Kontoor Brands 2025 Q1 Earnings Misses Targets as Net Income Falls 28%

Kontoor Brands (KTB) reported its fiscal 2025 Q1 earnings on May 06th, 2025. Kontoor Brands' first-quarter results fell short of analyst expectations, with net income decreasing by 28%, resulting in adjusted earnings per share of $1.20, surpassing expectations by $0.04. Despite these results, the company raised its full-year guidance, anticipating a 17% to 19% revenue increase, primarily driven by the upcoming Helly Hansen acquisition. This acquisition is expected to bolster revenue by $425 million, contributing positively to the company's long-term financial outlook.

Revenue

Kontoor Brands saw a decline in total revenue by 1.3%, reaching $622.90 million in Q1 2025 compared to the previous year. The Wrangler segment led the performance with revenues totaling $420.25 million, showing resilience amid challenging conditions. Lee contributed $199.90 million, experiencing a downturn. Other revenue streams accounted for $2.75 million, culminating in net revenues of $622.90 million.

Earnings/Net Income

Kontoor Brands' EPS dropped by 28.0%, reaching $0.77 in 2025 Q1 compared to $1.07 in 2024 Q1. The company's net income also decreased to $42.88 million, marking a 27.9% decline from the previous year. The decline in EPS reflects challenges faced by the company in maintaining profitability amid revenue contractions.

Price Action

The stock price of Kontoor Brands has climbed 4.19% during the latest trading day, has climbed 6.32% during the most recent full trading week, and has jumped 11.63% month-to-date.

Post-Earnings Price Action Review

Over the past five years, the strategy of purchasing Kontoor Brands (KTB) shares following a quarterly revenue drop and holding for 30 days resulted in a modest return of 0.76%, significantly lagging the benchmark by 82.36%. The strategy yielded a compound annual growth rate (CAGR) of only 0.15%, revealing its inability to match market performance and its exposure to considerable risk, evidenced by a maximum drawdown of -26.03%. The Sharpe ratio of 0.01 further illustrates the strategy's risk profile, indicating minimal risk-adjusted returns. Investors have observed that this approach fails to capitalize on market opportunities and struggles to mitigate the inherent volatility associated with the apparel industry. Consequently, while short-term gains might be achievable, the strategy's long-term efficacy remains questionable, necessitating a reassessment for better alignment with broader market dynamics.

CEO Commentary

Scott Baxter, President, CEO, and Chairman of Kontoor Brands, expressed optimism about the company's performance, stating, "Wrangler had another solid quarter with global revenues increasing 3%," driven by strong demand, especially in the female segment which grew 40%. He highlighted the strategic priority of the Helly Hansen acquisition, emphasizing its potential for "accelerating top line growth, stronger earnings and cash generation." Baxter noted the resilience of the organization amidst macro volatility, stating, "We have operated through multiple cycles," and conveyed confidence in delivering long-term value creation for shareholders, asserting, "2025 is off to a great start."

Guidance

Kontoor Brands expects full-year revenue to be in the range of $3.06 billion to $3.09 billion, representing growth of 17% to 19%. For EPS, the company guides to a range of $5.40 to $5.50, reflecting a 10% to 12% increase. Helly Hansen is anticipated to contribute approximately $425 million to full-year revenue, with an expected EPS contribution of $0.20. The adjusted gross margin is projected between 45.9% and 46.1%, with SG&A expenses expected to increase by approximately 20%, while cash from operations is anticipated to exceed $350 million.

Additional News

Kontoor Brands is advancing its strategic growth through the acquisition of global outdoor and workwear brand Helly Hansen, expected to close by the end of May 2025. The acquisition, valued at approximately $900 million, is anticipated to significantly enhance Kontoor’s revenue and earnings profile. The company has also announced a regular quarterly cash dividend of $0.52 per share, payable on June 20, 2025, demonstrating its commitment to shareholder returns. Furthermore, Kontoor Brands is optimizing its capital structure by entering into “floating to fixed” interest rate swap agreements to mitigate exposure to interest rate volatility, securing a $700 million notional amount. These strategic initiatives reflect Kontoor Brands' efforts to strengthen its market position and deliver long-term value.