Kontoor Brands Q1 2025: Diverging Views on Consumer Resilience, Lee's Turnaround, and Gross Margin Outlook

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Regulatory Approval and Helly Hansen Acquisition:
- Kontoor Brands has cleared regulatory approval for the acquisition of Helly Hansen, with plans to close the transaction by the end of May.
- The acquisition is expected to accelerate top line growth by increasing revenue and contributing approximately $425 million to full year 2025 revenue.
- The strategic acquisition aims to enhance Kontoor's brand portfolio and increase cash flow potential.

First Quarter Financial Performance:
- Wrangler reported a 3% increase in global revenues, driven by a 15% increase in digital sales, while Lee experienced an 8% decline in revenue.
- Adjusted gross margin expanded by 200 basis points to 47.7%, reflecting lower input costs and mix benefits.
- Operational agility and supply chain efficiency contributed to the better-than-expected earnings and cash flow.

Earnings and Cash Flow Outlook:
- Kontoor expects full year 2025 adjusted earnings per share to be in the range of $5.40 to $5.50, reflecting an increase of 10% to 12%.
- Helly Hansen is projected to contribute approximately $0.20 to full year earnings per share, excluding synergies.
- The company anticipates strong cash flow, with exceeding cash from operations now expected to exceed $350 million, including Helly Hansen.

Impact of Tariffs and Mitigation Strategies:
- The estimated unmitigated impact of tariffs on Kontoor's 2025 operating profit is now approximately $35 million, down from the previous estimate of $50 million.
- Helly Hansen is expected to have an unmitigated impact of $50 million on operating profit if tariffs remain at proposed levels.
- The company is confident in mitigating tariff impacts through actions like transferring production within its global supply chain and implementing pricing strategies.