Q1 2024 Kontoor Brands Inc Earnings Call

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Operator: Greetings and welcome to the Kontoor Brands first quarter 2024 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Michael Karapetian, Vice President, Corporate Development, Strategy, and Investor Relations. Thank you, Michael. You may begin.

Greetings and welcome to the contour brands first quarter 2024 earnings call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone.

Keypad as a reminder, this conference is being recorded it is now my pleasure to introduce Michael <unk>, Vice President corporate development strategy and Investor Relations. Thank you Michael you may begin.

Michael Karapetian: Thank you, Operator, and welcome to Kontoor Brands' first quarter 2024 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 in documents filed with the SEC. We urge you to read our risk factors, cautionary language, and other disclosures contained in those reports.

Michael: Thank you operator, and welcome to contour brands first quarter 2024 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 in documents filed with the SEC.

Michael: We urge you to read our risk factors cautionary language and other disclosures contained in those reports.

Michael Karapetian: Amounts referred to on today's call will often be on an adjusted dollar basis, which we clearly defined in the news release that was issued earlier this morning. Similarly, our outlook is presented on an adjusted dollar basis. Reconciliations of Gap Measures to Adjusted Amounts can be found in the Supplemental Financial Tables included in today's news release, which is available on our website at KontoorBrands.com. These tables identify and quantify excluded items and provide management's view of why this information is useful to investors.

Amounts referred to on today's call will often be on an adjusted dollar basis, which we clearly defined in the news release that was issued earlier this morning.

Michael: As presented on an adjusted dollar basis.

Michael: Reconciliations of GAAP measures to adjusted amounts can be found in the supplemental financial tables included in today's news release, which is available on our website at Contura brands Dot Com. These tables identify and quantify excluded items and provide management's view of why this information is useful to investors unless otherwise noted amounts referred to on this call will be in <unk>.

Michael Karapetian: Unless otherwise noted, amounts referred to on this call will be in constant currency, which excludes the translation impact of changes in foreign currency exchange rates. Joining me on today's call are Kontoor Brands President, Chief Executive Officer, and Chair Scott Baxter, and Chief Financial Officer Joe Alkire. Following our prepared remarks, we will open the call for questions, and we anticipate this call will last about one hour.

Michael: Constant currency, which exclude the translation impact of changes in foreign currency exchange rates Joy.

Michael: Joining me on today's call are contour branch, President Chief Executive Officer, and Chair, Scott Baxter, and Chief Financial Officer, Joe L car. Following our prepared remarks, we will open the call for questions and we anticipate this call will last about one hour Scott.

Scott H. Baxter: Thanks, Mike. And thank you to everybody joining us on today's call. We are pleased with our better-than-expected start to the year. Compared to our outlook provided in February, we saw a broad-based upside in revenue, gross margin, and earnings. Joe will unpack the details, but our relative strength in the quarter, combined with improving visibility, gives us confidence to raise our full-year guidance. I will step through the highlights in a bit, but first, let me start with the organizational announcements we made in March. As we discussed last quarter, we have commenced Project Genius to transform our organization.

Scott H. Baxter: Thanks, Mike and thank you to everybody joining us on today's call. We are pleased with our better than expected start to the year compared to our outlook provided in February we saw broad based upside from revenue gross margin and earnings Joe will unpack the details, but our relative strength in the quarter combined with improving visibility.

Scott H. Baxter: It gives us confidence to raise our full year guidance I will step through the highlights in a bit but first let me start with the organizational announcements we made in March as we discussed last quarter. We have commenced project genius to transform our organization. This multiyear project is focused on driving three things first create a global best in.

Scott H. Baxter: This multi-year project is focused on driving three things. First, create a global, best-in-class, multi-brand platform. Second, simplify the organization to increase speed and efficiency. And third, free up investment capacity to accelerate growth and increase profitability. As part of these actions, Tom Waldron has been appointed COO.

Scott H. Baxter: You've had a chance to hear from Tom during our year-end calls. He is an incredibly talented leader who has led the return to growth and strong profitability for Wrangler. From 19 to 23, Wrangler has grown revenue at a mid-single-digit CAGR and expanded reported profit margins by over 300 basis points. In his new role, Tom will amplify our strategic playbook across both brands to drive improvements throughout the organization, from our commercial and go-to-market teams to global operations.

Scott H. Baxter: <unk> multi brand platform second simplify the organization to increase speed and efficiency and third free up investment capacity to accelerate growth and increase profitability.

Scott H. Baxter: As part of these actions Tom Waldron has been appointed C. O L. You've had a chance to hear from Tom during our year end calls. He is an incredibly talented leader who has led the return to growth and strong profitability for wrangler from 19% to 23 Wrangler has grown revenue at a mid single digit CAGR and expanded reported profit margins.

Scott H. Baxter: By over 300 basis points in his new role Tom will amplify our strategic playbook across both brands to drive improvements throughout the organization.

Scott H. Baxter: From our commercial and go to market teams to global operations.

Scott H. Baxter: We have also elevated Jenny Broyles to EVP, Global Brands President of Wrangler & Lee, and Ezio Garcia-Mendez to EVP, Chief Supply Chain Officer. Congratulations to both Jenny and Ezio, who have joined our executive leadership team. The team we have in place has a proven track record of success at every level, and I am confident it will drive the next leg of our value creation journey. Now, let me touch on some highlights from the quarter.

Scott H. Baxter: We are also elevated journey boils to EVP and global brands, President of Wrangler, and Lee and SCO Garcia Mendez to EVP and chief supply chain Officer.

Scott H. Baxter: Congratulations to both journey in S E L, who have joined our executive leadership team.

Scott H. Baxter: Team, we have in place has a proven track record of success at every position and I am confident we will drive the next leg of our value creation journey.

Scott H. Baxter: Now, let me touch on highlights from the quarter.

Scott H. Baxter: Wrangler's momentum continues with product and demand creation platforms that are elevating the brand like never before. While wholesale pressures are impacting the near-term as expected, the strength of our D2C business and point-of-sale outperformance are real proof points that Wrangler is winning with the consumer. During the quarter, Wrangler's global D2C business grew 8%, and we gained 60 basis points of market share in denim longs, according to Cercana. This marks the eighth consecutive quarter of market share gains for the brand.

Scott H. Baxter: Wranglers momentum continues with product and demand creation platforms that are elevating the brand like never before.

Scott H. Baxter: While wholesale pressures are impacting the near term as expected the strength of our DTC business and point of sale outperformance are real proof points wrangler is winning with the consumer.

Scott H. Baxter: During the quarter Wranglers Global DTC business grew 8% and we gained 60 basis points of market share in denim longs. According to sarcoma. This marks the eighth consecutive quarter of market share gains for the brand to.

Scott H. Baxter: To support this momentum, Wrangler continues to diversify beyond denim. In fact, approximately half the business is now outside of denim bottoms, reflecting the success we have had expanding into new categories. Outdoor is a great example, which is now an approximately $200 million business.

Scott H. Baxter: To support this momentum wrangler continues to diversify beyond denim in fact, approximately half the business is now outside of denim bottoms, reflecting the success, we have had expanding into new categories.

Scott H. Baxter: Outdoor is a great example, which is now in approximately 200 million dollar business.

Scott H. Baxter: The investments we are making in the team and our product development capabilities are helping to drive further penetration in this large and growing category, leading to successes like the Outdoor Performance Cargo, which is one of the fastest growing pants in Kontoor's history. And Wrangler ATG is elevating the brand into newer channels of distribution, such as specialty sporting goods, supported by new launches like the ATG Chino and Cliffside Utility this fall, as we are on track for another year of double-digit growth in outdoor.

Scott H. Baxter: The investments we are making in the team and our product development capabilities are helping to drive further penetration in this large and growing category leading to successes like the outdoor performance cargo, which is one of the fastest growing pants in <unk> history.

Scott H. Baxter: And Wrangler Atg is elevating the brand into newer channels of distributions such as specialty sporting goods supported by new launches like the Atg Chino and Cliffside utility. This fall as we are on track for another year of double digit growth in outdoor.

Scott H. Baxter: We are also advancing our consumer insights and research capabilities as part of our evolution to a more data-driven organization, allowing us to better align with changing consumer buying habits and behavior. This behind-the-scenes work is a great example of how we are becoming a more efficient organization with targeted investments that generate higher returns. And finally, we have a strong pipeline of demand creation platforms in collaboration. Laney Wilson's first collection launches later this year and, based on early reads, is on track to become the largest global collaboration to date.

Scott H. Baxter: We are also advancing our consumer insights and research capabilities as part of our evolution to a more data driven organization, allowing us to better align with changing consumer buying habits and behaviors. This behind the scenes work is a great example of how we are becoming a more efficient organization with targeted investments that generate.

Scott H. Baxter: Higher returns.

Scott H. Baxter: And finally, we have a strong pipeline of demand creation platforms and collaborations Laney Wilson's first collection launches later this year and based on early reads is on track to become the largest global collaboration to date. We are also continuing our very successful collaboration with start in the second quarter, which is helping to bring the right balance.

Scott H. Baxter: We are also continuing our very successful collaboration with Stodd in the second quarter, which is helping to bring the right balance of newness while reaching a younger female consumer. And we are amplifying the brand with events at the ACM Awards and Stagecoach, where we are the official denim sponsor. These are great examples of how we are building momentum throughout the year with demand creation investments that fit together and deepen the connection with our consumers. Turning to Lee, Similar to Wrangler, Lee experienced softness at Wholesale as retailers tightly managed inventory levels.

Scott H. Baxter: Of newness, while reaching a younger female consumer.

Scott H. Baxter: And we are amplifying the brand with events at the ACM Awards, and Stagecoach, where we are the official denim sponsor. These are great. Examples of how we are building momentum throughout the year with demand creation investments that fit together and deepen the connection with our consumers.

Scott H. Baxter: Turning to lead similar to Wrangler Lee experienced softness at wholesale as retailers tightly managed inventory levels as we discussed last quarter. The business was also impacted by conservatism on seasonal.

Scott H. Baxter: As we discussed last quarter, the business was also impacted by conservatism in the season. That said, we are seeing green shoots from our innovation platforms and with our younger female consumer. On the men's side, we continue to advance our innovations focused on comfort. These platforms now account for two-thirds of our U.S. men's business and are a genuine distinction in the market. And within women, our Heritage Collection and Iconic Rider platform is expanding the brand's reach while being supported by new equity campaigns. This is translating to share gains and growth at point-of-sale. During the quarter, POS in the U.S. increased by 2%.

