The former denim unit of VF Corp. acquired a leading global outdoor brand from a Canadian tire retailer after VF, the parent of The North Face, Altra, Jansport, Vans, Dickies and Timberland divested the denim business because it did not fit with its outdoor and street lifestyle portfolio, giving away a major source of consistent cash flow for the company.

No one had that on their bingo card for Wednesday morning, February 19.

Kontoor Brands, Inc. (KTB), the VF-offshoot parent of the Wrangler and Lee brands, has signed a definitive agreement to acquire 100 percent of Helly Hansen from Canadian Tire Corporation (CTC).

CTC reports in thee Canadian dollar (CN$) and Kontoor Brands reports in U.S. dollars ($).

Helly Hansen’s worldwide revenue in 2024 was CN$894 million ($629 million), including sales to CTC. The company said 2024 EBITDA was CN$102 million ($72 million) on a Canadian IFRS basis. Adjusted EBITDA for 2024 was CN$76 million ($53.5 million) under the pre-IFRS 16 accounting standard employed by CTC at the time of the Helly Hansen acquisition.

In conjunction with the transaction, CTC also expects to continue to sell Helly Hansen products under its banner under a multi-year supply agreement with Kontoor Brands.

“We are thrilled to welcome the Helly Hansen team into Kontoor Brands and to build a future together that creates significant value for all our stakeholders,” said Scott Baxter, president, CEO and chairman of Kontoor Brands, Inc. “Given our global platform and proven track record of operational excellence in owning brands rooted in heritage, quality, authenticity and innovation, Kontoor Brands is uniquely positioned to partner with Helly Hansen management to scale and elevate the business globally.

Baxter said the acquisition of Helly Hansen was the perfect fit for KTB’s strategy to evolve and expand its brand portfolio, accelerate growth and deliver long-term value for its shareholders.

“Our strong balance sheet and operating cash flows provide us with significant capital allocation optionality, which we are employing in the acquisition of Helly Hansen,” shared Joe Alkire, EVP and CFO of Kontoor Brands. “The acquisition will accelerate our growth and earnings potential while enhancing our already strong cash flow profile. We have deep management expertise in the attractive outdoor and workwear growth categories, and expect the addition of Helly Hansen to drive accretive returns to our existing TSR commitment, supporting strong and sustainable long-term value creation for all stakeholders.”

When VF Corp. spun off the Wrangler and Lee brands to a new publicly-traded company set up as Kontoor Brands in May 2019, analysts said then that the company was selling off a large segment of its cash flows that could impact the company down the line. That observation came to pass over the last few years, causing VF Corp. to jettison other brands, sell off assets, and cut expenses and headcount.

The spin-off was achieved through the distribution to VF’s shareholders of one share of Kontoor Brands common stock for every seven shares of VF stock held at the close of business on the record date of May 10, 2019.

The company said the acquisition of Helly Hansen builds on Kontoor’s success and advances its strategic and financial growth agenda.

Acquisition Highlights

Accelerates Revenue, Earnings Growth and Cash Flow Profile, and Increases Penetration in the Large and Growing Outdoor and Workwear Categories Globally

  • Accelerates Kontoor’s growth profile, driven by a best-in-class product and innovation pipeline, with multiple category, geographic and channel expansion opportunities
  • Scales Kontoor’s penetration in the large and growing Outdoor and Workwear markets globally
  • Opportunity to double Helly Hansen’s operating margin and drive significant cash flow contribution over time through improved profitability and net working capital management

Diversifies Kontoor’s Portfolio Across Channels, Geographies, Categories and Consumers

  • Complementary geographic, category and channel footprint provides significant diversification benefits;
    Leverages Kontoor’s strong U.S. presence while providing International scale benefits in Europe, Non-U.S. Americas, and Asia Pacific; and
  • Provides access to affluent, active, and younger consumer base.

Leverages Kontoor’s Global, Multi-Brand Operating Platform and Management Expertise

  • Helly Hansen to benefit from Kontoor’s scaled, multi-brand global operating platform;
  • Helly Hansen is a more synergistic fit as part of a global, brand operator ownership structure;
  • Meaningful sources of synergies identified across Kontoor’s supply chain platform, technology capabilities, tax structure, and other scale and operating efficiencies;
  • Leverages Kontoor’s deep management expertise in outdoor and workwear categories globally;
  • Strong cultural alignment and proven Helly Hansen management team with long track record of success
  • Fast Path to Reduce Financial Leverage;
  • Expect to fund the transaction through a combination of excess cash on hand and new debt financing.
    Net leverage expected to be less than 3x trailing twelve months’ pro forma adjusted EBITDA at the transaction close date; and
  • On a combined basis, strong cash generation supports return to targeted net leverage range of between 1.0x and 2.0x within 12 months.

Immediately Revenue, Earnings and Cash Flow Accretive with Opportunity to Drive Significant Shareholder Value Creation and Enhance Long-Term Capital Allocation Optionality

  • Expect to deliver strong financial returns and meaningful earnings and cash flow accretion in 2025, excluding synergies;
  • Expect to achieve meaningful synergies over time, supported by operating efficiencies and improved net working capital management;
  • Accelerating operating profit and cash flow supports increased capital allocation optionality once financial leverage has been reduced; and
  • Accretive to Kontoor Brands’ existing TSR commitment through enhanced fundamental growth model.

Transaction Details

  • The Board of Directors of Kontoor Brands has approved the transaction.
  • Total purchase price is CN$1.28 billion (~$898 million), subject to closing adjustments.
  • The transaction is expected to close in the second quarter of 2025, subject to receiving all regulatory approvals and other customary closing conditions, as well as signing the supply agreement between the two parties.
  • Kontoor expects to finance the transaction with cash on hand and new debt.

Advisors

  • Morgan Stanley & Co. LLC is Kontoor Brands’ exclusive financial advisor, and Foley & Lardner LLP is its legal advisor.
  • Goldman Sachs & Co. LLC is Canadian Tire Corporation’s exclusive financial advisor, and Norton Rose Fulbright Canada LLP is its legal advisor.

Kontoor Brands Preliminary Fourth Quarter Results

  • Fourth quarter 2024 revenue of ~ $699 million increased 4 percent (+ 5 percent constant-currency basis) compared to the prior-year Q4 period.
  • Fourth quarter 2024 reported gross margin came in at ~ 43.7 percent. Adjusted gross margin of ~ 44.7 percent increased 160 basis points compared to the prior-year comp quarter on an adjusted basis, excluding the out-of-period duty charge in that period.
  • Fourth quarter 2024 reported EPS was ~ $1.14 per share. Adjusted EPS of ~ $1.38 increased 2 percent compared to the prior-year quarter on an adjusted basis, excluding the out-of-period duty charge in that period. Adjusted EPS in the prior-year quarter was said to be positively impacted by a discrete tax benefit. Excluding these impacts, fourth quarter 2024 adjusted EPS increased ~ 23 percent.

Preliminary 2024 Balance Sheet and Cash Flows

  • Full year 2024 cash flow from operations amounted to ~ $368 million.
  • Inventory at year-end 2024 was ~ $390 million, down 22 percent year-over-year.

Image courtesy Helly Hansen