Kontoor Brands' Q3 2025 Earnings Call: Contradictions Emerge on Inventory Growth, Tariff Mitigation, and Helly Hansen/Wrangler Performance

Date of Call: November 3, 2025

Financials Results

• Revenue: Global revenue increased 27% in Q3 (includes Helly Hansen); Helly Hansen Q3 revenue $193M (up 11%); full-year revenue expected at the upper end of $3.09B–$3.12B (~19%–20% growth)
• EPS: Adjusted EPS $1.44 in Q3, up 5% YOY; full-year adjusted EPS now expected ~ $5.50, up ~12% (Q4 adjusted EPS ~ $1.64)
• Gross Margin: Adjusted gross margin expanded 80 basis points to 45.8% in Q3 (ex-Helly +140 bps); full-year adjusted gross margin now expected ~46.4% (Q4 ~45.8%, ~110 bps YoY)

Guidance:

• Full-year revenue expected at the upper end of $3.09B–$3.12B (~19%–20% growth); Helly Hansen FY contribution raised to ~$460M (Q4 ~ $240M).
• Q4 revenue guidance $970M–$980M (includes a 53rd week contributing ~4 pts); Q4 adjusted EPS ~ $1.64; FY adjusted EPS ~ $5.50 (up ~12%).
• Adjusted gross margin ~46.4% FY; Q4 ~45.8%; adjusted SG&A expected to increase ~24% (Helly-driven; ex-Helly low single-digit).
• Cash from operations expected to be ~ $400M; Project Jeanius to reach >$100M run-rate in 2026 (partial reinvestment expected).
• Additional voluntary debt repayment ~$185M in Q4; target ~2x net leverage by year-end.

Business Commentary:

* Helly Hansen Performance: - Kontoor Brands' Helly Hansen segment reported 11% revenue growth for Q3, with earnings accretion of $0.03 per share. - The growth was driven by strong demand for both Sport and Workwear products, broad-based geographic expansion, and strategic integration into the company's expanded brand portfolio.

• Wrangler Market Share and Digital Growth:
• Wrangler's global revenue increased 1%, with digital channels showing 12% growth and wholesale revenue impacted by a timing shift.

• The brand gained market share for the 14th consecutive quarter, with the female business growing 20%. Growth was supported by strong demand and effective demand creation platforms like the 'Good Mornings Make for Better Days' campaign.

• Lee's Market Strategy and Digital Expansion:

• Lee's global revenue decreased 9%, but excluding China actions, it decreased by 4%.

• The company launched the Built Like Lee equity campaign, showing improvements in brand equity and perception. Digital sales grew 15%, indicating Sequential improvement is expected in Q4.

• Capital Allocation and Debt Repayment:

• Kontoor Brands made an additional $25 million voluntary debt repayment in Q3 and plans an $185 million payment in Q4.
• These actions are part of a strategic plan to return to approximately 2x net leverage by year-end, supporting further capital allocation options like dividend payouts and share repurchases.

Sentiment Analysis:

Overall Tone: Positive

• Management raised the full-year outlook: “we are raising our full year outlook” and CFO: “we are raising our full year revenue, gross margin, earnings and cash flow outlook.” Management noted they are “tracking ahead of our deleverage plan” and expect to “return to approximately 2x by year-end.”

Q&A:

• Question from Irwin Boruchow (Wells Fargo Securities): Can you clarify Wrangler U.S. wholesale growth (ex the timing shift) and what is embedded for 4Q in Wrangler wholesale and POS trends?
  Response: Timing shift reduced Q3 revenue by ~2 points (primarily Wrangler); excluding the shift Wrangler grew mid-single-digits; October organic was ~+6%; demand is solid and no consumer red flags.

• Question from Irwin Boruchow (Wells Fargo Securities): What's driving Helly Hansen's near-term revenue inflection and could growth accelerate over the next 12 months given order book commentary?
  Response: Helly is accelerating due to integration into Kontoor's ecosystem, stronger product and expanded North America investment; order books and preorders are up (sport and workwear), supporting continued acceleration into 2026.

• Question from Irwin Boruchow (Wells Fargo Securities): Can you walk through the inventory increase (ex-Helly up 21%) and the plan to normalize to ~$645M by year-end?
  Response: Ex-Helly inventory rise (~$98M) includes ~$25M for supply-chain transition (Torreón closure), ~$25M tariffs, ~$20M early receipts; expect ~ $120M reduction in Q4 to ~$645M; inventory composition remains healthy.

