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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☑QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 1, 2022
or
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission file number: 001-38854
ktb-20221001_g1.jpg
KONTOOR BRANDS, INC.
(Exact name of registrant as specified in its charter)
North Carolina83-2680248
(State or other jurisdiction of incorporation or organization)(I.R.S. employer identification number)

400 N. Elm Street
Greensboro, North Carolina 27401
(Address of principal executive offices)

(336) 332-3400
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading symbol(s)Name of each exchange on which registered
Common Stock, no par valueKTBNew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.     Yes þ    No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes þ    No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer☑Accelerated filer☐Non-accelerated filer☐Smaller reporting company☐Emerging growth company☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes ☐   No þ 
The number of shares of Common Stock of the registrant outstanding as of October 28, 2022 was 55,465,639.


KONTOOR BRANDS, INC.
Table of Contents
 Page

Kontoor Brands, Inc. Q3 FY22 Form 10-Q 2


PART I — FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

KONTOOR BRANDS, INC.
Consolidated Balance Sheets
(Unaudited)
(In thousands, except share amounts)September 2022December 2021September 2021
ASSETS
Current assets
Cash and cash equivalents$58,053 $185,322 $215,442 
Accounts receivable, net 234,569 289,800 269,874 
Inventories678,207 362,957 409,110 
Prepaid expenses and other current assets102,425 72,579 93,922 
Total current assets1,073,254 910,658 988,348 
Property, plant and equipment, net101,407 105,155 106,959 
Operating lease assets47,831 54,950 56,555 
Intangible assets, net13,242 14,638 14,975 
Goodwill209,012 212,213 212,503 
Other assets208,264 235,410 233,842 
TOTAL ASSETS$1,653,010 $1,533,024 $1,613,182 
LIABILITIES AND EQUITY
Current liabilities
Short-term borrowings$7,093 $249 $254 
Current portion of long-term debt7,500 — 18,125 
Accounts payable306,278 214,204 244,681 
Accrued liabilities167,690 217,164 218,058 
Operating lease liabilities, current18,885 24,195 23,480 
Total current liabilities507,446 455,812 504,598 
Operating lease liabilities, noncurrent30,255 32,993 36,329 
Other liabilities82,417 104,764 114,088 
Long-term debt824,793 791,317 773,413 
Commitments and contingencies
Total liabilities1,444,911 1,384,886 1,428,428 
Equity
Preferred Stock, no par value; shares authorized, 90,000,000; no shares outstanding at September 2022, December 2021 and September 2021
— — — 
Common Stock, no par value; shares authorized, 600,000,000; shares outstanding of 55,464,569 at September 2022; 56,381,466 at December 2021 and 57,550,958 at September 2021
— — — 
Additional paid-in capital237,934 218,259 207,963 
Retained earnings62,448 22,635 70,926 
Accumulated other comprehensive loss(92,283)(92,756)(94,135)
Total equity
208,099 148,138 184,754 
TOTAL LIABILITIES AND EQUITY$1,653,010 $1,533,024 $1,613,182 
See accompanying notes to unaudited consolidated financial statements.

3 Kontoor Brands, Inc. Q3 FY22 Form 10-Q

KONTOOR BRANDS, INC.
Consolidated Statements of Operations
(Unaudited)
Three Months Ended SeptemberNine Months Ended September
(In thousands, except per share amounts)2022202120222021
Net revenues $606,521 $652,298 $1,899,836 $1,794,825 
Costs and operating expenses
Cost of goods sold342,460 362,735 1,064,190 978,558 
Selling, general and administrative expenses188,995 203,583 563,614 601,934 
Total costs and operating expenses531,455 566,318 1,627,804 1,580,492 
Operating income75,066 85,980 272,032 214,333 
Interest expense(8,858)(7,156)(25,115)(26,588)
Interest income263 345 1,028 1,024 
Other expense, net(2,219)(676)(5,187)(1,073)
Income before income taxes64,252 78,493 242,758 187,696 
Income taxes13,169 15,080 48,870 36,183 
Net income$51,083 $63,413 $193,888 $151,513 
Earnings per common share
Basic$0.92 $1.10 $3.47 $2.63 
Diluted$0.90 $1.07 $3.40 $2.56 
Weighted average shares outstanding
Basic55,428 57,648 55,830 57,535 
Diluted56,550 59,282 57,060 59,180 
See accompanying notes to unaudited consolidated financial statements.



