What is the visibility today to mid-single-digit back half revenues at Helly Hansen based on order books and real-time sell-throughs, and what are the drivers of further profit improvement in the back half?

Joe Alkire stated that the raised outlook is based on high confidence and visibility for both brands, driven by stronger gross margin. He noted that investment is going into data, analytics, consumer insights, demand creation, and talent. Profitability improvement is meaningful, driven by Helly's gross margin benefits from Kontoor's platform, improved inventory management, and synergies. No improvement in the overall environment is assumed in the back half. “From a year-over-year perspective, on a full-year basis, there's some pretty meaningful puts and takes within our gross margin evolution. We expect Helly to be accretive by more than 100 basis points.”

Helly Hansen's $2 million profit in Q2 seems impressive given seasonality. Can you provide more context on how notable this is and when the brand last made a profit in its smallest quarter?

Joe Alkire confirmed that achieving positive operating profit in Helly Hansen's seasonally smallest quarter is a significant achievement. He attributed it to gross margin improvements from Kontoor's platform (sourcing, logistics, planning), better inventory quality, increased full-price selling, reduced promotions, and synergies. He expressed increased confidence in the mid-teen operating margin target for Helly Hansen. “Look, while small, it's a pretty big deal. We -- I don't know when the last time, if ever, the Helly business generated positive operating profit in its seasonally smallest quarter.”

Given the discrepancy between prior expectations for 2027 EPS (above $7) and current Street estimates (below $6.50) after the Lee sale, how does Kontoor view its 2027 EPS power at a high level?

Joe Alkire provided a high-level framework for 2027 EPS. He noted the baseline continuing operations EPS of $5.25-$5.35 for 2026 is burdened by $0.55 of Lee-allocated expenses, which they expect to offset over 12-18 months. Through strong capital deployment (ASR, debt repayment), they believe they can offset Lee's $0.90 operating earnings contribution, bridging to a pro forma run rate of $6.70-$6.80, before accelerated growth in Wrangler and Helly. “So all that to say, this is why we keep highlighting we expect the divestiture of Lee to be immaterial to EPS on a 12-month to 18-month basis.”

KTB

Kontoor Brands (KTB) Q2 FY26 earnings call: guidance and Q&A

Earnings call· Jun 2026 (Q2 FY26)· Consumer Discretionary· Aug 12, 2026

Source: earnings call transcript

Executive summary

Kontoor Brands Q2 FY26 — Strong Helly Hansen Integration and Wrangler Momentum Drive Raised Outlook

Kontoor Brands delivered a strong Q2 FY26, driven by the successful integration and outperformance of Helly Hansen and continued momentum in Wrangler's female, DTC, and Western categories. The company raised its full-year outlook, reflecting strong year-to-date results and confidence in its strategic priorities, including the upcoming Lee divestiture and significant capital allocation plans. Management is focused on offsetting stranded costs from the divestiture and navigating a cautious retail environment and new tariff landscape, while investing in brand building and growth initiatives.

Highlights

Helly Hansen revenue tracking ahead of acquisition plan, with pro forma reported revenue growing at a low double-digit rate in H1 FY26.
Helly Hansen operating margin expanded approximately 600 basis points to 7% through H1 FY26, delivering positive operating profit in Q2 FY26, its seasonally smallest quarter.
Wrangler global revenue increased 3% on a reported basis in H1 FY26, with female business growing 20% and gaining over 100 basis points of share in core bottoms business.
Project Genius is on track to exceed $100 million in gross savings, solidifying a continuous improvement mindset.
Adjusted gross margin for H1 FY26 was 52.2%, well above the previously communicated outlook of 50.5%, contributing to a full-year outlook raise.

Concerns

The Lee divestiture is expected to result in approximately $0.55 per share of unmitigated expenses (stranded costs) in the near term.
Retailers remain cautious with inventory management and forward inventory commitments, with inventory levels at retail down high single to low double digits in certain markets.
New Section 301 tariff rates of between 10% and 12.5% on products imported from the majority of current trading partners became effective July 2026.

