Kontoor Brands, the parent company of Wrangler and Lee, expects an unaddressed impact of $50 million on its 2025 operating income due to new tariff regulations.
Kontoor Brands reported a slight 1% year-over-year revenue decline in the first quarter of fiscal 2025 (Q1 FY25), reaching $623 million. This dip was attributed to a 2% drop in global wholesale revenue, which was partially offset by a 5% increase in direct-to-consumer sales worldwide.
Scott Baxter, president, CEO, and chairman of the board at Kontoor Brands, commented on the results, saying: “Our strong first quarter results reflect the operational agility that is a cornerstone of our business. 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.”
Q1 FY25 Key Performance Highlights
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Domestic Revenue: US revenue remained steady at $493 million.
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International Revenue: A decline of 7% brought international revenue to $130 million.
Brand Performance:
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Wrangler: Global revenue increased by 3% to $420 million, driven by a similar rise in US sales, while international revenue remained unchanged year-over-year.
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Lee: Global revenue for Lee fell by 9% to $200 million, with US sales declining 8% and international sales dropping 11%.
Margins and Earnings:
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The gross margin saw notable growth, reaching 47.5% on a reported basis and 47.7% on an adjusted basis, reflecting an increase of 230 and 200 basis points, respectively.
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Operating income for the quarter stood at $73.29 million on a reported basis, while adjusted operating income rose by 4% to $96 million.
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Net income for Q1 FY25 declined by 28%, landing at $42.88 million, compared to $59.51 million in Q1 FY24. Diluted earnings per share (EPS) dropped to $0.76 from $1.05 year-over-year.
Helly Hansen Acquisition Update
Kontoor Brands announced that it has secured all regulatory approvals for its acquisition of Helly Hansen and expects to finalize the deal by the end of May 2025, pending standard closing conditions. The acquisition is anticipated to add approximately $425 million to the company’s 2025 revenue, contribute around $37 million to adjusted operating income, and boost adjusted EPS by roughly $0.20. Additionally, Helly Hansen is estimated to generate $50 million in operational cash flow for the company in 2025.
Addressing Tariff Challenges and Future Outlook
Kontoor Brands has outlined its strategy to tackle the $50 million impact of recent tariff changes, which are expected to affect operations starting in Q3 FY25. Mitigation measures include strategic price adjustments, optimizing international supply chain processes, improving inventory management, and strengthening supplier relationships. The company aims to counterbalance these financial challenges over a 12 to 18-month timeframe.
For FY25, Kontoor Brands projects revenue between $3.06 billion and $3.09 billion, representing a 17-19% increase from the prior year. Excluding the contribution of Helly Hansen, the company expects a more modest revenue growth of 1-2%, slightly revising its earlier forecast of 1-3%.
Scott Baxter expressed his confidence in the company’s resilience, stating: “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.” He added, “We expect the near-term operating environment to remain volatile and tariff policy changes present a significant headwind to our business.”
Concluding on a positive note, Baxter reiterated the company’s focus on executing its long-term strategies: “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.”
Kontoor Brands remains optimistic about its future, leveraging strategic acquisitions and operational agility to navigate the challenges ahead.