Scott H. Baxter: That said, we are seeing green shoots from our innovation platforms and with our younger female consumer on.

Scott H. Baxter: On the men's side, we continue to advance our innovations focused on comfort.

Scott H. Baxter: These platforms now account for two thirds of our U S men's business and are a genuine distinction in the market and within female our heritage collection and iconic writer platform is expanding the brand's reach while being supported by new equity campaigns.

Scott H. Baxter: This is translating to share gains and growth at point of sale during the quarter Pos in the U S increased 2% and market share in denim longs gained 40 basis points as measured by sarcoma.

Scott H. Baxter: And market share in Denim Longs gained 40 basis points, as measured by Circona. Looking ahead, we have several initiatives that give us confidence. First, our improving product development capabilities are enabling category expansion. Our T.O.P.S.

Scott H. Baxter: Looking ahead, we have several initiatives that give us confidence.

Scott H. Baxter: Our improving product development capabilities are enabling category expansion, our tops business has been a great success story is on track to deliver strong double digit growth for the year and Lee golf launches in the second quarter with innovative fabrications that are appealing to a broad range of male consumers. We are excited about the potential and.

Scott H. Baxter: The business has been a great success story, is on track to deliver strong double-digit growth for the year, and Lee Golf launches in the second quarter with innovative fabrications that are appealing to a broad range of male consumers. We are excited about the potential in this growing category as part of Lee's Office2Outdoor Evolution. Second, our innovation pipeline is getting the most significant addition in years. Leigh-X will launch later this year and combines elite comfort with a world-class aesthetic. This will be a true platform that crosses denim and non-denim tops and bottoms at a price point that simply does not exist for this level of performance.

Scott H. Baxter: This growing category as part of lease office to outdoor evolution.

Scott H. Baxter: Yeah.

Scott H. Baxter: Second our innovation pipeline is getting the most significant addition in years Leap X will launch later this year and combines elite comfort with world class aesthetic. This will be a true platform that crosses denim and non denim tops and bottoms at a price point that simply does not exist for this level of performance.

Scott H. Baxter: And last but not least, we are getting sharper with our brand positioning in the market. This foundational level work is a significant focus for the second half of the year and is part of the new multi-brand platform we are developing. We are conducting an end-to-end assessment to ensure alignment with our refreshed consumer segmentation, brand investments, and product development.

Scott H. Baxter: And last but not least we're getting sharper with our brand positioning in the marketplace is foundational level work is a significant focus for the second half of the year and as part of the new multi brand platform. We are developing we are conducting in end to end assessment to ensure alignment with our refreshed consumer segmentation brand investments in.

Scott H. Baxter: Product development, we are confident this will pay significant dividends in the years ahead.

Scott H. Baxter: We are confident this will pay significant dividends in the years ahead. Before I turn it over to Joe, let me close with a perspective on the balance of the year. Since we spoke in February, point of sale has improved for both brands, we have continued to gain share, the wholesale channel has found a better balance, and gross margin expansion exceeded our expectations. We also made further progress working down our inventory position, ending the quarter 24% below the prior year level.

Scott H. Baxter: Before I turn it over to Joe Let me close with perspective on the balance of the year. Since we spoke in February point of sale has improved for both brands. We've continued to gain share. The wholesale channel has found better balance and gross margin expansion exceeded our expectations. We also made further progress working down our inventory position ending.

Joe Lcar: Quarter, 24% below prior year levels combined with our better than expected profitability, we now expect to generate more than $335 million in cash from operations. This year as a result, our capital allocation Optionality continues to improve allowing us to returned $48 million to shareholders during the quarter <unk>.

Scott H. Baxter: Combined with our better-than-expected profitability, we now expect to generate more than $335 million in cash from operations this year. As a result, our capital allocation optionality continues to improve, allowing us to return $48 million to shareholders during the quarter, including $20 million in share repurchases under our new $300 million authorization. Longer term, Project Genius planning is well underway, with impacts expected to start in the fourth quarter. We have a line of sight to the higher end of the $50 to $100 million of annualized run rate savings, none of which are included in our guidance.

Joe Lcar: <unk> $20 million in share repurchases under our new $300 million authorization.

Joe Lcar: Longer term project genius planning is well underway with impacts expected to start in the fourth quarter. We have a line of sight to the higher end of the $50 million to $100 million of annualized run rate savings none of which are included in our guidance that will structurally raise our profitability sealy while significantly increasing.

Scott H. Baxter: That will structurally raise our profitability ceiling while significantly increasing our investment capacity to drive more profitable growth over time. While the near-term environment remains dynamic, we are operating from an offensive position. We are off to a better-than-expected start and have improving visibility to the balance of the year. I am confident we are on a path to drive strong value creation for all stakeholders. Joe?

Joe Lcar: Our investment capacity to drive more profitable growth over time.

Joe Lcar: While the near term environment remains dynamic we are operating from an offensive position, we're off to a better than expected start and have improving visibility to the balance of the year I am confident we are on a path to drive strong value creation for all stakeholders Joe.

Joseph A. Alkire: Thanks, Scott, and thank you all for joining us today.

Joe Lcar: Thanks, Scott and thank you all for joining us today, let.

Joseph A. Alkire: Let me start by providing perspective on our first quarter results relative to the outlook we provided in late February. Our results were stronger than expected, driven by higher revenue, gross margin, earnings, and cash flow. Our brands continue to drive market share gains in our largest points of distribution, and POS and inventory levels at retail improved modestly late in the quarter. Gross margin expansion was stronger than expected, driven mainly by lower product costs and favorable mix, and when combined with further inventory reductions, supported robust cash generation and capital allocation optionality, as evidenced by the $48 million of cash returned to shareholders through share repurchases and dividends in the quarter. Overall, we're pleased with our start to the year. Let's unpack the quarter in more detail.

Joe Lcar: Let me start by providing perspective on our first quarter results relative to the outlook. We provided in late February.

Joe Lcar: Our results were stronger than expected driven by higher revenue gross margin earnings and cash flow.

Joe Lcar: Our brands continue to drive market share gains and our largest points of distribution and Pos and inventory levels at retail improved modestly late in the quarter.

Joe Lcar: Gross margin expansion was stronger than expected driven mainly by lower product costs and favorable mix and when combined with further inventory reductions supported robust cash generation and capital allocation optionality as evidenced by the $48 million of cash returned to shareholders through share repurchases and dividends in the quarter.

Joe Lcar: Overall, we're pleased with our start to the year.

Speaker Change: Let's unpack the quarter in more detail.

Joseph A. Alkire: First, POS strengthened as we progressed through the quarter, and we saw a better balance between sell-in and sell-through as inventory levels at retail modestly improved and replenishment order patterns normalized. However, if you recall, we did not assume an improvement in either POS or inventory levels in our outlook as we continue to plan the business conservatively. So, these results were above our expectations and drove the majority of the revenue upside in the quarter. Second, gross margin expansion exceeded our expectations, driven by lower product costs and the structural benefits from mixed. Relative to our assumptions, we also realized a smaller-than-expected impact from pricing, the majority of which is timing-related and will begin to impact our gross margin more meaningfully in the second quarter.

Speaker Change: First.

Speaker Change: POS strengthened as we progressed through the quarter and we saw a better balance between sell in and sell through as inventory levels at retail modestly improved and replenishment order patterns normalized.

Speaker Change: If you recall, we did not assume an improvement in either Pos or inventory levels in our outlook as we continue to plan the business conservatively. So.

Speaker Change: These results were above our expectations and drove the majority of the revenue upside in the quarter.

Speaker Change: Second gross margin expansion exceeded our expectations driven by lower product costs and the structural benefits from mix.

Speaker Change: Relative to our assumptions, we also realized a smaller than expected impact from pricing. The majority of which is timing related and will begin to impact our gross margin more meaningfully in the second quarter.

Joseph A. Alkire: Our gross margin visibility has improved relative to 60 days ago, and we now expect our full-year adjusted gross margin to match our previous high of 44.6% reached in 2021. Lastly, we continue to drive strong cash generation through improved profitability and reductions in net working capital, including a 24% decline in inventory. We are opportunistically working through our excess inventory and driving improvements in supply chain execution through higher fill rates and more efficient demand-supply matching.

Speaker Change: Our gross margin visibility has improved relative to 60 days ago, and we now expect our full year adjusted gross margin to match our previous high of 44, 6% reached in 2021.

Speaker Change: Lastly, we continued to drive strong cash generation through improved profitability and reductions in net working capital, including a 24% decline in inventory.

Speaker Change: We are opportunistically working through our excess inventory and driving improvements in supply chain execution through higher fill rates and more efficient demand supply matching.

Joseph A. Alkire: We continue to take a conservative approach to planning the year, but based on our better-than-expected first quarter results and improved visibility, we are raising our full-year gross margin earnings and cash flow outlook. I'll dive deeper into our updated outlook in a moment, but first, let's review the additional details of our first quarter results. Starting with Wrangler, global revenue decreased 4%. The decline was primarily driven by U.S. wholesale, offset by growth in DTC, including 7% growth in digital and 10% growth in brick and mortar. Retailer inventory management actions continue to impact the business in the near term.

Speaker Change: We continue to take a conservative approach to planning the year, but based on our better than expected first quarter results and improved visibility we are raising our full year gross margin earnings and cash flow outlook.

Speaker Change: I'll dive deeper into our updated outlook in a moment, but first let's review the additional details of our first quarter results.

Speaker Change: Starting with Wrangler global revenue decreased 4%.

Speaker Change: The decline was primarily driven by U S wholesale offset by growth in DTC, including 7% growth in digital and 10% growth in brick and mortar.

Speaker Change: Retailer inventory management actions continue to impact the business near term however, underlying brand momentum remains strong as evidenced by improving Pos ongoing market share gains in DTC strength.

Joseph A. Alkire: However, underlying brand momentum remains strong, as evidenced by improving POS, ongoing market share gains, and D2C strength. Nowhere is the brand's momentum more evident than in the success in diversifying into new categories. Wrangler's outdoor business, led by ATG, continues to scale as we advance our product development capabilities and reach new consumers.

Speaker Change: Nowhere is the brand's momentum more evident than in our success in diversifying into new categories.

Speaker Change: Wranglers outdoor business led by Atg continues to scale as we advance our product development capabilities and reach new consumers.

Joseph A. Alkire: During the first quarter, Wrangler Outdoor grew 5%. Nearly 50% of the global Wrangler business is now in categories outside of denim bottoms, and we expect the non-denim business, including outdoor tops and non-denim bottoms, to grow at a mid-single-digit rate this year. Wrangler International revenue decreased 13%. European Wholesale remains under pressure due to challenging macro conditions.

