Kontoor Brands Reports Strong Growth Amid Challenges

Kontoor Brands ((KTB)) has held its Q2 earnings call. Read on for the main highlights of the call.

Kontoor Brands’ latest earnings call painted a picture of robust growth tempered by certain challenges. The company reported strong revenue growth, particularly driven by its Wrangler and Helly Hansen brands, alongside notable improvements in gross margin and earnings per share (EPS). However, it also acknowledged hurdles such as a decline in Lee’s revenue, increased inventory levels, and the impact of tariffs. Despite these challenges, Kontoor Brands expressed confidence in its strategic plans and future growth opportunities.

Revenue and Growth

Kontoor Brands reported an impressive 8% increase in global revenue, with Wrangler leading the charge with a 7% rise. The U.S. market also showed strong performance, growing by 9%. Digital sales for Wrangler were particularly noteworthy, with a 16% increase, highlighting the brand’s successful online strategy.

Helly Hansen Performance

Helly Hansen exceeded expectations, contributing $29 million in revenue for June alone, surpassing its previous outlook. The brand is now expected to contribute $455 million to the full-year revenue, up from an earlier forecast of $425 million, showcasing its strong market performance.

Gross Margin Improvement

The company’s adjusted gross margin expanded by 120 basis points to 46.4%. This improvement was driven by the Project Jeanius initiative, lower input costs, and a favorable product mix, reflecting Kontoor Brands’ effective cost management strategies.

EPS Growth

Kontoor Brands saw a significant 23% increase in adjusted earnings per share compared to the previous year. Although Helly Hansen contributed a $0.12 loss per share, this was better than the anticipated $0.28 loss, indicating a positive trend in profitability.

Wrangler Market Share Gains

Wrangler achieved its 13th consecutive quarter of market share gains, with a 70 basis point increase in the men’s and women’s bottoms business. This consistent growth underscores the brand’s strong market position and consumer appeal.

Lee Revenue Decline

In contrast, Lee experienced a 6% decline in global revenue, with a 5% drop in the U.S. market due to challenges in the wholesale segment. This highlights the brand’s ongoing struggles in maintaining its market share.

Inventory Increase

Kontoor Brands reported a 40% increase in inventory, reaching $686 million. However, when excluding Helly Hansen, the inventory was down by only 1%, indicating a strategic buildup to meet anticipated demand.

Tariff Impact

The company anticipates higher tariffs will have a $15 million impact on operating profit in 2025, translating to a $0.20 per share impact. This presents a potential headwind for future profitability.

Challenges in APAC

Kontoor Brands is taking further actions in the APAC region to establish a stronger foundation, which is expected to impact revenue in the second half of the year. This strategic focus aims to enhance long-term growth prospects in the region.

Forward-Looking Guidance

Kontoor Brands raised its full-year revenue guidance to between $3.09 billion and $3.12 billion, reflecting a growth of 19% to 20%. The company expects Helly Hansen to contribute $455 million to this total. This optimistic outlook is supported by strategic investments in product innovation, category expansion, and demand creation, alongside effective supply chain management and cost mitigation strategies.

In conclusion, Kontoor Brands’ earnings call highlighted a strong performance driven by key brands like Wrangler and Helly Hansen, despite facing challenges such as Lee’s revenue decline and tariff impacts. The company’s confident outlook and strategic investments position it well for future growth, making it an interesting prospect for investors and market watchers.