Kontoor Brands Reports 2025 First Quarter Results; Updates 2025 Outlook

First Quarter 2025 Highlights

• Revenue of $623 million decreased 1 percent compared to prior year (flat on a constant currency basis)
• Reported gross margin was 47.5 percent. Adjusted gross margin of 47.7 percent increased 200 basis points compared to prior year
• Reported operating income was $73 million. Adjusted operating income of $96 million increased 4 percent compared to prior year. Adjusted operating income includes $8 million of incremental acquisition-related stock-based compensation expense
• Reported EPS was $0.76. Adjusted EPS of $1.20 increased 3 percent compared to prior year. Reported and adjusted EPS includes $0.11 of incremental acquisition-related stock-based compensation expense
• Inventory decreased 12 percent compared to prior year
• As previously announced, the Company's Board of Directors declared a regular quarterly cash dividend of $0.52 per share

Updated Full Year 2025 Outlook

• Outlook includes the expected revenue, earnings and cash flow contribution from Helly Hansen, which is expected to close in the second quarter of 2025
• Outlook does not include the anticipated impact from recently enacted changes in tariffs, which is estimated to be $50 million on an unmitigated basis, including the tariff impact of Helly Hansen
• Revenue now expected to be in the range of $3.06 to $3.09 billion, representing an increase of approximately 17 to 19 percent (including an approximate 16 percent benefit from Helly Hansen)
• Adjusted gross margin now expected to be in the range of 45.9 to 46.1 percent, representing an increase of 80 to 100 basis points compared to prior year (including a 40 basis point benefit from Helly Hansen)
• Adjusted operating income now expected to be in the range of $437 to $445 million, representing an increase of 15 to 17 percent compared to prior year (including an approximate $37 million benefit from Helly Hansen). Adjusted operating income includes $9 million of incremental acquisition-related stock-based compensation expense
• Adjusted EPS now expected to be in the range of $5.40 to $5.50, representing an increase of 10 to 12 percent compared to prior year (including an approximate $0.20 benefit from Helly Hansen). Adjusted EPS includes $0.13 of incremental acquisition-related stock-based compensation expense
• Cash from operations is expected to exceed $350 million, including the expected benefit from Helly Hansen

Kontoor Brands, Inc. (NYSE:KTB), a global lifestyle apparel company, with a portfolio led by two of the world's most iconic consumer brands, Wrangler^® and Lee^®, today reported financial results for its first quarter ended March 29, 2025.

"Our strong first quarter results reflect the operational agility that is a cornerstone of our business," said Scott Baxter, President, Chief Executive Officer and Chairman of the Board of Directors. "We continued to strengthen our brands, drive market share gains, and grow our presence across categories and channels of distribution. And, the strength of our gross margin drove strong underlying earnings growth, cash generation and further improvement in our returns on capital."

"We have navigated significant disruption over the past five years and have built an organization and operating model rooted in resiliency. Project Jeanius is underway and later this month we expect to welcome Helly Hansen to the Kontoor family, further enhancing our ability to generate long-term value for our shareholders. I want to thank our colleagues around the globe for their continued perseverance and commitment to strong execution amidst an increasingly dynamic environment," added Baxter.

First Quarter 2025 Income Statement Review

Revenue was $623 million and decreased 1 percent (flat in constant currency) compared to prior year. Global wholesale decreased 2 percent partially offset by 5 percent growth in global direct-to-consumer.

U.S. revenue was $493 million and was flat compared to prior year. Wholesale revenue decreased 1 percent. Direct-to-consumer increased 11 percent driven by a 17 percent increase in digital partially offset by a 4 percent decrease in brick-and-mortar retail.

International revenue was $130 million and decreased 7 percent (3 percent decrease in constant currency) compared to prior year. Wholesale decreased 8 percent (4 percent decrease in constant currency), and direct-to-consumer decreased 2 percent (1 percent increase in constant currency). Europe decreased 4 percent (2 percent decrease in constant currency), driven by a 3 percent decrease (flat in constant currency) in direct-to-consumer and a 4 percent decrease (2 percent decrease in constant currency) in wholesale. Asia decreased 3 percent, driven by a 1 percent decrease in direct-to-consumer and a 5 percent decrease (3 percent decrease in constant currency) in wholesale. Non-U.S. Americas decreased 18 percent (8 percent decrease in constant currency).

