Q4 2022 Kontoor Brands Inc Earnings Call
Speaker 1: The.
Speaker 2: Greetings and welcome to the Contour Branch Fourth Quarter and Fiscal Year 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. If anyone should require operators to speak during the conference, please press star-zero on your telephone keypad. The event 30
Speaker 2: As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Eric Tracy, Vice President, Corporate Finance, and Investor Relations. Thank you, Eric. You may begin. Thank you, operator. Welcome to Contour Brands' fourth quarter in fiscal year 2022 earnings conference call. Participants on today's call will make forward-looking statements. These statements are based on current expectations and are subject to uncertainties that could cause actual results to materially differ. These uncertainties are detailed and documents followed with the SEC. We are due to read or risk factors, cautionary language, and other disclosures contained in those reports. Select comparisons to 2021 results will be on an adjusted basis. In certain cases, we will make comparisons to 2019 adjusted results. Reconciliation of GAT measures to adjusted amounts can be found in the supplemental financial tables included in the news release that was issued early this morning and is available on our website at contourbrands.com. These tables identify and quantify excluded items and provide management's view of why this information is useful to investors. Comparisons will be in constant currency unless otherwise stated with the exception of comparisons to the 2019 period.
Speaker 3: We'll hear more from them in a bit. Let me first provide some thoughts at a contour level, as I'm pleased to share our strong results for the fourth quarter, as I'm even more excited to discuss our incredible opportunities ahead, as we begin 2023 from a position of strength. While we expect macroeconomic challenges to persist, our results afford us great proof points
Speaker 3: that when we execute on our playbook, all of our key stakeholders win. Beginning with some highlights from the fourth quarter in full year 2022, in Q4, global contour revenue grew 9%, well above our internal forecast as shipments in the US accelerated, augmented by continued share gains and AUR growth. And profitability in the quarter was outstanding, with adjusted operating income increasing 19%. Despite the significant macro pressures during 2022, when we were able to deliver another year of healthy growth, with revenue increasing high single digits. And we returned a total of 166 million to shareholders through a combination of dividend payouts, which you will recall we increased last quarter, as well as share repurchases. And stepping back a bit, we think it's important to note, relative to pre-pandemic 2019 levels during 2022, we were able to grow revenue, mid single digits, or double digit growth, excluding proactive actions to exit our VFO fleet and lower quality points of distribution. Expand reported growth margin 230 basis.
Speaker 3: grew 17%. In revenue in this important growth vehicle has doubled since 2019. And lastly, driving a creative growth geographically, broadening our reach beyond domestic borders.
Speaker 3: excluding China, international markets grew 7% in 2022. Rustin will go through our full-year 23 guidance in more detail in a bit, but continued execution of these strategies will be critical in driving this year's performance. Even as we assume macro challenges will weigh on consumer demand throughout 2023. And we want to prudently account for this in our full-year guy. I'm excited that our domestic POS share and AUR gains have continued here in the first quarter. As you would expect, we've seen some lag in wholesale shipments relative to the solid sell-through as retailers normalized their order patterns and we affected that into our plans accordingly. But the combination of strong quarter to date POS coupled with robust gains in our own D to C with US comps of 20% year to date gives us confidence that the Wrangler and Lee brands are healthy and well positioned in the marketplace as we begin 2023.
Speaker 3: Massive supply chain disruptions and significant regional lock downs do to COVID.
Speaker 3: These operational results are a testament to the incredible efforts of our amazing colleagues that I'm fortunate to partner with every day. I want to close by thanking each and every one of our people around the world for their agility, perseverance, and dedication to contour. Both in navigating the near term and in setting the foundation for our future success.
Speaker 3: This commitment to excellence inspires me and gives me confidence that we can continue to yield superior returns for all KTV stakeholders. Tom? Thanks, Scott, and hello to everyone joining us on the call today. I want to echo Scott's comments and thank our teams across the organization. Wranglish fourth quarter and 2022 results are because of the extraordinary efforts throughout the year. Before I get to where Wrangler results, let me share some thoughts from my seat as Co. CEO , specifically in leading our supply chain platform. We know supply chain and in particular inventory management is on everyone's mind, so I'd like to provide some perspective. Contour similar to most of the apparel industry experience global supply chain disruptions into 2022, including significant retail inventory rebalancing, affecting our operations with the most pronounced impact occurring in the third quarter. These actions combine with cost inflation and improve lead times on source goods has led to higher inventory dollars to end the year. Rest in will take you through the numbers, but let me provide some context on how we are addressing the elevated inventory position. As we have discussed last quarter, we have flexed our internal manufacturing as well as adjusted receipts on source goods to right size our inventory position in a profitable manner. While this production downtime impacted Q for gross margins, and we expect will continue to weigh our margins in the first half of 2023, we believe these actions are the right ones and preserving long term brand health. Importantly, we remain on track to see more normalized inventory levels by mid 2023. No doubt there is much work to be done here.
