Kontoor Brands’ Earnings Call: Strong Growth Amid Challenges

Kontoor Brands’ recent earnings call paints a generally positive picture, highlighting strong performances from key brands like Helly Hansen and Wrangler. The company has made significant strides in improving its financial metrics and reducing debt. However, challenges persist, particularly with Lee’s revenue decline and increased inventory levels.

Helly Hansen Growth

Helly Hansen has been a standout performer, exceeding expectations with an impressive 11% revenue growth and contributing $0.03 to earnings accretion. The brand’s innovative designs have been recognized with six Red Dot Design awards, and it is on track for over 70% growth in China this year, underscoring its robust expansion strategy.

Wrangler Market Share Gains

Wrangler continues to strengthen its market position, marking its 14th consecutive quarter of market share gains. The brand reported a 1% increase in global revenue and a remarkable 12% growth in digital sales. Notably, Wrangler’s female business surged by 20%, and its Western segment grew by high single digits, reflecting its diverse appeal.

Improved Financial Outlook

Kontoor Brands has raised its full-year outlook, now expecting revenue to reach the upper end of $3.09 billion to $3.12 billion, representing a 19% to 20% increase. The company projects an adjusted gross margin of approximately 46.4% and anticipates adjusted earnings per share to hit $5.50, indicating a strong financial trajectory.

Debt Reduction

In a strategic move to strengthen its balance sheet, Kontoor Brands made an additional $25 million voluntary debt repayment in Q3. The company plans to further reduce debt by $185 million in Q4, aiming to achieve a net leverage ratio of approximately 2x by the end of the year.

Lee Revenue Decline

Lee’s global revenue faced a 9% decline, primarily due to proactive actions in China. Excluding these actions, the revenue decline was 4%. Despite these challenges, Lee’s digital sales in the U.S. grew by 15%, indicating potential areas for recovery.

Inventory Increase

Kontoor Brands experienced a 21% increase in inventory, excluding Helly Hansen, driven by supply chain transformation, higher tariffs, and earlier-than-expected product receipts. This increase poses challenges but also reflects the company’s proactive approach to managing supply chain dynamics.

Forward-Looking Guidance

Kontoor Brands has revised its full-year outlook upward, anticipating strong performance with global revenue expected to reach the high end of $3.09 billion to $3.12 billion. Helly Hansen is projected to contribute $460 million, and the company expects a gross margin of approximately 46.4% and adjusted EPS of $5.50. Operating cash flow is forecasted to approximate $400 million. The integration of Helly Hansen is progressing well, with expected synergies of over $25 million impacting profitability in 2026.

In summary, Kontoor Brands’ earnings call reflects a positive sentiment with strong performances from Helly Hansen and Wrangler, improved financial metrics, and a strategic focus on debt reduction. While challenges remain, particularly with Lee’s revenue decline and inventory levels, the company’s forward-looking guidance suggests a promising trajectory for future growth.