Kontoor Brands Q2 2025 Earnings Report

Kontoor Brands EPS Results

• Actual EPS: $1.21
• Consensus EPS: $0.86
• Beat/Miss: Beat by +$0.35
• One Year Ago EPS: $0.98

Kontoor Brands Revenue Results

• Actual Revenue: $658.26 million
• Expected Revenue: $632.97 million
• Beat/Miss: Beat by +$25.29 million
• YoY Revenue Growth: +8.50%

Kontoor Brands Announcement Details

• Quarter: Q2 2025
• Date: 8/7/2025
• Time: Before Market Opens
• Conference Call Date: Thursday, August 7, 2025
• Conference Call Time: 8:30AM ET

Kontoor Brands (NYSE:KTB), a lifestyle apparel company, designs, produces, procures, markets, distributes, and licenses denim, apparel, footwear, and accessories, primarily under the Wrangler and Lee brands. The company operates through two segments: Wrangler and Lee. It licenses and sells apparel under the Rock & Republic brand name. The company sells its products primarily through mass merchants, specialty stores, mid-tier and traditional department stores, company-operated stores, and online. It operates in the Americas, Europe, the Middle East, Africa, and the Asia-Pacific regions. Kontoor Brands, Inc. was incorporated in 2018 and is headquartered in Greensboro, North Carolina.

Kontoor Brands Q2 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Kontoor Brands delivered a strong Q2 performance, raising its full-year revenue outlook to $3.09–3.12 billion and reiterating EPS guidance at the midpoint despite ongoing uncertainty.
• Positive Sentiment: The Helly Hansen integration is progressing well, with June revenue above expectations, full-year contribution now slated at $455 million, and synergies rising above $20 million to support margin expansion.
• Positive Sentiment: Wrangler reported 7% revenue growth in Q2, including a 16% digital surge, 15% DTC increase and 13th consecutive quarter of market share gains (+70 bps), driven by talent, product and demand-creation investments.
• Neutral Sentiment: Lee’s turnaround remains on track with sequentially improving sales, a 9% gain in U.S. digital, and a September launch of a new equity campaign alongside targeted U.S. mid-tier and APAC distribution optimizations.
• Negative Sentiment: Heightened reciprocal tariffs (30% on China imports, 20% elsewhere) are expected to cut operating profit by about $15 million in 2025, partially offset via pricing, supply-chain shifts and other mitigation measures over 12–18 months.

Presentation

[Operator]

Greetings and welcome to the Kontoor Brands Second Quarter twenty twenty five Earnings Conference Call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Michael Karapidean, Vice President, Corporate Development and Enterprise Strategy and Investor Relations. Thank you, sir. You may begin.

[Michael Karapetian, VP - Corporate Development, Strategy & IR at Kontoor Brands]

Thank you, operator, and welcome to Kontoor Brands' second quarter twenty twenty five 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 Karapetian, VP - Corporate Development, Strategy & IR at Kontoor Brands]

Amounts referred to on today's call will often be on an adjusted dollar basis, which we clearly define in the news release that was issued earlier this morning and is available on our website at contourbrands.com. Reconciliations of GAAP measures to adjusted amounts can be found in the supplemental financial tables included in today's news release. 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 constant currency, which exclude the translation impact of changes in foreign currency exchange rates. Joining me on today's call are Kontoor Brands' President Chief Executive Officer and Chairman, Scott Baxter and Chief Financial Officer and Global Head of Operations, Joe Alkire.

[Michael Karapetian, VP - Corporate Development, Strategy & IR at Kontoor Brands]

Following our prepared remarks, we will open the call for questions. Scott?

[Scott Baxter, President, CEO and Chair at Kontoor Brands]

Thanks, Mike, and thank you all for joining us today. Our strong second quarter results exceeded expectations. Wrangler growth accelerated, the lead turnaround is on track and Helly Hansen performed above plan. Our performance highlights the significant opportunities from our expanded brand portfolio with greater consumer, geographic and channel diversification than we've ever had. In our first quarter as a combined company, we are off to a great start.

[Scott Baxter, President, CEO and Chair at Kontoor Brands]

Based on our better than expected first half results and improving visibility, we are raising our revenue outlook and reiterating our full year earnings outlook at the midpoint. Now including tariffs and incremental demand creation investments. While the environment remains uncertain, we are entering the second half of the year from a position of strength. Let me start with an update on Helly Hansen. First, the integration is progressing well.

[Scott Baxter, President, CEO and Chair at Kontoor Brands]

On the front end, the commercial teams are energized and performing at a high level. June results exceeded expectations, and this momentum has carried into the third quarter, supported by a strong product pipeline and accelerating order book. To build on this momentum, we are creating the investment roadmap to accelerate growth. We see significant opportunities in The U. S.

[Scott Baxter, President, CEO and Chair at Kontoor Brands]

Through a combination of wholesale and retail expansion as well as investments in product innovation, category expansion and demand creation to increase brand awareness. Helly is also underpenetrated in key accounts, and we are developing plans to unlock new channels of distribution starting in 2026. Product and category expansion is another significant opportunity for Helly Hansen. The strong connection with the professional community has been a differentiator since its founding. These partnerships have made us number one in sailing, a global leader in ski apparel and now provide a platform for expansion into outdoor.

[Scott Baxter, President, CEO and Chair at Kontoor Brands]

These platforms are driving the strength we see in the business today and into next year. Within Workwear, we are driving growth across three strategic categories: construction, high visibility and footwear. Product segmentation along a clear good, better, best framework underpins our go to market approach. This has contributed to consistent growth over the past decade. Over the near term, we are expanding our lightweight and cooling platforms to increase penetration in southern climates.

[Scott Baxter, President, CEO and Chair at Kontoor Brands]

In addition, we are scaling our HH Connect system, which provides unrivaled customization. This innovation has been an incredible success since launching in early twenty twenty four. On the back end, we are leveraging our global platforms to drive greater scale and efficiency. While Helly has been executing at a high level on its own, we are more confident than ever it will see significant benefits under our ownership as a more synergistic global brand operator. We have identified opportunities across supply chain, IT, HR and finance.