Speaker 3: but I'm confident we are executing the right plan to optimize our inventory position in a prudent and profitable manner as we move through the year. Let me now turn to discuss fourth quarter and fuller highlights for the Wrangler brand. I couldn't be prouder of the teens accomplishments during 2022, our 75th anniversary year, which saw a multitude of successes culminating in our largest fourth quarter ever. And for the first time, the brand experienced a quarter with revenue above 500 million. Revenue grew 16% globally in the quarter and 19% in the US, our largest market with a healthy balance across categories and channels. In our core, we continue to drive share gains in the quarter with Wrangler men's bottoms outpacing the US market by 160 basis points. And our largest competitor by nearly 500 basis points according to NPD. These gains were once again led by continued AUR momentum up 8% in the quarter. And this strong sell through and share momentum only improved as we move through the year. From a category perspective, fourth quarter sales of outdoor, workwear and teas were up approximately 20%. And once again, our own digital lead, our quarter performance with global Wrangler.com up to the end of the year. We have a total of 18% in Q4 sequentially improving from Q3. And looking at highlights for the full year, Wrangler brand performance during 2022 demonstrates our commitment to diversified a creative growth across categories, channels and geographies all while enhancing our core business. Full year Wrangler revenue increased 12% globally and was up 13% in the US.
Thanks, Tom Lee enters 2023 with significant momentum and enhanced brand equity matched by a tremendous global growth opportunity long term our strategies are beginning to unlock the brand's true potential as we continue to build our lease amey international positioning while amplifying investments in design and demand creation, bringing new consumers into.
The brand and opened opening elevated points of distribution, including our own D to C, which I will touch on in a bit.
Before I discuss the go forward, let me first share some of lease Q4 in 2022 results.
In the fourth quarter globally revenue declined 3% with strength in the U S offset by challenges in international markets, Excluding China, Li Global revenue was up 2% versus prior year in the U S. Lee grew 5% led by digital with Lee Dot Com up 11%.
Internationally, the Lee brand was down 13% during the quarter, primarily driven by Covid Lockdowns and restrictions in China I'll provide more perspective on China in a minute.
Importantly, AUR in Q4 were up 9%.
Direct function of our continued investment in quality of sales enhanced product and mix shifts.
And we are seeing sequential improvement come through in the NPD market share data highlighted by Lee Women's which grew significant share in Q4, outpacing the market and our largest competitor by 80 basis points turning to the full year globally revenue increased 1%.
Excluding China Li grew 7% for the year with EMEA growing 8% again, the U S. Core was strong increasing 7% over 2021 with a combination of share gains and improving AUR is driving a healthy balanced growth profile.
And while geographic mix, owing to China Lockdowns weighed on 2022 gross margin the Lee brand repositioning and focus on more accretive growth drove over 400 basis points of adjusted gross margin expansion since 2019.
Similar to look to Wrangler Lee maximized investments in brand building across talent design innovation and demand creation.
We continued our partnership with creative director Mark Seliger enlarged our second global brand equity campaign Lee originals.
From the Lee original campaign to sponsoring the twenty-two Bonnaroo festival or up and coming music duo Tiger Lily and fashion collaborations like forbidden city in China, and the Brooklyn surface here in the U S. We connected with new younger consumers in 'twenty, two and that momentum continues into 'twenty three.
A great example of this a few weeks ago and kicking off our celebration of Black history month, Lee had the honor of sponsoring the 50 years of hip hop style exhibit at the fashion Institute of Technology in New York City.
We are proud to have been woven into the history of this influential cultural movement and we look forward to further expressing lease impact with brand activation events planned in the coming months again, we're just beginning to unlock the full potential with this brand and I couldnt be more excited with the opportunity ahead and to share future developments with you.
As we move through 2023.
Speaking of potential I'd like to share some perspective from my role as co CEO COO overseeing contours international and DTC businesses as you all know the opportunity for growth in these areas importantly, highly accretive growth remained significant for both brands.
First touching on international markets.
When we discuss geographic expansion is a key growth catalyst at our last Investor day, we knew the path wouldn't necessarily be linear we did not however, contemplate a war in Europe are prolonged COVID-19 lockdowns and restrictions in China and there is no doubt these macro factors have impacted and altered our trajectory of growth.
In the near term you will see us continue to navigate through challenging conditions, but with an eye to the future focusing on the health of our brands and positioning each for long term profitable growth.
In China, we are seeing two things first consumer demand for the Lee brand continues to be strong and that is best represented through the digital marketplaces that have not been impacted by COVID-19 restrictions.
Like others in the market, we are seeing significant fluctuations in comps around the country.
With the China, new year timing shifts.