Speaker Change: During the first quarter Wrangler outdoor grew 5% nearly 50% of the global Wrangler business is now in categories outside of denim bottoms.

Speaker Change: And we expect the non denim business, including outdoor tops and non denim bottoms to grow at a mid single digit rate this year.

Speaker Change: Wrangler International revenue decreased 13%.

Speaker Change: European wholesale remains under pressure due to challenging macro conditions. However, this was partially offset by double digit DTC growth supported by investments in owned stores and our digital platform.

Joseph A. Alkire: However, this was partially offset by double-digit DTC growth supported by investments in owned stores and our digital platform. Turning to Lee, global revenue decreased 9%, as expected, reduced shipments in US wholesale, and a decline in the seasonal business negatively impacted the quarter. That said, revenue for the Lee brand was above our expectations. Similar to Wrangler, Lee is having success expanding beyond denim, particularly in tops.

Speaker Change: Turning to leave global revenue decreased 9%.

Speaker Change: As expected reduced shipments in U S wholesale and a decline in the seasonal business negatively impacted the quarter.

Speaker Change: That said revenue for the Lee brand was above our expectations.

Speaker Change: Similar to Wrangler Lee is having success expanding beyond denim.

Speaker Change: Particularly in tops.

Joseph A. Alkire: During the quarter, tops grew 20% and now comprise over 10% of the total business. We expect strong growth in these categories to continue for the balance of the year. Glee international revenue decreased 5%.

Speaker Change: During the quarter tops grew 20% and now comprise over 10% of the total business.

Speaker Change: We expect strong growth in these categories to continue for the balance of the year.

Speaker Change: Lee International revenue decreased 5% in Europe revenue declined 9% driven by ongoing macro pressure in.

Joseph A. Alkire: In Europe, revenue declined 9% driven by ongoing macro pressure. In APAC, revenue declined 2% as the market recovery remains uneven, and we work to further improve the quality and health of our retail network. We continue to anticipate growth in APAC for the full year. Turning to Gross Margin. Adjusted Gross Margin expanded 270 basis points to 45.7%, driven by the benefits of channel mix and lower product cost. However, this was partially offset by targeted pricing actions, which went into effect late in the first quarter.

Speaker Change: In APAC revenue declined 2% as the market recovery remains uneven and we work to further improve the quality and health of our retail network.

Speaker Change: We continue to anticipate growth in APAC for the full year.

Speaker Change: Turning to gross margin adjusted gross margin expanded 270 basis points to 45, 7% driven by the benefits of channel mix and lower product costs.

Speaker Change: This was partially offset by targeted pricing actions, which went into effect late in the first quarter.

Joseph A. Alkire: Relative to our expectations, we saw greater-than-expected favorability from mix and lower input costs in addition to a smaller-than-expected impact from pricing, resulting in adjusted gross margin exceeding our expectations by approximately 160 basis points. Adjusted SG&A expense was $195 million.

Speaker Change: Relative to our expectations, we saw greater than expected favorability from mix and lower input costs. In addition to a smaller than expected impacts from pricing, resulting in adjusted gross margin exceeding our expectations by approximately 160 basis points.

Speaker Change: Adjusted SG&A expense was $195 million investments in demand creation technology, and DTC were partially offset by disciplined management of expenses and lower distribution and freight.

Joseph A. Alkire: Investments in demand creation, technology, and DTC were partially offset by disciplined management of expenses and lower distribution and freight, and adjusted earnings per share was $1.16, consistent with the prior year. Now turning to the balance sheet, inventory decreased 24% to $501 million compared to our initial expectations of a 20% decline.

Speaker Change: And adjusted earnings per share was $1 16, consistent with the prior year.

Speaker Change: Now turning to the balance sheet inventory decreased 24% to $501 million compared to our initial expectations of a 20% decline.

Joseph A. Alkire: We remain intensely focused on improving networking capital to supplement our strong operating earnings growth and drive enhanced cash generation in support of our capital allocation framework. We finished the quarter with net debt, or long-term debtless cash, of $564 million and $215 million of cash on hand. Our net leverage ratio, our net debt divided by trailing 12-month adjusted EBITDA, was 1.6 times within our targeted range. During the quarter, we repurchased $20 million of stock under our current authorization, and, as previously announced, our board declared a regular quarterly cash dividend of $0.50 per share.

Speaker Change: We remain intensely focused on improving net working capital to supplement our strong operating earnings growth and drive enhanced cash generation in support of our capital allocation framework.

Speaker Change: We finished the quarter with net debt, our long term debt less cash of $564 million and $215 million of cash on hand.

Speaker Change: Our net leverage ratio, our net debt divided by trailing 12 month adjusted EBITDA was one six times within our targeted range.

Speaker Change: During the quarter, we repurchased $20 million of stock under our current authorization and as previously announced our board declared a regular quarterly cash dividend of <unk> 50 per share.

Joseph A. Alkire: Finally, on a trailing 12-month basis, our adjusted return on invested capital was 25%. Now, turning to our outlook, revenue is still expected to be in the range of $2.57 billion to $2.63 billion, reflecting a decrease of 1% to an increase of 1%. We are encouraged by our better than expected start to the year and the improvement we saw in both POS and inventory levels at retail across the first quarter. So how are we thinking about the remainder of the year?

Speaker Change: Finally on a trailing 12 month basis, our adjusted return on invested capital was 25%.

Speaker Change: Now turning to our outlook revenue is still expected to be in the range of $2 $5 7 billion to $2 63 billion, reflecting a decrease of 1% to an increase of 1%.

Speaker Change: We are encouraged by our better than expected start to the year and the improvement we saw in both Pos and inventory levels at retail across the first quarter.

Speaker Change: So how are we thinking about the remainder of the year.

Joseph A. Alkire: First, we continue to plan the business conservatively with the majority of the year still ahead of us. Retailers remain in a conservative posture, and we are cautious about the environment as the consumer, while resilient, remains under pressure around the globe.

Speaker Change: First we continue to plan the business conservatively with the majority of the year still ahead of us.

Speaker Change: Retailers remain in a conservative posture and we're cautious on the environment as the consumer while resilient remains under pressure around the globe.

Joseph A. Alkire: We continue to assume no meaningful improvement in overall POS or retail inventory positions for the balance of the year. Second, we have good visibility to category expansion and distribution gains, including expansion of our tops and outdoor businesses, as well as new innovation platforms in the second half of the year. And we expect ongoing growth in our DTC business, reflecting investments in our digital platform, improved product segmentation, and a more robust demand creation pipeline. Taken together, we continue to anticipate first half revenue to decline at a mid-single-digit rate, followed by mid-single-digit growth in the second half of the year.

Speaker Change: We continue to assume no meaningful improvement in overall, Pos or retail inventory positions for the balance of the year.

Speaker Change: Second we have good visibility to category expansion and distribution gains, including expansion of our tops and outdoor businesses as well as new innovation platforms in the second half of the year.

Speaker Change: And we expect ongoing growth in our DTC business, reflecting investments in our digital platform improved product segmentation and a more robust demand creation pipeline.

Speaker Change: Taken together, we continue to anticipate first half revenue to decline at a mid single digit rate followed by mid single digit growth in the second half of the year.

Joseph A. Alkire: Beyond the first quarter, we expect revenue growth of approximately 2% for the year-to-go period. Moving on to gross margin. Based on our stronger first quarter results and improved visibility, we are raising our outlook to approximately 44.6% from our prior range of 44.2% to 44.4%. Our updated outlook represents an increase of 210 basis points compared to an adjusted gross margin of 42.5% in 2023, excluding the out-of-period duty chart. In the first half of the year, we now anticipate more than 300 basis points of gross margin expansion, compared with our previous outlook of more than 250 basis points. Our Gross Margin Outlook includes the following assumptions. First, we will continue to benefit from the structural drivers of mix.

Speaker Change: Beyond the first quarter, we expect revenue growth of approximately 2% for the year ago period.

Speaker Change: Moving to gross margin based on our stronger first quarter results and improved visibility we are raising our outlook to approximately 44, 6% from our prior range of 44, 2% to 44, 4%.

Speaker Change: Our updated outlook represents an increase of 210 basis points compared to adjusted gross margin of 42, 5% in 2023, excluding the out of period duty charge.

Speaker Change: In the first half of the year, we now anticipate more than 300 basis points of gross margin expansion compared with our previous outlook of more than 250 basis points.

Speaker Change: Our gross margin outlook includes the following assumptions.

Speaker Change: First we will continue to benefit from the structural drivers of mix.

Joseph A. Alkire: This is expected to contribute approximately 30 to 40 basis points to the full year. In the longer term, we expect the benefits of MIX to continue as we scale DTC and internationally. Second, we have good visibility on input costs, with costs locked into the third quarter on manufacturing and into the fourth quarter on source products. Our visibility for the balance of the year has improved, and when combined with the proactive actions to optimize our supply chain footprint, we anticipate over 200 basis points of benefit for the year from lower product costs. And finally, we assume a modest headwind from lower pricing, promotions, and disruption from the Red Sea. Collectively, these inputs are expected to negatively impact our margin by less than a point.

Speaker Change: This is expected to contribute approximately 30 to 40 basis points to the full year.

Speaker Change: Longer term, we expect the benefits of mix to continue as we scale DTC and international.

Speaker Change: Second we have good visibility on input costs with cost locked into the third quarter on manufacturing and into the fourth quarter on sourced product.

Speaker Change: Our visibility for the balance of the year has improved and when combined with the proactive actions to optimize our supply chain footprint, we anticipate over 200 basis points of benefit for the year from lower product costs.

Speaker Change: And finally, we assume a modest headwind from lower pricing promotions and the disruption from the Red Sea.

Speaker Change: Collectively these inputs are expected to negatively impact our margin by less than a point.

Joseph A. Alkire: I have high confidence in our ability to drive gross margin expansion beyond our previous expectations over time, supported by Project Genius, but we'll share additional details on that in the coming quarters. SG&A is still expected to increase at a low- to mid-single-digit rate. We will continue to make investments in demand creation, DTC, and technology, as well as product development capabilities to support our growing innovation platforms and category expansion. Operating income is now expected to be in the range of $377 million to $387 million, reflecting growth of 8% to 11% compared to the prior year, excluding the duty charge.

Speaker Change: I have high confidence in our ability to drive gross margin expansion beyond our previous expectations over time supported by project genius, but we will share additional details on that in the coming quarters.

Speaker Change: SG&A is still expected to increase at a low to mid single digit rate.