Wrangler brand global revenue was $420 million and increased 3 percent compared to prior year. Wrangler U.S. revenue increased 3 percent, driven by a 14 percent increase in direct-to-consumer and a 2 percent increase in wholesale. Wrangler international revenue was flat (4 percent increase in constant currency) compared to prior year, driven by a 2 percent increase (6 percent increase in constant currency) in wholesale offset by a 12 percent decrease (8 percent decrease in constant currency) in direct-to-consumer.

As expected, Lee brand global revenue was $200 million and decreased 9 percent compared to prior year. Lee U.S. revenue decreased 8 percent driven by a 9 percent decrease in wholesale partially offset by a 3 percent increase in direct-to-consumer. Lee international revenue decreased 11 percent (8 percent decrease in constant currency) driven by a 15 percent decrease (12 percent decrease in constant currency) in wholesale partially offset by a 1 percent increase (3 percent increase in constant currency) in direct-to-consumer.

Gross margin increased 230 basis points to 47.5 percent on a reported basis and increased 200 basis points to 47.7 percent on an adjusted basis compared to prior year. Adjusted gross margin expansion was driven by the benefits from lower product costs, Project Jeanius, supply chain efficiencies, and direct-to-consumer and product mix, partially offset by the carryover of targeted pricing actions taken in the prior year.

Selling, General & Administrative (SG&A) expenses were $222 million, or 35.7 percent of revenue on a reported basis. On an adjusted basis, SG&A expenses were $201 million, representing an increase of 3 percent compared to prior year driven by investments in demand creation, partially offset by a decrease in discretionary expenses. Reported and adjusted SG&A expense include $8 million of incremental acquisition-related stock-based compensation expense.

Operating income was $73 million on a reported basis. On an adjusted basis, operating income was $96 million and increased 4 percent compared to prior year. Adjusted operating margin of 15.4 percent increased 70 basis points compared to prior year. Reported and adjusted operating income include $8 million of incremental acquisition-related stock-based compensation expense.

Earnings per share (EPS) was $0.76 on a reported basis. On an adjusted basis, EPS was $1.20, representing an increase of 3 percent. Reported and adjusted EPS include $0.11 of incremental acquisition-related stock-based compensation expense.

Balance Sheet and Liquidity Review

The Company ended the first quarter with $357 million in cash and cash equivalents, and $736 million in long-term debt.

Inventory at the end of the first quarter was $443 million, representing a 12 percent decrease compared to prior year.

At the end of the first quarter, the Company had no outstanding borrowings under the Revolving Credit Facility and $494 million available for borrowing against this facility.

As previously announced, the Company's Board of Directors declared a regular quarterly cash dividend of $0.52 per share, payable on June 20, 2025, to shareholders of record at the close of business on June 10, 2025.

The Company returned $29 million to shareholders through dividends during the first quarter. The Company has $215 million remaining under its authorized share repurchase program.

Helly Hansen Acquisition Update

The Company has received all required regulatory approvals and expects the acquisition to close at the end of May 2025, subject to customary closing conditions.

The Company expects Helly Hansen to contribute approximately $425 million to 2025 revenue, approximately $37 million to 2025 adjusted operating income, and approximately $0.20 to 2025 adjusted EPS. Additionally, Helly Hansen is expected to contribute approximately $50 million to 2025 cash flow from operations.

As announced on April 8, 2025, the Company entered into a Second Amended and Restated Credit Agreement, a portion of which will be used to fund the acquisition of Helly Hansen while providing additional liquidity and capital structure flexibility. In April 2025, the Company entered into "floating to fixed" interest rate swap agreements to mitigate exposure to volatility in reference rates to the Company's future interest rate payments on indebtedness. The total notional amount of the Company's interest rate swap agreements was $700 million at April 2025.

