Kontoor Brands shares have jumped 23% over the past month, but the stock is down by half for the year to date
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Anyone in the market for a pair of Lee or Wrangler jeans during the coronavirus pandemic could buy them in a store, something that can’t be said for a lot of apparel brands.
Kontoor Brands Inc., the parent company to denim brands Lee and Wrangler that was spun off from VF Corp. VFC, +2.16% in 2019, does more than half of its business with mass retailers Walmart Inc. WMT, +0.47% , Target Corp. TGT, +2.12% , Amazon.com Inc. AMZN, -1.78% and Kohl’s Corp. KSS, +6.27% As essential retailers, Walmart and Target remained open during COVID-19 lockdown periods.
Kohl’s closed its stores for a period, but has reopened locations.
And as an e-commerce retailer, Amazon not only continued to do business during the pandemic, but saw sales soar.
See:Amazon is making gains with older consumers as more people turn to e-commerce during COVID-19
Scott Baxter, Kontoor Brands’ chief executive, says the company is “winning with winners.”
“We have very limited mall-based, department store business,” Baxter told MarketWatch after the Kontoor earnings call on Thursday. “We’re global, direct-to-consumer, in strong mass retailers, and in the Western world.”
Also: Macy’s, Kohl’s suffer as brands, competitors and e-commerce step in to replace department stores
Kontoor labels are also found in Tractor Supply Co. TSCO, -0.02% , the rural lifestyle retailer where Baxter said the company’s clothes are work gear.
“It’s everyone’s favorite product because it’s so comfortable,” Baxter said, referring to jeans. “If you’re in the basics and casual business, you sit in a really good spot right now.”
Kontoor reported a sharp revenue decline in the second quarter, though revenue beat expectations.
Kontoor shares have soared more than 23% over the last month, though shares have been halved, down 50.4%, for the year to date. The S&P 500 index SPX, +0.06% has gained 3.7% for 2020 so far.
“Its mission is to transform Wrangler and Lee into global, direct-to-consumer, lifestyle brands from primarily U.S., wholesale, denim names,” wrote UBS analysts in a note. “We believe Kontoor Brands has the resources and management strength to make this happen.”
UBS rates Kontoor stock neutral and lifted its price target $1.50 to $21.50.
Stifel analysts led by Jim Duffy think the company might have too much dependence on those “retail winners.”
“Given debt levels, execution risk, and growing dependence on Walmart, we believe it appropriate to be valuation sensitive,” Stifel said.
Watch:Work from home is here to stay. Here’s what it means for retail
“Kontoor Brands maintains a strong foundational position in the $100 billion global jeanswear market and while growth fundamentals remain challenged, the Lee and Wrangler brands enable Kontoor to exhibit consumer staple-like attributes and to generate durable solid cash flows relative to peers.”
Stifel rates Kontoor stock hold and raised its price target $2 to $22.
Kontoor left the door open to reinstate the dividend in the fourth quarter, which appeals to Susquehanna Financial Group.
“Better-than-expected 2Q20 results demonstrate the company’s operational prowess. Sequential top- and bottom-line improvement is set to occur for the balance of FY20 as new programs are launched at key retail partners,” analysts led by Sam Poser wrote.
“Although the next six-to-12 months will be choppy, the current investments should bear fruit by mid-2021.”
Susquehanna rates Kontoor stock positive with a $30 price target.
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