Speaker Change: We will continue to make investments in demand creation, DTC and technology as well as product development capabilities to support our growing innovation platforms and category expansion plans.

Speaker Change: Operating income is now expected to be in the range of 377 million to $387 million, reflecting growth of 8% to 11% compared to the prior year, excluding the duty charge.

Joseph A. Alkire: This compares to our previous outlook of $372 million to $382 million. EPS is now expected in the range of $4.70 to $4.80, representing growth of approximately 6% to 8% compared to adjusted EPS in the prior year, excluding the out-of-period duty charge. This compares to our prior outlook range of $4.65 to $4.75. Full year EPS growth will be negatively impacted by about 5 percentage points from a higher tax rate.

Joseph A. Alkire: This compares to our previous outlook of 372 million to $382 million.

Speaker Change: EPS is now expected in the range of $4 70 to $4 80.

Speaker Change: Representing growth of approximately 6% to 8% compared to adjusted EPS in the prior year, excluding the out of period duty charge.

Joseph A. Alkire: This compares to our prior outlook range of $4 65 to $4 75.

Joseph A. Alkire: Full year EPS growth will be negatively impacted by about five percentage points from a higher tax rate.

Joseph A. Alkire: First half EPS is now expected to increase at a mid-single-digit rate compared to our prior outlook for EPS to be consistent with prior year levels. For the second quarter, we expect EPS of approximately $0.85, representing 10% growth. Finally, we now expect cash from operations to exceed $335 million, primarily as a result of stronger earnings growth. This compares to our previous outlook of cash from operations exceeding $325 million. Before opening it up for questions, I'd like to reiterate the confidence we have in our ability to deliver our 2024 objective.

Joseph A. Alkire: First half EPS is now expected to increase at a mid single digit rate compared to our prior outlook for EPS to be consistent with prior year levels.

Joseph A. Alkire: In the second quarter, we expect EPS of approximately 85.

Joseph A. Alkire: Representing 10% growth.

Joseph A. Alkire: Yeah.

Joseph A. Alkire: Finally, we now expect cash from operations to exceed $335 million, primarily as a result of stronger earnings growth.

Joseph A. Alkire: This compares to our previous outlook of cash from operations to exceed $325 million.

Joseph A. Alkire: Before opening it up for questions I'd like to reiterate the confidence we have in our ability to deliver our 2024 objectives.

Joseph A. Alkire: We are off to a better-than-expected start to the year. The fundamental profile of the business is accelerating, and our brands are winning in the marketplace and continue to drive market share gains. We are on track to generate significant cash from operations this year, which combined with our strong balance sheet provides us with considerable capital allocation optionality. We are operating from a position of strength, and I am confident in our commitment to deliver superior returns for all stakeholders. This concludes our prepared remarks, and I will now turn the call back to our operator.

Joseph A. Alkire: We are off to a better than expected start to the year. The fundamental profile of the business is accelerating and our brands are winning in the marketplace and continue to drive market share gains.

Joseph A. Alkire: We are on track to generate significant cash from operations this year, which combined with our strong balance sheet provides us with considerable capital allocation optionality.

Joseph A. Alkire: We are operating from a position of strength and I am confident in our commitment to deliver superior returns for all stakeholders.

Joseph A. Alkire: This concludes our prepared remarks, and I will now turn the call back to our operator.

Operator: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the list. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the start button. We ask that you please limit yourself to one question and one follow-up question. One moment, please, while we poll for your question. Our first questions come from the line of Jim Duffy with Stiefel. Please proceed with your question.

Speaker Change: Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.

Operator: A confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from Mchugh for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.

Operator: We ask that you please limit yourself to one question and one follow up question. One moment. Please while we poll for your questions.

Operator: Our first questions come from the line of Jim Duffy with Stifel. Please proceed with your questions.

James Vincent Duffy: Good morning.

James Vincent Duffy: Good morning. I wanted to start... Pardon my voice; I'm fighting a cold here. I wanted to start by asking for more perspective on how the quarter and your thoughts on the year have evolved since late February. There are some moving parts.

James Vincent Duffy: I wanted to start pardon my voice.

James Vincent Duffy: Fighting a cold here.

James Vincent Duffy: I wanted to start by asking for more perspective.

James Vincent Duffy: This quarter and your thoughts on the year and the Boston.

James Vincent Duffy: February there are some moving parts.

James Vincent Duffy: It sounds like you saw a further improvement Pos in retailer inventories in March revenue and gross margin came in better for the quarter, but the full year doesn't pass through the revenue upside in.

James Vincent Duffy: The earnings increase.

James Vincent Duffy: The increase was just a fraction of the Q1 earnings upside. So I'm curious is there something you're seeing or hearing from channel partners. It's made.

James Vincent Duffy: Give me more cautious on Q2 and the back half of the year.

James Vincent Duffy: It sounds like you saw further improvement in PLS and retailer inventories in March. Revenue and gross margin came in better for the quarter, but the full year doesn't pass through the revenue upside, and the earnings increase was just a fraction of the Q1 earnings upside. So I'm curious, is there something you're seeing or hearing from channel partners that's making you more cautious on Q2 in the back half of the year?

James Vincent Duffy: Hey, Jim Good morning, It's Joe I'll start and then Scott may want to provide some some thoughts on the environment. So yes, we beat Q1, we'd beat the outlook by approximately $25 million largely driven by improved Pos and inventory levels at retail in March this was largely driven by our major.

Joseph A. Alkire: Hey, Jim. Good morning. It's Joe.

Joseph A. Alkire: I'll start, and then Scott may want to provide some thoughts on the environment. So, yeah, we beat Q1. We beat the outlook by approximately $25 million, largely driven by improved POS and inventory levels at retail. In March, this was largely driven by our major customers in the U.S., so this drove the majority of the upside in the quarter. From a gross margin standpoint, we were also above our expectations by about 160 basis points.

Joseph A. Alkire: Customers in the U S. So this drove the majority of the upside in the quarter from a gross margin standpoint also above our expectations by about 160 basis points that was mainly due to lower product costs and a small delay in the.

Joseph A. Alkire: That was mainly due to lower product costs and a small delay in the pricing actions that we're implementing, which will have a bigger Q2 impact versus our original plan. Look, as we said in February, we're planning the business conservatively in light of the environment. We've got the toughest quarter behind us now.

Joseph A. Alkire: The pricing actions that we're implementing which which is bigger Q2 impact versus our original plan.

Joseph A. Alkire: Look as we said in February we're planning the business conservatively in light of the environment.

Joseph A. Alkire: <unk> got the toughest quarter behind us now and the business fundamentals are positioned to accelerate across the balance of the year from here, which we're highly confident in <unk>.

Joseph A. Alkire: And the business fundamentals are positioned to accelerate across the balance of the year from here, which we're highly confident in. I'd say from a full-year outlook, you know, we raised the first half. We raised the full year largely as a result of stronger than expected Q1. We increased our gross margin assumption modestly for the balance of the year based on our increased visibility from an overall revenue standpoint.

Joseph A. Alkire: I'd say from a from a full year outlook. We raised the first half we raised the full year largely as a result of stronger than expected Q1, we increased our gross margin assumption modestly for the balance of the year based on our increased visibility.

Joseph A. Alkire: From an overall revenue standpoint, we've got good visibility into the improvements for the balance of the year again, largely driven by new programs and distribution gains.

Joseph A. Alkire: We've got good visibility into the improvements for the balance of the year, again, largely driven by new programs and distribution gains. But from my perspective, nothing that we're seeing in the environment, just being cautious on the outlook for the year.

Joseph A. Alkire: From my perspective, nothing that we're seeing in the environment, just being cautious on the outlook for the year and Jim I would just add that the environment. It got modestly a little bit better than we thought in Q4 really nice balance from our big customers from an inventory standpoint thought that worked itself well through pretty good.

Scott H. Baxter: And Jim, I would just add that the environment got modestly a little bit better than we thought in Q4. A really nice balance from our big customers from an inventory standpoint, thought that worked itself well through pretty good. We remain optimistic, you know, for the rest of the year. We do have some programs that Joe mentioned, both by channel and category, that we're excited about, that we've talked a little bit about. So we're being a little bit conservative, but we want to make sure that we go ahead and hit our commitments going forward.

Scott H. Baxter: We remain optimistic for the rest of the year, we do have some programs that Joe mentioned, both channel and category that we're excited about that we've talked a little bit about so a little bit conservative but want to make sure that we go ahead and hit our commitments going forward.

James Vincent Duffy: Great, thanks. A couple of related questions on the guide.

Speaker Change: Great. Thanks, a couple of related questions on the guide Joe the inventory progress in Q1 was meaningful can you speak about this in the context of the full year cash flow from operations Guide.

James Vincent Duffy: Joe, the inventory progress in Q1 was meaningful. Can you speak about this in the context of the full-year cash flow from operations guide? You know, a really good reduction in inventories. You increased the cash flow from operations by about $10 million. Does that assume some reinvestment in inventory later in the year? And then I'm also curious if you could just give us an update on seasonal business. Is the headwind from seasonal business, you know? Have those categories normalized? Are those headwinds behind you?

James Vincent Duffy: Really good reduction in the inventory as you increase the cash flow from ops by about $10 million does that assume some reinvestment in inventory later in the year and then I'm also curious if you could just give us an update on the seasonal business.

James Vincent Duffy: The headwind from seasonal business.

James Vincent Duffy: Those categories normalize or those headwinds behind you.

Joseph A. Alkire: Yeah, I'll start with the inventory, Jim, and Scott can take seasonal. So yeah, from an inventory standpoint, you know, really good progress. The first quarter will be our largest year-over-year decline. We expect declines pretty much for the balance of the year somewhere in that low double-digit range. This is contributing to the cash flow, but yeah, as the growth inflects in the second half, we will lean back into some inventory.

Joe: Yes, I'll start with the inventory, Jim and Scott can take seasonal so yes from a inventory standpoint really good progress the first quarter will be our largest year over year decline, we expect declines pretty much for the balance of the year somewhere in that low double digit range.

Joseph A. Alkire: This.

Joseph A. Alkire: Contributing to the cash flow, but yes, the gross gross the growth in flex in the second half, we will lean back into into some inventory, but for the for the year as a whole inventory will be a contributor to our to our cash.

Joseph A. Alkire: But for the year as a whole, inventory will be a contributor to our cash flow. You know, overall, Jim, we still have about 130 days of inventory on the balance sheet. I would say our steady state for us continues to be somewhere in that plus or minus 100 day range. So there's still a considerable amount of cash on the balance sheet that will, you know, be released at some point.