Updated Full Year 2025 Outlook

The Company's outlook includes the expected revenue, earnings and cash flow contribution from the acquisition of Helly Hansen.

The Company's outlook does not include the impact from recently enacted changes in tariffs. Based on recently enacted tariff policy changes, the Company expects an estimated $50 million unmitigated impact to full year 2025 operating income, including the tariff impact of Helly Hansen. The Company does not anticipate an impact to second quarter operating income as a result of recently enacted changes in tariffs. And, the Company expects to begin to offset the $50 million unmitigated impact of recent tariff policy changes beginning in the third quarter of 2025 through a combination of targeted price increases, sourcing and production optimization within our global supply chain, inventory management, supplier partnerships and other initiatives. The Company expects to substantially offset the impact from recently enacted changes in tariffs over a 12 to 18 month period.

"Our outlook reflects the enhanced growth, earnings and cash flow profile of our portfolio, supported by the significant benefits of Project Jeanius and the expected addition of Helly Hansen," said Scott Baxter, President, Chief Executive Officer and Chairman of the Board of Directors. "We expect the near-term operating environment to remain volatile and tariff policy changes present a significant headwind to our business. However, with the team and strategy we have in place, we are well-positioned to successfully manage through this environment and emerge stronger. Our first quarter results were stronger than expected, and we remain on track to deliver the full year outlook we provided in February and have increased the expected contribution from Helly Hansen. We are focused on strengthening our brands, continuing to take market share, and delivering strong business fundamentals and operational execution. We are confident we are on a path to deliver strong long-term value for shareholders."

The Company's updated full year 2025 outlook includes the following assumptions:

• Revenue is now expected to be in the range of $3.06 to $3.09 billion, representing growth of approximately 17 to 19 percent compared to prior year. The Company expects Helly Hansen to contribute approximately $425 million to 2025 revenue, based on an end of May 2025 transaction closing.
  
  
  
  Excluding the impact of Helly Hansen, the Company expects full year 2025 revenue growth of approximately 1 to 2 percent. This compares to the prior outlook of 1 to 3 percent growth.
  
  
  
  The Company expects second quarter revenue of approximately $630 million, representing an increase of approximately 4 percent compared to prior year, including an anticipated $20 to $25 million contribution from Helly Hansen.

• Adjusted gross margin is now expected to be in the range of 45.9 to 46.1 percent, representing an increase of 80 to 100 basis points compared to the prior year.
  
  
  
  Excluding the impact of Helly Hansen, the Company expects adjusted gross margin to be in the range of 45.5 to 45.7 percent, representing gross margin expansion of 40 to 60 basis points. This compares to the prior outlook of 20 to 40 basis points of gross margin expansion.
  
  
  
  Excluding the impact of Helly Hansen, the Company expects first half 2025 gross margin expansion of approximately 100 basis points compared to its prior outlook of 10 to 20 basis points of gross margin expansion. The Company does not expect Helly Hansen to meaningfully impact second quarter gross margin.

• Adjusted SG&A is expected to increase approximately 20 percent compared to the prior year. Excluding the impact of Helly Hansen, the Company expects adjusted SG&A to increase at a low-single digit rate compared to the prior year, consistent with the prior outlook. Full year 2025 adjusted SG&A now includes $9 million of incremental acquisition-related stock-based compensation expense.

• Adjusted operating income is expected to be in the range of $437 to $445 million, representing an increase of 15 to 17 percent compared to the prior year. Excluding the impact of Helly Hansen, the Company expects adjusted operating income to be in the range of $400 to $408 million, representing an increase of 5 to 7 percent compared to prior year, consistent with the prior outlook. Full year 2025 adjusted operating income now includes $9 million of incremental acquisition-related stock-based compensation expense.