[Scott Baxter, President, CEO and Chair at Kontoor Brands]

These will materialize over time, and we will now expect to exceed our prior run rate synergy estimate of $15,000,000 which is not yet included in our outlook. As we discussed last quarter, our value creation framework is now built on four pillars: accelerate growth, double Helly's operating margins, increase capital allocation optionality and establish Kontoor as the employer of choice in the industry. We're off to a tremendous start and I could not be more excited about the opportunities ahead. Now let's review highlights from Q2. Wrangler had another strong quarter.

[Scott Baxter, President, CEO and Chair at Kontoor Brands]

Revenue increased 7%, including 9% growth in The U. And 16% growth in digital. Our female business continues to surpass expectations, and we are in chase mode for many styles. Our investments in talent, product development and demand creation are generating healthy returns. As an example, Bespoke continues to be a tremendous success, driving strong digital growth while increasing our penetration in specialty retail.

[Scott Baxter, President, CEO and Chair at Kontoor Brands]

We will continue to scale this platform in the second half of this year. We also hosted key activations at the ACM Awards alongside the biggest stars of country music, including Lainie Wilson, who for the second year in a row won Entertainer of the Year, as well as awards for Female Artist and Album of the Year. Our connection to Western culture is deeply rooted in Wrangler's DNA, and we see that translate to the sales momentum we have consistently demonstrated. During the quarter, our Western business grew mid single digits. Combined with strength in our core denim business, Wrangler drove its thirteenth consecutive quarter of market share gains as measured by Surcana in our men's and women's bottoms business.

[Scott Baxter, President, CEO and Chair at Kontoor Brands]

We gained 70 basis points of market share. Wrangler has had an excellent first half of the year. Wholesale revenue grew mid single digits and D2C grew 11%, including 15% growth in digital and 3% growth in brick and mortar. The team is executing on all fronts and I am confident we will deliver a strong finish to the year. Turning to Lee, as expected, revenue declines sequentially improved as our brand repositioning unfolds.

[Scott Baxter, President, CEO and Chair at Kontoor Brands]

Digital continues to lead the way. Our U. S. Business grew high single digits in the quarter. Our refreshed creative vision is generating results with brand equity, purchase intent and brand favorability all increasing.

[Scott Baxter, President, CEO and Chair at Kontoor Brands]

This is translating to increased revenue on our own digital platform as well as our wholesale partners. To support this momentum, we will be launching our brand equity campaign in September. Built on Lee's authority addendum, it speaks to the strength and quality that has defined the brand for more than one hundred and thirty five years, now reimagined for today's younger generation. Test results have been very encouraging, and we are excited to bring the new vision to life ahead of the holiday season. We are also addressing existing distribution challenges.

[Scott Baxter, President, CEO and Chair at Kontoor Brands]

We are being more deliberate within The U. S. Mid tier and have identified growth opportunities that are better aligned with lease refreshed brand positioning. We are also evaluating opportunities to optimize distribution in Europe and Asia. Progress will not be linear and it will take time to do it right, but we are confident the turnaround is on track.

[Scott Baxter, President, CEO and Chair at Kontoor Brands]

Finally, as we announced last week, Tom Waldron will be leaving Kontoor at the September. Would like to thank Tom for his contributions to Wrangler and Lee for almost thirty years. This is a bittersweet moment and I wish him the best as he pursues new opportunities. Before turning it over to Joe, let me reiterate the confidence we have in achieving our '25 plan. Wrangler has significant momentum.

[Scott Baxter, President, CEO and Chair at Kontoor Brands]

Lee is on track and the integration of Helly Hansen is progressing well. After an uneven start to the year, trends have improved and we are seeing this momentum carry into the third quarter. The environment remains uncertain, but we are executing at a high level and have meaningful opportunity to create shareholder value. We are also excited to share that we are planning an Investor Day in the 2026. This will provide a great opportunity to share the strategic vision for our brand portfolio, the power of our improving financial model and the significant optionality that underpins our value creation framework.

[Scott Baxter, President, CEO and Chair at Kontoor Brands]

We will share more details in the coming months, but I am confident we are on path to drive strong value for our shareholders. Joe?

[Joe Alkire, EVP, CFO & Global Head of Operations at Kontoor Brands]

Thanks, Scott, and thank you all for joining us today. Our second quarter results highlight the power of our operating model. While the environment remains dynamic, I am confident we have the right team, strategy and brand portfolio to create significant value for our shareholders in the years ahead. Now let's review our second quarter results. Global revenue increased 8%, including a four point benefit from the contribution from Helly Hansen.

[Joe Alkire, EVP, CFO & Global Head of Operations at Kontoor Brands]

By brand, Wrangler global revenue increased 7%. In The U. S, revenue increased 9% driven by 16% growth in DTC and 8% growth in wholesale. Growth was broad based including continued market share gains, category expansion and solid growth in Western. Following the slowdown in February, POS trends have rebounded and increased at a mid single digit rate in the second quarter with trends further accelerating in July.

[Joe Alkire, EVP, CFO & Global Head of Operations at Kontoor Brands]

Wrangler international revenue decreased 6% driven by a 6% decrease in wholesale partially offset by a 4% increase in brick and mortar retail. Turning to Elite. Global revenue decreased 6% and was in line with our expectations as the turnaround remains on track. U. S.

[Joe Alkire, EVP, CFO & Global Head of Operations at Kontoor Brands]

Revenue decreased 5% driven by a decline in wholesale, partially offset by 9% growth in digital. We are encouraged by the continued strength we are seeing in our digital business, where we have seen momentum continue into the third quarter with revenue up double digits quarter to date. Lee International revenue decreased 6% with declines in wholesale offsetting low single digit growth in DTC. We are taking further action in APAC to establish a stronger foundation from which to grow the business. While these actions will have a near term impact on revenue in the second half of the year, we are confident these actions better position the brand and our retail partners for sustainable growth moving forward.