• Question from Robert Drbul (BTIG): What are your pricing plans for your own product into next year and what are you seeing competitively on pricing?
  Response: Targeted price increases were implemented mid‑June/July globally to offset tariffs; elasticity has been in line with expectations and pricing was surgical by brand/category/channel.

• Question from Robert Drbul (BTIG): On Helly Hansen U.S. growth from the ~$150M level, are you targeting new distribution and what's the U.S. plan?
  Response: Plan is broad U.S. expansion across ski shops, independents, wholesale, digital and owned retail, phased by capital priorities and supported by key hires over the next 12–18 months.

• Question from Jonathan Komp (Robert W. Baird): What drove the raise to the high end of organic revenue growth to ~2% and do inventory builds imply healthy organic growth into 2026?
  Response: Raised outlook due to strong POS (esp. digital), Helly momentum and October strength; elevated inventory is largely transitory and positioned to support growth, with Helly NWC improvements beginning in Q4/1H26.

• Question from Jonathan Komp (Robert W. Baird): How should we think about Project Jeanius benefits and Helly Hansen operating contribution into 2026?
  Response: Jeanius savings and Helly synergies will scale materially in 2026; 2026 factors include organic Wrangler growth, Lee transition, Helly momentum, Jeanius maturity and an unmitigated ~$135M tariffs headwind for the year.

• Question from Mauricio Serna Vega (UBS): What organic growth is implied for Q4 and why did Helly revenue increase without a change to EPS contribution?
  Response: Q4 guidance implies ~6% organic growth including the 53rd week (~+4 pts) and the Q3 timing shift benefit; Helly expected to contribute ~ $240M in Q4 and EPS benefit (~$0.20) remained consistent as puts/ takes netted out.

• Question from Mauricio Serna Vega (UBS): Can you expand on green shoots for Lee and clarify whether sequential improvement in Q4 is vs the -9% or vs -4% ex-China actions?
  Response: Lee is showing early digital strength and strong female performance from the equity campaign; sequential improvement referenced is versus the -4% ex-China proactive actions (i.e., improvement excluding China adjustments).

• Question from Paul Kearney (Barclays): Does October's +6% include the Q3→Q4 timing shift and do you assume recent mid-single-digit POS gains continue into Q4?
  Response: October +6% does include the timing shift; Q4 POS assumptions are modestly positive and do not assume the recent mid-single-digit weekly gains persist for the full quarter.

• Question from Paul Kearney (Barclays): Regarding the $25M run-rate synergies for Helly, what is the timing and split between reinvestment versus flow‑through?
  Response: Line of sight to >$25M run‑rate synergies that are beginning to show now (small in 2025) and will scale meaningfully in 2026; details to be provided with the February 2026 outlook.

• Question from Brooke Roach (Goldman Sachs): Where do you stand on Project Jeanius savings realization and how much flows to the bottom line versus reinvestment?
  Response: About $50M gross Jeanius savings are embedded in the 2025 outlook; expect >$100M annual run‑rate in 2026, with a portion reinvested and the remainder flowing to the bottom line.

• Question from Brooke Roach (Goldman Sachs): Is Lee China fully reset and when should it return to growth into 2026?
  Response: Lee China has undergone consolidation of partners, elevated DTC and inventory remediation; majority of heavy lifting is behind us and management is confident in the long‑term opportunity though market remains dynamic.

• Question from Laurent Vasilescu (BNP Paribas): Any preliminary FY26 top-line thoughts and when will Lee return to growth across markets?
  Response: No quantitative FY26 guidance now (planning ongoing); detailed outlook in February; management expects stabilization by late '26 (fall/winter) with growth following thereafter.

• Question from Laurent Vasilescu (BNP Paribas): Q3 adjustments ($0.78) exceed GAAP EPS — what drove those adjustments and when will adjusted and GAAP EPS converge?
  Response: Q3 one‑time adjustments mainly related to Torreón facility closure and Helly integration; costs are in line with expectations; convergence depends on the completion/timing of remaining one‑time items and integration activity.

• Question from Peter McGoldrick (Stifel): Can you bridge the cash flow outlook to ~$400M of operating cash flow?
  Response: The cash flow improvement is primarily driven by working capital (sequential inventory reduction) combined with earnings growth including Helly's contribution.

