Kontoor Brands Q2 FY26 earnings call KTB

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 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 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.

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.

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 impact^🌐s from its 2026 adjusted outlook.

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.