Guidance & targets

Category	Target	Timeline	Confidence
Full-year Revenue	$2.66 billion to $2.71 billion high materiality	FY26	High
Second Half Revenue	$1.46 billion to $1.51 billion medium materiality	H2 FY26	High
Full-year Adjusted Gross Margin	49.8% to 50% high materiality	FY26	High
Full-year Adjusted SG&A Expenses Growth	increase approximately 23% medium materiality	FY26	High
Full-year Adjusted Operating Income	$413 million to $420 million high materiality	FY26	High
Full-year Adjusted EPS	$5.25 to $5.35 high materiality	FY26	High
Full-year Effective Tax Rate	approximately 20% low materiality	FY26	High
Diluted Average Share Count	approximately 55.5 million low materiality	FY26	High
Total Cash from Operations	approximate $450 million high materiality	FY26	High
Voluntary Term Loan Payments	$225 million medium materiality	FY26	High
Net Leverage Ratio	below 1.5 times high materiality	FY26	High
Total Capital Returned	more than $900 million high materiality	FY26	High
Lee Divestiture EPS Impact	immaterial to earnings per share high materiality	12-18 month basis	High
Stranded Costs Offset (Lee Divestiture)	offset the approximate $40 million high materiality	12-month to 18-month period	High

Segment performance

Segment	Revenue	YoY	QoQ	Margin
Wrangler Global Global revenue increased 1% in Q2, driven by strong DTC growth. The US business saw 1% growth, with DTC up 9% and wholesale flat. Female and Western categories showed robust growth in H1. International revenue grew 8%, with significant DTC expansion. The brand continues to gain market share in core bottoms. H1 FY26 Global Revenue Growth: +3% reported basisQ2 FY26 US Revenue Growth: +1%Q2 FY26 US DTC Growth: +9%Q2 FY26 US Wholesale Growth: relatively flatH1 FY26 Female Revenue Growth: +20%H1 FY26 Western Revenue Growth: low double-digitsQ2 FY26 International Revenue Growth: +8%Q2 FY26 International DTC Growth: +27%Q2 FY26 International Wholesale Growth: +4%Core Bottoms Market Share Gain (Circana): +100 bpsConsecutive Quarters of Share Gains: 17POS (bottoms business) YTD through July: +3%	—	+1%	—	—
Helly Hansen Global Global revenue of $114 million increased 6% pro forma in Q2, exceeding expectations. H1 saw 12% pro forma growth. The brand achieved positive operating profit in Q2, its seasonally smallest quarter, driven by gross margin expansion and expense synergies. Growth was strong in Sport ($70M) and Workwear ($37M) segments, particularly in the US, Nordics, and Alps region. The China JV also saw significant revenue growth. H1 FY26 Pro Forma Reported Revenue Growth: +12%H1 FY26 Underlying Constant Currency Growth: mid-single-digit rangeH1 FY26 Operating Margin: 7%H1 FY26 Operating Margin Expansion: ~600 bpsQ2 FY26 Sport Revenue: $70MQ2 FY26 Workwear Revenue: $37MQ2 FY26 China JV Revenue Growth: +70%Q2 FY26 Global Revenue Growth (incl. China JV): mid-teen rate pro forma	$114M	+6%	—	positive operating profit

Product announcements

Product	Type	Timeline	Details
Wrangler TufLite jeans	launch	last month
Helly Hansen Crew and Life of Marino	update	going into next year

Deals & partnerships

ABG (Authentic Brands Group) Divestiture of the Lee brand.

The divestiture of Lee is progressing well with important milestones cleared. Teams are working smoothly with ABG. Kontoor intends to use proceeds for capital returns and debt reduction.

Youngor China joint venture for Helly Hansen.

Helly Hansen's revenue results exclude the direct contribution of the China joint venture, as results are not consolidated under the equity method of accounting. The JV showed strong Q2 results.

Risks & headwinds

Stranded costs from Lee divestiture 12-month to 18-month period

$0.55 per share of unmitigated expenses; approximate $40 million of stranded costs

Mitigation:Plans are well underway to offset these costs through a combination of restructuring and other mitigating cost actions, starting upon close of the transaction. Strong capital deployment tools (ASR, debt payments) will bolster earnings power.

Retailer caution on inventory management

Inventory levels at retail down high single, if not low double digits in certain parts of the market; impacts sell-in quarter-to-quarter.

Mitigation:Kontoor has not assumed in its forward growth plans that POS improves or inventory at retail improves from current levels, consistently taking a conservative approach to its outlook.

New Section 301 tariffs Effective July 2026

New rates of between 10% and 12.5% on products imported from majority of trading partners (China and Vietnam at 12.5%)

Mitigation:The 2026 outlook continues to assume a 15% reciprocal tariff rate for the second half of 2026. Imports from Mexico to the U.S. remain exempt under USMCA.