[Joe Alkire, EVP, CFO & Global Head of Operations at Kontoor Brands]

Now turning to Helly Hansen. Global revenue of $29,000,000 in June exceeded our outlook of 20,000,000 to $25,000,000 Sport and Workwear revenue was $17,000,000 and $9,000,000 respectively. On a standalone basis, Helly Hansen revenue growth was slightly above our expectations in the second quarter. Revenue growth has further accelerated into the third quarter as we expect the growth rate of the business to continue to accelerate in the second half of the year. Now moving to the remainder of the P and L.

[Joe Alkire, EVP, CFO & Global Head of Operations at Kontoor Brands]

Adjusted gross margin expanded 120 basis points to 46.4%, driven by the benefits of Project Genius, lower input costs and mix. In addition, Helly Hansen was accretive by about 20 basis points. We exceeded our gross margin plan due to earlier than expected benefits from Project Genius, a stronger gross margin contribution from Helly Hansen and lower product costs. Adjusted SG and A expense was $2.00 $6,000,000 up 6% compared to prior year. Excluding Helly Hansen, adjusted SG and A expense decreased 5% driven by prudent management of discretionary expenses, Project Genius and lower distribution and freight, partially offset by investments in demand creation.

[Joe Alkire, EVP, CFO & Global Head of Operations at Kontoor Brands]

We remain focused on expense management and driving further improvements in operating efficiency in light of the environment. And adjusted earnings per share was $1.21 increasing 23% compared to prior year. Helly Hansen contributed a $0.12 loss per share compared to our outlook of a $0.28 loss per share. Excluding Helly Hansen, adjusted EPS was $1.33 and increased 36% compared to prior year. Turning to the balance sheet.

[Joe Alkire, EVP, CFO & Global Head of Operations at Kontoor Brands]

Inventory increased 40% to $686,000,000 Excluding Helly Hansen, inventory decreased 1% to $482,000,000 as we continue to drive improvements in net working capital. Over the near term, we are focused on improving Helly's working capital and inventory turnover to increase cash generation and accelerate debt repayment. We are harmonizing processes for planning, procurement, product development and inventory management. And we will begin to leverage our global supply chain capabilities, including our supply chain and AR financing programs, which will be a significant unlock for the business. We are pleased with the quality and composition of our inventory and will continue to manage working capital prudently.

[Joe Alkire, EVP, CFO & Global Head of Operations at Kontoor Brands]

Excluding Helly, we expect inventory to increase at a high single digit rate in the third quarter, driven primarily by our growth expectations as well as Project Genius related operational transitions within the supply chain. We expect inventory growth to normalize in the fourth quarter with our days on hand projected to remain consistent with prior year levels. We finished the quarter with net debt or long term debt less cash of 1,300,000,000.0 and $107,000,000 of cash on hand. On a pro form a basis, our net leverage ratio or net debt divided by trailing twelve month adjusted EBITDA was 2.5 times. During the quarter, we made a voluntary $25,000,000 debt repayment.

[Joe Alkire, EVP, CFO & Global Head of Operations at Kontoor Brands]

And finally, on a trailing twelve month basis, adjusted return on invested capital was greater than 30% excluding Helly Hansen. We now anticipate returning to approximately two times net leverage by year end and back to pre acquisition leverage by the 2026, reflecting our expectations of stronger cash generation. Our $500,000,000 revolver remains undrawn. And share repurchase activity remains on pause near term as we focus on paying down acquisition related debt and reducing leverage. We have $215,000,000 remaining under our current share repurchase authorization.

[Joe Alkire, EVP, CFO & Global Head of Operations at Kontoor Brands]

And as previously announced, our Board declared a regular quarterly cash dividend of $0.52 per share. Before moving to our outlook, let me provide an update on tariffs. Our full year outlook now includes the estimated impact of higher tariffs, net of mitigating actions. This includes transferring production within our global supply chain, pricing increases, inventory management, supplier partnership initiatives and other proactive mitigating actions. We started implementing a portion of these initiatives at the beginning of the third quarter with additional measures expected in 2026.

[Joe Alkire, EVP, CFO & Global Head of Operations at Kontoor Brands]

We have assumed a 30% reciprocal tariff on all China imports and a 20% reciprocal tariff on all other countries from which we source product, with the exception of Mexico. Based on currently available information, Mexico remains exempt under USMCA. At these levels, the anticipated net impact to operating profit in 2025 is approximately $15,000,000 or about $0.20 per share. We expect trade policy to continue to evolve and remain highly dynamic. That said, our supply chain is a competitive advantage.

[Joe Alkire, EVP, CFO & Global Head of Operations at Kontoor Brands]

While we are not immune from the impact of higher tariffs, we remain confident we can substantially offset the impact of the business within a twelve to eighteen month period. Now let's review our updated outlook. Full year revenue is now expected to be in the range of 3,090,000,000.00 to $3,120,000,000 representing growth of 19% to 20% compared to our prior outlook of 17% to 19% growth. L. Hansen is now expected to contribute $455,000,000 to full year revenue compared to our prior outlook of $425,000,000 Our outlook includes the impact of a fifty third week, which is not expected to meaningfully impact revenue on a full year basis.

[Joe Alkire, EVP, CFO & Global Head of Operations at Kontoor Brands]

Excluding Helly Hansen, we expect revenue growth of 1% to 2%, including approximately 2% to 3% growth for the balance of the year, including the impact of the fifty third week. We continue to plan the business conservatively. For Wrangler and Lee, our updated outlook assumes no meaningful change in POS trends or retail inventory positions for the balance of the year. This is consistent with our prior outlook. For Helly Hansen, our revenue outlook is supported by current demand trends in the fallwinter twenty twenty five order book, which accounts for the majority of Sport revenue.

[Joe Alkire, EVP, CFO & Global Head of Operations at Kontoor Brands]

For the third quarter, we expect revenue of approximately $855,000,000 representing growth of 28%, including the expected contribution from Helly Hansen. Moving to gross margin. Adjusted gross margin is now expected to be approximately 46.1% at the high end of our prior outlook of 45.9% to 46.1%. Our outlook represents an increase of approximately 100 basis points compared to gross margin of 45.1% in 2024. Our full year outlook now includes the impact of higher tariffs net of mitigating actions.