Kontoor Brands, Inc. Q3 FY22 Form 10-Q 4


KONTOOR BRANDS, INC.
Consolidated Statements of Comprehensive Income
(Unaudited)
 Three Months Ended SeptemberNine Months Ended September
(In thousands)2022202120222021
Net income$51,083 $63,413 $193,888 $151,513 
Other comprehensive (loss) income
Net change in foreign currency translation(11,568)(6,572)(28,457)(9,586)
Net change in defined benefit pension plans6 4 17 67 
Net change in derivative financial instruments11,236 1,402 28,913 10,191 
Total other comprehensive (loss) income, net of related taxes(326)(5,166)473 672 
Comprehensive income$50,757 $58,247 $194,361 $152,185 
See accompanying notes to unaudited consolidated financial statements.

5 Kontoor Brands, Inc. Q3 FY22 Form 10-Q

KONTOOR BRANDS, INC.
Consolidated Statements of Cash Flows
(Unaudited)
 Nine Months Ended September
(In thousands)20222021
OPERATING ACTIVITIES
Net income$193,888 $151,513 
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization27,827 26,675 
Stock-based compensation17,758 29,211 
Provision for doubtful accounts2,202 (130)
Other8,536 7,601 
Changes in operating assets and liabilities:
Accounts receivable37,673 (41,369)
Inventories(323,449)(70,648)
Accounts payable98,556 78,381 
Income taxes(11,682)9,506 
Accrued liabilities(33,473)28,864 
Other assets and liabilities(5,107)(10,252)
Cash provided by operating activities12,729 209,352 
INVESTING ACTIVITIES
Property, plant and equipment expenditures(13,091)(6,642)
Capitalized computer software(7,633)(23,536)
Other(990)(1,778)
Cash used by investing activities(21,714)(31,956)
FINANCING ACTIVITIES
Borrowings under revolving credit facility
76,000 — 
Repayments under revolving credit facility
(36,000)— 
Repayments of term loans— (125,000)
Repurchases of Common Stock(62,494)(10,006)
Dividends paid(77,021)(69,068)
Shares withheld for taxes, net of proceeds from issuance of Common Stock(12,643)(2,209)
Other7,002 (562)
Cash used by financing activities(105,156)(206,845)
Effect of foreign currency rate changes on cash and cash equivalents(13,128)(3,247)
Net change in cash and cash equivalents (127,269)(32,696)
Cash and cash equivalents – beginning of period185,322 248,138 
Cash and cash equivalents – end of period$58,053 $215,442 
See accompanying notes to unaudited consolidated financial statements.

Kontoor Brands, Inc. Q3 FY22 Form 10-Q 6


KONTOOR BRANDS, INC.
Consolidated Statements of Equity
(Unaudited)
Common StockAdditional Paid-in CapitalRetained EarningsAccumulated Other Comprehensive LossTotal Equity
 (In thousands, except per share amounts)SharesAmounts
Balance, December 202156,381 $— $218,259 $22,635 $(92,756)$148,138 
Net income— — — 80,810 — 80,810 
Stock-based compensation, net387 — 6,462 (11,833)— (5,371)
Other comprehensive income— — — — 9,059 9,059 
Dividends on Common Stock ($0.46 per share)
— — — (26,033)— (26,033)
Repurchases of Common Stock(492)— — (22,513)— (22,513)
Balance, March 202256,276 $— $224,721 $43,066 $(83,697)$184,090 
Net income— — — 61,995 — 61,995 
Stock-based compensation, net109 — 7,320 (500)— 6,820 
Other comprehensive loss— — — — (8,260)(8,260)
Dividends on Common Stock ($0.46 per share)
— — — (25,475)— (25,475)
Repurchases of Common Stock(1,003)— — (39,981)— (39,981)
Balance, June 202255,382 $— $232,041 $39,105 $(91,957)$179,189 
Net income— — — 51,083 — 51,083 
Stock-based compensation, net83 — 5,893 (2,227)— 3,666 
Other comprehensive loss— — — — (326)(326)
Dividends on Common Stock ($0.46 per share)
— — — (25,513)— (25,513)
Balance, September 202255,465 $— $237,934 $62,448 $(92,283)$208,099 
Common StockAdditional Paid-in CapitalRetained EarningsAccumulated Other Comprehensive LossTotal Equity
 (In thousands, except per share amounts)SharesAmounts
Balance, December 202057,255 $— $172,297 $7,151 $(94,807)$84,641 
Net income— — — 64,463 — 64,463 
Stock-based compensation, net259 — 14,472 (4,458)— 10,014 
Other comprehensive loss— — — — (1,890)(1,890)
Dividends on Common Stock ($0.40 per share)
— — — (22,964)— (22,964)
Balance, March 202157,514 $— $186,769 $44,192 $(96,697)$134,264 
Net income— — — 23,637 — 23,637 
Stock-based compensation, net118 — 12,007 (698)— 11,309 
Other comprehensive income— — — — 7,728 7,728 
Dividends on Common Stock ($0.40 per share)
— — — (23,052)— (23,052)
Balance, June 202157,632 $— $198,776 $44,079 $(88,969)$153,886 
Net income— — — 63,413 — 63,413 
Stock-based compensation, net104 — 9,187 (3,508)— 5,679 
Other comprehensive loss— — — — (5,166)(5,166)
Dividends on Common Stock ($0.40 per share)
— — — (23,052)— (23,052)
Repurchases of Common Stock(185)— — (10,006)— (10,006)
Balance, September 202157,551 $— $207,963 $70,926 $(94,135)$184,754 
See accompanying notes to unaudited consolidated financial statements.

