Kontoor Brands, Inc. (KTB) Earnings

Management highlights

### Strategic Portfolio Priorities - Post-Lee divestiture, Contour will sharpen focus on two core brands: Wrangler as a balanced grower, and Helly Hansen as the primary growth engine - Helly Hansen integration is tracking ahead of plan after one year under Contour ownership; 600 bps of operating margin expansion has been achieved in the first half of 2026, reaching 7%, with deleverage progressing faster than planned - Project Genius cost cutting initiative is on track to exceed $100 million in total gross savings, and will be followed by a permanent always-on cost excellence program to fund future growth investments ### Wrangler Operational Updates - Core Western business grew low double digits in the first half, and new material innovation (Tough Flight jeans) launched at a premium price point to drive further growth - Female Wrangler revenue grew 20% YoY in the first half, and the business will now be operated separately from men's with a dedicated general manager to capture its large untapped market opportunity (currently only 10% of Wrangler revenue, while women represent 50% of the U.S. denim market) - DTC expansion is underway: after a successful flagship store in Fort Worth, Texas, two additional Texas locations have been secured for opening in early 2027, with plans to test, learn, and scale a focused full-price retail fleet; digital investments include AI upgrades, improved site experience, and an expanded loyalty program - Gained 100+ bps of market share in core bottoms in Q2, marking the 17th straight quarter of share gains ### Helly Hansen Operational Updates - The business is being split into two distinct commercial organizations for sport and workwear to increase focus on each category, with a newly hired General Manager for North American sport - Growth priorities include expanding geographic penetration in the U.S. and European Alps, extending the brand from core ski/sailing to year-round technical outdoor, and scaling the already profitable European workwear business into the large U.S. market - First half revenue grew low double digits, outperforming the original high single-digit outlook, and inventory management improvements have increased full-price selling, boosting margins ### Divestiture and Capital Allocation - Lee divestiture to ABG is on track to close in Q4 2026, with all milestones cleared and a smooth transition process - Majority of net divestiture proceeds will fund a new $400 million accelerated share repurchase (ASR), with the remainder used for voluntary debt paydown - Year-to-date 2026, Contour has returned $130 million to shareholders, including $75 million in share repurchases, and expects to return over $900 million total capital in 2026 through repurchases, dividends, and debt payments - Net deleveraging is tracking ahead of plan, with a target net leverage ratio below 1.5x by end of 2026

Guidance

- Full year 2026 revenue guidance is maintained at $2.66–$2.71 billion, with second half 2026 revenue expected to reach $1.46–$1.51 billion, reflecting mid-single-digit growth for both Wrangler and Helly Hansen after adjusting for the 53rd week in 2025 - Full year adjusted gross margin guidance was raised to 49.8–50.0% (up from 48.3–48.5% prior), representing 330–350 bps of YoY expansion, driven by stronger-than-expected year-to-date results and higher accretion from Helly Hansen - Full year adjusted SG&A is expected to increase ~23% YoY, including a full year of Helly Hansen expenses and $25 million in additional incremental brand building and growth investments compared to the prior outlook - Full year adjusted operating income guidance was increased slightly to $413–$420 million (up from $411–$418 million prior), representing 15–17% YoY growth - Full year adjusted EPS guidance was raised to $5.25–$5.35 (up from $5.15–$5.25 prior), representing 27–29% YoY growth - 2026 operating cash flow is expected to approximate $450 million, including the contribution from Lee (discontinued operations), and the company expects to hit its sub-1.5x net leverage target by end of 2026 - No 2027 specific guidance is provided, but management confirms Helly Hansen growth will accelerate in 2027, and the Lee divestiture is expected to be immaterial to EPS on a 12–18 month basis