[Joe Alkire, EVP, CFO & Global Head of Operations at Kontoor Brands]

We expect third quarter adjusted gross margin of approximately 45.5%, representing an increase of approximately 50 basis points compared to prior year. Adjusted SG and A is expected to increase approximately 24%, reflecting the contribution from Helly Hansen and an incremental $15,000,000 of demand creation and other investments relative to our prior outlook. We are entering the second half of the year with strong momentum. We will continue to manage the business prudently, but believe we have an opportunity to capitalize on marketplace disruption and the strength of our brands and drive increased investment in support of our growth initiatives. Our investment priorities are unchanged.

[Joe Alkire, EVP, CFO & Global Head of Operations at Kontoor Brands]

And with the addition of Helly Hansen, we see significant opportunities to accelerate growth through geographic, category and channel expansion. Excluding Helly, we expect SG and A to increase at a low single digit rate on an adjusted basis consistent with our prior outlook and including the demand creation and other investments previously discussed. We continue to anticipate Project Genius savings to mature to a full run rate in excess of $100,000,000 in 2026. Adjusted EPS is now expected to be approximately $5.45 representing an increase of 11%. This compares to our prior outlook in the range of $5.4 to $5.5 Our outlook now includes about a $0.20 impact from higher tariffs and approximately $0.20 of incremental demand creation and other investments compared to our prior outlook.

[Joe Alkire, EVP, CFO & Global Head of Operations at Kontoor Brands]

Kelly Hansen is expected to continue to benefit full year 2025 adjusted EPS by approximately $0.20 including the impact of higher tariffs consistent with our prior outlook. The integration is progressing well and we now have line of sight to greater than $20,000,000 of synergies compared to our prior estimate of more than $15,000,000 We have not included any synergy benefit in our outlook at this point in the year. We expect third quarter adjusted EPS of approximately 1.35 L. Hansen is expected to be breakeven from an earnings standpoint as strong accretion from the operations of the business is offset by acquisition related interest expense. Our third quarter outlook includes the impact of higher tariffs and the incremental investments previously discussed.

[Joe Alkire, EVP, CFO & Global Head of Operations at Kontoor Brands]

Finally, we continue to expect another year of strong cash generation. Cash from operations is expected to exceed $375,000,000 including the contribution from Helly Hansen. This compares to our prior outlook for cash from operations to exceed $350,000,000 Before opening it up for questions, I want to reiterate the confidence we have in achieving our 2025 objectives. We are entering the second half of the year with momentum. Our teams are executing at a high level and our expanded brand portfolio and strong operating model provides multiple paths to drive revenue and earnings growth.

[Joe Alkire, EVP, CFO & Global Head of Operations at Kontoor Brands]

As we move into 2026, we expect our capital allocation optionality to be significant, supported by strengthening cash flow and accelerated debt repayment. While tariff headwinds will likely remain, we have multiple levers within our supply chain combined with scaling Project Genius savings to mitigate the impact to the business. We are operating from a position of strength, and I am confident we are on a path to create significant value for our shareholders in the years ahead. This concludes our prepared remarks. I will now turn the call back to the operator.

[Operator]

Thank you. We will now be conducting a question and answer session. Our first question comes from the line of Ike Boruchow with Wells Fargo. Please proceed with your question.

[Ike Boruchow, MD & Senior Analyst - Retailing, Specialty Softlines & E-commerce at Wells Fargo]

Hey, good morning everyone. Congrats on the good results. Two from me, I think both for Joe. But the first question is basically, Joe, you raised the Helly Hansen revenue to $455,000,000 Can you tell us what the EBIT contribution is this fiscal year? And then just bigger picture just on it because you obviously don't have a full year of this.

[Ike Boruchow, MD & Senior Analyst - Retailing, Specialty Softlines & E-commerce at Wells Fargo]

On an annualized basis, what is Helly currently run rating on revenue and EBIT?

[Joe Alkire, EVP, CFO & Global Head of Operations at Kontoor Brands]

Yes. Hey, good morning, Ike. So when we announced the transaction, we highlighted about $680,000,000 of revenue per Helly and about $50,000,000 of operating income. That really hasn't changed in terms of our expectations, but it's evolved a bit given the impact of tariffs, etcetera. I'd say when you look at our second half outlook and what's implied, we've got about $425,000,000 of revenue assumed.

[Joe Alkire, EVP, CFO & Global Head of Operations at Kontoor Brands]

That's up on a pro form a basis in the high single digit range. And certainly, we've got the order book to support that. From an earnings accretion standpoint, there's roughly $0.32 of accretion implied in the second half and that includes a pretty meaningful drag from the acquisition related interest expense, right? So that will begin to abate as we move into 2026.

[Ike Boruchow, MD & Senior Analyst - Retailing, Specialty Softlines & E-commerce at Wells Fargo]

Got it. And then that was kind of my next question. There's a lot of moving pieces with the interest expense and your plan for debt pay down and half a year of Helly or 75% of a year of Helly. I guess it just might be helpful Joe if you could give us some kind of initial shape of '26 with kind of the main question being the growth rate that you think can be sustained on the core, the the algo that you're using for Helly. And then just kinda if you can wrap roll it up.

[Ike Boruchow, MD & Senior Analyst - Retailing, Specialty Softlines & E-commerce at Wells Fargo]

And then the main question being, like, can you expand from the corporate margin that you're at right now in the low 14s because obviously Helly is a lower margin business. Just can you continue to do you think the operating margin of the KTB business continues to move higher next year? Just any puts and takes at a high level would be great.

[Joe Alkire, EVP, CFO & Global Head of Operations at Kontoor Brands]

Yes. So look, certainly appreciate the question given the moving pieces to the story. I'd say on Helly big picture, we expect high single digit growth over time and we expect to double their operating margins, right? Certainly synergies will be a part of that. We increased the synergy target.

[Joe Alkire, EVP, CFO & Global Head of Operations at Kontoor Brands]

This quarter we've got a couple months under our belt. And as we work more closely with that team, the list of synergies is growing. So, that's how I would think about Helly. I'd say for the company in total, we're not giving a 26% outlook today, but I'll give you a high level framework. I mean, barring a major slowdown in macro environment, we expect the organic business to grow next year.

