On an analyst call, Kontoor Brands Inc. officials said its move to divest the Lee denim business will only open more opportunities to drive further momentum in the Helly Hansen business.

The decision to divest comes as Kontoor Brands hiked its earnings and sales outlook for the year after reporting better-than-expected results in the first quarter, led by a 16 percent sales leap from Helly on a pro-forma basis.

On Thursday, shares of Kontoor rose $3.11, or 4.2 percent, to $78.05.

Decision to Divest Lee
CEO Scott Baxter said Kontoor believes it has stabilized the Lee business with improving fundamentals for the brand being seen in 2025. However, the divestiture will help further management’s focus on capitalizing on its brands with the strongest growth potential: Wrangler and Helly Hansen. He said both brands’ focus on function rather than fashion assures more ample growth opportunities.

“As we stated last year when we announced the acquisition of Helly Hansen, our portfolio is built around strategically attractive categories,” said Baxter. “Outdoor, work wear, and denim are large, growing addressable markets with structural tailwinds that afford a meaningful long-term growth opportunity. Importantly, our portfolio is built around function. We believe function and activity-based brands offer more durable, dependable, and sustainable growth characteristics with greater differentiation in the marketplace.”

Baxter added that while Kontoor could further its progress in bringing the Lee brand back to healthy growth, “we are confident our go-forward resources are better utilized in our remaining brands that are better aligned with our long-term focus.”

Helly Hansen’s Growth Opportunity
Baxter described the global growth opportunity for Helly as “significant,” expecting the brand to be a “substantial contributor” to future profit and growth.

“It starts in the U.S., which is the largest outdoor and workwear market in the world,” said Baxter. “While it is already among Helly’s fastest-growing markets, the brand remains significantly underpenetrated relative to its peers. Within sport, aided brand awareness is less than 30 percent, and within workwear, we are just getting started.”

He said that across both sport and workwear, investments will be accelerated in talent, direct-to-consumer and wholesale expansion, and marketing. Baxter said, “Through improved focus and increased investment capacity, we see a clear path to double-digit growth in our home market.”

Baxter also cited opportunities to accelerate investments in new category growth, including technical outdoor apparel and footwear, and increased investments in the Alps region, a market seen as underpenetrated similar to the U.S. Baxter said, “We expect to fund these investments through the benefits of our multi-brand platform and remain committed to increasing Helly Hansen’s operating margin to mid-teens over time through a combination of gross margin expansion and expense leverage. As a result, we expect a meaningful increase in Helly’s fundamental growth and margin profile.”

Stepped-up investments in Helly were already evident in recent leadership changes, including the announcement in early April that Joseph Alkire will assume global responsibilities for the Helly Hansen brand, in addition to his responsibilities as chief financial officer and global head of operations. In early May, Erinn Murphy, Crocs’ Former IR chief formerly at Crocs, became VP and global head of finance and operations for Helly Hansen and corporate investor relations.

Baxter added in the Q&A section of the call that Helly Hansen is “very close” to hiring a general manager to further support growth in the North America region, and the brand recently scored its first distribution deal with Dick’s Sporting Goods. Helly will reach Dick’s House of Sports concepts this fall. Baxter said, “That is a fantastic concept, great store, heavy outdoor store, and we will have a really nice product placement there for the first time. That gives you an example about distribution and new stores that we’re getting. There are others too. Our commitment to North America is on track.”

Alkire on the call said Helly is “already a significant contributor to our revenue and profit growth engine.” Within sport, accelerated investments are being planned in geographic, category, and channel expansion, including specific investments toward the U.S. and Alps region in Europe.

Investments in product development, design, and innovation are being made to fuel growth in technical outdoor apparel and footwear. Said Alkire, “Technical outdoor apparel and footwear is the largest category within the broader outdoor market and brings better balance to the revenue and profit seasonality of the Helly business.”

Alkire added that demand for premium workwear “is increasing around the world, driven by a combination of structural factors we believe support years of profitable growth.”

From a profitability perspective, Alkire noted that Kontoor’s goal remains to improve Helly’s operating margin from high-single digits currently to mid-teens through a combination of gross margin expansion and operating expense leverage and synergies.

Alkire said, “We are leveraging our global operating model, supply chain and technology platforms, planning capabilities, as well as Project Genius. The early benefits of these improvements can be seen in better-than-expected profitability and earnings accretion in 2025, in the first quarter of 2026, where operating margin has nearly doubled as compared to a year ago.”

Wrangler Eyes Growth In Women’s
Wrangler’s growth has been slower, expanding low single-digits over the last three years, but 2025 marked the strongest recent year for the brand and the latest quarter marked the denim brand’s 16th consecutive quarter of market share gains in men’s and women’s bottoms, as measured by Circana. Said Baxter, “We expanded market share in our core bottoms business and drove double-digit gains in female, western, and D2C. Our investments in talent, product, and demand creation have resulted in remarkable consistency.”

Baxter described Wrangler as “authority in Western lifestyle,” offers an “attractive value proposition” to its core customer and has “significant white space opportunities” in specialty channels, with females, and direct-to-consumer. The CEO said, “With our team entirely focused on Wrangler, I am confident the brand’s best years are ahead.”

Accelerated investments are planned for Wrangler’s to expand the women’s business, including areas such as product development, design, and demand creation according to Alkire. He noted that the women’s denim market, as measured by Circana, is larger than men’s, and Wrangler’s female business comprises just 10 percent of revenue today. He said, “The runway for growth is significant.”