What to watch in Q3 FY26

Lee Divestiture Completion

Q4 FY26

Current On track to complete in Q4 FY26

Target Completion of transaction

Why it matters

The completion of the Lee divestiture is critical for the company to fund its $400M ASR, pay down debt, and focus solely on Wrangler and Helly Hansen's growth.

The divestiture is progressing well. We have cleared a number of important milestones and are on track to complete the transaction in the fourth quarter.

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Q&A highlights

Could you elaborate on the brand-building investments and the opportunity to accelerate total portfolio top and bottom line growth into the back half of this year and multiyear, given Wrangler's acceleration and Helly's outperformance?

Scott Baxter highlighted new customer acquisitions for Wrangler (Lowe's) and Helly Hansen (Dick's House of Sport), continued strength in Wrangler's Western and female businesses, and the reinvigoration of Helly's Crew and Life of Marino platforms. He emphasized the upcoming focus on Wrangler as a denim-only brand post-Lee divestiture, which is expected to accelerate growth.

“I think the single most important thing for me, which I think is going to be incremental to our business, and I am really excited about this is that we, in Q4 are going to be focused on denim brand only.”

asked by Matthew Boss · answered by Scott Baxter

3 min read 6 chapters

Detailed narrative

Helly Hansen Integration and Performance

Kontoor Brands celebrated the one-year anniversary of the Helly Hansen acquisition, with the brand tracking ahead of its acquisition plan. Pro forma reported revenue grew at a low double-digit rate in the first half of FY26, exceeding the high single-digit outlook.

Operating margin expanded approximately 600 basis points to 7% in H1 FY26, driven by gross margin expansion and expense synergies. The company is investing in talent, separating sport and workwear commercial organizations, and creating two GMs in North America to drive increased focus.

Helly Hansen delivered positive operating profit in Q2 FY26, its seasonally smallest quarter, a notable achievement.

Wrangler Momentum and Strategic Focus

Wrangler global revenue increased 3% in H1 FY26, in line with expectations. The brand gained over 100 basis points of market share in its core bottoms business, marking the 17th consecutive quarter of gains. The female business grew 20% in H1, with trends accelerating in Q2, supported by investments in talent, product development, and demand creation.

Western revenue also grew low double-digits in H1. Post-Lee divestiture, Kontoor plans to focus all attention on growing Wrangler to its full potential, including expanding its full-price DTC retail fleet in the heartland of Wrangler Country, with two new Texas stores opening in early 2027.

Project Genius and Cost Excellence

Project Genius is in its final stretch and is firmly on track to exceed $100 million in gross savings, creating investment capacity and solidifying a continuous improvement mindset within the company's culture. Building on this success, Kontoor has established an "always-on" cost excellence program to create further capacity for brand building and growth-enabling investments across its portfolio.

This program is expected to provide another layer of investment capacity and earnings power moving forward, supporting accelerated revenue growth and expanding profitability.

Capital Allocation and Lee Divestiture

The divestiture of Lee is progressing well and is on track to complete in Q4 FY26. Kontoor intends to use the majority of net proceeds to fund a new $400 million Accelerated Share Repurchase (ASR) program, with the remainder used for voluntary debt payments.

The company expects to exit FY26 with a net leverage ratio below 1.5 times and plans to return over $900 million of capital through buybacks, dividends, and debt payments. Management anticipates the divestiture to be immaterial to EPS on a 12-month to 18-month basis, with clear line of sight to offset approximately $40 million in stranded costs.

Tariff Landscape and Mitigation

The global trade environment remains dynamic. Kontoor recognized a net receivable of $54 million for IEPA tariffs previously paid in Q1 FY26, and has received $23 million in refunds in Q3, with the remainder expected by year-end. While Section 122 tariffs were ruled invalid and expired, the company has not recorded a receivable for them.

New Section 301 tariff rates of 10% to 12.5% (China and Vietnam at 12.5%) became effective July 2026. The 2026 outlook assumes a 15% reciprocal tariff rate for the second half of the year, and the company has excluded 2025 IEPA tariff impacts from its 2026 adjusted outlook.

Strategic Investments and Future Growth

Kontoor is increasing its investment in growth opportunities, including approximately $25 million of incremental brand building and growth-enabling investments in FY26. These investments target areas such as data and analytics, consumer insights, demand creation, and talent, particularly in Wrangler's female business and Helly Hansen's North America operations.

The company is developing a comprehensive strategy for accelerated, highly profitable growth, strong cash generation, and enhanced TSR, with more details to be unveiled at the Helly Hansen Investor Day in September.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.