Segment performance

Contour Brands reported overall Q2 2026 adjusted revenue of ~$585 million, with first half 2026 total revenue of $1.2 billion (up 31% YoY). Adjusted gross margin for Q2 was 53.8% (up 710 bps YoY), and adjusted EPS was $1.06 (up 13% YoY). 1. **Wrangler**: Q2 2026 global revenue increased 1% YoY; U.S. revenue grew 1% (DTC +9%, wholesale flat), while international revenue grew 8% (DTC +27%, wholesale +4%). First half 2026 global revenue was up ~3% YoY, with double-digit growth in the female and Western categories, and 17 consecutive quarters of market share gains in core bottoms. Wrangler contributes ~80% of total segment revenue for the core continuing portfolio. 2. **Helly Hansen**: Q2 2026 consolidated global revenue was $114 million (up 6% YoY pro forma, mid-single-digit constant currency growth). Sport revenue was $70 million, with strong growth in the U.S., Nordics, and European Alps; Workwear revenue was $37 million, with broad growth across the U.S. and European Alps, and robust e-commerce growth. Excluding the unconsolidated China JV (which grew ~70% YoY in Q2), pro forma total growth including the JV reaches mid-teens. First half 2026 pro forma revenue grew 12% YoY, outperforming the original high single-digit outlook, and Helly Hansen delivered its first ever positive operating profit in its seasonally smallest Q2, with a $0.06 per share loss that was well ahead of expectations. Helly Hansen contributes ~20% of total continuing portfolio revenue. 3. **Lee**: Lee is classified as discontinued operations pending completion of its divestiture, which is on track to close in Q4 2026.

Risks & headwinds

- Ongoing macroeconomic volatility and conservative inventory management among large retail partners have kept wholesale sell-in growth relatively low, with inventory levels at retail still down high single to low double digits and characterized as suboptimal - Global trade policy and tariffs remain dynamic: after the invalidation of IEPA and Section 122 tariffs, new 10–12.5% Section 301 tariffs are now in effect on imports from most major trading partners, with China and Vietnam facing the 12.5% rate; no receivable has been recorded for potential Section 122 tariff refunds pending ongoing litigation - The company carries a ~$0.55 per share overhang of stranded costs from the Lee divestiture that will take 12–18 months to fully offset - Helly Hansen aided awareness in the U.S. is ~30%, well below peer levels, requiring significant incremental investment to build brand presence - All forward-looking statements are subject to inherent uncertainties that could cause actual results to differ materially from expectations, as detailed in SEC filings

Analyst Q&A

• Q: How do you plan to use upside from strong performance to accelerate top and bottom line portfolio growth, and what is the biggest incremental opportunity post-Lee divestiture?

  A: Management notes strong momentum for both brands, with new distribution wins including Wrangler at Lowe's Home Improvement and Helly Hansen at Dick's Sporting Goods House of Sport (opening in October 2026 in 18 doors). The biggest incremental opportunity is that after the Lee divestiture closes in Q4, the entire leadership team will be 100% focused on growing Wrangler, with all resources already invested to accelerate this focus.

• Q: How notable is Helly Hansen's first ever positive Q2 operating profit, and how do you view 2027 EPS power after the Lee divestiture, given the current Street expectations?

  A: The positive Q2 profit is a meaningful milestone driven by Contour's platform improvements in sourcing, logistics, and inventory planning, plus better full-price selling, reduced promotions, and realized synergies. This gives management increased confidence in the mid-teens operating margin target. For 2027, after offsetting the 55 cent per share stranded cost overhang and the lost 90 cent per share Lee earnings via the $400 million ASR and debt paydown, pro forma run-rate EPS will land in the $6.70–$6.80 range, with further upside from accelerated growth at Wrangler and Helly Hansen, making the Lee divestiture immaterial to EPS over 12–18 months as previously guided.

• Q: What drove the better-than-expected gross margin inflection that led to raised guidance, and when will Helly Hansen top-line acceleration begin?

  A: The largest driver of the gross margin upside is stronger-than-expected performance from Helly Hansen, plus Project Genius savings and favorable channel/product mix. Heli is expected to add over 100 bps of full-year accretion, with Project Genius and mix adding over 200 bps combined. Helly Hansen is in the early innings of multi-year growth; 2026 demand was largely set prior to the acquisition, but growth will accelerate in 2027, with early 2027 order books already showing positive trends. Full details will be shared at the September Helly Hansen Investor Day.

• Q: How is inventory positioned given retail caution, and can you update on Wrangler wholesale trends?

  A: Total inventory is down 3% YoY despite 19% revenue growth, with all of the improvement coming from Helly Hansen (which is buying to order book with no speculation), while Wrangler inventory is flat and in good shape. Wrangler POS continues to grow low to mid-single-digit, with consistent share gains, but retailers remain very cautious about inventory commitments, keeping sell-in relatively flat. Wrangler's mid-single-digit back-half growth is driven by visible new distribution (including Lowe's), continued growth in female, DTC, and Western, with no assumption of improvement in retail inventory levels.