[Joe Alkire, EVP, CFO & Global Head of Operations at Kontoor Brands]

That will be largely driven by Wrangler. We expect 2026 to be a transition year for Lee, but we certainly expect continued improvement from the brand. We said we expect to substantially offset the impact of tariffs over a twelve to eighteen month period. Certainly, the tariff headwind will be bigger in 2026. You've got a full year plus a 20% reciprocal versus 10% a couple of months ago.

[Joe Alkire, EVP, CFO & Global Head of Operations at Kontoor Brands]

But we've got more time to respond. We've got more levers to pull and we'll do so accordingly. Certainly Project Genius, you have those benefits scaling. We talked about approaching a full run rate as we move across 2026. And then you've got capital allocation.

[Joe Alkire, EVP, CFO & Global Head of Operations at Kontoor Brands]

We're generating a lot of cash. We're repaying debt more quickly. So again, we like where we are. We like our model. We've got a lot of optionality to drive accelerated growth and returns. So hopefully that's helpful. Thanks, Joe.

[Operator]

Our next question comes from the line of Mauricio Serno with UBS. Please proceed with your question.

[Mauricio Serna, Executive Director at UBS Group]

Great. Good morning. Thanks for taking my question. I guess, could you elaborate a little bit more on the cadence for the second half revenue growth? I think if you do the math, it's like 31% in the third quarter and then it accelerates to how well yes, so maintaining 30% and then accelerate sorry, it's like 28% and accelerates then to 38%.

[Mauricio Serna, Executive Director at UBS Group]

So just trying to understand what's driving that acceleration in the fourth quarter. And then on Lee, could you elaborate a little bit more about you talked about some opportunities with distribution and some actions in APAC to clean up like the business? Maybe could you talk a little bit more about what's happening in that part of the business? Thank you.

[Scott Baxter, President, CEO and Chair at Kontoor Brands]

Joe, you want to take the first one and then you and I will do the second one?

[Joe Alkire, EVP, CFO & Global Head of Operations at Kontoor Brands]

Sure, Scott. So Mauricio, yes, on the back half, we gave you the revenue outlook for the third quarter of $855,000,000 You've got the full year, so you can back into the fourth quarter. I'd say in terms of the fourth quarter weighting, there's really two things. We've got a fifty third week in terms of the organic business And Helly's business is more weighted toward the fourth quarter, as well. So that's really what's driving the Q3, Q4, cadence.

[Joe Alkire, EVP, CFO & Global Head of Operations at Kontoor Brands]

Scott, you want to start with China and then I'll come behind you.

[Scott Baxter, President, CEO and Chair at Kontoor Brands]

Yes, can start with China. We've taken some actions to improve our inventory position and also most importantly to go ahead and strengthen our broad base of retailers that we have there in our partner base. We think it's the right thing to do going forward. And I'll tell you the specific reason for that is because our product is so good moving forward that we have a real great opportunity to do that. So we really like the team, and we really like the strategy that we have right there going forward right now. Joe?

[Joe Alkire, EVP, CFO & Global Head of Operations at Kontoor Brands]

Yes. Mauricio, we've been working on this for about eighteen months to really reestablish the foundation in China for lead. It's part of the brand's global approach to the turnaround. I'd say our results have improved over the past year, but certainly more work to be done in that market remains highly dynamic, as you know. So these actions are really, the next set of initiatives to strengthen our presence in the marketplace, establish a stronger foundation and set us up for more sustainable growth going forward with our retail partners.

[Joe Alkire, EVP, CFO & Global Head of Operations at Kontoor Brands]

So no change to the significant opportunity we see in China longer term. As Scott said, we've got a strong team on the ground and I'd say we're more confident in our approach going forward than we've been in the last couple of years.

[Scott Baxter, President, CEO and Chair at Kontoor Brands]

Then Mauricio, you asked a little bit about domestically. I wanted to go ahead and make sure we answered your question there. So we talked about sequentially improving over time, which we have again this quarter. The product looks really good. Here's the key, though.

[Scott Baxter, President, CEO and Chair at Kontoor Brands]

We're starting to see it from a digital standpoint where we touch the customer immediately. So you've seen our performance improve there. And now we're going to supplement that with our first big campaign that we've had, our first big equity campaign in a very, very long time, well over a decade. It's really a good campaign. We're really pleased with it.

[Scott Baxter, President, CEO and Chair at Kontoor Brands]

We'll back that up with really strong product, and then we'll start to go ahead and enhance our distribution as it relates to our new product introductions and also the campaign for the consumer that we're working with going forward in the future. So we do see a really nice runway going there going forward, but we're doing it in incremental steps. What's really happening right now is there's been a lot of work on this brand and a big thank you and shout out to the team over the last eighteen months, and now you're starting to see that all fall into place. So stay tuned. Much more of the story to come in the future, and we will make sure that we keep you updated on all of it going forward.

[Mauricio Serna, Executive Director at UBS Group]

Very helpful. Just a quick follow-up on the tariff commentary. Maybe could you elaborate on the two of the initiatives that you're doing to mitigate? Just particularly interested in hearing what you're doing in terms of transfer and production, like where are you moving things around? And I think you guys talked about before you talked about some selective price increases.

[Mauricio Serna, Executive Director at UBS Group]

What has been like the reaction or you know, from from consumers and from your wholesale partners from from those pricing actions? Thank you.

[Scott Baxter, President, CEO and Chair at Kontoor Brands]

Joe, you want to take the

[Joe Alkire, EVP, CFO & Global Head of Operations at Kontoor Brands]

first Yes, I take the second part. Yes, sure. Can take this. So Mauricio, look, there's still quite a bit of uncertainty in terms of trade policy. We expect the environment to remain dynamic here.