Joseph A. Alkire: Overall, Jim we still have about 130 days of inventory on the balance sheet I would say steady state for us continues to be somewhere in that <unk>.

Joseph A. Alkire: Or minus 100 day range. So there is still a considerable amount of of cash on the balance sheet that will.

Joseph A. Alkire: That will release at some point, but.

Joseph A. Alkire: But, you know, in terms of the composition of our inventory, we still feel pretty good. Somewhere in that seventy five to eighty percent range is the core. So the inventory is in good shape. And Jim, just a couple of comments on

Joseph A. Alkire: In terms of composition of our inventory, we still feel pretty good somewhere in that 75% to 80% range as is core so the inventories in good shape.

Scott H. Baxter: And, Jim, just a couple of comments on seasonals. After, you know, 20-plus years of riding the seasonal wave up and down with, you know, weather and all kinds of patterns, you know, and geographies, it's very typical. You know, we've seen this play before.

Speaker Change: And Jim just a couple of comments on seasonal is after 20 plus years of riding the seasonal way up and down and weather and all kinds of patterns and geographies. It's very typical we've seen this we've seen this play before it's a little cool right now, but all of a sudden here, where we are and part of this area in this geography.

Scott H. Baxter: It's a little cool right now, but all of a sudden, you know, here where we are and in this area and this geography got really hot yesterday. It's supposed to get really hot this weekend, and we really like our position. We like our product this year. We like our distribution. We think we're in a really good spot, and just because it was a little bit cool at the beginning of the season doesn't really bother us. We've been through that before, so there are no issues.

Scott H. Baxter: We got really hot yesterday is supposed to get really hot this weekend and we really like our position we like our product. This year, we like our distribution. We think we're in a really good spot and just because it was a little bit cooler at the beginning of the season doesn't really bother us we've been through that before so no issues.

Speaker Change: Thank you guys.

Scott H. Baxter: Yes.

James Vincent Duffy: Thank you. Our next questions come from the line of Bob Durbel with Guggenheim Partners. Please proceed with your questions.

Scott H. Baxter: Thank you. Our next question is coming from the line of Bob <unk> with Guggenheim Partners. Please proceed with your questions.

Robert Scott Drbul: Hey guys, good morning. And Scott is 85 in New York today. So, it's happening.

Robert Scott Drbul: Hey, guys. Good morning, and Scott 85 in New York today. So it is happening finally the areas.

Scott H. Baxter: There he is. Here he is.

Robert Scott Drbul: Yes.

Robert Scott Drbul: So I have just a couple of things I'd like to focus on it and talk about <unk>.

Robert Scott Drbul: So, I have just a couple of things, you know, I'd like to focus on and talk about. Can you expand a bit more on the organizational structural changes that you're making and sort of, you know, really how we should think about that? And then there's just a lot of, you know, you guys talked a lot about the new category growth and expansion. You just talked about, like, when you size them up, you know, which ones should we really be focused on? Which ones are needle movers that you have the most optimism around? That would be helpful. Thanks.

Robert Scott Drbul: Can you expand a bit more just on the organizational structural changes that youre, making and.

Robert Scott Drbul: Really how we should think about that and then there's just a lot of you guys talked a lot about the new category growth and expansion.

Robert Scott Drbul: Can you just talk about like when you size them up which one should we really be focused on which ones are needle movers.

Robert Scott Drbul: Optimism around that would be helpful. Thanks.

Scott H. Baxter: Thanks, Bob, for the questions. We always had a plan to go down to one COO, and it was part of what we did. But everyone remembers we spun off, and we did it in 10 quick months, and it was a clone and grow structure. And we probably would have gotten to this position sooner if it weren't for the pandemic, which kind of slowed things down and what have you. But when we decided and finished our ERP and decided that we need to go ahead and have the exact model that we need to be successful as a company versus when you spin off, and after being together so many years, you do a lot of things the same. And then you have to work through where you want to be.

Robert Scott Drbul: Sure.

Speaker Change: Thanks, Bob with the questions. We always had a plan to go down to <unk> COO and it was part of what we did but everyone remembers we spun off and we did it in turn quick months and it was a clone and growth structuring, we probably would have gotten to this position sooner if it werent for the pandemic kind of slowed things down what have you, but when we decided finished our ERP.

Scott H. Baxter: And decided that we needed to go ahead.

Scott H. Baxter: The exact model that we need to be successful as a company versus when you do spin off and after being together. So many years, who do a lot of things. The same and then you have to work through where you want to be and we're at that place, where we know exactly where we want to be so we rolled up genius finished our ERP and it was the perfect time to put in play.

Scott H. Baxter: And we're at that place where we know exactly where we want to be. So we rolled out Genius, finished our ERP, and it was the perfect time to put in place the organizational structure we needed to be successful. So this streamlines our decision making, putting Tom in the COO role. And, you know, success breeds success. And Tom has had a tremendous amount of success in what he's done with the team in Wrangler. So we're really excited to put Tom in that elevated position.

Scott H. Baxter: The organizational structure, we needed to be successful. So this streamlines our decision, making putting Tom in the COO role.

Scott H. Baxter: Success breeds success, and Tom's had a tremendous amount of success and what he has done with the team and wrangler. So we're really excited the footpath Tom and that elevated position and then about two years ago. Tom took the operational piece to our supply chain piece of it is done an exceptional job. There. So combining those I think has been instrumental in our success. So.

Scott H. Baxter: And then, about two years ago, Tom took the operational piece of our supply chain piece and has done an exceptional job there. So combining those, I think, has been instrumental in our success. But what happens, though, is they collectively come together on the back end, and that also funnels up to Tom.

Scott H. Baxter: Our decision, making now is much more streamlined its moving faster it's part of what we're doing from a genius standpoint, it moves us to the organization, we want to be I think the one thing that I want to make sure that everybody does realize though is that the fact that we do have two separate go to market teams. They funnel up to Tom at some point, but we have a lead team from a go to market standpoint.

Scott H. Baxter: We have a wrangler team that are separate from our go to market standpoint, but what happens though is they collectively come together on the backend and that also funnels up to Tom, but we combine that backend piece from a synergy standpoint, and a cost saving standpoint, and that's really really helpful. So that's kind of the background and the thinking about it but how we're going to go to market and who we want to be.

Scott H. Baxter: But we combine that back-end piece, you know, from a synergy standpoint and a cost-saving standpoint, and it's really, really helpful. So that's kind of the background and the thinking about it, but how we're going to go to market and who we want to be are all part of our Project Genius work. And then from a category standpoint, yeah, we've been talking a lot about, you know, the categories that we entered over the last few years, you know, when we spawned, we entered outdoor, we entered tees, we entered work in a more significant way, although we were there and outdoor and work to a degree. But, you know, you think about outdoor, in the last four years, we've gone from And, you know, you talked about which ones are still accelerators.

Scott H. Baxter: And all part of our project genius work.

Scott H. Baxter: And then from a category standpoint, yes.

Scott H. Baxter: Been talking a lot about the categories that we entered and.

Scott H. Baxter: Over the last few years when we spun we entered outdoor we entered TS we entered work in a more significant way, although we were there in outdoor and work to a degree but you think about like outdoor in last four years, we've gone from $100 million to $200 million and you talked about which ones are still accelerators outdoor is definitely an accelerator for us. We're just we're just getting better.

Scott H. Baxter: Outdoor is definitely an accelerator for us. We're just getting better at it and smarter at it. And we've hired some talent, and our product looks better. And, you know, with time, you learn some things, you know, and you learn about your consumers. And we really like the new product that's coming out here. So I feel really good about that. And our tee business has been accelerating really, really nicely. So we think about those two. Right now, work is a little bumpy for us.

Scott H. Baxter: At at and smarter at it and we've hired some talent in our product looks better and with time, we learned some things.

Scott H. Baxter: Learn about your consumer and we really like the new product that's coming out there. So feel really good about that in our tea business has been accelerating really really nicely. So we think about those two right.

Scott H. Baxter: Right now work is a little bumpy for us. So we will continue to work through that and get that in a place that it needs to be but we still love that channel.

Scott H. Baxter: So we'll continue to work through that and get that in a place that it needs to be. But we still love that channel. You know, it's a big channel for us as a company already, and we think that, you know, it's just a business that we're going to be in for the long term. And it's got real structural tailwinds for us, too. But that's kind of where I would focus an emphasis on those, you know, newer categories that we enter.

Scott H. Baxter: A big channel for Us as a company already and we think that it's just a business that we're going to be in for the long term and it's got real structural tailwind for us. So we're excited about that too, but that's kind of where I would focus and emphasis from those newer categories that we enter.

Scott H. Baxter: Great. Thank you very much. Thanks, Jim. Thanks, Bob.

Speaker Change: Great. Thank you very much.

Speaker Change: Thanks, Jim Thanks, Bob.

Brooke Siler Roach: Thank you. Our next questions come from the line of Brooke Roach with Goldman Sachs. Please proceed with your questions.

Speaker Change: Thank you our next questions come from the line of Brooke Roach with Goldman Sachs. Please proceed with your questions.

Brooke Siler Roach: Good morning, and thank you for taking our question. Scott, you've talked a lot about the optimism that you have about new categories and the growth of the business in non-denim today, but I was hoping you could give us your view on the health and the outlook for growth of the U.S. denim market. Have you seen any benefits from some of the recent Western cultural moments, and are you seeing April POS acceleration as a result of the recent pricing changes that have been put in place at some of your key customers?

Brooke Siler Roach: Good morning, and thank you for taking our question Scott you talked a lot about the optimism that you have on new categories and the growth of the business and non denim today.

Brooke Siler Roach: Maybe you could give us your view on the health and the outlook for growth of the U S. Denim market have you seen any benefit from some of the recent western cultural moments and are you seeing accelerating April Pos as a result of the recent pricing changes that have been put in place at some of your key customers.

Scott H. Baxter: Yeah, good morning, Brooke. Thanks for the question. No question. You know, we have a significant business, obviously, and it's critically important to us. And we call it our core business. And we see that denim is, you know, in fashion, has been in fashion, the casualization of the world. One of the things that was really interesting was that, you know, we went through this casualization when we went through the pandemic.

Scott: Yes, good morning Brook. Thanks for the question no question.

Scott H. Baxter: We have a significant business, obviously, it's critically important to us and we call. It our core business and we see that denim is in fashion has been in fashion casual <unk> of the world. One of the things that was really interesting was that we went through this casuals Asian, when we went through the pandemic and then when we came out people said that will probably.

