Kontoor Brands (KTB 12.55%), the apparel company behind Wrangler and Lee jeans, reported second quarter 2025 results on August 7, 2025. The key news was a robust revenue and profit beat, with both top and bottom lines (non-GAAP) exceeding Wall Street's estimates. Reported revenue (non-GAAP) was $658 million versus the expected $633.7 million, while adjusted earnings per share (EPS) (non-GAAP) hit $1.21, outpacing the $0.83 consensus. The period benefited from strong core business performance, early gains from the Helly Hansen acquisition, and higher profit margins. Overall, the quarter was notably positive, and management raised its annual outlook, though it flagged headwinds from tariffs and integration risk.
| Metric | Q2 2025 | Q2 Estimate | Q2 2024 | Y/Y Change |
|---|---|---|---|---|
| EPS (Non-GAAP) | $1.21 | $0.83 | $0.98 | 23% |
| Revenue (GAAP) | $658 million | $633.7 million | $606.9 million | 8% |
| Gross Margin (Non-GAAP) | 46.4% | 45.2% | 1.2 pp | |
| Operating Income (Non-GAAP) | $100 million | $79.7 million | 25.4% | |
| Net Income (GAAP) | $73.9 million | $51.8 million | 43% |
Source: Analyst estimates provided by FactSet. Management expectations based on management's guidance, as provided in Q1 2025 earnings report.
Business Overview and Recent Strategy
Kontoor Brands operates as a global apparel manufacturer with a portfolio of denim and lifestyle brands. Its most recognizable labels are Wrangler, a classic jeans and lifestyle brand, and Lee, a heritage denim brand. The company has sales channels that include wholesale to major retailers, direct-to-consumer (DTC) stores and e-commerce, and it sells in both domestic and international markets.
In recent years, Kontoor Brands has focused on growing its major brands through product innovation, digital expansion, and marketing collaborations. It has made supply chain efficiency a cornerstone, using an integrated production model close to key markets to boost speed and flexibility. The 2025 strategic acquisition of Helly Hansen, an outdoor and workwear apparel brand, marks a move to diversify its product mix and expand further into the outdoor segment. The core drivers of future success remain brand relevance, supply chain agility, digital engagement, and careful management of economic and trade challenges.
Quarter in Review: Key Developments and Financial Performance
Revenue (GAAP) climbed 8% over the prior year’s quarter, a level that topped company and analyst expectations by $24.3 million or 3.8% (non-GAAP). This outperformance came from a combination of ongoing momentum in Wrangler, cost control in selling and administrative areas, and the initial contribution of Helly Hansen post-acquisition.
Wrangler, the company’s flagship denim and lifestyle brand, grew global revenue 7% to $461 million. Most of this came from the U.S, where sales were up 9%. Wrangler U.S. wholesale increased 8%, and Wrangler U.S. direct-to-consumer revenue jumped 16% on rising digital sales. International Wrangler revenue declined by 4%, mainly due to weaker wholesale, although direct channels held steady. Helped by marketing partnerships and a focus on women’s products.
The Lee brand, aimed at value and mainstream consumers, reported a 6% decline in global sales. U.S. Lee revenue dropped 5%, led down by weakness in wholesale, though DTC grew 3% for Lee U.S. and Lee U.S. digital sales advanced 9%. International Lee sales fell 6%. Management has been repositioning Lee with new product and marketing, with expectations for the brand to return to growth during FY2026.
The acquisition of Helly Hansen, finalized on May 31, 2025, contributed $29 million in revenue for June 2025. Helly Hansen sells technical outdoor apparel, workwear, and the Musto sailing line. In its first month under Kontoor, Helly Hansen posted a $4.8 million segment loss (GAAP), a normal outcome given the seasonality of outdoor retail. For FY2025, its revenue contribution is now expected to be about $455 million, with management projecting a $0.20 adjusted EPS benefit in FY2025.
Gross margin, which measures profit left after production costs, grew year over year to 46.4% on an adjusted (non-GAAP) basis, with improvements attributed to Project Jeanius (a supply chain optimization program), better product mix, and benefits from the new acquisition. On an organic basis—stripping out Helly Hansen—adjusted gross margin rose by 1.0 percentage point. Adjusted operating income rose 25% from the prior year quarter, reflecting higher sales and managed expenses. Operating efficiency was clear in adjusted selling, general, and administrative expenses, which fell 5% organically, even as the company invested in marketing to support the brands.
The company returned $29 million to shareholders in dividends and declared a regular quarterly dividend of $0.52 per share. There was no share repurchase in the period, and the existing repurchase authorization remains but is on hold while the company reduces leverage from the Helly Hansen acquisition. On the balance sheet, cash declined to $107 million, and Long-term debt increased to $1.37 billion following the acquisition. Net leverage is temporarily elevated, but management plans to bring debt relative to earnings (leverage) back to pre-acquisition levels within 18-24 months following the Helly Hansen acquisition.
Looking Ahead: Guidance and Focus Areas
Management raised its full-year outlook. It now expects revenue between $3.09 billion and $3.12 billion, representing 19% to 20% growth versus the prior year, with about 18% of the increase from Helly Hansen. Adjusted gross margin is anticipated at 46.1%. Adjusted operating income is projected at $443 million, and adjusted EPS is expected to be approximately $5.45, including a $0.20 positive effect from Helly Hansen and offsetting $0.40 of headwind from tariffs and higher marketing spend. Cash from operations is expected to surpass $375 million. For Q3 FY2025, management expects revenue of around $855 million—up 28% year over year—and adjusted EPS near $1.35.
Key risks for future periods include the integration of Helly Hansen, higher leverage, and tariff impacts. Guidance also includes a $30 million negative effect from increased tariffs and additional investments. Organic revenue growth (excluding Helly Hansen) is projected at 1% to 2%. The dividend remains at $0.52 per share for the quarter, and no change in share repurchase activity was announced as management focuses on reducing debt. Kontoor Brands' strategic focus areas—brand strength, efficient supply chain operations, geographic and digital expansion, and cautious capital allocation—remain central to its performance in coming periods.
Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.