Festival travel and people now getting back to work, we exited 2022 clean in our own inventories, but inventories at retail remained elevated given these dynamics, we expect the China business will be challenged during the first half with the most pronounced headwinds in the first quarter, we do see this stabilizing in the coming quarters.
As consumers get back to normal course of daily life and pent up demand is released.
I would like to emphasize we are taking a measured approach, including the ramp up of wrangler in China.
But the China market and more broadly Asia and Europe represent substantial white space for contour. There is no reason why our brand shouldn't operate at a similar level to our peers, which suggests an opportunity to double our international business over time.
Not only are positive to the top line, but again materially accretive to the gross margin given our brand's premium positioning higher AUR and greater DTC mix outside of the U S.
And as we drive closer connections with our consumer there was no more important channel than the continued evolution of our own retail and digital platforms. As you. All know we remain in the early days here.
Well below our competition in terms of penetration.
Within digital contour global own Dot com increased 17% over 2021, while our U S own dot com experienced 23% growth over last year.
Great proof points that our investments, including digital demand creation in this highly accretive growth channel are paying off.
Last quarter, you heard us begin to discuss the development of our own brick and mortar retail strategy first in Europe . During the fourth quarter. We opened three new Lee Wrangler premium retail stores with plans to expand our footprint in the region during 2023.
These brand enhancing retail destinations offered consumers a unique immersive experience with a full lifestyle assortment for both brands.
We also recently launched a retail excellence initiative, a comprehensive program across retail operations.
<unk> training combined with merchandising and planning aimed at transforming contour into a world class retailer.
Just on the success of the early testing we are now rolling out to retail excellence initiative across the Asia region now.
And over the next 12 to 18 months, we will do so globally.
The opportunities to leverage our learnings in Asia as we fully develop our brick and mortar strategy globally are significant.
As you would expect from US we will be deliberate and evolving our retail footprint, we will test and learn building in concert with our branded digital sites to create a seamless omnichannel experience as.
As we build an ever closer connection to our consumers.
Before I turn it over to Rustin I too want to sincerely. Thank all of our teams for all their tremendous work and collaboration through 2022 <unk>.
Delivering great results for the year, but also setting contour up for incredible things to come.
<unk>.
Thank you, Chris and thank you all for joining us today.
As the team stated we are very pleased with the strong finish to the year with revenue and earnings coming in well above expectations.
For additional detail on the quarter and full year results I will refer you to today's release.
For the balance of the call I am going to cover key highlights for the quarter before discussing our guidance for 2023.
Beginning with revenue global revenue increased 9% compared to the prior year.
Growth in global digital and U S. Wholesale was partially offset by softness in international markets, driven by Lockdowns and restrictions in China, as well as heightened inflationary and macro pressures.
On a regional basis U S revenues increased 16% driven by gains across both wrangler and Lee.
Scott, Tom and Chris discussed, we are seeing great sell through in wholesale fueled by brand investments and diversification into strategic growth categories.
In digital we are seeing similar momentum with revenue increasing 19% in the quarter.
International revenues decreased 12%.
Covid related restrictions and Lockdowns in China had a significant impact in the quarter.
In EMEA revenues decreased 4% driven by growth in DTC offset by wholesale pressure as retailers navigate macro and inflationary headwinds while normalizing inventories.
Despite the Q4 decline EMEA revenues increased 7% for the year.
Turning to our brands.
Mobile revenue of our Wrangler brand increased 16%.
In the U S revenues increased 19% driven by broad based strength, including double digit gains in western outdoor work in Ts.
E Mail also closed out the year delivering positive growth in every quarter.
Wrangler International revenue decreased 9%, driven primarily by softness in EMEA wholesale more than offsetting gains in DTC.
Turning to lead global revenue decreased 3%.
Lee U S revenue increased 5% driven by double digit growth in digital wildly international revenue decreased 13%.
Covid related restrictions and Lockdowns in China had a significant impact on the quarter and region with APAC decreasing 26%.
In EMEA revenues decreased slightly and were flat, excluding the Russia exit.
And finally from a channel perspective U S wholesale increased 17%.
Non U S wholesale decreased 14% and global owned Dot com increased 11%.
Now on to gross margin.
Reported gross margin decreased 180 basis points compared to adjusted gross margin last year.
As expected inflationary pressures downtime and foreign currency weighed on margin rates in addition to inventory provisions.
Somewhat offsetting these headwinds were ongoing structural mix benefits to accretive channels and strategic pricing.
In addition, we have seen relief in transitory headwinds such as air freight as the global logistics environment has improved.
Adjusted SG&A expense was $213 million or a $5 million decrease versus fourth quarter 2021 adjusted SG&A.
Tight discretionary expense controls lower compensation costs and a decrease in credit loss provisions were somewhat offset by higher distribution expenses as well as continued strategic investments in it.