• Question from Peter McGoldrick (Stifel): What drove the increased gross margin guidance and the brand-level puts/ takes (Jeanius, tariffs, mix)?
  Response: Q3 margin expansion drivers: ~+170bp from mix (channel/product), ~+90bp from Project Jeanius, ~-120bp from tariffs and higher product costs; Q4 and FY gross margin improvement is largely driven by Helly contribution plus Jeanius benefits partially offset by tariffs.

Contradiction Point 1

Inventory Growth and Management

It highlights differing perspectives on inventory growth and management strategies, which are crucial for operational efficiency and financial performance.

Can you clarify the reason for inventory growth exceeding core growth rates? - Irwin Boruchow (Wells Fargo Securities)

2025Q3: Inventory increased 21% due to investments in supply chain transformation, higher tariffs, and early receipts. Q4 will see a $120 million reduction. The quality and composition of inventory are favorable. - Joseph Alkire(CFO)

How are you planning to manage inventory levels as we move into the second half of the year? - Peter McGoldrick (Stifel)

2025Q2: We are comfortable with where we are from a gross margin standpoint, given the shape of our margin curve, and feel very good about how we've managed our inventory levels and we are comfortable with our inventory levels going into Q3. - Joseph Alkire(CFO)

Contradiction Point 2

Tariff Impact Mitigation

It involves changes in strategies and expectations regarding the mitigation of tariff impacts, which could affect the company's financial performance and profitability.

How is pricing and competitive pricing evolving? - Robert Drbul (BTIG, LLC)

2025Q3: Pricing was part of a strategy to mitigate tariffs, affecting both brands and channels. The pricing elasticity equation has been consistent with expectations. We are comfortable with our pricing strategy and market positioning. - Joseph Alkire(CFO) and Scott Baxter(CEO)

Are there initiatives to mitigate the tariff impact related to production transfers and pricing actions? - Mauricio Serna Vega (UBS)

2025Q2: We have implemented a holistic strategy including pricing, moving production, supplier partnerships, and cost-sharing initiatives. The strength of our brands allows us to be strategic with pricing, and our teams are managing these issues effectively. - Joseph Alkire(CFO) and Scott Baxter(CEO)

Contradiction Point 3

Helly Hansen Revenue and Growth Outlook

It highlights differing expectations regarding Helly Hansen's revenue and growth trajectory, which are critical for the company's overall financial performance and strategic direction.

What is the Q4 organic growth expectation and Helly contribution? - Mauricio Serna Vega (UBS)

2025Q3: Helly Hansen contributed close to $240 million, growing nicely year-over-year. - Joseph Alkire(CFO)

What was Helly Hansen's EBIT contribution this fiscal year? What is Helly Hansen's current revenue and EBIT run rate? - Irwin Boruchow (Wells Fargo)

2025Q2: Our second half outlook assumes roughly $425 million of revenue up in the high single-digit range from a pro forma basis. - Joseph Alkire(CFO)

Contradiction Point 4

Wrangler U.S. Wholesale Performance and Timing Shifts

It involves differing explanations of Wrangler's U.S. wholesale performance, specifically regarding the impact of timing shifts, which could affect investor expectations and revenue projections.

Can you clarify Wrangler U.S. wholesale and what's included in your Q4 outlook? - Irwin Boruchow (Wells Fargo Securities)

2025Q3: The timing shift impacted Q3 revenue, but excluding this, Wrangler increased at a mid-single-digit rate. Q4 revenue includes the expected impact of the timing shift. There's no indication of demand issues, with strong September performance and October POS up 6%. - Joseph Alkire(CFO)

What assumptions underlie the $50 million unmitigated tariff impact, and what mitigation efforts are in place? - Paul Kearney (Barclays)

2025Q1: Based on a long-standing Wrangler customer, we expect a roughly $15 million shift between Q1 and Q2 as we pull forward shipments. - Joseph Alkire(CFO)

Contradiction Point 5

Helly Hansen's Revenue Growth and Contribution

It involves differing expectations and explanations regarding Helly Hansen's revenue growth and contribution to Kontoor Brands, which could impact investor expectations and financial performance assessment.

What is Q4 organic growth and Helly's contribution? - Mauricio Serna Vega (UBS)

2025Q3: Helly Hansen is expected to contribute close to $240 million, growing nicely compared to the prior year. - Joseph Alkire(CFO)

What is Helly Hansen's annual run rate contribution? - Peter McGoldrick (Stifel)

2025Q1: Helly Hansen's revenue growth in the second half is expected to continue, with solid growth broad across channels and geographies. - Joe Alkire(CFO)