Kontoor Brands — Third Quarter 2026 Earnings Summary

Financial Performance:

• Revenue from continuing operations was $685 million, a 3% increase year-over-year.
• Reported gross margin was 48.3%; adjusted gross margin was 48.1%, an increase of 230 basis points year-over-year.
• Reported operating income was $77 million; adjusted operating income was $101 million, a 6% increase year-over-year.
• Reported diluted EPS from continuing operations was $(0.62), including a $1.73 non-cash tax charge related to Helly Hansen intellectual property migration.
• Adjusted diluted EPS from continuing operations was $1.50, a 40% increase year-over-year.
• Inventory was $570 million, down 6% compared to the prior year, driven by reductions in the Helly Hansen business.
• The company ended the quarter with $56 million in cash and cash equivalents and $1.1 billion in long-term debt.
• There were no outstanding borrowings under the Revolving Credit Facility, with $493 million available.

Guidance and Future Outlook:

• Full-year adjusted EPS from continuing operations is raised to $5.40, reflecting approximately 31% growth compared to the prior year (prior range: $5.25 to $5.35).
• Full-year adjusted gross margin is now expected to be 50.0% to 50.2%, an increase of 350 to 370 basis points compared to the prior year.
• Initial 2027 adjusted EPS outlook is at least $6.60, representing growth of more than 20%.
• 2027 cash from operations is expected to be at least $325 million.
• Beyond 2027, the company expects cash flow from operations to exceed $400 million.
• Full-year 2026 revenue is expected to approximate $2.68 billion, representing approximately 12% growth compared to the prior year.
• Full-year 2026 adjusted operating income is expected to approximate $400 million, an increase of approximately 12% compared to the prior year.
• Full-year 2026 adjusted SG&A expenses are expected to increase approximately 25% compared to the prior year.
• Full-year 2026 capital expenditures are expected to be approximately $25 million.
• Full-year 2026 effective tax rate on adjusted pre-tax earnings is expected to be approximately 18.5%.
• Full-year 2026 interest expense is expected to be approximately $57 million.
• Full-year 2026 other income is expected to be approximately $4 million.
• Full-year 2026 average shares outstanding are expected to be approximately 54.8 million.
• Full-year 2026 total cash from operations is expected to approximate $325 million.
• The company expects to make voluntary term loan payments of $280 million in the fourth quarter and achieve a net leverage ratio below 1.5 times by year-end.

Business Segments and Product Lines:

• Wrangler global revenue was $485 million, up 3% year-over-year.
  • U.S. revenue increased 2%, driven by a 7% increase in direct-to-consumer.
  • U.S. wholesale revenue increased 2%.
  • International revenue increased 6%, driven by a 25% increase in direct-to-consumer and a 4% increase in wholesale.
• Helly Hansen global revenue was $191 million, up 3% year-over-year.
  • Sport revenue was $147 million, up 2%.
  • Workwear revenue was $44 million, up 5%.
• Segment profit for Wrangler was $122.959 million, up 6% year-over-year.
• Segment profit for Helly Hansen was $15.308 million, up 91% year-over-year.
• The company successfully completed the divestiture of the Lee business.

Market and Competitive Landscape:

• The company operates as a more focused entity anchored around two iconic brands: Wrangler and Helly Hansen.
• The company utilizes U.S. grown cotton in more than 80% of products sourced from Bangladesh, which may qualify for a duty exemption under the trade framework.
• Imports from Mexico to the U.S. remain exempt under USMCA.
• The outlook assumes a 12.5% reciprocal tariff rate in the fourth quarter based on currently available information.
• The company continues to evaluate the potential impact of the reciprocal trade framework between the United States and Bangladesh.

Risks and Challenges:

• A $1.73 non-cash tax charge was recognized related to the migration of Helly Hansen intellectual property.
• Increased freight expenses and the foreign currency transaction impact of the strengthening U.S. dollar are expected to offset some margin gains.
• Incremental overhead and other expenses previously allocated to Lee are expected to increase SG&A and operating expenses.
• The company faces ongoing litigation related to the potential recovery of Section 122 tariffs, for which no receivable has been recorded.
• Supply chain volatility has led to additional inventory investments in Wrangler and Helly Hansen to support future growth and service levels.
• Elevated one-time costs are expected in 2027 to support the Helly Hansen systems migration and to fully offset expenses previously allocated to the Lee business.

Management Commentary and Tone:

• CEO Scott Baxter stated that third-quarter results were driven by growth in both Wrangler and Helly Hansen, strong earnings, and gross margin expansion.
• Management emphasized execution excellence, the successful completion of the Lee divestiture, and the advancement of the Helly Hansen integration.
• CFO Joe Alkire noted that the company is building a more growth-oriented business through transformation efforts, attracting top-tier talent, and enhancing organizational agility.
• Management expressed confidence in the long-term strategy and significant value-creation opportunity ahead, citing the decision to increase planned share repurchases.
• The company views itself as entering a new chapter as a more focused company with stronger growth profiles.

Other Key Points:

• The company received $698 million in net proceeds from the divestiture of Lee.
• The company expects to repurchase $450 million of common stock in the fourth quarter, including $400 million through an Accelerated Share Repurchase (ASR) program.
• The ASR program is expected to result in the initial delivery of approximately 80% of the expected shares, with final settlement occurring in the first half of 2027.
• Upon completion of the planned fourth-quarter repurchases, the company expects to have approximately $230 million remaining under its existing share repurchase authorization.
• The company expects to return approximately $1 billion of capital in 2026 through share repurchases, dividends, and voluntary debt payments.
• Year-to-date share repurchases totaled $95 million, including $20 million repurchased in the third quarter.
• The Board declared a regular quarterly cash dividend of $0.54 per share, payable on December 18, 2026.
• The company returned $49 million to shareholders through dividends and share repurchases during the third quarter.
• The U.S. Court of International Trade ordered a refund of all IEEPA duties previously paid; the company has received essentially all outstanding refunds.
• The company recognized a net receivable of $54 million in the first quarter of 2026 based on the probability of recovering IEEPA tariffs.
• The company expects the divestiture of Lee to be immaterial to earnings per share over a 12-to-18-month period.
• Fees expected to be received for services supporting the transition of the Lee business will be classified as other income.