As a percent of revenue adjusted SG&A leveraged by 290 basis points in the quarter.
Adjusted earnings per share was 88 compared to 88.
In the same period in the prior year now.
Now turning to our balance sheet.
Fourth quarter inventories increased 64% compared to last year and increased 30% compared to 2019.
On a dollar basis inventory levels decreased $81 million from the third quarter.
Few additional points on inventory.
First the quality of our inventory is good with approximately 90% in core styles.
Million in cash and equivalents.
Our net leverage ratio or net debt divided by trailing 12 month adjusted EBITDA at the end of the fourth quarter was 1.8 times within our targeted range of one to two times.
And as previously announced our board of directors declared a regular quarterly cash dividend of 48 cents per share.
We returned a total of $166 million to shareholders during 2022 through a dividend and share repurchase program.
Finally at the end of the fourth quarter, we had $62 million remaining under our share repurchase authorization.
Now onto our outlook.
Revenue is expected to increase at a low single digit percentage on an annual basis with growth being relatively balance between the front and back halves.
Want to highlight a few additional points as you think about the cadence that will affect both revenue and gross margin.
During the first half, we expect growth to be driven by the U S and tempered by international.
In the U S. We expect the momentum from strong P O S share gains and DDC growth to continue.
Scott mentioned, while U S shipments have slightly lag sell through in early 2023 as retailers normalize their order patterns.
We are seeing great strength and are owned channels as evidenced by the 20% year to date USD to see comp growth mentioned earlier.
We expect international to be softer in the first half due largely to China.
As Chris discuss the region continues to recover from Covid related restrictions lockdowns and elevated inventory levels at retail.
We are taking a thoughtful approach for both brands and working closely with our partners to reduce inventory levels in the first quarter, while ensuring the longterm brand health.
Accordingly, we expect our year on year declines in China to accelerate from Q4 levels in Q1 before returning to growth and Q2.
These proactive actions in China are expected to offset domestic growth with global revenue flat to modestly below 2022 in Q1 before returning to growth and Q2.
During the second half of the year, we expect growth to be driven by international as China becomes more fully reopen and tempered domestically as macro conditions are expected to place increasing pressure on U S consumer demand.
Gross margin is anticipated to increase 40 to 90 basis points to 43.5% to 44% annually compared to reported gross margin of 43.1% achieved in 2022.
For the year, we expect structural mix shifts to accretive channels, such as digital an international <unk>.
Moderating inflationary pressures on input costs.
And higher Aur's to offset downtime and drive improved margin rates.
However, as the margin components are expected to flow through the P&L at varying points of the year I want to provide a bit more context.
First the impacts from China mix will have the most pronounced impact on the first half, particularly in the first quarter.
Second we anticipate taking the majority of manufacturing downtime in the first half.
And finally as you would expect the lag for moderating input costs will more meaningfully flow through the P&L starting in the second half.
Based on these factors, we expect modest year on year gross margin pressure in the first half of the year with the first quarter most impacted.
Before sequentially, improving as we move through the year with second half margin up on a year over year basis.
SG&A is expected to increase at a mid single digit rate compared to adjusted SG&A in 2022 S.
Scott mentioned, we are entering 2023 with strong P. O S momentum and we will continue to support both brands through investments that offer the greatest potential.
This will include investments in areas, such as digital and I T that support the longterm data transformation of the business day.
Demand creation.
As well as the normalization of compensation expenses.
From a cadence perspective, we anticipate investments to ramp through the year was second half stronger than the first half.
E. P. S is expected to be in the range of $4.55 to $4.75 a share.
Due to the combination of the factors just discussed we expect E. P. S. On a dollar basis to be more waited till the second half of the year with the first quarter being the most challenged on a year on year basis.
Finally to help you build out your models other experience is expected to be in the range of $5 million to $10 million <unk>.
The effective tax rate is expected to be approximately 20% to 21% annually with quarter to quarter volatility driven by discrete items.
Interest expense and the 33% to $38 million range, an average shares outstanding to be approximately $57 million before any additional share repurchases.
Lastly, as we enter the third year of the Catalyzing growth strategy, we outlined at our Investor day in 2021, I wanted to take a moment to reflect on the significant progress we have made despite numerous macro and industry headwinds over the last couple of years.
First revenues have grown at a low double digit <unk> over the last two years versus the high single digit growth implied in our original algorithm.
While macro events have had an impact, particularly in international markets. This relative outperformance is reflected in guidance approaching the $2.7 billion target. Despite these headwinds.
Margin rates have been impacted by inflationary pressures, including cotton at the highest level since 2011.
But the structural drivers, including mixed shifts to accretive channels and geographies remain very much intact, and we continue to see significant opportunity for gross margin expansion over time as conditions normalize.
Furthermore, as evidenced in today's earnings results and guidance for the year, we have considerable levers at our disposal to support continued earnings growth and our longterm T S. Our algorithm.