Scott H. Baxter: We returned to normal and people dressed like they used to.

Scott H. Baxter: It just never happened people state casual or continuing to be casual and we fit right into that in a really perfect way around the globe. So feel really good about that and then we do have some new distribution coming even in our core denim categories here for the second half of the year, which is pretty exciting with a big retailer that we've talked about so you couple those two things and then.

Scott H. Baxter: And then when we came up, people said that, you know, we'll probably return to normal, and people will dress like they used to. It just never happened. People stayed casual or continued to be casual.

Scott H. Baxter: When you go to western the one thing I always think about try to remind people is that.

Scott H. Baxter: We've been on a western trends since $19 47.

Scott H. Baxter: We brought out the first really great Cowboy G <unk> and we've been working on that.

Scott H. Baxter: And we fit right into that in a really perfect way around the globe, so I feel really good about that. And then, you know, we do have some new distribution coming, even in our core denim categories here for the second half of the year, which is pretty exciting with a big retailer that we've talked about. So, you know, you combine those two things.

Scott H. Baxter: And that for a long time and we are western if you think about western you think about the cowboy you think about the mountains you think about that lifestyle. The first thing you think about is wrangler jeans and wrangler tops. So we are a huge part of that business. It just continues to grow and it's been really nice and I think it's.

Scott H. Baxter: And then, you know, when you go to Western, the one thing I always think about trying to remind people is that, you know, we've been on a Western trend since 1947 when we brought out the first really great cowboy jeans, you know, our MWZ 13. And we've been, you know, working on that and loving that for a long time. And we are Western. You know, if you think about Western, you think about the cowboy, you think about the mountains, you think about that lifestyle, the first thing you think about are Wrangler jeans and Wrangler tops.

Scott H. Baxter: So we are a huge part of that business, and it just continues to grow. And it's been really nice.

Scott H. Baxter: And I think it's, you know, really spiritual for some people to be part of that, you know, the West and what it stands for and what it stands for for us as a country. And it's interesting, too, now that, for the first time in a long time, we did have this many, many, many years ago. But the Western piece is starting to hit Europe a little bit now, so that's really interesting for us.

Scott H. Baxter: Really spiritual for some people to be part of that.

Scott H. Baxter: The west and what it stands for and what it stood for for us as a country and it's it's interesting to know that.

Scott H. Baxter: For the first time in a long time, we did have this many many many years ago, but the western piece is starting to hit Europe, a little bit now so which is really interesting for us. So we're enthusiastic about and we'll see what happens there, but we are seeing some some green shoots in that respect over in the European area, but we continue to bring new products to market in our western.

Scott H. Baxter: So we're enthusiastic about it, and we'll see what happens there. You know, but we are seeing some green shoots in that respect, you know, over in the European area. But we continue to bring new products to market in our Western business. And, you know, I don't know if everybody saw or heard the new Miranda Lambert song that came out about Wrangler jeans, you know, that's debuting here today, I think. And, you know, Miranda is the all-time winningest ACM award winner ever.

Scott H. Baxter: Business and I don't know if everybody saw or heard the new Miranda Lambert's song that came out about wrangler jeans.

Scott H. Baxter: Debuting here today, I think getting miranda's the all time winningest ACM award winner ever so it's pretty interesting.

Scott H. Baxter: Things like that happen and they are completely organic for us.

Scott H. Baxter: So it's pretty interesting that, you know, things like that happen, and they're completely organic for us, you know, as a company. And it just goes to show that when people think about Western business, they think about Wrangler.

Scott H. Baxter: As a company and it just goes to show you when people think about that western business. They think about wrangler first.

Joseph A. Alkire: Now, Brooke, just on April specifically, we actually saw a little bit versus Q1. Nothing dramatic, nothing that concerns us. It did improve sequentially over the course of the month. And that's continued into the first couple of days of May here, and that's all reflected in our outlook. But it was a little softer than Q1.

Scott H. Baxter: Now Bruce just on on April specifically, we actually saw April Pos software.

Joseph A. Alkire: A little bit versus Q1, nothing dramatic nothing that concerns us it did improve sequentially over the course of the month. That's continued into the first couple of days of May here and that's all reflected in our outlook, but it was a little softer than Q1.

Brooke Siler Roach: And if I could just follow up on international, it appears that European wholesale continues to be a little weaker than we would have expected. I was wondering if you could discuss, relative to your outlook for Europe and Asia provided in February, what are you forecasting for growth in both wholesale and DTC in those markets for the remainder of the year?

Brooke: Great and if I could just follow up on international It appears that Europe wholesale continues to be a little weaker than we would have expected I was wondering if you could.

Brooke Siler Roach: This is Scott relative to your outlook for Europe, and Asia provided in February and what are you forecasting for growth in both wholesale and DTC in those markets for the remainder of the year.

Scott H. Baxter: Yeah, you know, Brooke, I'll go ahead and start and then kick it over to Joe. But, you know, yeah, you're right. Europe is still a little bit lumpy. You know, business there is kind of, you know, up and down. And, you know, we've been riding that like a lot of other folks. We're certainly hopeful that the economy starts to pick up here over time. We are seeing some things that are that are beneficial.

Speaker Change: Yeah Brook I'll go ahead to start and then kick it over to Joe, but yes, Youre right Europe is still a little bit lumpy.

Scott H. Baxter: The business, there is kind of up and down and we've been riding that like a lot of other folks. We're certainly hopeful that that economy starts to pick up here over time, we are seeing some things that are that are beneficial.

Scott H. Baxter:

Joe: Our product is still resonating in a pretty significant way and we've got a really good team on the ground there and our new project genius work should help that global standpoint, as we go ahead and accelerate our global product development under one person. So I do have some optimism, but we do need to see the economy approve and we're hopeful that that happens.

Scott H. Baxter: You know, our product is still responding in a pretty significant way, and we've got a really good team on the ground there. And our new Project Genius work should help that, you know, from a global standpoint, as we go ahead and accelerate our global product development under one person. So I do have some optimism, but we do need to see the economy improve. And we're hopeful that that happens and strengthens throughout the rest of the year. But, truly, we think it's going to pick up a little bit more steam in 25 than in 24.

Scott H. Baxter: And strengthens throughout the rest of the year, but truly we think it's going to pick up a little bit more steam in 25, then in 'twenty four.

Joseph A. Alkire: Yeah, just in terms of this year, Brooke, we actually came through Q1 a little better than our plan, both in Europe and Asia. Again, just to the point I made earlier, we plan the business pretty conservatively. So, no real change in terms of how we're thinking about the business.

Scott H. Baxter: Just in terms of this year broke we actually came through Q1, a little better than our plan, both Europe and Asia again just to the.

Joseph A. Alkire: To the point I made earlier, we plan the business pretty conservatively. So no real change in terms of how we're thinking about the business Europe will be tougher than Asia Asia, We still expect growth more in that mid to high single digit range on a full year basis.

Joseph A. Alkire: Europe will be tougher than Asia. For Asia, we still expect growth more in that mid to high single-digit range on a full-year basis, much stronger in the second half. Within that, we expect stronger growth from D to C, which you've seen from both regions pretty consistently.

Joseph A. Alkire: Much stronger in the second half within that we expect stronger growth from from DSC, which you've seen from both regions pretty consistently.

Brooke Siler Roach: Thanks so much. I'll pass it on.

Speaker Change: Thanks, So much I'll pass it on.

Mauricio Serna Vega: Thank you. Our next questions come from the line of Mauricio Serna with UBS. Please proceed with your question.

Speaker Change: Thank you. Our next question is coming from the line of <unk> <unk> with UBS. Please proceed with your question.

Mauricio Serna Vega: Hi, good morning, and thanks for taking my questions. Yeah, I just wanted to confirm first on the sales guidance that Q1, like the sales beat, there wasn't really any shift in shipments from Q2 to Q1. And if that's the case, just to understand, again, like, why is that not being flown through to the, you know, to the four-year sales guidance? Second on that, you know, thinking about the four-year sales guidance, maybe if you could, like, provide some type of bridge or kind of explanation similar to what you mentioned in the gross margin outlook in terms of, like, how much, you know, you're getting from, roughly contribution from the new distribution gains or channel expansion, and particularly interested on the launch in the second half, you know, of Wrangler Denim, like how much do you think that could contribute to your sales growth?

Mauricio Serna Vega: Hi, good morning, and thanks for taking my questions.

Mauricio Serna Vega: Just wanted to confirm first.

Mauricio Serna Vega: The sales guidance.

Mauricio Serna Vega: That Q1 like the sales beat there wasn't really any any shift in shipments from Q1.

Mauricio Serna Vega: From Q2 to Q1 and if that's the case, just so I understand again.

Mauricio Serna Vega: Why is that not being flown through to the.

Mauricio Serna Vega: For the full year sales guidance second.

Mauricio Serna Vega: Second on that.

Mauricio Serna Vega: Thinking about the full year sales guidance maybe.

Mauricio Serna Vega: If you could provide some type of bridge chart kind of explanation similar to what you mentioned in the gross margin outlook in terms of like how much you're getting from.

Mauricio Serna Vega: Roughly contribution from the new distribution gains our channel expansion and particularly interested.

Mauricio Serna Vega: On the launch in the second half.

Mauricio Serna Vega: Wrangler denim like how much do you think that could contribute to your <unk>.

Joseph A. Alkire: Hey, Mauricio, it's Joe. I'll start.

Joe: Sales growth. Thank you.

Joseph A. Alkire: So on the first half guidance, specifically, we kept it the same. So there is no real change. We raised the Outlook At least from a revenue standpoint, no change for the first half or full year. I'd say we're just being a little bit cautious just given the environment, but no real change. We continue to not assume any real improvement or any improvement in either POS, trends, or inventory levels at retail. We held the year as well, down one to up one, on the top line, and the growth we assume in the back half is really all you know non-comp distribution gains category expansion, DTC in China, so from a top line standpoint, there's really no change to our outlook for the year. There's been some movement between the quarters, but nothing significant in the context of the full year.

Joseph A. Alkire: Hey, Maury so it's Joe I'll start so on the on the first half guidance specifically, we kept it the same so no real changed we raised.

Joseph A. Alkire: The outlook.

Joseph A. Alkire:

Joseph A. Alkire: Yes.

Joseph A. Alkire: At least from a revenue standpoint, no change for first half or full year.

Joseph A. Alkire: I'd say, we're just being a little bit cautious just given the environment, but no real change we continue to not assume any real improvement or any improvement in either Pos trends or inventory levels at retail we held the year as well down one to up one.

