Kontoor's Q3 2025: Contradictions in Helly Hansen Revenue, Wrangler Growth, and Lee's Strategic Shifts

Date of Call: None provided

Financials Results

• Revenue: Q3 global revenue +27% YoY (incl. Helly Hansen); Helly Hansen Q3 revenue $193M, +11% YoY; Full-year revenue expected at upper end of prior $3.09B-$3.12B range (~19%-20% growth); Q4 revenue guidance $970M-$980M (growth 39%-40% including a 53rd week benefit of ~4pts).
• EPS: Q3 adjusted EPS $1.44, +5% YoY; Q4 adjusted EPS expected ~$1.64 (~+19% YoY); Full-year adjusted EPS expected ~$5.50, +12% YoY (prior outlook ~$5.45); Helly Hansen contributed ~$0.03 in Q3 and is expected to benefit full-year EPS by ~$0.20.
• Gross Margin: Adjusted gross margin 45.8% in Q3, expanded 80 bps YoY (ex-Helly Hansen expanded 140 bps); Helly Hansen was dilutive to adjusted gross margin by ~60 bps; Full-year adjusted gross margin expected ~46.4% (~+130 bps YoY); Q4 adjusted gross margin expected ~45.8% (~+110 bps YoY).

Guidance:

• Full-year revenue expected at the upper end of $3.09B-$3.12B (~19%-20% growth).
• Q4 revenue guided to $970M-$980M (39%-40% growth, includes a 53rd week ~+4 pts).
• Full-year adjusted gross margin ~46.4%; Q4 adjusted gross margin ~45.8%.
• Adjusted SG&A expected to increase ~24% (ex-Helly: low single-digit increase).
• Full-year adjusted EPS ~ $5.50; Q4 adjusted EPS ~ $1.64.
• Cash from operations expected to approximate $400M; inventory to decline ~ $120M to ~$645M; additional voluntary debt repayment ~$185M in Q4, target ~2x net leverage year-end.

Business Commentary:

* Revenue and Earnings Growth: - Kontoor Brands reported global revenue increased by 27% in Q3, driven by a 11% growth in Helly Hansen and a 1% increase in Wrangler's revenue. - The growth was driven by strong product demand, gross margin expansion, and disciplined expense management, allowing for raises in full-year outlook.

• Helly Hansen's Performance:
• Helly Hansen's revenue grew by 11% in Q3, with significant opportunities in both sport and workwear sectors.

• The growth is attributed to successful product launches, award-winning designs, and potential for increased brand awareness in the U.S.

• Wrangler's Market Share Gains:

• Wrangler's global revenue increased by 1%, with digital sales growing by 12% and a 14th consecutive quarter of market share gains.

• The brand's strength in female and Western segments, along with effective demand creation strategies, contributed to these gains.

• Lee's Turnaround and Digital Growth:

• Lee's global revenue decreased by 9%, but digital sales grew by 15% in the U.S.
• The company is implementing a brand realignment, including a new equity campaign and product collaborations, targeting sequential improvement in the fourth quarter.

Sentiment Analysis:

Overall Tone: Positive

• Management raised the full-year outlook, cited better-than-expected Q3 earnings, said they are "raising our full-year outlook," highlighted double-digit Helly Hansen growth and 14 consecutive quarters of Wrangler share gains, emphasized being "ahead of our deleverage plan" and confidence to "finish the year strong and enter 2026 with momentum."

Q&A:

• Question from Ike Boruchow (Wells Fargo): Can you clarify Wrangler U.S. wholesale performance ex the timing shift and what is embedded for Wrangler wholesale in Q4; October POS flat then accelerated—what's in the plan?
  Response: Timing shift reduced Q3 revenue by ~2 points (primarily Wrangler); excluding the shift Wrangler grew mid-single digits; October organic sales were ~+6% and visibility into Q4 led management to raise revenue guidance with no consumer red flags.

• Question from Bob Durrell (BTIG): What are you seeing on pricing actions and elasticity across your business, and within the U.S. Helly opportunity what distribution and channels are targeted?
  Response: Price increases were implemented mid-June (D2C) and July (wholesale) globally, elasticity has been in line with expectations and was applied surgically; Helly U.S. opportunity spans ski shops, independents, broader wholesale, D2C and owned retail with additional leadership hires planned.

• Question from Jonathan Kopp (Baird): What drove increasing confidence to the high end of organic revenue growth and how should we think about 2026 (Genius, Helly, tariffs)?
  Response: Confidence stems from strong POS, digital strength, and Helly acceleration; 2026 framework: organic growth driven by Wrangler, Lee transitioning, Helly synergies and Project Genius scaling; unmitigated tariff impact for 2026 ~ $135M to be mitigated materially.

• Question from Mauricio Sarno (UBS): What is the implied Q4 organic revenue growth in your guide (October was +6%) and why did Helly's higher revenue not change EPS guidance beyond the stated $0.20 benefit?
  Response: Q4 implies ~6% organic growth including the 53rd week (which provides ~4pts); Helly expected to contribute ~ $240M in Q4; EPS impact remains ~$0.20 for the full year due to other puts and takes embedded in the outlook.

• Question from Paul Kearney (Barclays): Does the October +6% include the Q3→Q4 timing shift, do you assume recent mid-single-digit POS continues, and timing/flow of Helly synergies?
  Response: October figure includes the timing shift; Q4 POS assumptions are modestly positive and do not assume the recent mid-single-digit surge continues; Helly synergies (~$25M run-rate) are small in 2025 and expected to scale more meaningfully through 2026.