And finally, we discussed our capital allocation strategy evolving.
To reflect significant optionality, including introducing an opportunistic share repurchase program and increasing our dividend payout last quarter.
The power of this option Allah Optionality has allowed us to pursue and and strategy funding.
Funding investments in both brands, including a new global ERP system, supporting our dividend and buying Baxter.
Over the last two years, we have returned 337 million to shareholders.
To close I want to thank our incredible colleagues around the world as I stated at the onset I am very pleased with the way. We finished the year, which is a direct reflection of their extraordinary efforts.
The market and macro environment remains highly dynamic, which we have reflected in our expectations for 2023.
But Ah Scott mentioned, we are entering a year from a position of strength.
This concludes our prepared remarks, and I will now turn the call back to your operator operator.
Thank you will now be conduct a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad. The confirmation <unk>. Your line is in the question queue. You May press start to you if you'd like to remove your question from the queue for participants using speaker equipment may be necessary to pick up your handset before pressing the third.
One moment, please while we call for questions.
Thank you. Our first question is from J Stoll with UBS. Please proceed with your question.
Great. Thank you so much I have a two part question.
First part is can you talk a little bit more about your physical twenty-three revenue guidance is sort of a confidence that you have and that got into it gives you confidence in the guidance and then secondly, it sounds like the Q1 it started out as strong as well could you expand a little bit on that and give us a little bit more color on you know what's driving to strong growth in Q1.
J I'll go ahead and start and then <unk> jump in you know coming out of Q4, we had real strength in both of the businesses and had strength and the breadth of the portfolio too so the geographies and the channels and that gave us confidence coming into the year relative to how we set our plan for the year, but if you think about it how we look at the business.
Midway through the quarter, we've had really good pass we talked about that are owned D to see which is a good indication has been very strong and also in its infancy. So it puts us in a really good place now naturally you know from a business standpoint that there is a little bit of a lag between the P. O S and the shipments and people are a little cautious out there right now and how we're thinking of.
About the first year excuse me the full year in the first half is that it'll be strong in the first half domestically because we can see that right now might taper off a little bit how we set up a plan going forward, but we think China will continue to get stronger throughout the year as the Chinese consumer comes back into the marketplace in China opens up but I would tell you. This is a testament to the <unk>.
Work that the teams have been doing to stay really close to the consumer stay really focused on the initiatives that we've laid out and we are dialed in we're humble and we're just working really hard to make sure that we're delivering for all of our consumers and shareholders around the globe.
Yeah. Thanks, Scott Good morning, Jay So so just to add onto a couple of pieces of Scott mentioned.
<unk> is strong fourth quarter and the U S J up mid teens.
And certainly seeing that continued momentum a P O S and Scott talked about the confidence we've had in the day to see the USD to see comps up 20% year to date.
Certainly China will put a pressure on that first quarter.
As we work proactively with our retail partners to really improve their inventory levels as Chris indicated we are elevated at retail.
Levels in China, and we want to make sure that we're working with the partners to preserve the longterm brand health. So so that China growth will is expected to return to growth in queue too. So as you think about sort of the cadence of that first quarter J.
We've got kind of a P O S lag as as as Scott mentioned kind of tampering the Q1 shipments.
<unk>, it's a strong growth we're seeing certainly as we work to get China into the right position will will put some pressure on it globally, we expect rabbits to be flat to modestly down in Q1 before returning to growth in queue too. So hopefully that gives you a little more sense of the the cadence of the quarters in that first half.
It does that's helpful and maybe rustling just if I could ask one more just following up on your inventory comment.
Just talk through the inventory positioning a little bit more I mean, obviously, you mentioned inventories up 64% you're.
Can you talk about how the downtime impact your plan to address the inventory and how that downtime impacts maybe gross margin little bit more specific thank you.
Yeah. Thanks, J I'll I'll go ahead and start and then I'll flip it over to Tom to add a little bit more color on sort of how we're addressing the the inventory situations. So as you indicated.
We did finish the quarter up 64%.
Percent versus the prior year, that's up 30% versus 2019, just to dimensionalize that and down $81 million from where we ended Q3 again, we feel good about the quality of the inventory J, which I think is important with approximately 90% in core styles and as I indicated in my prepared room.
<unk>. The majority is in North America, where we're really seeing the strongest brand heat and pass strength.
You know as we think about how this plays out you know it does create some near term gross margin pressure as we take downtime into plants, but it also reduces the mark down in brand equity risk that are out there relative to liquidation and off price channels and I think that's a really meaningful and unique.
Physician were in given our internal manufacturing, we do expect that to sequentially year over year improve as we move through 2000 twenty-three and our inventory growth rate is year progresses and to be more normalized by mid 2023, and our inventory levels Tom.
