EVice President & Chief Operating Officer, KONTOOR BRANDS INC
Kontoor CEO on Q1 beat
Scott Baxter, Kontoor Brands CEO, joins CNBC's 'The Exchange' to break down growth drivers for Kontoor, DTC strategy, and ...
About Thomas Waldron
Thomas Waldron, Executive Vice President and Chief Operating Officer at Kontoor Brands, was referenced in a September 2024 CNBC interview where CEO Scott Baxter discussed the company's Q1 performance. Baxter attributed the company's record results to the "casualization of what's happening around the world," noting that denim remains acceptable as people return to work. He highlighted the launch of a Lee golf line, which he said performed "exceptionally well out of the gate," and described North America as a strong driver for future growth while noting significant investments in Asia and China. Baxter stated that Kontoor's direct-to-consumer platform, including physical stores and e-commerce, has created a larger opportunity compared to its wholesale-focused past. He said the company plans to build stores in North America and refurbish stores in China, while noting that e-commerce platforms have grown but still have room for expansion. On the consumer outlook, Baxter said the American consumer is "in fairly good shape" and predicted inflation would ease toward the end of 2024 and into 2025, with continued employment and wage inflation setting up a favorable dynamic for 2025.
Transcript (10 segments)
H
Host0:06
Welcome back to 'The Exchange.' Shares of Kontoor Brands hitting a record high after they beat profit expectations, shares up 11% so far this afternoon, trading just below $69.69, their intraday high. This is the parent company of Wrangler and Lee Brands and raised its full-year outlook, despite a tougher backdrop. Still, revenue slid 5% this past quarter and could see a 1% decline for 2024. Let's dive further into those results with the CEO Scott Baxter. Scott, thank you very much for being with us. I see you're wearing the products. I see the denim on there right now. Talk to us what's driving the record result here. Denim is a big deal, basically you and Levi Strauss, the brands that everybody knows and understands. What is it about denim that makes it such a good business right now?
S
Scott Baxter1:04
It's the casualization. Thanks for having me on. It's the casualization of what's happening around the world as we have come back to work and people are casual, denim is acceptable, and we make a great product. On top of that, we're in other categories that are driving our success like outdoors and t-shirts, things like that.
H
Host1:25
This is a denim dynamic, if you will, that has been brewing for quite some time now, and maybe skyrocketed because of the pandemic and everything else going on. What is that casualization going to look like, and how exactly do you capitalize on it with Lee and Wrangler versus other denim brands out there?
S
Scott Baxter1:51
I think it's got a long way to go. The key is you have to stay ahead of your consumer and think about what they're looking for. So you have to have a strong insights business, which we do. A great example of that, our Lee consumer, the male Lee consumer indexes to golf and watching and playing golf. So we kicked off a whole Lee golf line the past month and it's done exceptionally well out of the gate. It's got a lot of legs globally, but it's not just denim for a company like us. It's tops, it's t-shirts, outdoor, all types of different product that make up the full and entire portfolio that keeps us rolling. We think it's got a lot of momentum and legs. Part of that too has to do with the brand. We have our Lainey Wilson collection coming up, and she's helped us design that because she has a passion for apparel. So that type of brand and bringing those things to the market keep us in the forefront.
H
Host2:57
Those are a lot of different styles. You're talking about Lainey Wilson, rodeos, a Yellowstone watching audience. You just mentioned a new golf focused line for Lee. Where is that growth coming from, as you look at these different verticals, where do you see the most growth coming from?
S
Scott Baxter3:16
I think North America, our biggest market, will be a strong driver going forward. We have some nice collections coming up. Our momentum is strong. We have smaller businesses in Europe and Asia, but they're coming on nicely. Asia and China have come out of the pandemic very nicely, so we're positioning that business to do very well. We're investing in that business very significantly, too. Europe has been more difficult in the last year or two, and we're hoping that comes out towards the end of the year. We do see some green shoots. But North America, that is an important market driving our core brands, Lee and Wrangler.
H
Host3:56
One of the things that I mentioned Levi's before, only because they're bigger in terms of market cap in terms of you are, but they also trade at a premium valuation. They have about three or four valuation points higher than you. They have emphasized their direct-to-consumer verticals in the past and how that's a strength of their operation. Can you take us through what your strategy is, is it mostly still department stores and other stores selling your product?
S
Scott Baxter4:30
Yeah, actually, it's the biggest opportunity for us throughout the globe, really. We were more of a wholesale business when we spun out five years ago. And now we have this platform from D to C, both hard, physical stores and also e-commerce. Both are smaller businesses relative to our pure set, and that just creates a bigger opportunity. So we've been investing heavily in both. This coming year, we'll be building stores in North America, in Asia, we're going to be refurbishing a ton of stores in China. And then our e-commerce platforms have grown significantly here over the last five years. But the key is, they still have a lot of room to grow, because we still have underindexed in those areas, and it helps us to talk and communicate better with the consumer when we have that one on one relationship with the direct-to-consumer store business.
H
Host5:24
I would be remiss if I didn't ask one final question, because you are such a consumer focused company. I would like your take as to what you think the state of the American consumer is. We've been seeing some mixed signals in this market. It seems as though this is a maybe a transitory phase about going between consumer strength to relative weakness. Is the American consumer strong?
S
Scott Baxter5:51
The American consumer is in fairly good shape. I do believe it's going to get better. I think we'll see inflation ebb towards the end of the year and going into next year. Our folks are still working, which is important. There's been some wage inflation, which is important. You set up that dynamic and things look good for '25. In addition to the fact that someone like us, the bulk of our products are sold between $20 and $40 and used for