By Kristin Broughton

Kontoor Brands, maker of Wrangler and Lee jeans, is selling more women's clothing in an effort to boost sales and expand its appeal to new customers.

Kontoor's denim brands are best known for their masculine appeal, and for selling classic, low-cost denim through retailers such as Walmart and Western clothing stores. But the company, which was spun off from VF Corp.in 2019, is leaning into other categories to increase sales, including by focusing more on fashionable women and teens drawn to its flared jeans, tops and jackets.

Wrangler in August introduced a line of jeans for women that features stretchy denim and angled pockets. The following month, the brand unveiled a fashion collaboration with country music star Lainey Wilson. Meanwhile, Lee has sold clothing through collaborations with Forever 21, the teen-focused retailer, as well Stutterheim, the raincoat company.

The company has seen an increase in demand from female customers. Women's clothing accounts for 20% of Kontoor's sales, up from 10% in 2019, at the time of the spinout, according to Stifel Financial.

"The opportunity there is massive," said Joe Alkire, chief financial officer at Greensboro, N.C.-based Kontoor. The company is also expanding in outdoor clothing, including pants made from moisture-wicking fabric.

Kontoor's first five years as a stand-alone public company have been volatile. After its spinoff from VF, the coronavirus pandemic wreaked havoc on the global economy, snarled supply chains and fueled inflation. The company, which is primarily a wholesaler, has also confronted a wide-scale destocking among retailers that were stuck with too much inventory when the pandemic abated and consumer preferences quickly changed.

Revenue rose 2% to $670.2 million in the quarter ended Sept. 30. The company generated $2.61 billion in revenue for all of 2023, roughly in line with prepandemic 2019, its first year as a public company. Wrangler accounts for about 70% of Kontoor's sales, with Lee making up most of the rest.

"This was set up for men's denim bottoms -- print, repeat, sell it to the wholesale channel," said Paul Kearney, vice president for equity research at Barclays, referring to the company's previous ownership by VF, parent of retail brands including Vans and The North Face. "Really the journey since then has been about creating this as a stand-alone entity that can explore other opportunities for growth."

Investors are optimistic about Kontoor's ability to generate stronger sales, analysts said, pointing to the company's record in improving its profit margin by reducing product and supply-chain costs. The company's gross margin was 44.7% during the latest quarter, up from 41.5% a year earlier. Its stock price has increased more than 70% over the past year, closing at $91.38 on Friday.

"Investors are definitely going to be looking for more progress on the top line," said Jim Duffy, managing director at Stifel, referring to revenue.

As part of its expansion into new categories, Kontoor is spending more in areas such as advertising and product development. The company in September released its largest national television campaign for Wrangler since the separation from VF. The ad ran during football games, as well as during the final season of the hit series "Yellowstone."

Kontoor plans to pay for its brand investments by eliminating $100 million in costs in its production and supply chains through efforts such as negotiating lower prices with vendors and consolidating manufacturing sites. Investors should begin to see the impact of the plan in next quarter's results, and continuing through 2026, according to the company.

"We thought we could create our own investment capacity and not ask our shareholders to pay for it," Alkire said, discussing Kontoor's plan, which the company calls Project Jeanius.

Investors in the year ahead will be closely monitoring whether revenue increases at a faster clip than advertising spending, analysts said. That would show that the company is seeing a return on its brand investment.

Kontoor doesn't break out ad spending in its quarterly financial statements. During the quarter ended Sept. 30, selling, general and administrative expenses, which includes advertising costs, increased 8%, to $201.2 million. Profit rose 19%, to $70.5 million.

Write to Kristin Broughton at Kristin.Broughton@wsj.com

(END) Dow Jones Newswires

November 25, 2024 06:00 ET (11:00 GMT)

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