Kontoor Brands (KTB), which agreed to acquire Helly Hansen in February, slightly lowered its sales outlook for the year as first-quarter sales missed Wall Street’s targets due to flat sales in its core denim business, comprising of Wrangler and Lee. The firm kept its EPS guidance although it expects a $50 million negative impact on operating income from recently enacted changes in tariffs not yet included in the updated guidance.

Revenue in the first quarter ended March 29 was $623 million, slightly below the estimated $626.32 million. Earnings in the quarter reached $1.20 per share, exceeding analysts’ consensus target of $1.16 per share.

The company also updated its forecasts on Helly Hansen, expecting the outerwear brand to contribute approximately $425 million to revenue and 20 cents in earnings per share this year.  Kontoor previously only estimated Helly Hansen would contribute 15 cents in EPS. The deal, announced on Feb. 19, is still expected to close in the second quarter.

“Our strong first quarter results reflect the operational agility that is a cornerstone of our business,” said Scott Baxter, President, chief executive officer and chairman of the Board of Directors. “We continued to strengthen our brands, drive market share gains, and grow our presence across categories and channels of distribution. And, the strength of our gross margin drove strong underlying earnings growth, cash generation and further improvement in our returns on capital.”

“We have navigated significant disruption over the past five years and have built an organization and operating model rooted in resiliency. Project Jeanius is underway and later this month we expect to welcome Helly Hansen to the Kontoor family, further enhancing our ability to generate long-term value for our shareholders. I want to thank our colleagues around the globe for their continued perseverance and commitment to strong execution amidst an increasingly dynamic environment,” added Baxter.

First Quarter 2025 Income Statement Review
Revenue was $623 million and decreased 1 percent (flat in constant currency) compared to prior year. Global wholesale decreased 2 percent partially offset by 5 percent growth in global direct-to-consumer.

U.S. revenue was $493 million and was flat compared to prior year. Wholesale revenue decreased 1 percent. Direct-to-consumer increased 11 percent driven by a 17 percent increase in digital partially offset by a 4 percent decrease in brick-and-mortar retail.

International revenue was $130 million and decreased 7 percent (3 percent decrease in constant currency) compared to prior year. Wholesale decreased 8 percent (4 percent decrease in constant currency), and direct-to-consumer decreased 2 percent (1 percent increase in constant currency). Europe decreased 4 percent (2 percent decrease in constant currency), driven by a 3 percent decrease (flat in constant currency) in direct-to-consumer and a 4 percent decrease (2 percent decrease in constant currency) in wholesale. Asia decreased 3 percent, driven by a 1 percent decrease in direct-to-consumer and a 5 percent decrease (3 percent decrease in constant currency) in wholesale. Non-U.S. Americas decreased 18 percent (8 percent decrease in constant currency).

Wrangler brand global revenue was $420 million and increased 3 percent compared to prior year. Wrangler U.S. revenue increased 3 percent, driven by a 14 percent increase in direct-to-consumer and a 2 percent increase in wholesale. Wrangler international revenue was flat (4 percent increase in constant currency) compared to prior year, driven by a 2 percent increase (6 percent increase in constant currency) in wholesale offset by a 12 percent decrease (8 percent decrease in constant currency) in direct-to-consumer.

As expected, Lee brand global revenue was $200 million and decreased 9 percent compared to prior year. Lee U.S. revenue decreased 8 percent driven by a 9 percent decrease in wholesale partially offset by a 3 percent increase in direct-to-consumer. Lee international revenue decreased 11 percent (8 percent decrease in constant currency) driven by a 15 percent decrease (12 percent decrease in constant currency) in wholesale partially offset by a 1 percent increase (3 percent increase in constant currency) in direct-to-consumer.

Gross margin increased 230 basis points to 47.5 percent on a reported basis and increased 200 basis points to 47.7 percent on an adjusted basis compared to prior year. Adjusted gross margin expansion was driven by the benefits from lower product costs, Project Jeanius, supply chain efficiencies, and direct-to-consumer and product mix, partially offset by the carryover of targeted pricing actions taken in the prior year.

Selling, general & administrative (SG&A) expenses were $222 million, or 35.7 percent of revenue on a reported basis. On an adjusted basis, SG&A expenses were $201 million, representing an increase of 3 percent compared to prior year driven by investments in demand creation, partially offset by a decrease in discretionary expenses. Reported and adjusted SG&A expense include $8 million of incremental acquisition-related stock-based compensation expense.

Operating income was $73 million on a reported basis. On an adjusted basis, operating income was $96 million and increased 4 percent compared to prior year. Adjusted operating margin of 15.4 percent increased 70 basis points compared to prior year. Reported and adjusted operating income include $8 million of incremental acquisition-related stock-based compensation expense.

Earnings per share (EPS) was 76 cents on a reported basis. On an adjusted basis, EPS was $1.20, representing an increase of 3 percent. Reported and adjusted EPS include 11 cents of incremental acquisition-related stock-based compensation expense.

Balance Sheet and Liquidity Review
The company ended the first quarter with $357 million in cash and cash equivalents, and $736 million in long-term debt.

Inventory at the end of the first quarter was $443 million, representing a 12 percent decrease compared to prior year.

At the end of the first quarter, the company had no outstanding borrowings under the Revolving Credit Facility and $494 million available for borrowing against this facility.

As previously announced, the company’s Board of Directors declared a regular quarterly cash dividend of $0.52 per share, payable on June 20, 2025, to shareholders of record at the close of business on June 10, 2025.

The company returned $29 million to shareholders through dividends during the first quarter. The company has $215 million remaining under its authorized share repurchase program.

Helly Hansen Acquisition Update
The company has received all required regulatory approvals and expects the acquisition to close at the end of May 2025, subject to customary closing conditions.