• Adjusted EPS is expected to be in the range of $5.40 to $5.50, representing an increase of 10 to 12 percent compared to the prior year. Excluding the impact of Helly Hansen, adjusted EPS is expected to be in the range of $5.20 to $5.30, representing an increase of 6 to 8 percent compared to the prior year, consistent with the prior outlook. Full year 2025 adjusted EPS now includes $0.13 of incremental acquisition-related stock-based compensation expense.
  
  
  
  The Company expects second quarter adjusted EPS of approximately $0.80, including the impact of Helly Hansen. The Helly Hansen business exhibits revenue and earnings seasonality. Historically, the second quarter has been Helly Hansen's smallest quarter of the year which has resulted in operating losses in that quarter.
  
  
  
  Excluding the impact of Helly Hansen, the Company expects second quarter adjusted EPS of $1.08, representing approximately 10 percent growth. The Company now expects first half adjusted EPS growth of approximately 7 percent. First half adjusted EPS now includes $0.12 of incremental acquisition-related stock-based compensation expense.

• Capital expenditures are expected to be approximately $45 million, including the impact of Helly Hansen.

• For the full year, the Company expects an effective tax rate of approximately 20 percent. Interest expense is expected to approximate $50 million. Adjusted other expense is expected to approximate $11 million. Average shares outstanding are expected to be approximately 56 million.

• The Company expects cash flow from operations to exceed $350 million, including the expected contribution from Helly Hansen.

This release refers to "adjusted" amounts from 2025 and 2024 and "constant currency" amounts, which are further described in the Non-GAAP Financial Measures section below. All per share amounts are presented on a diluted basis. Amounts as presented herein may not recalculate due to the use of unrounded numbers.

Webcast Information

Kontoor Brands will host its first quarter 2025 conference call beginning at 8:30 a.m. Eastern Time today, May 6, 2025. The conference will be broadcast live via the Internet, accessible at https://www.kontoorbrands.com/investors. For those unable to listen to the live broadcast, an archived version will be available at the same location.

Non-GAAP Financial Measures

Adjusted Amounts - This release refers to "adjusted" amounts. Adjustments during 2025 represent (i) acquisition-related costs associated with the acquisition of Helly Hansen and (ii) restructuring and transformation costs related to business optimization activities and actions to streamline and transfer select production within our internal manufacturing network. Adjustments during 2024 represent restructuring and transformation costs related to business optimization activities and actions to streamline and transfer select production within our internal manufacturing network. Additional information regarding adjusted amounts is provided in notes to the supplemental financial information included with this release.

Constant Currency - This release refers to "reported" amounts in accordance with GAAP, which include translation and transactional impacts from changes in foreign currency exchange rates. This release also refers to "constant currency" amounts, which exclude the translation impact of changes in foreign currency exchange rates.

Reconciliations of these non-GAAP measures to the most comparable GAAP measures are presented in the supplemental financial information included with this release that identifies and quantifies all reconciling adjustments and provides management's view of why this non-GAAP information is useful to investors. While management believes that these non-GAAP measures are useful in evaluating the business, this information should be viewed in addition to, and not as an alternate for, reported results under GAAP. The non-GAAP measures used by the Company in this release may be different from similarly titled measures used by other companies.

For forward-looking non-GAAP measures included in this filing, the Company does not provide a reconciliation to the most comparable GAAP financial measures because the information needed to reconcile these measures is unavailable due to the inherent difficulty of forecasting the timing and/or amount of various items that have not yet occurred and have been excluded from adjusted measures. Additionally, estimating such GAAP measures and providing a meaningful reconciliation consistent with the Company's accounting policies for future periods requires a level of precision that is unavailable for these future periods and cannot be accomplished without unreasonable effort.

About Kontoor Brands

Kontoor Brands, Inc. (NYSE:KTB) is a global lifestyle apparel company, with a portfolio led by two of the world's most iconic consumer brands: Wrangler^® and Lee^®. Kontoor designs, manufactures, distributes, and licenses superior high-quality products that look good and fit right, giving people around the world the freedom and confidence to express themselves. Kontoor Brands is a purpose-led organization focused on leveraging its global platform, strategic sourcing model and best-in-class supply chain to drive brand growth and deliver long-term value for its stakeholders. For more information about Kontoor Brands, please visit www.KontoorBrands.com.

