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The call presents strong operational and financial momentum: robust margin expansion, double-digit adjusted EPS growth, clear growth trajectories for Wrangler and Helly Hansen, a defensible capital allocation plan (large buyback authorization) and disciplined deleveraging. Near-term headwinds include elevated SG&A from Helly integration and growth investments, approximately $40 million of unmitigated costs shifted to continuing operations due to the Lee divestiture, tariff/input cost uncertainty and reliance on the timing of the Lee sale to fully realize capital deployment plans. On balance, the positive developments (margin expansion, EPS acceleration, brand momentum, buyback authorization and debt paydown progress) outweigh the near-term challenges.
Kontoor updated 2026 guidance with full‑year revenue of $3.41–3.46B (continuing operations $2.66–2.71B; Lee ~ $750M now in discontinued ops), H1 continuing ops revenue $1.19–1.20B (≈3% Wrangler, high‑single‑digit Helly pro forma), full‑year adjusted gross margin 48.3–48.5% (+180–200 bps YoY) and H1 adjusted gross margin 50.3–50.5% (+400–420 bps), adjusted SG&A expected to increase ~18% (includes $35M of unmitigated Lee expenses), adjusted operating income $411–418M (includes ~ $40M of unmitigated expenses), full‑year adjusted EPS from continuing operations $5.70–5.80 before a $0.55 unmitigated impact (or $5.15–5.25 including it), Lee contribution ~ $0.90 (≈$1.45 including reclassified costs), H1 adjusted EPS (including discontinued ops) $2.77–2.82, effective tax ~20% for the year (~25% H1), cash from operations ≈ $450M with $225M planned voluntary term‑loan payments and a target to exit 2026 at ≤1.5x net leverage, a new $750M share‑repurchase authorization (Q1 buybacks $25M), Q1 inventory $464M, net debt $1.1B, cash $56M, and management expects to enter a Lee divestiture agreement later this year while absorbing a near‑term ~$40M annual P&L impact.
Announced initiation of a competitive sales process to divest the Lee brand to sharpen focus on Wrangler and Helly Hansen; Lee will be reported as discontinued operations and management expects proceeds to increase capital allocation optionality (majority earmarked for share repurchases).
Wrangler global revenue increased 2% in Q1 with DTC up 9% and wholesale up 2%; U.S. revenue +1% (DTC +6%); Wrangler gained over 100 basis points of market share in men's and women's bottoms and achieved its 16th consecutive quarter of market share gains (Circana).
Helly Hansen pro forma global revenue was $176 million, up 16% reported (high-single-digit constant currency); including China JV, pro forma growth exceeded 20%; China JV revenue roughly doubled (~100% increase) with improved profitability; management expects Helly to reach double-digit growth in the U.S. and mid-teens operating margin over time.
Adjusted gross margin expanded 470 basis points to 50.6% in Q1, driven by Project Genius, Helly Hansen contribution (~200 bps of the margin expansion) and favorable channel/product mix.
Adjusted EPS was $1.06 in Q1, up 67% year-over-year; Helly Hansen contributed approximately $0.26 per share. Including discontinued operations, adjusted EPS was $1.55.
Full-year revenue including discontinued operations raised to $3.41B–$3.46B (prior $3.40B–$3.45B); continuing operations revenue now expected $2.66B–$2.71B. First-half continuing ops revenue guidance of $1.19B–$1.20B (implying ~3% Wrangler growth and high-single-digit Helly pro forma growth).
Board approved a new $750 million share repurchase authorization; company repurchased $25 million in the quarter and plans to use a majority of expected Lee proceeds to accelerate buybacks while targeting net leverage ≤1.5x by year-end 2026.
Inventory at quarter-end $464 million; net debt $1.1 billion with $56 million cash on hand; voluntary term loan repayments of $250 million already made since Helly closing; free cash flow expected to approximate $450 million for 2026 (including Lee).
Recognized a probable net receivable of $54 million for IEPA tariffs after court rulings and reduced GAAP cost of goods sold by ~$49 million in Q1 (including $29 million related to 2025), with an updated tariff assumption of 15% reciprocal rate for applicable receipts for remainder of 2026 (10% applied from Feb 24 onward).
Greetings, and welcome to the Kontoor Brands Q1 2026 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Michael Karapetian, Vice President, Corporate Development, Enterprise Strategy and Investor Relations Corporate Management. Thank you. You may begin.
Thank you, operator, and welcome to Kontoor Brands First Quarter 2026 Earnings Conference Call. Participants on today's call will make forward-looking statements. These statements are based on current expectations and are subject to uncertainties that could cause actual results to materially differ. These uncertainties are detailed in documents filed with the SEC. We urge you to read our risk factors, cautionary language and other disclosures contained in those reports. Amounts referred to on today's call will often be on an adjusted dollar basis, which we clearly defined in the news release that was issued earlier this morning and is available on our website at kontoorbrands.com. Reconciliations of GAAP measures to adjusted amounts can be found in the supplemental financial tables included in today's news release. These tables identify and quantify excluded items and provide management's view of why this information is useful to investors.
Unless otherwise noted, revenue growth rates referred to on this call will be in constant currency, which exclude the translation impact of changes in foreign currency exchange rates and reported results and our outlook are stated on a continuing operations basis, unless otherwise noted. Joining me on toda...