Tom you want to add some color on exactly what we're doing to address the inventory absolutely Hey, Jay. Thanks for the question you know as you saw we had some really nice demand in the fourth quarter and it's important for us to balance service and bringing inventory down.
As you mentioned downtime is a great strategic lever we have.
Given to our internal manufacturing and will be using more of that in the first half than we did in the second half of 2022 and Additionally, we do have is another strategic lever. They are 30 plus outlets. So we're able to move through our inventory at a very brand right way and is Russian mentioned will be more normalized by the second half of 2023.
Thanks Jackson.
Next question is from Bob Verbal with Guggenheim. Please proceed with your question.
Hi, Good morning, a couple of questions on the D. T C business I guess.
Can you talk a little bit more sort of where the growth is coming from like the customer base essentially I mean, those are those numbers are pretty impressive and I'm. Just wondering if you could expand a little bit more in terms of what you're saying there and then the second question. If we go back a little bit I think.
J as questions, but Scott on the demand side. When you think about the category I guess, both on the denim now the non denim is actually getting to be pretty significant as well.
We could talk about the demand expectations either in those core categories that you're seeing and how do you think about that.
So I'll eat up Bob is Chris Thanks for the question.
You know as we think about DDC building it ever closer connection with our consumers really important to the long term growth for for our brands and we let our strategy with our investments and digital and and those investments as as you said are showing some really solid <unk> returns you know, we're seeing or overall penetration doubling since 2000.
19.
An important part of that really is connecting the the retail experience for for that true Omnichannel consumer experience and that's really always been part of our strategy and and looking at doing that through full price stores like the three new stores. We just open up in Europe with with more to follow and you know as I go around the <unk>.
And think about this in APAC, we really already have a really great retail strategy already as I talked about were now rolling out a retail excellence initiatives throughout the region and we're gonna be leveraging those learnings globally, taking those two are European stores, and then also bringing that over here to the U S. So.
It's really a way for us to connect experiential Lee with our consumers.
In all of our markets and tell the story, we Wanna tell around our branch. So thank you for the question I look forward to giving you more on that in the coming year.
How are you at Scott and and the second question from a debate standpoint.
So we've done a really nice job as far as focusing on our core we've got a lot of new people into the category, which I think is really important but for us we brought new people into the category and our digital platform and our data C platform and our international platform and then we were very very thoughtful Bob as we laid out our strategy going forward about where we could play and how we could win.
And we picked Ts.
Door and work, whereas three categories that would be significant going forward to play into the heritage of our businesses that we have expertise within our company and and that we know the channels and the Geography's really well and that has been a really good decision and I think the single most important thing relative to that for US is the opportunity to move forward with those because.
They're all still and you know really small categories for us, but very large macro categories. So we have a chance to really may can take a <unk> physician in those categories going forward, but I do want to emphasize bought before I finish here that we haven't taken our eye off the ball from a core category standpoint still you know.
That is extremely important as you can see the numbers look really good you still focus a lot of our demand creation in our consumer platforms around our denim categories and we will stay laser focused on that going forward next month.
Thanks.
Thank you. Our next question is from well Gardner with Wells Fargo. Please proceed with your question.
Hey, guys. Good morning, Thanks for taking my question.
<unk> I've never really impressive, particularly in the U S wholesale maybe to speak to what drove that growth and four Q.
The ability of that growth and how you're planning.
For the U S.
Internationally and 23.
[noise] yeah. Thanks, so much of the question this is Tom.
We're really really happy with the balanced growth that we had in the wrangler brand.
Certainly.
What we've been doing it from from a brand standpoint in terms of executing what we consider a very advanced playbook investing behind the brand, bringing a beautiful products alive, and then really just from a demand creation standpoint, and biting and new consumers uhm utilizing.
Georgia May Jagger, Liana bridges, but also connecting with our core consumer I'm really proud with the way we were able to do this is in N strategy.
With collaboration such as Yellowstone Lucchese in Buffalo trace we will continue to do that more to come on that in terms of collaborations into 2000 twenty-three, but we're really excited about the the brand momentum as we move forward.
And maybe just how are you planning the business into twenty-three from the top line perspective.
Yeah. So so will interest and I'll just jump in there you know as we kind of indicated Scott talked about a little bit in his opening remarks, you know as you think about that the haves really the front half is driven by U S. Gross.
And tempered by International and then kind of almost flipping as you as you get to the back half <unk>.
Certainly as China reopens more fully expect international to drive more of that back half grows and then partially offset by by macro conditions, which were taking it prudently conservative approaches we're thinking about increasing pressure on consumer demand in the U S. So hopefully that gives you a little bit of a sense.
Perhaps.
Great I'll pass it all night.
Thanks, well.
Thank you. Our next question is from Brook Road with Goldman Sachs. Please proceed with your question.
