Kontoor Brands Q3 Earnings Call Highlights

Key Points

• Q3 results improved: Revenue from continuing operations rose 3% to $685 million, while adjusted EPS increased 40% to $1.50. The GAAP loss of $0.62 per share included a noncash $1.73-per-share charge tied to Helly Hansen intellectual property.
• Lee sale reshapes the company: Kontoor sold Lee for $698 million in net proceeds and is focusing on Wrangler and Helly Hansen. It plans $450 million in fourth-quarter share repurchases and $280 million in voluntary debt payments.
• Forecasts reflect uneven growth and lower cash flow: Kontoor expects 2026 revenue of about $2.68 billion and adjusted EPS of $5.40, but lowered its operating-income and cash-from-operations outlooks. It expects at least $6.60 in adjusted EPS in 2027, while anticipating moderate Wrangler trends and cautious retailer inventories.

Kontoor Brands NYSE: KTB reported higher third-quarter revenue and adjusted earnings as it completed the sale of its Lee business and shifted its focus to Wrangler and Helly Hansen. The company also announced plans for $450 million in fourth-quarter share repurchases and projected adjusted earnings of at least $6.60 per share for 2027.

Revenue from continuing operations rose 3% to $685 million in the third quarter, with both Wrangler and Helly Hansen recording 3% growth. Adjusted earnings per share increased 40% to $1.50. Unless otherwise noted, revenue growth figures discussed on the call were on a constant-currency basis.

Kontoor reported a loss of $0.62 per share from continuing operations under generally accepted accounting principles. The figure included a $1.73-per-share noncash charge associated with migrating Helly Hansen intellectual property.

Lee Sale Reshapes Portfolio and Capital Plans

Kontoor closed the sale of Lee to Authentic Brands Group on November 2, receiving $698 million in net proceeds, including working capital and other closing adjustments. The proceeds exclude tax on the gain, which the company expects to pay in the second quarter of 2027, and a potential $250 million earnout tied to Lee’s future performance under its new owner.

CEO and Chairman Scott Baxter said the transaction allows Kontoor to concentrate its resources on Wrangler and Helly Hansen. The company plans to use proceeds and free cash flow for $450 million in fourth-quarter share repurchases, including a $400 million accelerated program, and $280 million in voluntary debt payments.

President and CFO Joe Alkire said approximately $55 million of expenses previously allocated to Lee have been reclassified to continuing operations. He said transition service fees would offset about $30 million of those costs, with other cost actions expected to fully offset the structural burden over 12 to 18 months.

Wrangler Growth Moderates as Retailers Manage Inventory

Wrangler generated $485 million in third-quarter revenue, up 3%. U.S. revenue increased 2%, while international revenue rose 7%. Direct-to-consumer sales grew 7% in the U.S. and 26% internationally, with growth also supported by women’s products and new distribution.

Alkire said point-of-sale growth in men’s bottoms slowed from 3% through July to 1% in September. Inventory at Wrangler’s largest retail partners was down at a high-single-digit rate from a year earlier, affecting Kontoor’s shipments to those retailers.

For the fourth quarter, Kontoor expects Wrangler revenue growth of approximately 1%, reflecting softer point-of-sale trends and conservative retailer inventory management. Alkire said the outlook assumes no improvement in those trends from the third quarter and September, and that October results were in line with the outlook.

Baxter said the company is expanding Wrangler workwear distribution at Lowe’s and plans to add direct-to-consumer stores in Texas during 2027, including locations in Austin, Houston and El Paso.

Helly Hansen Expansion and Fourth-Quarter Outlook

Helly Hansen revenue rose 3% to $191 million in the third quarter. Sport revenue increased 2% to $147 million, while workwear revenue grew 4% to $44 million. Alkire said the brand’s year-to-date revenue rose 8% on a reported pro forma basis, ahead of Kontoor’s acquisition plan.

Kontoor continues to expect Helly Hansen revenue to grow approximately 5% in the fourth quarter, excluding the impact of an extra week in the prior-year period. Alkire said October performance was ahead of internal plans and that the outlook was supported by order-book visibility, current demand and expanded distribution.

Baxter said Helly Hansen products had begun arriving at Dick’s Sporting Goods’ House of Sport locations and would ultimately be available in 18 stores. He pointed to early snowfall in the western U.S. as a favorable development, while Alkire cautioned that the season remained early. About 80% of Helly Hansen’s second-half sport business is driven by orders already booked, Alkire said.

For 2030, Kontoor is targeting Helly Hansen revenue above $1.1 billion, double-digit annualized revenue growth, a doubling of the brand’s operating margin and more than $500 million in cumulative cash flow.

Updated Forecast Includes Higher Margins and Lower Cash Flow

For 2026, Kontoor expects revenue of approximately $2.68 billion and adjusted earnings of $5.40 per share, representing growth of about 12% and 31%, respectively. Adjusted gross margin is forecast at 50% to 50.2%, up 350 to 370 basis points from the prior year.

The company lowered its adjusted operating income outlook to approximately $400 million from a prior range of $413 million to $420 million. Alkire attributed the change primarily to $15 million in additional expenses previously allocated to Lee, largely offset by transition service fees that will be classified as other income.

Kontoor also reduced its forecast for total cash from operations to approximately $325 million from $450 million. Alkire attributed the change to approximately $50 million in additional inventory investment, about $50 million associated with lower Lee cash contributions and lost post-sale cash flow, and roughly $25 million in higher one-time separation costs.

For 2027, Kontoor expects at least $325 million in cash flow from continuing operations alongside its adjusted earnings floor of $6.60 per share. Alkire said the company expects growth in both brands but is planning for moderate Wrangler point-of-sale trends and conservative retail inventories through at least the first half of the year.

The company also expects approximately $30 million in incremental 2027 tariff expense if current Section 301 rates remain in effect, primarily in the first half. Alkire said pricing actions, Helly Hansen synergies and supply-chain efficiencies would help mitigate cost pressures.

About Kontoor Brands (NYSE:KTB)

Kontoor Brands, Inc NYSE: KTB is a global lifestyle apparel company focused on denim and casualwear. Its portfolio includes the Wrangler and Lee brands, as well as Rock & Republic, offering jeans, shirts, jackets, tops, bottoms, accessories and related products for men, women and children.

The company sells its products through wholesale customers, including department stores, specialty retailers and mass merchants, as well as through company-operated stores and e-commerce channels. Kontoor serves consumers in North America and international markets, with products distributed across multiple regions worldwide.

Kontoor Brands became an independent publicly traded company in 2019 following its separation from VF Corporation.

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