[Joe Alkire, EVP, CFO & Global Head of Operations at Kontoor Brands]

We feel like we're well prepared to respond to changes in policy landscape as well as the impact of tariffs. So we've mitigated all but 15,000,000 or about $0.20 of the $0.25 impact. Pricing is a piece of that. Scott will touch on that in a moment. But one of our competitive strengths is our global diversified

[Joe Alkire, EVP, CFO & Global Head of Operations at Kontoor Brands]

So while we're not immune, at least in the short term, we do have the ability to mitigate the impact over a twelve to eighteen month period and we remain committed to that. So pricing is part of a holistic strategy. Moving production around is part of a holistic strategy. We called out supplier partnerships, cost sharing, etcetera, other initiatives to just help minimize the impact here. And we've got a broader set of initiatives as we move into 2026 that will help us mitigate the impact to the business.

[Scott Baxter, President, CEO and Chair at Kontoor Brands]

Yes. Just Joe good job, Joe. Just a quick comment. I think the single most important thing relative to how we've transitioned as an organization versus the past is, Mauricio, our brands are just in a much stronger competitive position. So you look at the strength of Wrangler and how it's, you know, just working with their consumer and you look at the strength of Helly Hansen, our latest acquisitions, you look at how we're building Lee back up, we're in a much better position from a pricing standpoint going forward.

[Scott Baxter, President, CEO and Chair at Kontoor Brands]

We just are doing a much better job. So we're being real strategic about it and real smart about it. And Joe talked a little bit about how we're going about it. So I feel real confident that we're priced correctly in the marketplace and we'll continue to work with our consumers and customers going forward. But feel really good about where

[Mauricio Serna, Executive Director at UBS Group]

we are right now. Great. Thanks so much.

[Operator]

Our next question comes from the line of Paul Carney with Barclays. Please proceed with your question.

[Paul Kearney, VP - Equity Research at Barclays]

Good morning. Thanks for taking my question. Sorry, but just a clarifying question on the tariff impact. So the press release cites a $30,000,000 tariff impact. Last quarter, you spoke to a $50,000,000 unmitigated impact.

[Paul Kearney, VP - Equity Research at Barclays]

Is that $30,000,000 number net of both mitigation efforts and higher rates since then? And as we look to next year, what is a good full year run rate impact from tariffs? And when do you expect to be able to fully mitigate that impact? Thank you.

[Joe Alkire, EVP, CFO & Global Head of Operations at Kontoor Brands]

Hey, Paul. Good morning. Scott, I'll take this one. So the $30,000,000 that we called out in the release that's now included in the outlook. There are two pieces to that.

[Joe Alkire, EVP, CFO & Global Head of Operations at Kontoor Brands]

First piece is a $15,000,000 tariff impact that's fully mitigated. So that's the hit to earnings this year as a result of tariffs now that our mitigating actions are in place. The other $15,000,000 includes increased investments mainly around demand creation for our brands. That's now included in our outlook. So that's the $30,000,000 In terms of the tariff impact, Paul, I mean, quantified $50,000,000 of unmitigated a quarter ago.

[Joe Alkire, EVP, CFO & Global Head of Operations at Kontoor Brands]

That assumed a 10% reciprocal rate. We now have a 20% reciprocal rate, but our mitigating actions are now fully embedded. So the net of all that is a $15,000,000 impact to 2025.

[Paul Kearney, VP - Equity Research at Barclays]

Great. Thank you. And if you could also just comment on maybe just on the Wrangler business specifically. And I know you're priced appropriately, but what are the conversations with the retailers? How are they managing inventory levels in the channel?

[Paul Kearney, VP - Equity Research at Barclays]

And just anything that you can add for the outlook for the remainder of your own Wrangler? Thank you.

[Scott Baxter, President, CEO and Chair at Kontoor Brands]

I'll start Joe and you can chime in. Our Wrangler business continues to really thrive and it's because the team has done the right thing from a coordination effort around our brand, around product, around our marketing campaigns, around the folks that we're working with like Eleni Wilson. Our interactions and our conversations with our customer are really significantly great right now. They want our product. They wanna showcase our product.

[Scott Baxter, President, CEO and Chair at Kontoor Brands]

They want our product in the front of their stores. Our women's business is doing really well, which has complemented a strong men's business that we've had for a very long time. We've introduced some things that have just they've exceeded our expectations like Bespoke because the product is just so good, and it's just resonating, you know, with females around the country. So we're in a really good position there. Western is doing really well.

[Scott Baxter, President, CEO and Chair at Kontoor Brands]

You know, it's a it's a lifestyle, and it's a lifestyle that's here to stay and that's, you know, continuing to thrive. And and we're really investing in that culture through rodeos and things like that and some of our entertainers. So the product pipeline looks really good. The future looks really good. Our marketing campaigns look good and our relationships with our customers and consumers from a digital standpoint are in really in a really good place right now. Joe, anything to add?

[Joe Alkire, EVP, CFO & Global Head of Operations at Kontoor Brands]

Yes. Paul, I'd say that the outperformance in the second quarter on the top line was really driven by strength in Wrangler. And we saw POS improve. So you'll recall February was slow. We saw trends improve into March, April.

[Joe Alkire, EVP, CFO & Global Head of Operations at Kontoor Brands]

We saw POS further accelerate, into May and June. And we've seen that strength continue into July, that's after our pricing went into effect. And, you know, to Scott's point, the growth has been fairly broad based. It's been wholesale. It's been D2C.

[Joe Alkire, EVP, CFO & Global Head of Operations at Kontoor Brands]

It's been female, etcetera. So we're in a really, really good place with the Wrangler brand as we move into the second half. Appreciate the answers. Best of luck. Thank you.

[Scott Baxter, President, CEO and Chair at Kontoor Brands]

Thanks Paul.

[Operator]

Our next question comes from the line of Peter MacGoldrick with Stifel. Please proceed with your question.

[Peter McGoldrick, Vice President at Stifel Financial]

Hey, thanks for taking my question. I'm interested in the Helly Hansen opportunity. As you begin the integration process, I'm curious what you're seeing today relative to at the beginning of the acquisition process. Are there any parts of the business where you feel better about the tangibility of growth or profitability opportunities?

[Scott Baxter, President, CEO and Chair at Kontoor Brands]

Yes. So I'll go ahead and start, Peter. Peter, after doing a lot of these through the years and having some experience here, there's one thing that always gives you incredible apprehension. So you know we bought a great brand with a really good business model with a really nice opportunity. And one of the strategic reasons that we bought the brand is because there was a big North American opportunity, and we know the business, and we think there's a big outdoor business.