Good morning, and thank you so much for taking a question I was wondering if you could unpack your expectation from China reopening and what is embedded in the guide what proportion of sale from 20 to or from China, and what's the reopening opportunity for contour brands, maybe from like a dollar and margin basis as you get back to Normalised operating off all around the country.
He broke it's Chris I'll I'll kick. This off you know clearly there was mandatory COVID-19 restrictions in queue for that was a headwind for for US specifically to Lee Brad what what I'm encouraged by as we exited 22 with with our inventories clean and consumer demand for our <unk>.
<unk> is strong and we're seeing that come through in the in the digital channels, where there wasn't the restrictions like we had in a brick and mortar stores.
The the issue we're dealing with just a retail inventories remain elevated that's why we think the first half as can be a bit more challenged but we expect most of that really to be in the first quarter. As Rustin said earlier you know we're playing the long game here, we're working really closely with our partners. Our team was was with them just this last week.
Going through business plans and really laying out the assortment for the back half of the year.
And we're gonna continue to invest in the brand.
And really monitor that the geopolitical conditions that are out there, but we believe the long term growth and this really highly accretive region is therefore, so we're excited about the opportunities ahead.
Thanks.
Thanks, so much and if I could just ask one follow up on the U S business, given a strength that market share capture that you're realizing in the U S. Right now, particularly in Wayne and Wrangler can you square that crossed with a deceleration that you have embedded in the back half of the year, how does that start with your long term targets that underpin your investor day.
At outlook thank him.
From a macro standpoint broke federer.
That our business and the strength and Wrangler has continued from the fourth quarter into the first quarter and then you think about what we're doing to go ahead and make sure that that continues incremental investments in brand advertising incremental investments and you know some of the things that we've done from a wrangler Colab standpoint, you think about our 75th anniversary Yellowstone.
Buffalo trace the Casey and then you think about the value that our brands bring to the marketplace. So in times of uncertain times Wrangler as a trusted brand incredible value place in multiple channels and multiple geographies and that's at a price point that our consumers still can afford very easily. So we think we positioned ourselves very well.
But we are being and looking at the broad market place and the macro conditions that are really specific way to make sure that we set our plans accordingly.
Thank you very much I'll pass out.
Thank you. Our next question is from Sam <unk> with Williams training. Please proceed with your question.
Good morning, Thanks for taking my question that I have a handful the guidance that you're providing is a non-GAAP guidance.
To confirm.
No. It is on a gap basis Sam.
So are there adjustments that you're forcing into the numbers right now.
No that's why we're guiding on a gap basis.
Okay with the inventory levels what.
What would be your normalize forward weeks of supply you were running around 15 and <unk> at the end of 2018, which is probably the best.
The best thing to look at.
Sorry.
Sorry about that it's probably the best thing to look at given the.
Given what happened in 2020 so.
What would it be that normalized forward weeks of supplies like around 15, because right now on my number since.
Around 18, which is an improvement from the last quarter.
Yeah, I'm not gonna I'm, not gonna get into guiding the specific weeks of supply, but I think I think you're hitting on the right sandwiches as Tom Sorta indicated we're trying to make sure that we're balancing servicing the needs in the U S market again, that's where the bulk of the inventory sets.
With with also reducing from these elevated inventory levels, where we are currently sitting at so we intend to continue to see that sequential improvement on that year on year growth as we move forward throughout twenty-three.
And the inventory and the wholesale the unwillingness of retailers too I guess right fill in order is based on the demand is that a result of their overall inventory not necessarily yours or are they heavy with you right.
<unk>.
And in the U S are the heavy there or is this were overstocked and frying pans and we can fill in denim.
Yeah, I won't I won't comment on the specific retailers inventories, but I think Scott Scott hit it well earlier, Sam and his prepared remarks, where he kind of talked a little bit about you know.
There are times, where you'll get disconnect between P O S and and shipments, but really the brands here are really focused on the P. O S and as Tom indicated and Chris are indicated in their remarks really making sure that we're we're focused on delivering that compelling product in that great consumer value that we're known for and May.
You sure that we're we're selling through a P. O S. It over time as you as you have that strong P. O S. Certainly the shipments catch up.
Better and balance, but that's that's what we're seeing at the moment.
Thanks, Sam Thank you.
Our next question is from Jim Duffy with people. Please proceed with your question.
Oh, Thank you alright start with a follow up to Sam's question.
Spoke to Pls terms at retail certainly that's the most important thing, but you know for US as investors were very curious where inventories stance and it's Cheryl specific to the U S market can you represent where.
Your inventory position, maybe it'd be weeks inventory on hand relative to more typical levels or something like that to give us a view.
Oh, I would say Jim that we haven't really gone ahead and publish that are talked about that and you know specifics, but what I would tell you. Jim is that we are very conscientious we're working really hard on our inventory I think we've been you know upfront about the fact that we weren't happy with it the last couple of quarters and we've been.
