Kontoor Brands, Inc. Q2 FY2025 earnings call

Management Statement and Operational Highlights

• Wrangler: Strong quarter with 7% revenue growth, including 9% U.S. growth and 16% digital growth. Female business surpasses expectations, and bespoke platform scales. Hosted key activations at ACM Awards.
• Lee: Revenue declines improved sequentially, digital leads, brand repositioning campaign launching in September. Addressing distribution challenges in U.S., Europe, and Asia. Tom Waldron to leave Kontoor at end of September.
• Helly Hansen: Integration progressing well, commercial teams performing at high level. June results exceeded expectations, momentum into third quarter. Identified supply chain, IT, HR, finance synergies to exceed $15M synergy estimate. Value creation framework built on 4 pillars: accelerate growth, double operating margins, increase capital allocation optionality, establish as employer of choice.
• Future Plans: Planning Investor Day in first half of 2026 to share strategic vision, financial model, and value creation framework.

Segment Performance

• Wrangler: Had a strong quarter with revenue increasing 7%. This included 9% growth in the U.S. and 16% growth in digital. The female business performed well, and the bespoke platform is scaling. It drove 13th consecutive quarter of market share gains in men's and women's bottoms.
• Lee: Revenue declines sequentially improved. Digital led the growth, and the brand repositioning is ongoing. A brand equity campaign will launch in September, and efforts are being made to address distribution challenges in the U.S., Europe, and Asia.
• Helly Hansen: Global revenue in June was $29 million, with sport generating $17 million and workwear $9 million. The integration is progressing well, with commercial teams energized. June results exceeded expectations, and momentum carried into the third quarter. Expect to exceed prior synergy estimate of $15 million from supply chain, IT, HR, and finance synergies.

Guidance

• Revenue: Full year revenue expected to be $3.09B-$3.12B (19-20% growth), up from prior outlook. Helly Hansen contribution to $455M. Third quarter revenue expected ~$855M (28% growth).
• Gross Margin: Adjusted gross margin expected ~46.1% (high end of prior outlook 45.9%-46.1%). Third quarter adjusted gross margin expected ~45.5%.
• EPS: Adjusted EPS expected ~$5.45, up 11% from prior outlook. Helly Hansen contributed $0.12 loss per share, excluding Helly, adjusted EPS $1.33, up 36%.
• Synergies: Project Jeanius savings expected to mature to over $100M in 2026.

Risks

• Trade Policy: Uncertainty in trade policy, particularly tariffs, which could impact results. Need to mitigate via supply chain adjustments, pricing, and other proactive measures.

Question and Answer

Q: Joe, you raised the Helly Hansen revenue to $455 million. Can you tell us what the EBIT contribution is this fiscal year? And then just bigger picture, just on -- because you obviously don't have a full year of this. On an annualized basis, what is Helly currently run rating on revenue and EBIT?

A: So when we announced the transaction, we highlighted about $680 million of revenue for Helly and about $50 million of operating income. That really hasn't changed in terms of our expectations, but it's evolved a bit given the impact of tariffs, et cetera. I'd say when you look at our second half outlook and what's implied, we've got about $425 million of revenue assumed. That's up on a pro forma 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 '26.

Q: Mauricio on tariff mitigation, production transfer, pricing reaction A: Yes. So Mauricio, look, there's still quite a bit of uncertainty in terms of trade policy. We expect the environment to remain dynamic here. We feel like we're well prepared to respond to changes in the policy landscape as well as the impact of tariffs. So we've mitigated all but $15 million or about $0.20 of the $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 supply chain. So while we're not immune, at least in the short term, we do have the ability to mitigate the impact over a 12- to 18-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, et cetera, other initiatives to just help minimize the impact here. And we've got a broader set of initiatives as we move into '26 that will help us mitigate the impact to the business.

Q: Peter on Helly Hansen integration, growth tangibility A: 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. We think there's a big outdoor business. 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 2 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 got to 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 2 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. 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 in '26, and we'll go ahead and get that done in '25 into '26, and we'll get that done and will 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 + from all the different ones that I've done in my long career. Joe?

A: 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, 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 spring/summer next year. 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, et cetera. 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.