[Scott Baxter, President, CEO and Chair at Kontoor Brands]

But when you go into these, you have to really get the culture right. And one of the things that's been really important to us is make sure that our two cultures are working together. And I've been blown away by the culture at HH and how it fit our culture and how well they're working together. I gotta tell you, I'm really impressed with the talent at Helly Hansen, how easy these folks are to work with, how quickly they get it, and how our two businesses have emerged together in a very, very short period of time. We've got really good product coming out, and there's a big opportunity here from an outdoor standpoint, from a workwear standpoint, from a footwear standpoint, and we think we can get after that in a pretty elegant way going forward.

[Scott Baxter, President, CEO and Chair at Kontoor Brands]

We've got a couple of key hires to make here from a president standpoint and from some key hires in North America, but we knew that from the very beginning. It's part of our plan here 2026, and we'll go ahead and get that done in 2025 into 2026, and we'll get that done and put us in a really enviable position going forward. But I think it all starts with the culture, and then you've got really great product. We're telling some great stories and the teams are working really well together. I would tell you I give this an A to an A plus from all the different ones that I've done in my long career. Joe?

[Joe Alkire, EVP, CFO & Global Head of Operations at Kontoor Brands]

Yes. Peter, I think just in terms of growth in the building blocks, I mean, we've got high single digit growth in the back half. It's fairly broad based. It's sport. It's workwear.

[Joe Alkire, EVP, CFO & Global Head of Operations at Kontoor Brands]

It's wholesale. It's D2C. It's fairly broad from a geographic standpoint. We've got the order book in hand. We're starting to get visibility into springsummer next year.

[Joe Alkire, EVP, CFO & Global Head of Operations at Kontoor Brands]

That's looking pretty strong as well. And then from a margin standpoint, you can see what we've embedded in the second half of this year that really doesn't impact synergies yet, that doesn't reflect some of the opportunities we see. Just as we begin to work more closely with that team and the discipline and rigor we're going to put around the planning process, the inventory process, etcetera. And I think one of the most attractive things about this is as they plug into our machine, there were many growth investments that they were having to make on their own that they now do not have to make because it's already built, right? So that growth will come at a really accretive rate as we move forward.

[Peter McGoldrick, Vice President at Stifel Financial]

All right. Thank you. And then just thinking about the opportunities in the domestic market, I'm curious how we should think of the expanding domestic representation? Where will the consumer see Helly Hansen showing up more strongly? And from the investment community standpoint, where should we expect the growth to come from, within the distribution established distribution, new distribution?

[Scott Baxter, President, CEO and Chair at Kontoor Brands]

So I think it starts with the fact that they already have a fairly decent base. But now you're going to layer on the machine that we're going to help them with from a digital standpoint here domestically, and we've already started that process. You're going to go ahead and layer on the fact that we've got a nice D2C engine that we're going to help them with. They've got a nice series of D2C stores, but we see an opportunity to open more stores here over the next few years as we go ahead and continue to fine tune that model. And then from a product standpoint, we think there's a big opportunity in outdoor.

[Scott Baxter, President, CEO and Chair at Kontoor Brands]

And that will relate to the current business that they have right now in sport and the current business that they have in sailing. We think that consumer all kind of navigates to the same area and shops in a very similar pattern. You'll see us in some of the more outdoor specialty opportunities. And you'll see us continue to go ahead and invest on the mountain because we think on the mountain is going to bring us, you know, a lot of halo effect going down. So we kind of have a lot of opportunities in a few different spaces where we need to go ahead and invest and prioritize in those.

[Scott Baxter, President, CEO and Chair at Kontoor Brands]

But I think the single most important thing is we see years of opportunity and years of growth, and that is again why we made the acquisition. Now the other interesting part about this business is the workwear piece of this business, which has a minimal impact here in The U. S, but we think there's incredible innovation in the workwear business globally that we haven't seen here in The United States. And Helly is going to allow us to go ahead and bring that into this huge workwear environment in a pretty significant way. So we think there's a real nice opportunity from a footprint standpoint there also, leading with really innovative and technology innovative type product.

[Scott Baxter, President, CEO and Chair at Kontoor Brands]

So lots to come, but a really nice opportunity here domestically going forward for a long time.

[Peter McGoldrick, Vice President at Stifel Financial]

Thank you very much.

[Operator]

Our next question comes from the line of Brook Roach with Goldman Sachs. Please proceed with your question.

[Brooke Roach, VP - Equity Research at Goldman Sachs]

Good morning and thank you for taking our question. Scott, was hoping you could contextualize the magnitude and the timing of some of the additional marketing investments that you're making both in your core and also in Helly Hansen and the results that you expect to drive as you make those investments?

[Scott Baxter, President, CEO and Chair at Kontoor Brands]

Sure. Let's go ahead and start with Wrangler. We've made, as you know, significant investments in Wrangler through the years, and you're gonna see us continue to do that. You're gonna see us continue in the, next few years to invest more money behind that big engine and that big big machine. And I'll tell you why.

[Scott Baxter, President, CEO and Chair at Kontoor Brands]

It's really simple. We believe in the people that are doing it. They're doing an excellent job. They're making really great choices. Lainie Wilson's a great example, making great choices from a product standpoint.

[Scott Baxter, President, CEO and Chair at Kontoor Brands]

We just recently brought some new entertainers onto our platform. So a lot of great decision making is happening in Wrangler that's helping us to drive our business, so we're gonna go ahead continue investing there. Now I will tell you we haven't done as good a job as we need to from the lead's perspective, but we're starting that. We are kicking off and it's really interesting. We're kicking off a a huge campaign.

[Scott Baxter, President, CEO and Chair at Kontoor Brands]

Haven't haven't done that in a very long time. You know, shame on us. But now we're gonna do it, and we've got the product to back it up. So so that's what took so long. When you think about these big turnarounds that happened, you have to put all those components and pieces in place a year, a year and a half ago.

[Scott Baxter, President, CEO and Chair at Kontoor Brands]

So you've got to build your product engine in a sophisticated way. You got to put the team in place. You got to start thinking about your distribution. You got to thinking about where you're going to place your bets. So we've done all that work, and now the team has put some really good work into the equity campaign.

