Lee, Wrangler-maker Kontoor tops estimates on new savings

Kontoor Brands Inc beat expectations for quarterly profit on Thursday as the denim apparel maker’s efforts to cut costs post its spinoff from VF Corp paid off, sending shares up over 13%.

Just months after completing its separation from Vans sneaker maker VF Corp, the company said its total costs and operating expenses had fallen about 5% in the second quarter as it streamlined supply chains and sourced materials for less.

With revenue down 6% and profits almost 40%, executives from the maker of Lee and Wrangler jeans also said they were looking at withdrawing from unprofitable markets if need be and would look at sourcing opportunities in new markets.

Its net income of 96 cents per share beat analysts’ estimates of 67 cents while adjusted net revenue of $602.4 million was around $10 million above forecasts, according to IBES data from Refinitiv.

“The restructuring and cost savings actions we’ve taken ... are paying off and are setting the foundation for improved profitability in the second half of 2019,” Chief Executive Officer Scott Baxter said in a statement.

The popularity of Lee in China has given Kontoor a strong base to launch Wrangler there next year but it has kept manufacturing spread out, allowing it to evade the risks of U.S.-China trade tensions and resulting tariffs.

It has manufacturing bases in Mexico, Bangladesh and the United States, allowing it to supply the U.S. market from outside China.

The company said it expected Wrangler sales, hit hard by the bankruptcy of Sears last October, to accelerate in the second half of the year, helped by a promotional kick from rapper Lil Nas X’s “Old Town Road” hit, which mentions the jeans.

“If you look at denim in the United States, the strong-holders are Levi’s and American Eagle because their messaging is very strong and speaks directly to the millennial consumers.... Jane Hali & Associates analyst Jessica Ramirez said.

“But there’s room for Lee and Wrangler to grow and capture an audience.”