• Question from Brooke Roach (Goldman Sachs): Where do you stand on Project Genius savings realization and how should we view flow-through vs reinvestment; update on Lee China reset and timing to return to growth?
  Response: About $50M gross savings are embedded in 2025 outlook, with >$100M annual run-rate expected in 2026 and a portion to be reinvested while some flows to the bottom line; Lee China has largely completed heavy lifting (partner consolidation, DTC elevation) and is being reset for long-term growth.

• Question from Ron Wesleyescu (BNP Paribas): Any preliminary 1H26 top-line thoughts and detail on Q3 one-time adjustments and when adjusted and GAAP EPS converge?
  Response: No preliminary 1H26 guidance provided; final 2026 outlook will be issued in February; Q3 adjustments related to Torreón plant closure and Helly integration are one-time; cash generation strong and adjustments are consistent with expectations, with convergence timing dependent on remaining one-time items.

• Question from Peter McColdrick (C4): Bridge to the $400M operating cash flow outlook and drivers of the improved gross margin guidance (brand mix, tariffs, inventory timing)?
  Response: Operating cash flow guidance reflects sequential inventory reduction (~$120M) combined with earnings growth (organic + Helly); gross margin improvement driven by favorable mix and Project Genius benefits, partially offset by tariffs and higher product costs, with Helly being accretive in Q4.

Contradiction Point 1

Helly Hansen Revenue and Growth Expectations

It involves differing expectations for Helly Hansen's revenue contribution and growth rate, which are critical for investors and strategic planning.

What is the expected organic revenue growth for Q4, and what were the puts and takes on Helly Hansen's revenue contribution for the year? - [Mauricio Sarno](UBS Reliance)

2025Q3: We expect modest growth in Q4, with Helly contributing close to $240 million in revenue. - [Joe Alkire](CFO)

Can you provide Helly Hansen's EBIT for FY2025, and what are the annualized revenue and EBIT margin for Helly? - [Irwin Boruchow](Wells Fargo)

2025Q2: Initially, Helly Hansen was expected to have $680 million in revenue and $50 million in operating income. - [Joseph Alkire](CFO)

Contradiction Point 2

Wrangler US Wholesale Performance

It involves differing expectations for Wrangler's US wholesale performance, which is crucial for revenue forecasts and investor expectations.

Can you confirm Wrangler US wholesale growth was mid to high single digits in Q3, excluding the shift? Can you break down the Wrangler wholesale guidance for Q4, including the impact of the shift and organic growth? - [Ike Boruchow](Wells Fargo)

2025Q3: Excluding the shift, total revenue would have been above our prior outlook driven by Helly, with Wrangler increasing at a mid-single-digit rate. - [Joe Alkire](CFO)

How are retailers managing inventory levels, and what is the outlook for Wrangler? - [Paul Kearney](Barclays)

2025Q2: Favorable trends in both the Wrangler and Lee businesses contributed to better-than-expected Q2 results. - [Scott Baxter](CEO)

Contradiction Point 3

Helly Hansen Growth Acceleration

It involves differing expectations regarding the growth acceleration of Helly Hansen, which is a strategic acquisition that can significantly impact the company's revenue and market position.

Will Helly growth rates continue to accelerate over the next 12 months? - [Ike Boruchow](Wells Fargo)

2025Q3: Helly is thriving inside of another apparel company and is accelerating on all fronts. The European business, the China business, and the US business are taking off. We are focused on strategic pillars to drive growth, including product innovation and demand creation to increase brand awareness, particularly in the U.S. where current awareness is only 29%. The business is performing at a high level, and we expect significant room for growth. - [Scott Baxter](CEO)

What gives you confidence that 2H organic revenue growth will be in the low to mid-single digits? - [Laurent Vasilescu](BNP Paribas)

2025Q1: We expect high single-digit organic growth for the full year, driven by double-digit growth in Helly Hansen. The brand is expected to expand margins and profitability. Long-term, growth is projected at high single digits under Kontoor's ownership, leveraging global capabilities and improving profitability. - [Joe Alkire](CFO)

Contradiction Point 4

Lee's Distribution Strategy and Consumer Targeting

It involves the strategic direction and consumer focus of the Lee brand, which are critical for market positioning and brand image.

What is driving the organic revenue growth and inventory build-up? - [Jonathan Kopp](Baird)

2025Q3: We are seeing real strength across all brands, with strong POS and digital business performance. Wrangler's digital business grew 12%, and Lee's digital growth was 15%. The digital growth has been very positive and gives us confidence in our turnaround efforts. - [Scott Baxter](CEO)

Can you share findings on Lee's consumer insights and current segmentation? - [Paul Kearney](Barclays)

2024Q4: The consumer research leads to a more targeted product and marketing strategy. Thomas Waldron mentioned a move away from an overly aspirational consumer target. The new strategy is to focus on a more fashion-interested, mainstream consumer. - [Thomas Waldron](COO)

Contradiction Point 5

Helly Hansen Revenue Contribution

It involves the expected revenue contribution from Helly Hansen, which is a key component of the company's growth strategy.

What is the expected organic revenue growth for Q4, and what were the key factors affecting Helly Hansen's annual revenue contribution? - [Mauricio Sarno](UBS Reliance)

2025Q3: We expect modest growth in Q4, with Helly contributing close to $240 million in revenue. The Q4 contribution from Helly includes the strong fall/winter 2025 order book and spring/summer 2026 orders that are accelerating. - [Joe Alkire](CFO)

Can you discuss Helly Hansen and its contribution? - [Munjal Shah](Jefferies)

2024Q4: For Helly, we continue to see strong order momentum across all channels. We had a $170 million backlog in Q3 with a significant portion shipping in December. We continue to expect Helly to positively impact not only our top line, but also our operating income. - [Joe Alkire](CFO)