7 Kontoor Brands, Inc. Q3 FY22 Form 10-Q

KONTOOR BRANDS, INC.
Notes to Consolidated Financial Statements
(Unaudited)

NOTE 1 — BASIS OF PRESENTATION
Description of Business
Kontoor Brands, Inc. ("Kontoor," the "Company," "we," "us" or "our") is a global lifestyle apparel company headquartered in the United States ("U.S."). The Company designs, produces, procures, markets and distributes apparel, footwear and accessories, primarily under the brand names Wrangler® and Lee®. The Company's products are sold in the U.S. through mass merchants, specialty stores, mid-tier and traditional department stores, company-operated stores and online. The Company's products are also sold internationally, primarily in the Europe and Asia-Pacific regions, through department, specialty, company-operated, concession retail and independently-operated partnership stores and online.
Fiscal Year
The Company operates and reports using a 52/53-week fiscal year ending on the Saturday closest to December 31 of each year. Accordingly, this Form 10-Q presents the third quarter of the Company's fiscal year ending December 31, 2022 ("fiscal 2022"), which is a 52-week fiscal year. For presentation purposes herein, all references to periods ended September 2022, December 2021 and September 2021 correspond to the fiscal periods ended October 1, 2022, January 1, 2022 and October 2, 2021, respectively.
Macroeconomic Environment Impact, Including COVID-19 Specific Considerations
Macroeconomic pressures including inflation, rising interest rates and recessionary concerns, as well as ongoing global supply chain disruptions and the novel coronavirus (“COVID-19”) pandemic, continue to adversely impact global economic conditions, as well as the Company's operations. Additionally, although we do not have any significant operations within Russia or Ukraine, the conflict in these regions has caused disruption in the surrounding areas and greater uncertainty in the global economy. The Company considered the impact of these developments on the assumptions and estimates used when preparing these quarterly financial statements including, but not limited to, our allowance for doubtful accounts, inventory valuations, liabilities for variable consideration and contract termination, deferred tax valuation allowances, fair value measurements including asset impairment evaluations, the effectiveness of the Company’s hedging instruments, and expected compliance with all applicable financial covenants in our Credit Agreement (as defined in Note 6 to the Company's financial statements). These assumptions and estimates may change as new events occur and additional information is obtained regarding the impact of macroeconomic conditions, global supply chain disruptions, COVID-19 and the Russia-Ukraine conflict. Such future changes may have an adverse impact on the Company's results of operations, financial position and liquidity.
Basis of Presentation - Interim Financial Statements
The accompanying unaudited interim financial statements have been prepared in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X and do not include all of the information and notes required by generally accepted accounting principles in the U.S. ("GAAP") for complete financial statements. In the opinion of management, the accompanying financial statements contain all normal and recurring adjustments necessary to fairly state the financial position, results of operations and cash flows of the Company for the interim periods presented. Operating results for the three and nine months ended September 2022 are not necessarily indicative of results that may be expected for any other interim period or for fiscal 2022. The unaudited financial statements should be read in conjunction with the audited consolidated and combined financial statements included in the Company's 2021 Annual Report on Form 10-K for the fiscal year ended January 1, 2022, as filed with the Securities and Exchange Commission on March 2, 2022 ("2021 Annual Report on Form 10-K").
Recently Issued Accounting Standards
In March 2020, the Financial Accounting Standards Board issued Accounting Standards Update 2020-04, “Facilitation of the Effects of Reference Rate Reform on Financial Reporting,” which is intended to provide temporary optional expedients and exceptions for applying GAAP to contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate ("LIBOR") and other interbank offered rates to alternative reference rates. This guidance was effective upon issuance and the Company may adopt the guidance and apply it prospectively to contract modifications made or relationships entered into or evaluated any time from the issuance date through December 31, 2022. The Company will continue to evaluate the impact that adoption of this guidance would have on its financial statements and related disclosures, most notably the Company's credit facilities and interest rate swap agreements, which is not expected to be significant.
In September 2022, the Financial Accounting Standards Board issued Accounting Standards Update 2022-04, "Disclosure of Supplier Finance Program Obligations," which requires entities that use supplier finance programs in connection with the purchase of goods and services to disclose key terms of the programs, outstanding confirmed amounts as of period end, a description of where those obligations are presented in the balance sheet and a rollforward of obligations. This guidance is effective for the Company beginning in the first quarter of 2023, except for the obligation rollforward requirement which is effective beginning in the first quarter of 2024, with early adoption permitted. The Company is currently evaluating the impact that adoption of this guidance will have on its financial statements and related disclosures in relation to certain of the Company's programs.