Joseph A. Alkire: On the on the top line and the growth we assume in the back half is really all non comp distribution gains category expansion DTC in China. So from a top line standpoint, there's really no change to our to our outlook for the year, there's been some movement between the quarters, but nothing significant in the context of the full year.

Joseph A. Alkire: Okay.

Mauricio Serna Vega: And then just a quick follow-up, you know. Could you talk a little bit more about what you saw in China? You usually, you know, mention that in the release, but I didn't see any comments this quarter. And maybe also, like, how should we think about, you know, with the meaningful cash flow generation that you have for this year, how should we think about, you know, the optionality in terms of returns to shareholders, in terms of dividends and share reporting?

Speaker Change: Got it and then just a quick follow up.

Mauricio Serna Vega: No.

Mauricio Serna Vega: But could you talk a little bit more about what you saw in China.

Mauricio Serna Vega: Not on the release, but I didn't see any comments.

Mauricio Serna Vega: This quarter and maybe you also like how should we think about.

Mauricio Serna Vega: With a meaningful.

Mauricio Serna Vega: Cash flow generation that you have for this year, how should we think about the.

Mauricio Serna Vega: Optionality in terms of returns to shareholders in terms of dividends and share repurchases. Thank you.

Scott H. Baxter: Mauricio, Scott, I'll go ahead and start. You know, from China's standpoint, we took 23 days to really spend some time working with our partners and cleaning up our inventory, which, you know, our team, you know, and I want to be very thankful to them for this, but they did an outstanding job there. So, really appreciate that. Got inventory levels really clean, because if you remember, and I think everybody does, China came out of the pandemic a little bit slower than everybody else.

Speaker Change: Every CEO Scott I'll go ahead and start.

Mauricio Serna Vega: From a China standpoint, we took 23 to really spend some time to work with our partners and clean up our inventory, which our team and I want to be very thankful to them for this but they did an outstanding job. There. So really appreciate that getting inventory levels really clean because if you remember and I think everybody does China came out of the pandemic a little bit slower than everybody.

Scott H. Baxter: So, as we go through these kind of inventory issues, they're kind of the tailwind of it. So, really nice work there. Now, we're going about, and we're refreshing about 70% of our fleet over there, which is fairly significant over the next two years, but it's really good work and work that needed to be done. Teams are heavily engaged in that.

Scott H. Baxter: Also as we go through these kind of inventory issues, there kind of a tailwind of it so really nice work. There now we're going about and we're refreshing about 70% of our fleet over there which is fairly significant over the next two years, but it's really good work and work that needed to be done teams heavily engaged in that we did a lot of resource work in there and the insight work.

Scott H. Baxter: We did a lot of resource work in there and did a lot of insight work in there. So, we're in a really good place as we start that process going forward. And anything we do, you know, we would look to do something accretive. We would look for a very, very fast pay down and payback. So count on that, too.

Scott H. Baxter: And there so we're in a really good place as we start that process going forward. Some of the things that we're thinking about over there we're leaning into the newer live streaming platforms, which have become really really interesting and really powerful from a speech and speaking to the consumer standpoint, So that's kind of where that consumer is migrated a bit. So those are some of the things that we're doing but.

Scott H. Baxter: Really like where we are right now as we come through a very difficult time, they're way back in 'twenty, two 'twenty, three and a little bit of it <unk> would say, it's a little bit of blocking and tackling that we're doing there and then just building some great product and doing what we do so look forward to the future there.

Scott H. Baxter: And then I'll go ahead to start cap allocation and kick it over to Joe.

Scott H. Baxter: It is a fabulous position that we're creating a lot of cash the business is doing well we've got options in front of US you saw that we went ahead and bought back $20 million of stock this quarter under our new $300 million program that we have in addition to our dividend very significant dividend that we pay and we're investing.

Scott H. Baxter: Back in the businesses if.

Scott H. Baxter: If we want to do M&A, we're in a really good position to do M&A, maybe I can make a few comments on that from an M&A standpoint, I've said it before I said it for years, we're not going to surprise you anything that we do you would immediately get in anything we do we would look to do something accretive we would look for a very very.

Scott H. Baxter: A fast pay down and the payback so count on that too, we're very prudent listen where we.

Scott H. Baxter: Sure.

Scott H. Baxter: Really serious about making sure that we continue to do what's best for our shareholders and stakeholders and right now we're in a really good position. There is difficulty in the environment. There is difficulty in the sector, but we're not in that position. We're in a position of strength. So we can look at things from a position of strength, which is also.

Joseph A. Alkire: You know, we're very prudent. Listen, we're, we're, we're really serious about making sure that we continue to do what's best for our shareholders and stakeholders. And right now, we're in a really good position. You know, there's difficulty in the environment, there's difficulty in the sector, you know, but we're not in that position; we're in a position of strength. So we can look at things from a position of strength, which is also really important.

Joseph A. Alkire: So really important so.

Joseph A. Alkire: You know, we feel really good about where we are and the cash that we're generating as a company, and we've done a really prudent job as far as how we've gone ahead and, you know, giving it back to the shareholders. Joe, anything to add? Yeah.

Joseph A. Alkire: So we feel really good about where we are and the cash that we're generating as a company and we've done a really prudent job as far as how we've gone ahead and give it back to the shareholders.

Joseph A. Alkire: Anything to add? Yeah, Mauricio, I would just say from a priority standpoint that the priorities are unchanged. We want to prioritize reinvesting in the business first. We're committed to growing the dividend over time, and then you've got share repo and M&A. Our cash flow is accelerating, it's stronger. You know, we raised the outlook. The balance sheet is strong. We repurchased $20 million of stock in the first quarter. We repurchased $30 million in the fourth quarter.

Joe: And I think that ratio I would just say from a priority standpoint, the priorities are unchanged.

Joseph A. Alkire: Unchanged, we want to prioritize reinvesting in the business first we're committed to growing the dividend over time, and then you've got share repo and M&A, our cash flow is accelerating its stronger.

Joseph A. Alkire: We raised the outlook the balance sheet is strong we repurchased 20 million of stock in the first quarter, we repurchased 30 million in the fourth quarter.

Mauricio Serna Vega: So we're putting more capital, you know, to work. The M&A environment is active, as you know. We do think it's an opportunity for us, but, you know, we're going to stay disciplined. We like our strategic plan, and so I'd say the bar is high relative to where we can invest in Kontoor today. So again, a lot of optionality, you know, given the position we're in, and Project Genius just further supports our flexibility going forward.

Joseph A. Alkire: So we're putting more capital.

Mauricio Serna Vega: To work the M&A environment is as active as you know we do think it's an opportunity for us, but we're going to stay we're going to stay disciplined we like our strategic plan.

Mauricio Serna Vega: And so I would say the bar is high relative to where we can invest in contour today. So again a lot of optionality.

Mauricio Serna Vega: Given the position we're in and project genius, just further supports our flexibility going forward.

Laurent Vasilescu: Andersson, thank you very much.

Mauricio Serna Vega: Sure.

Speaker Change: Understood. Thank you very much.

Laurent Vasilescu: Thank you. Our next questions come from the line of Laurent Vasilescu with BNP Paribas. Please proceed with your questions.

Laurent Vasilescu: Thank you our next questions come from the line of Laurent <unk> with BNP Paribas. Please proceed with your questions.

Laurent Vasilescu: Oh, good morning. Thank you very much for taking the time to answer my questions.

Laurent Vasilescu: Good morning. Thank you very much for taking my question I wanted to follow up on Rachel's question on China last quarter, the transfer of called out the China grew 25% in the fourth quarter and that China would accelerate curious to know how China actually performed for this quarter year over year that'd be great and are you still expecting for China to accelerate.

Laurent Vasilescu: I wanted to follow up on Mauricio's question on China. Last quarter, the transcript called out that China would grow by 25% in the fourth quarter and that its lead China would accelerate. Curious to know how China actually performed for this quarter year-over-year? That would be great. And are you still expecting China to accelerate throughout the year?

Laurent Vasilescu: Throughout the year.

Joseph A. Alkire: Hey Laurent, Joe. Yeah, so China was down a little bit in the first quarter. It was a little ahead of our plan, but we still expect growth for the full year. You know, digital increased at a double-digit rate. Brick and mortar was a little tougher. As you know, Lee has a larger presence from a brick and mortar retail standpoint, and traffic trends were difficult in the quarter. However, inventory levels just in the market are much improved versus a year ago.

Laurent Vasilescu: Yes.

Laurent Vasilescu: Joe.

Joseph A. Alkire: Yes, so China was down a little bit in the first quarter. It was a little ahead of our plan, we still expect growth for the full year.

Joseph A. Alkire: Digital increased at a double digit rate brick and mortar was a little tougher as you know Lee has a larger presence from a brick and mortar retail standpoint.

Joseph A. Alkire: And traffic trends were difficult in the quarter.

Joseph A. Alkire: I'd say we're pretty much back at more normalized levels of inventory, and we continue to work on improving the health and quality of our retail partners. So, you know, no real change. But, you know, it remains a pretty significant opportunity for us long term.

Joseph A. Alkire: Inventory levels just in the in the market are much improved versus a year ago I'd say, we're pretty much back at more normalized levels of inventory and we continue to work on improving the health and quality of our of our retail partners. So.

Joseph A. Alkire: No real change.

Joseph A. Alkire: It remains a pretty significant opportunity for us long term.

Laurent Vasilescu: Very helpful, Joe. And then I wanted to ask about the 1Q adjustments. The footnotes call out streamlining and transferring selection production within your internal manufacturing network. Maybe could you provide a little bit more color to the audience about what this means? And should we assume roughly $0.10 of adjustments per quarter over the next three quarters so we can get to the model gap netting?

Joseph A. Alkire: Very helpful. Joe and then I wanted to ask about the <unk> adjustments, the footnotes callout streamlining and transferring selection production within your internal manufacturing network, maybe could you provide a little bit more color to the audience. What it means and should we assume roughly 10 cents of adjustments per quarter over the next three quarters.

Laurent Vasilescu: So we can get.

Laurent Vasilescu: The model GAAP net income.

Joseph A. Alkire: Yeah, hey Laurent. Yeah, so in the first quarter, what you saw in the gross margin line was a little bit of a spillover from the fourth quarter restructuring charge we took on the supply chain. That was really exiting our manufacturing in Nicaragua and consolidating into Mexico. I'd say the majority of the one-time costs in the first quarter were more Genius related. As we highlighted last quarter or disclosed last quarter, you know, we'll have some one-time costs related to that program as we activate it over the next couple of quarters.

Joe: Yes, yes.