Forward-Looking Statements

Certain statements included in this release and attachments are "forward-looking statements" within the meaning of the federal securities laws. Forward-looking statements are made based on our expectations and beliefs concerning future events impacting the Company and therefore involve several risks and uncertainties. You can identify these statements by the fact that they use words such as "will," "anticipate," "estimate," "expect," "should," "may" and other words and terms of similar meaning or use of future dates. We caution that forward-looking statements are not guarantees and that actual results could differ materially from those expressed or implied in the forward-looking statements. We do not intend to update any of these forward-looking statements or publicly announce the results of any revisions to these forward-looking statements, other than as required under the U.S. federal securities laws. Potential risks and uncertainties that could cause the actual results of operations or financial condition of the Company to differ materially from those expressed or implied by forward-looking statements in this release include, but are not limited to: macroeconomic conditions, including elevated interest rates, moderating inflation, fluctuating foreign currency exchange rates, global supply chain issues and inconsistent consumer demand, continue to adversely impact global economic conditions and have had, and may continue to have, a negative impact on the Company's business, results of operations, financial condition and cash flows (including future uncertain impacts); the level of consumer demand for apparel; reliance on a small number of large customers; potential difficulty in completing the acquisition of Helly Hansen, in successfully integrating it and/or in achieving the expected growth, cost savings and/or synergies from such acquisition; supply chain and shipping disruptions, which could continue to result in shipping delays, an increase in transportation costs and increased product costs or lost sales; intense industry competition; the ability to accurately forecast demand for products; the Company's ability to gauge consumer preferences and product trends, and to respond to constantly changing markets; the Company's ability to maintain the images of its brands; changes to trade policy, including tariffs, reciprocal tariffs and import/export regulations; disruption and volatility in the global capital and credit markets and its impact on the Company's ability to obtain short-term or long-term financing on favorable terms; the Company maintaining satisfactory credit ratings; restrictions on the Company's business relating to its debt obligations; increasing pressure on margins; e-commerce operations through the Company's direct-to-consumer business; the financial difficulty experienced by the retail industry; possible goodwill and other asset impairment; the ability to implement the Company's business strategy; the stability of manufacturing facilities and foreign suppliers; fluctuations in wage rates and the price, availability and quality of raw materials and contracted products, including as a result of tariffs and reciprocal tariffs; the reliance on a limited number of suppliers for raw material sourcing and the ability to obtain raw materials on a timely basis or in sufficient quantity or quality; disruption to distribution systems; seasonality; unseasonal or severe weather conditions; potential challenges with the Company's implementation of Project Jeanius; the Company's and its vendors' ability to maintain the strength and security of information technology systems; the risk that facilities and systems and those of third-party service providers may be vulnerable to and unable to anticipate or detect data security breaches and data or financial loss or maintain operational performance; ability to properly collect, use, manage and secure consumer and employee data; legal, regulatory, political and economic risks; the impact of climate change and related legislative and regulatory responses; stakeholder response to sustainability issues, including those related to climate change; compliance with anti-bribery, anti-corruption and anti-money laundering laws by the Company and third-party suppliers and manufacturers; changes in tax laws and liabilities; the costs of compliance with or the violation of national, state and local laws and regulations for environmental, consumer protection, employment, privacy, safety and other matters; continuity of members of management; labor relations; the ability to protect trademarks and other intellectual property rights; the ability of the Company's licensees to generate expected sales and maintain the value of the Company's brands; volatility in the price and trading volume of the Company's common stock; anti-takeover provisions in the Company's organizational documents; and fluctuations in the amount and frequency of our share repurchases. Many of the foregoing risks and uncertainties will be exacerbated by any worsening of the global business and economic environment.

More information on potential factors that could affect the Company's financial results are described in detail in the Company's most recent Annual Report on Form 10-K and in other reports and statements that the Company files with the SEC.

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