Very serious about getting that down it's been a full attack here from a company wide standpoint, and we're going to continue to do that one of the things that I'm currently happy with US as you know our inventory is is pretty good right. So our inventory sells an opening our own manufacturing facilities allows us to go ahead, and and make and continue to make good inventory.
But we have a really good plan in place from a retailer perspective, we just can't comment I don't I don't know, what they're gonna do or how they're gonna behave and react but we're gonna continue to go ahead and put the demand creation platforms together continue to make sure that we're doing all the things that we can't control our business and both the digital and are owned retail standpoint, and with our wholesale customers.
And making sure that we put ourselves in a position to win.
Jim Jim addressed and I would I would add a little bit just you know certainly the the U S retailer inventory rebalancing that took place in Q2 and Q3 was has been well chronicled.
And certainly again, we're focusing on on sale through not not shipments, but I do think there's a couple of of important points to sorta call out so in terms of shipments or sell and you know there was quarter to quarter volatility in 2022 based on the on the retailer actions, particularly in Q2 and Q3 again.
I think focusing on the full year is really important.
So in 22, you know R. U S wholesale business was up 11% over 2021, with both wrangler and Lee posting double digit growth.
So again, you may have some near term fluctuations between D O S and.
And shipments, but but clearly we're confident in our strategies any investments in the brands are working and I think you've seen that retail inventories of have come down from where they peaked earlier in the year.
Okay.
Thanks for asking and then I wanted to ask about investments in retail how does the retail fit with capital allocation priorities.
As I think back to your recent history, you've made a number of investments in infrastructure with those presumably behind you will retail representing a greater portion of Capex budget going forward.
Yeah. So so we talked a little bit Jim in sort of the assumptions for capex of of $35 million to $40 million for.
For 2000, twenty-three and our full year guide and I think you're hitting upon some really important elements there Chris talked a little bit in his prepared remarks about the three.
Lee Wrangler dual branded stores that we opened up in in Europe , and the fact that we intend to continue to thoughtfully rollout.
Additional retail stores moving forward along with additional Capex as as we think about investing in areas like digital like I T too to continue that evolution of of our data driven company.
So you know.
I think that's where the Capex certainly is coming out, but if you draw it back to a broader more capital allocation and Jamie you've heard us talk about this many times I think.
The Optionality, we have is really important and really kind of critical in this uncertain environment, Scott talked a little bit about.
The dividend increase that we approved a 4% increase we approved last quarter and certainly in 2022 you saw us.
Activate the share repurchase program in a meaningful way with $62 million in.
Shares repurchased last year, and returning $166 million to shareholders and 22.
Again in a couple of other data points. There, we returned $337 million over the last two years and $455 million since a span. So I think it really talks to the cash generation aspects of this model, which we've talked about many times and really the options that it gives us with a capital allocation to <unk>.
<unk> to invest in the brand's via capital again, whether that stores or digital or I T. But also continue to to look at.
The Optionalities, we've got around capital allocation with the dividend and share repurchase.
Thanks, Jim.
Thank you. Our next question is from <unk> Gardner with Wells Fargo. Please proceed with your appointment.
Hey, guys just one follow up and this is kind of piggy backing off insurance question can you just just discuss or give a small colorado capex jump from from.
From last year.
To twenty-three it just looks like it's a big jump in relative to history as well. Thanks.
Yeah, a couple of things will when you mentioned relative to history. Let me, let me kind of go back on that because certainly this business pre span.
You know we were we were about one per cent of Razzing, capex and largely around kind of the manufacturing side of the business with our plants and our distribution.
<unk> you heard of stock from the spin on about how we're going to continue to invest in in the brands and the capabilities.
Certainly early days with contour significant capital investments as we implemented the new global ERP system, but.
But as we start to shift into horizon to the Capex number again moving from 35 to 40 expected in twenty-three. It is really driven by those those items and the investments we talked about as Chris said starting to build out more of those retail capabilities. So think about the growth of a new stores.
Opening globally as well as the.
The building out some of the Omnichannel capabilities with those stores on the digital on the side of the business and again, we're just gonna. We're gonna continue to make theirs capex investments that are right for the long term health of the business. So.
That gives you a little bit of a sense of of some of the drivers as there are Verizon too continues to unfold and unfold here as we move into 2023.
Well thank you.
There are no further questions at this time I'd like to turn the floor back over to Scott Baxter Birney closing comment.
I just wanted to say thanks to all of our account for boys around the world and thanks for everybody for joining US today I really appreciate your support of our company and we'll look forward to talking to you in a short 60, I think 60 days from now as the calendar works out that way, but I wanted to wish you all a great day and a great weekend, we'll look forward to talking to you.
Thanks, everyone take care.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.