Other growth opportunities for Wrangler include non-denim categories, including tops and bottoms; digital; and owned full-price stores in the U.S.

Alkire noted that beyond enabling a “sharper focus” on Wrangler and Helly, the Lee divestiture strengthens Kontoor’s long-term TSR (total shareholder return) algorithm, “driven by stronger revenue and earnings growth and durable cash generation.”

Kontoor’s category mix is expected to improve with its two remaining brands sitting within the combined $400 billion outdoor workwear and denim markets globally. Alkire said, “These large addressable markets have structural tailwinds that afford attractive long-term growth opportunities.”

The divestiture further “enhances the quality of our distribution footprint and favorably shifts our portfolio towards the higher growth DTC channel.”

Finally, Alkire noted that the divestiture “significantly increases” its capital allocation optionality, with proceeds from the divestiture accelerated share repurchases and reduce debt. Kontoor expects to reach an agreement on the divestiture later this year with initial outreach conducted in the first quarter attracting “strong interest from multiple parties.”

First-Quarter Results Top Expectations
First quarter revenue, including the contribution from discontinued operations, was $808 million, topping analysts’ consensus estimate of $784.76 million.

Revenue from Lee of $195 million is now reported in discontinued operations. Revenue from continuing operations of $613 million exceeded expectations, driven by 4 percent growth in Wrangler and 16 percent growth in Helly on a pro-forma basis

Earnings, including the contribution from discontinued operations, more than doubled to $92.4 million, or $1.65 a share from $42.9 million, or 76 cents. EPS results were well above analysts’ consensus target of $1.14.

On an adjusted basis, EPS from continuing operations was $1.06, including a 26-cents-a-share contribution from Helly, up from 62 cents a year ago.

Adjusted gross margin expanded 470 basis points to 50.6 percent, driven by the benefits of Project Genius, the contribution from Helly Hansen, and channel mix. This was partially offset by increased product costs, net of pricing actions. Helly Hansen was accretive to adjusted gross margin by approximately 200 basis points.

Adjusted SG&A increased 60 percent compared to prior year, driven by the Helly addition, as well as increased investments in demand creation, DTC, and volume-based variable expenses. These increases were partially offset by the benefits of Project Genius. Adjusted SG&A includes the impact of unmitigated expenses previously allocated to the Lee business that have now been reported in discontinued operations.

Operating income from continuing operations was $90 million on a reported basis. On an adjusted basis, operating income from continuing operations was $87 million and increased 60 percent compared to prior year. Operating income includes $8 million of overhead and other expenses that were previously allocated to the Lee business.

Helly Hansen’s Pro-Forma Sales Expand 16 Percent
Helly’s global revenue of $176 million increased 16 percent compared to prior year on a pro forma basis. The brand was acquired on June 2, 2005. Sport and Workwear revenue was $120 million and $45 million, respectively. Musto brand revenue was $11 million.

Within sport, Helly’s growth was balanced across all channels in North America and Europe. Alkire said, “Sell-through is strong, retail inventory levels are clean, and order books are healthy. Within workwear, strong momentum has carried into the year, led by growth in the Nordics and Southern and Eastern Europe.”

Helly’s reported revenues exclude the direct contribution of the China joint venture with partner, Youngor. In China, Helly’s revenue jumped approximately 100 percent, along with further improvement in profitability. Including the China JV, Helly’s global revenue increased by more than 20 percent on a pro-forma basis.

“While still early, the acquisition of Helly is off to a great start,” said Alkire. “We’re driving significant benefits as a more synergistic brand owner and expect the business to be a significant contributor to revenue and earnings growth in the years ahead.”

More details on Helly’s growth trajectory will be provided at an Investor Day in Norway in September.

Wrangler Delivers 2 Percent Growth in Q1
Wrangler’s global revenue increased 2 percent to $436 million, driven by 9 percent growth in DTC and 2 percent growth in wholesale. In the U.S., revenue increased 1 percent, driven by 6 percent growth in DTC and 1 percent growth in wholesale. Growth was broad-based, driven by strength in denim, female, and western. As measured by Circana, Wrangler gained over 100 basis points of market share in the men’s and women’s bottoms business

Wrangler international revenue increased 20 percent compared to prior year, driven by a 38 percent increase in direct-to-consumer and a 17 percent increase in wholesale.

Tariff Update
Given the U.S. Supreme Court’s recent ruling over tariffs, Kontoor no believes it is probable that it will recover the IEEPA tariffs previously paid and therefore has recognized a net receivable of $54 million as of March 2026. As a result, during the first quarter of 2026, the company reduced cost of goods sold by approximately $49 million on a reported basis, representing the reversal of expense for IEEPA tariffs on inventory previously sold. Of the $49 million reduction in cost of goods sold, $29 million was related to tariffs expensed in 2025. On an adjusted basis, the company has excluded the impact of the reversal of expense for 2025-related IEEPA tariffs on first quarter results and in the updated 2026 outlook.

Updated Outlook

  • Full year revenue outlook, including the contribution from discontinued operations, is now expected to be in the range of $3.41 to $3.46 billion ($3.40 to $3.45 billion prior). Expected revenue from Lee of approximately $750 million now reported in discontinued operations. Full year revenue outlook from continuing operations is now expected to be in the range of $2.66 to $2.71 billion.
  • Full year adjusted EPS outlook, including the contribution from discontinued operations, is now expected to be in the range of $6.60 to $6.70 ($6.40 to $6.50 prior)

Image courtesy Helly Hansen