Joe: Yes, so in the first quarter, what you saw on the gross margin line was a little bit of a spillover from the fourth quarter restructuring charge. We took on the supply chain that was really exiting our.

Joseph A. Alkire: Manufacturing in Nicaragua, and consolidating into Mexico, I would say the majority of the onetime costs in the first quarter were more genius related as we highlighted last quarter are disclosed last quarter.

Joseph A. Alkire: But I'd say going forward, outside of Project Genius and the impact of which we'll just disclose appropriately, I'd expect our one-time costs to be pretty minimal, if any. So you should start to see a much cleaner picture for the business going forward. Very helpful. Thank you very much, Paul.

Joseph A. Alkire: We'll have some onetime costs related to that program as we activate it over the next couple of quarters, but I would say going forward outside of project genius and the impact of which will we will disclose appropriately I'd expect our our one time cost to be pretty minimal if any so you should start to see a much cleaner picture for the business going forward.

Laurent Vasilescu: Very helpful. Thank you very much for all the color.

Speaker Change: Very helpful. Thank you very much for all the color.

Speaker Change: Welcome to Paul.

Frederick William Gaertner: Thank you. Our next questions come from the line of Will Gaertner with Wells Fargo. Please proceed with your question.

Laurent Vasilescu: Thank you. Our next question is come from the line of will Garner with Wells Fargo. Please proceed with your question.

Frederick William Gaertner: Hey, guys, thanks for taking my question. So, I just want to talk about lower product costs. How sustainable is that past this year? I think you parsed out the impact this year. Just maybe talk a little bit about what's going to happen once you lap those lower product costs.

Frederick William Gaertner: Hey, guys. Thanks for taking my question.

Frederick William Gaertner: So I just wanted to talk about.

Frederick William Gaertner: Lower product costs.

Frederick William Gaertner: Sustainable is that past this year I think.

Frederick William Gaertner: You parsed out.

Frederick William Gaertner: The impact this year.

Frederick William Gaertner: Talk a little bit about whats going to happen once you lap those those product costs go forward protocols.

Speaker Change: Good luck.

Joseph A. Alkire: Yeah, hey, well, so we said about 200 basis points benefit for the year from lower product costs. That's more front half loaded than back half. As we get to the fourth quarter, we'll start to lap those. But for the second half, as a whole, our outlook implies over 100 basis points of gross margin expansion. So that's 2024.

Speaker Change: Yes, hey, well so.

Frederick William Gaertner: We said about 200 basis points benefit for the year from lower product costs, that's more front half loaded and back half as we get to the fourth quarter, we'll start to lap those but for the second half as a whole our outlook implies over 100 basis points of gross margin expansion. So that's that's 2024.

Joseph A. Alkire: I'd say just as you think about the gross margin algorithm going forward, you know, we basically have our structural mix, which we think is somewhere in that 30 to 40 basis points range. I'd say for everything else, effects, costs, pricing, you know, over time, that tends to neutralize for us. You know, that's been our model, you know, historically, and I'd say there's no structural reason why that would change for us going forward.

Speaker Change: Say just as you think about the gross margin algorithm going forward, we basically have our structural mix, which we think is somewhere in that 30 to 40 basis points range I would say for everything else FX cost pricing overtime that tends to neutralize for us.

Joseph A. Alkire: That's been our model.

Joseph A. Alkire: Historically and I'd say, there's no structural reason.

Joseph A. Alkire: Why that would change for us going forward, but we do have project genius, just as we think about evolving our supply chain that will layer on some additional opportunity on the gross margin side, but more to come on that over the next few quarters.

Joseph A. Alkire: But we do have Project Genius just as we think about evolving our supply chain. That will layer on some additional opportunities on the gross margin side, but more to come on that over the next few quarters.

Frederick William Gaertner: Great. And just maybe talk a little bit about the share gains. What's driving that? Are you selling into new doors at existing retailers, or is it new retailers? Are you getting shelf space with core products, or is this driven more by category expansion?

Speaker Change: Great and just maybe talk a little bit about the share gains.

Frederick William Gaertner: What's driving that are you selling into new doors at existing retailers or new retailers.

Frederick William Gaertner: Are you gaining shelf space with core product or is this driven more by category expansion.

Scott H. Baxter: Hi Will, this is Scott.

Frederick William Gaertner: Yes.

Frederick William Gaertner: Yes, I will this is Scott.

Will: Well I'll tell you exactly what is doing a great product.

Scott H. Baxter: You know, Will, I'll tell you exactly what a great product is. You know, our team is designing and building fantastic products that our consumers want, and you combine that great product with things like the new Laney Wilson collection, you know, our new Staud collaboration that we've continued, and just those things that we're doing. It's just driving the consumer to our brand. It's a really exciting time. Lots of excitement and enthusiasm about both brands, and that's just adding to, you know, what's going on here at our company. So, again, I go back to it. It's a fairly simple formula,

Scott: Our team is designing and building fantastic products that our consumers want and you combine that great click with things like the New Lady Wilson collection, our new stout collaboration that we've continued and just those things that we're doing it's just driving the consumer to our brand. It's a really exciting time lots of.

Scott H. Baxter: Lots of excitement and enthusiasm about both brands and Thats, just adding to whats going on here at our company. So again I go back to it's a fairly simple formula you build really great product market. It really well you treat your consumers really well, we sell our product at a very fair price a lot of value and people love our brands, it's a great.

Scott H. Baxter: You build a really great product. You market it really well. You know, you treat your consumers really well. We sell our product at a very fair price, a lot of value, and people love our brands. It's a great combination.

Scott H. Baxter: <unk> combination for us.

Frederick William Gaertner: Got it. So, is it expanding to new ones, or is it more existing doors? Can you just kind of give a little bit more color there? Sure. We've expanded into some.

Will: Got it so are you expanding into new.

Speaker Change: Or is it or is it more existing doors can you just kind of give a little bit more color there.

Scott H. Baxter: Sure, we've expanded into some new retailers, for sure. And then in the second half of this year, we do have some new business that we've talked a little bit about, which is part of the reason that we're going to have a little acceleration in our revenue. And that is happening both at existing customers and also at new customers. In some of our new areas, you know, areas that we talked about earlier, like outdoor and teas, are really working, and they're picking up new distribution too. So it is a combination of all of them.

Speaker Change: Sure we've expanded into some new retailers for sure and then in the second half of this year. We do have some new business that we've talked a little bit about which is part of the reason that we're going to have a little acceleration in our revenue and that is happening both at existing customers and also new customers.

Scott H. Baxter: And some of our new areas that we talked about earlier like authorities are really working and they are picking up new distribution too. So it is a combination of all of those.

Frederick William Gaertner: Thank you. Goodbye. Thank you. Our next questions come from the line of Paul Kearney with BART.

Speaker Change: Got it thank you.

Paul David Kearney: You bet.

Paul David Kearney: Thank you. Our next questions come from the line of Paul Kearney with Barclays. Please proceed with your question. Hey, everyone. Thanks for taking my question.

Frederick William Gaertner: Thank you our next questions come from the line of Paul Kearney with Barclays. Please proceed with your question.

Paul David Kearney: Hi, everyone. Thanks for taking my question.

Paul David Kearney: Most of them have been answered, but maybe can you talk about the investments you are making for the back half innovation and channel launches where are you allocating marketing.

Paul David Kearney: Should we think about that longer term on the SG&A line.

Scott H. Baxter: You know, we've done a really nice job. Good morning, Paul.

Paul David Kearney: We've done a really nice job good morning, Paul we've done a really nice job of accelerating our marketing spend since the spin and we continue to do that but I think the most important thing is we've actually been very intelligent on how we've done that going forward I think one of the things thats been really important for US here is our new consumer insights focus when we built our new ERP system.

Scott H. Baxter: We've done a really nice job of accelerating our marketing spend since the spin, and we continue to do that. But I think the most important thing is we've actually been very intelligent in how we've done that, you know, going forward. I think one of the things that's been really important for us here is our new consumer insights focus. You know, when we built our new ERP system, it gave us an opportunity to go ahead and build out our consumer insights group for both Wrangler and Lee, which really wasn't very robust before.

Scott H. Baxter: <unk> gave us an opportunity to go ahead and build out our consumer insights group for both Wrangler, and Lee, which really wasn't very robust before and let me give you a really great example of how Thats worked we found out here recently not that long ago through our new consumer insights groups that are lead male consumer is playing.

Scott H. Baxter: And let me give you a really great example of how that's working. We found out here recently, not that long ago, through our new consumer insights groups, that our Lee male consumer is playing and also watching more golf than, you know, the average consumer. So we went ahead and entered the market with a new Lee golf pant short, and, you know, that just kicked off in the marketplace, and it's actually kicked off in a really nice way. We've been really pleased with the performance of it already, but that's a great example of how we're looking at these different opportunities and utilizing our new ERP system and investing in consumer insights going forward.

Scott H. Baxter: And also watching more goal than the average consumer. So we went ahead and went to the market with a new lead golf pants short and that just kicked off in the marketplace.

Scott H. Baxter: Actually kicked off on a really nice way, we've been really pleased with the performance of that already but Thats. A great example of how we're looking at these different opportunities utilizing our new ERP system and investing in consumer insights going forward.

Speaker Change: Perfect. Thank you.

Scott H. Baxter: Thank you. There are no further questions at this time. I'd now like to turn the floor back over to Scott Baxter for any closing remarks.

Scott H. Baxter: Thank you there are no further questions at this time I would now like to turn the floor back over to Scott Baxter for any closing remarks.

Scott H. Baxter: Folks, I just wanted to thank you for all your questions and thank you for your interest in our company. I certainly appreciate that, and have a wonderful beginning to the summer. We'll look forward to touching base with you in July, about midsummer, and, you know, getting you up to date on our progress and everything we talked about today. But again, thank you for your participation today, and we'll talk to you soon.

Scott H. Baxter: Folks I just wanted to thank you for all your questions and thank you for your interest in our company and certainly appreciate that.

Scott H. Baxter: Have a wonderful beginning of the summer and we'll look forward touching base with you in July about mid summer.

Scott H. Baxter: Can you update on our progress and everything we talked about today, but again. Thank you for your participation today and we will talk to you soon.

Operator: Thank you. This does conclude today's teleconference. We appreciate your participation. You may disconnect at this time. Enjoy the rest of your day.

Speaker Change: Thank you. This does conclude today's teleconference. We appreciate your participation you may disconnect at this time and enjoy the rest of your day.

Operator: Okay.

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Operator: Yes.

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Operator: Yeah.