, up from 41% in the same quarter last year
- Free Cash Flow of $90.53 million, up 74.2% from the previous quarter
- Market Capitalization: $3.92 billion
Founded in 2019 after separating from VF Corporation (NYSE:VFC), Kontoor Brands (NYSE:KTB) is a clothing company known for its high-quality denim products.
Apparel, Accessories and Luxury GoodsWithin apparel and accessories, not only do styles change more frequently today than decades past as fads travel through social media and the internet but consumers are also shifting the way they buy their goods, favoring omnichannel and e-commerce experiences. Some apparel, accessories, and luxury goods companies have made concerted efforts to adapt while those who are slower to move may fall behind.
Sales GrowthA company’s long-term performance can give signals about its business quality. Even a bad business can shine for one or two quarters, but a top-tier one tends to grow for years. Kontoor Brands struggled to generate demand over the last five years as its sales were flat. This is a tough starting point for our analysis.
We at StockStory place the most emphasis on long-term growth, but within consumer discretionary, a stretched historical view may miss a company riding a successful new product or emerging trend. Kontoor Brands's annualized revenue declines of 1.2% over the last two years align with its five-year trend, suggesting its demand consistently shrunk.
This quarter, Kontoor Brands's revenue fell 1.5% year on year to $606.9 million but beat Wall Street's estimates by 2.3%. Looking ahead, Wall Street expects sales to grow 3.7% over the next 12 months, an acceleration from this quarter.
Cash Is KingIf you've followed 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 the bills.
Kontoor Brands has shown mediocre cash profitability over the last two years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 8.6%, subpar for a consumer discretionary business.
Kontoor Brands's free cash flow clocked in at $90.53 million in Q2, equivalent to a 14.9% margin. The company's cash profitability regressed as it was 4.2 percentage points lower than in the same quarter last year, but it's still above its two-year average. We wouldn't read too much into this quarter's decline because investment needs can be seasonal, leading to short-term swings. Long-term trends carry greater meaning.
Key Takeaways from Kontoor Brands's Q2 Results It was good to see Kontoor Brands beat analysts' revenue and EPS expectations this quarter. We were also glad its full-year EPS guidance outperformed Wall Street's estimates. Overall, this quarter seemed fairly positive and shareholders should feel optimistic. The stock remained flat at $70.15 immediately after reporting.