Kontoor Brands, Inc. Q3 FY22 Form 10-Q 8


KONTOOR BRANDS, INC.
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 2 — REVENUES
Contract Balances and Performance Obligations
The following table presents information about contract balances recorded in the Company's balance sheets:
(In thousands)September 2022December 2021September 2021
Accounts receivable, net$234,569 $289,800 $269,874 
Contract assets (a)
6,599 3,093 3,702 
Contract liabilities (b)
919 2,258 2,118 
(a) Included within "prepaid expenses and other current assets" in the Company's balance sheets.
(b) Included within "accrued liabilities" in the Company's balance sheets.
For the three and nine months ended September 2022 and September 2021, revenue recognized that was included in contract liabilities as of December 2021 and December 2020, respectively, was not significant.
As of September 2022, the Company has contractual rights under its licensing agreements to receive $50.4 million of fixed consideration related to the future minimum guarantees through December 2028. As of September 2022, there were no arrangements with any transaction price allocated to remaining performance obligations other than (i) contracts for which the Company has applied the practical expedients and (ii) fixed consideration related to future minimum guarantees. For the three and nine months ended September 2022, revenue recognized from performance obligations satisfied, or partially satisfied, in prior periods was not significant. The variable consideration under these arrangements is not disclosed as a remaining performance obligation as the licensing arrangements qualify for the sales-based royalty exemption.
Disaggregation of Revenue
The following tables present revenues disaggregated by channel and geography. Revenues from licensing arrangements have been included within the U.S. or Non-U.S. Wholesale channels, based on the respective region where the licensee sells the product. Direct-to-Consumer revenues include sales at company-operated Wrangler® and Lee® branded full-price and outlet stores, digital sales at www.wrangler.com and www.lee.com and sales from international concession arrangements.
Other primarily includes other revenue sources, including sales and licensing of Rock & Republic® apparel. Other also included sales of third-party branded merchandise at company-owned outlet stores through the first quarter of 2021.
Three Months Ended September 2022
(In thousands)WranglerLeeOtherTotal
Channel revenues
U.S. Wholesale$324,564 $84,122 $1,771 $410,457 
Non-U.S. Wholesale50,448 81,682 28 132,158 
Direct-to-Consumer31,149 32,661 96 63,906 
Total$406,161 $198,465 $1,895 $606,521 
Geographic revenues
U.S.$351,624 $98,862 $1,867 $452,353 
International54,537 99,603 28 154,168 
Total$406,161 $198,465 $1,895 $606,521 