The company expects Helly Hansen to contribute approximately $425 million to 2025 revenue, approximately $37 million to 2025 adjusted operating income, and approximately 20 cents to 2025 adjusted EPS. Additionally, Helly Hansen is expected to contribute approximately $50 million to 2025 cash flow from operations.

As announced on April 8, 2025, the company entered into a Second Amended and Restated Credit Agreement, a portion of which will be used to fund the acquisition of Helly Hansen while providing additional liquidity and capital structure flexibility. In April 2025, the company entered into “floating to fixed” interest rate swap agreements to mitigate exposure to volatility in reference rates to the company’s future interest rate payments on indebtedness. The total notional amount of the company’s interest rate swap agreements was $700 million at April 2025.

Updated Full Year 2025 Outlook
The company’s outlook includes the expected revenue, earnings and cash flow contribution from the acquisition of Helly Hansen.

The company’s outlook does not include the impact from recently enacted changes in tariffs. Based on recently enacted tariff policy changes, the company expects an estimated $50 million unmitigated impact to full year 2025 operating income, including the tariff impact of Helly Hansen. The company does not anticipate an impact to second quarter operating income as a result of recently enacted changes in tariffs. And, the company expects to begin to offset the $50 million unmitigated impact of recent tariff policy changes beginning in the third quarter of 2025 through a combination of targeted price increases, sourcing and production optimization within our global supply chain, inventory management, supplier partnerships and other initiatives. The company expects to substantially offset the impact from recently enacted changes in tariffs over a 12 to 18 month period.

“Our outlook reflects the enhanced growth, earnings and cash flow profile of our portfolio, supported by the significant benefits of Project Jeanius and the expected addition of Helly Hansen,” said Scott Baxter, president, CEO and chairman of the Board of Directors. “We expect the near-term operating environment to remain volatile and tariff policy changes present a significant headwind to our business. However, with the team and strategy we have in place, we are well-positioned to successfully manage through this environment and emerge stronger. Our first quarter results were stronger than expected, and we remain on track to deliver the full year outlook we provided in February and have increased the expected contribution from Helly Hansen. We are focused on strengthening our brands, continuing to take market share, and delivering strong business fundamentals and operational execution. We are confident we are on a path to deliver strong long-term value for shareholders.”

The company’s updated full year 2025 outlook includes the following assumptions:

  • Revenue is now expected to be in the range of $3.06 to $3.09 billion, representing growth of approximately 17 to 19 percent compared to prior year. The company expects Helly Hansen to contribute approximately $425 million to 2025 revenue, based on an end of May 2025 transaction closing. Excluding the impact of Helly Hansen, the company expects full year 2025 revenue growth of approximately 1 to 2 percent. This compares to the prior outlook of 1 to 3 percent growth. The company expects second quarter revenue of approximately $630 million, representing an increase of approximately 4 percent compared to prior year, including an anticipated $20 to $25 million contribution from Helly Hansen.
  • Adjusted gross margin is now expected to be in the range of 45.9 to 46.1 percent, representing an increase of 80 to 100 basis points compared to the prior year. Excluding the impact of Helly Hansen, the company expects adjusted gross margin to be in the range of 45.5 to 45.7 percent, representing gross margin expansion of 40 to 60 basis points. This compares to the prior outlook of 20 to 40 basis points of gross margin expansion. Excluding the impact of Helly Hansen, the company expects first half 2025 gross margin expansion of approximately 100 basis points compared to its prior outlook of 10 to 20 basis points of gross margin expansion. The company does not expect Helly Hansen to meaningfully impact second quarter gross margin.
  • Adjusted SG&A is expected to increase approximately 20 percent compared to the prior year. Excluding the impact of Helly Hansen, the company expects adjusted SG&A to increase at a low-single digit rate compared to the prior year, consistent with the prior outlook. Full year 2025 adjusted SG&A now includes $9 million of incremental acquisition-related stock-based compensation expense.
  • Adjusted operating income is expected to be in the range of $437 to $445 million, representing an increase of 15 to 17 percent compared to the prior year. Excluding the impact of Helly Hansen, the company expects adjusted operating income to be in the range of $400 to $408 million, representing an increase of 5 to 7 percent compared to prior year, consistent with the prior outlook. Full year 2025 adjusted operating income now includes $9 million of incremental acquisition-related stock-based compensation expense.
  • Adjusted EPS is expected to be in the range of $5.40 to $5.50, representing an increase of 10 to 12 percent compared to the prior year. Excluding the impact of Helly Hansen, adjusted EPS is expected to be in the range of $5.20 to $5.30, representing an increase of 6 to 8 percent compared to the prior year, consistent with the prior outlook. Full year 2025 adjusted EPS now includes $0.13 of incremental acquisition-related stock-based compensation expense. The company expects second quarter adjusted EPS of approximately 80 cents, including the impact of Helly Hansen. The Helly Hansen business exhibits revenue and earnings seasonality. Historically, the second quarter has been Helly Hansen’s smallest quarter of the year which has resulted in operating losses in that quarter. Excluding the impact of Helly Hansen, the company expects second quarter adjusted EPS of $1.08, representing approximately 10 percent growth. The company now expects first half adjusted EPS growth of approximately 7 percent. First half adjusted EPS now includes 12 cents of incremental acquisition-related stock-based compensation expense.
  • Capital expenditures are expected to be approximately $45 million, including the impact of Helly Hansen.
  • For the full year, the company expects an effective tax rate of approximately 20 percent. Interest expense is expected to approximate $50 million. Adjusted other expense is expected to approximate $11 million. Average shares outstanding are expected to be approximately 56 million.
  • The company expects cash flow from operations to exceed $350 million, including the expected contribution from Helly Hansen.

Image courtesy Helly Hansen