VF Corporation is expecting full-year revenue and earnings guidance at newly spun-off denim division Kontoor Brands to be lower year-on-year, as a result of operational actions related to the separation.
VF is expecting adjusted earnings before interest, taxes, depreciation and amortisation (adjusted EBITDA) to range between US$340m-360m, reflecting a mid-single-digit to low double-digit decline compared with full year 2018 adjusted EBITDA for the Kontoor Brands division.
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Kontoor Brands is made up of the Wrangler, Lee and Rock & Republic brands, and the VF Outlet business. Plans were announced last August to separate the group’s denim and outlet businesses in a move to allow VF Corp to sharpen its focus as a global clothing and footwear powerhouse focused on brands such as The North Face, Timberland and Vans.
The group says most of the forecast decline for the full year adjusted EBITDA relates to the three months ended 30 March, due primarily to inventory management and other operational actions taken prior to the planned separation. A number of customer bankruptcies are also expected to negatively impact full year adjusted EBITDA.
Guidance also sees full-year revenue exceeding $2.5bn, reflecting a mid-single-digit decline compared with full year 2018 adjusted revenue. The outlook includes an approximate 1 to 2 percentage point negative impact from foreign currency exchange rates.
Capital expenditures are forecast to range between $55-65m including around $30m to $40m to support the design and implementation of a global enterprise resource planning (ERP) system, which is expected to result in significant efficiencies and cost savings once fully implemented.
VF Corpalso issued its initial 2020 to 2021 outlook for Kontoor brands, in which revenue is expected to increase at a low single-digit compound annual growth rate (CAGR) over the period, which is consistent with the long-term outlook previously provided. Adjusted EBITDA is seen increasing at a mid-single-digit CAGR over the period; and capital expenditures are expected to range between $105m and $110m in aggregate over the period, including $80m-90m to support the design and implementation of the ERP system.