9 Kontoor Brands, Inc. Q3 FY22 Form 10-Q

KONTOOR BRANDS, INC.
Notes to Consolidated Financial Statements
(Unaudited)
Three Months Ended September 2021
(In thousands)WranglerLeeOtherTotal
Channel revenues
U.S. Wholesale$344,277 $105,779 $2,226 $452,282 
Non-U.S. Wholesale48,558 86,494 446 135,498 
Direct-to-Consumer28,673 35,700 6 64,379 
Other— — 139 139 
Total$421,508 $227,973 $2,817 $652,298 
Geographic revenues
U.S.$368,507 $121,951 $2,371 $492,829 
International53,001 106,022 446 159,469 
Total$421,508 $227,973 $2,817 $652,298 
Nine Months Ended September 2022
(In thousands)WranglerLeeOtherTotal
Channel revenues
U.S. Wholesale$1,003,753 $341,125 $6,425 $1,351,303 
Non-U.S. Wholesale143,724 212,591 903 357,218 
Direct-to-Consumer89,051 102,022 242 191,315 
Total$1,236,528 $655,738 $7,570 $1,899,836 
Geographic revenues
U.S.$1,078,998 $384,035 $6,667 $1,469,700 
International157,530 271,703 903 430,136 
Total$1,236,528 $655,738 $7,570 $1,899,836 
Nine Months Ended September 2021
(In thousands)WranglerLeeOtherTotal
Channel revenues
U.S. Wholesale$919,176 $309,673 $6,386 $1,235,235 
Non-U.S. Wholesale137,206 232,984 1,888 372,078 
Direct-to-Consumer75,249 111,478 19 186,746 
Other— — 766 766 
Total$1,131,631 $654,135 $9,059 $1,794,825 
Geographic revenues
U.S.$982,532 $356,362 $7,171 $1,346,065 
International149,099 297,773 1,888 448,760 
Total$1,131,631 $654,135 $9,059 $1,794,825 


Kontoor Brands, Inc. Q3 FY22 Form 10-Q 10


KONTOOR BRANDS, INC.
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 3 — BUSINESS SEGMENT INFORMATION
The Company has two reportable segments:
•Wrangler — Wrangler® branded denim, apparel and accessories.
•Lee — Lee® branded denim, apparel and accessories.
The chief operating decision maker allocates resources and assesses performance based on a global brand view which determines the Company's operating segments. Operating segments are the basis for the Company's reportable segments.
In addition, we report an "Other" category in order to reconcile segment revenues and segment profit to the Company's operating results, but the Other category is not considered a reportable segment based on evaluation of aggregation criteria. Other primarily includes other revenue sources, including sales and licensing of Rock & Republic® apparel.
Accounting policies utilized for internal management reporting at the individual segments are consistent with those disclosed in the Company's 2021 Annual Report on Form 10-K. Corporate and other expenses and interest income and expense are not controlled by segment management and therefore are excluded from the measurement of segment profit.
The following table presents financial information for the Company's reportable segments and income before income taxes:
 Three Months Ended SeptemberNine Months Ended September
(In thousands)2022202120222021
Segment revenues:
Wrangler$406,161 $421,508 $1,236,528 $1,131,631 
Lee198,465 227,973 655,738 654,135 
Total reportable segment revenues604,626 649,481 1,892,266 1,785,766 
Other revenues 1,895 2,817 7,570 9,059 
Total net revenues$606,521 $652,298 $1,899,836 $1,794,825 
Segment profit:
Wrangler$75,597 $77,184 $226,049 $214,001 
Lee26,703 42,969 101,837 112,583 
Total reportable segment profit$102,300 $120,153 $327,886 $326,584 
Corporate and other expenses(28,775)(35,051)(60,774)(113,585)
Interest expense(8,858)(7,156)(25,115)(26,588)
Interest income263 345 1,028 1,024 
(Loss) profit related to other revenues(678)202 (267)261 
Income before income taxes$64,252 $78,493 $242,758 $187,696 


11 Kontoor Brands, Inc. Q3 FY22 Form 10-Q

KONTOOR BRANDS, INC.
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 4 — ACCOUNTS RECEIVABLE
Allowance for Doubtful Accounts
The Company reviews the estimates used to calculate the allowance for doubtful accounts on a quarterly basis.
The following table presents a rollforward of the allowance for doubtful accounts:
Nine Months Ended September
(In thousands)20222021
Balance, December