[Scott Baxter, President, CEO and Chair at Kontoor Brands]

And we're gonna invest behind that. We're not gonna do all that work and not go ahead and show it and invest it and make sure that everyone sees it. And then it's a nice investment in our digital piece there too, and that's probably where I'm most encouraged. I'm encouraged by the fact that we've been investing in the digital component, the D2C component from a marketing standpoint, and we're seeing the customer really attract to that. So that's been really important.

[Scott Baxter, President, CEO and Chair at Kontoor Brands]

And then we really like what Helly has done from the standpoint of in the European, the Canadian, you know, the international markets in a in a really, really strong way. But we think that we can help them here understand this consumer domestically a little bit better and help them from that standpoint. And that work is, being undertaken right now. And Joe talked about it, and you heard him talk about the investment that we're making in the businesses right now because our business is just so strong. It's a enviable position to be in to be able to invest back in your businesses during these times.

[Brooke Roach, VP - Equity Research at Goldman Sachs]

That's really great. Thank Brooke,

[Joe Alkire, EVP, CFO & Global Head of Operations at Kontoor Brands]

from a cadence standpoint, a disproportionate amount of the $15,000,000 investment will hit the third quarter. That's why you see the earnings growth a little more muted than what you otherwise would expect. We're doing that very deliberately in front of the important holiday season.

[Brooke Roach, VP - Equity Research at Goldman Sachs]

And then just finally for me, Joe, can you give us any quantification of the benefit that you're getting from incremental distribution opportunity in the core in the back half of this year?

[Joe Alkire, EVP, CFO & Global Head of Operations at Kontoor Brands]

Yes. Brooke, growth for the core business in the second half is approximately 2% to 3%. The big drivers of that are the fifty third week as well as the new programs and the distribution that we've talked about. From an underlying POS inventory perspective, we really haven't assumed any change relative to where we've been. And July was has been running ahead of those assumptions.

[Joe Alkire, EVP, CFO & Global Head of Operations at Kontoor Brands]

So we have assumed a moderation August into September. We just we're a little cautious here on the consumer.

[Brooke Roach, VP - Equity Research at Goldman Sachs]

Great. Thanks so much. I'll pass it on.

[Scott Baxter, President, CEO and Chair at Kontoor Brands]

Thanks, Brooke.

[Operator]

Our next question comes from the line of Laurent Vasilescu with BNP Paribas. Please proceed with your question.

[Laurent Vasilescu, MD & Senior Equity Analyst at Exane BNP Paribas]

Good morning. Thank you very much for taking my question. I wanted to ask Joe, what is the Healy Hansen revenue contribution for the third quarter, so that we can actually calculate the organics for 3Q? Thank you.

[Joe Alkire, EVP, CFO & Global Head of Operations at Kontoor Brands]

Hey, Laurent. I would think of something in that $175,000,000 kind of range.

[Laurent Vasilescu, MD & Senior Equity Analyst at Exane BNP Paribas]

Okay. Thank you very much, Joe. And then, Joe, we've seen a lot of vendors so far report and see report kind of shift from 3Q into 2Q, which makes sense ahead of August tariffs. Curious to know if you saw any shift from 3Q to 2Q because you have a large U. S. Wholesale business.

[Joe Alkire, EVP, CFO & Global Head of Operations at Kontoor Brands]

Yes. We really didn't see that Laurent. I think we thought that might be the case as we were moving through June and saw trends accelerate a little bit. But things have further accelerated in July. So we really don't think timing has been a big driver for us meaningful impact to us.

[Laurent Vasilescu, MD & Senior Equity Analyst at Exane BNP Paribas]

Okay. Thank you very much. And then last question is FX has moved quite a lot as of late. Should we assume I I think it's like one to two point benefit from FX relative to ninety days ago, particularly, I think what I'd like to, you know, really hone in on is just like Healyhampton, I you could disclose it's 60% Europe. Just like to understand what what is the FX gain on a full year for the guide relative to what ninety days ago?

[Joe Alkire, EVP, CFO & Global Head of Operations at Kontoor Brands]

Yep. So on a combined basis, currency is not a material impact. We've been helped a little bit on the translation side. That's mostly Heli related. We've been hurt a bit on the transaction side.

[Joe Alkire, EVP, CFO & Global Head of Operations at Kontoor Brands]

That's mostly peso related, given our manufacturing presence in Mexico. But part of the increase in the Heli outlook is currency, but we've also seen strengthening in terms of the underlying business profile.

[Laurent Vasilescu, MD & Senior Equity Analyst at Exane BNP Paribas]

That's great. Thank you so much for all the color and best of luck with the rest of the quarter.

[Joe Alkire, EVP, CFO & Global Head of Operations at Kontoor Brands]

Thanks Laura.

[Operator]

Thank you. We have no further questions at this time. Mr. Baxter, I'd like to turn the floor back over to you for closing comments.

[Scott Baxter, President, CEO and Chair at Kontoor Brands]

Thank you. I just wanted to say thank you to everyone. Thank you to the team. We had a great quarter. We're working really hard.

[Scott Baxter, President, CEO and Chair at Kontoor Brands]

It's heads down, driving results and look forward to sharing those with you upcoming here in the fall. Have a wonderful rest of the summer and thank you for all your support. We greatly appreciate it. Have a nice day everyone. Thanks.

[Operator]

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.

Participants

Executives

• Michael Karapetian, VP - Corporate Development, Strategy & IR
• Scott Baxter, President, CEO and Chair
• Joe Alkire, EVP, CFO & Global Head of Operations

Analysts

• Ike Boruchow, MD & Senior Analyst - Retailing, Specialty Softlines & E-commerce at Wells Fargo
• Mauricio Serna, Executive Director at UBS Group
• Paul Kearney, VP - Equity Research at Barclays
• Peter McGoldrick, Vice President at Stifel Financial
• Brooke Roach, VP - Equity Research at Goldman Sachs
• Laurent Vasilescu, MD & Senior Equity Analyst at Exane BNP Paribas