Clothing company Kontoor Brands (NYSE:KTB) met Wall Street’s revenue expectations in Q1 CY2025, but sales fell by 1.3% year on year to $622.9 million. The company’s full-year revenue guidance of $3.08 billion at the midpoint came in 16.7% above analysts’ estimates. Its non-GAAP profit of $1.20 per share was 3.1% above analysts’ consensus estimates.
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Kontoor Brands (KTB) Q1 CY2025 Highlights:
- Revenue: $622.9 million vs analyst estimates of $625.1 million (1.3% year-on-year decline, in line)
- Adjusted EPS: $1.20 vs analyst estimates of $1.16 (3.1% beat)
- Adjusted EBITDA: $103.6 million vs analyst estimates of $100.3 million (16.6% margin, 3.3% beat)
- The company lifted its revenue guidance for the full year to $3.08 billion at the midpoint from $2.66 billion, a 15.6% increase
- Management raised its full-year Adjusted EPS guidance to $5.45 at the midpoint, a 3.8% increase
- Operating Margin: 11.8%, down from 13.4% in the same quarter last year
- Free Cash Flow Margin: 12%, up from 8.2% in the same quarter last year
- Constant Currency Revenue fell 1% year on year (-6% in the same quarter last year)
- Market Capitalization: $4.04 billion
StockStory’s Take
Kontoor Brands’ first quarter results reflected the impact of a dynamic consumer environment and operational initiatives aimed at stabilizing margins. Management attributed flat year-over-year revenue to a combination of strong performance from Wrangler—particularly in digital and the female segment—and ongoing challenges in the Lee brand as it undergoes a strategic repositioning. CEO Scott Baxter highlighted that operational agility, supply chain strength, and targeted marketing investments allowed the company to offset softer trends in North American retail, stating, “Despite a slowdown in POS mid-quarter, operational agility and the strength of our supply chain drove a significant increase in gross margin and better-than-expected earnings and cash flow.”
Looking ahead, management pointed to the acquisition of Helly Hansen as a significant contributor to the company’s upgraded full-year outlook. CFO Joe Alkire emphasized improvements in capital allocation, anticipated cost synergies, and a robust approach to tariff mitigation as key drivers of the raised guidance. He reiterated that the integration of Helly Hansen is expected to deliver immediate revenue and earnings accretion, while ongoing operational initiatives such as Project Jeanius are set to mature, providing additional flexibility and support for long-term growth.
Key Insights from Management’s Remarks
Kontoor Brands’ management focused on the strategic acquisition of Helly Hansen, margin improvement efforts, and brand-specific trends as the key factors shaping Q1 performance. These operational and portfolio moves are intended to diversify revenue streams and underpin future profitability.
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Helly Hansen acquisition progress: The company announced regulatory clearance for its acquisition of Helly Hansen, expecting to close the transaction shortly. Management described the deal as transformative, citing Helly Hansen’s underpenetrated U.S. market position and growth potential in direct-to-consumer and workwear segments. Integration is expected to provide immediate benefits through cost efficiencies and accelerated revenue growth.
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Margin expansion through Project Jeanius: Operational initiatives under Project Jeanius, such as SKU rationalization and supply chain optimization, contributed to a 200-basis-point increase in adjusted gross margin. Management noted that these improvements are expected to scale globally and provide a foundation for sustained profitability.
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Wrangler brand momentum: Wrangler posted broad-based growth, with digital sales up 15% and female segment revenue surging 40%. The brand gained share in men’s and women’s bottoms, supported by new product lines, collaborations, and marketing campaigns.
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Lee brand repositioning: While Lee’s revenue declined 8%, management reported encouraging early signs from digital channels and upcoming creative campaigns aimed at reinvigorating demand. CEO Scott Baxter stressed that new product launches and enhanced storytelling are beginning to resonate with consumers.
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Tariff mitigation measures: Management addressed the evolving U.S. trade policy landscape, highlighting proactive efforts to shift sourcing, adjust pricing, and leverage supply chain flexibility. These actions are expected to substantially offset the impact of new tariffs over the next 12 to 18 months.
Drivers of Future Performance
Management’s outlook is centered on the transformative impact of the Helly Hansen acquisition, continued gross margin initiatives, and navigating ongoing tariff and consumer headwinds.
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Helly Hansen synergy realization: The integration of Helly Hansen is expected to drive incremental revenue and operating margin gains. Management believes that supply chain efficiencies and expanded distribution will enable Helly Hansen to achieve mid-teens operating margins over time, while also diversifying Kontoor Brands’ portfolio.
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Project Jeanius cost savings: Ongoing cost management through Project Jeanius, including SKU simplification and supply chain improvements, should continue to support margin expansion and operating leverage, even as input cost tailwinds moderate in the second half of the year.
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Tariff and macro risk management: Management is prioritizing flexibility in inventory and expense management to address potential tariff impacts and macroeconomic volatility. The company expects to substantially offset tariff-related headwinds within 12 to 18 months through production shifts and other mitigating actions.
Top Analyst Questions
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Ike Boruchow (Wells Fargo): Asked about the state of the U.S. consumer and retail partners. CEO Scott Baxter responded that consumer resilience has improved, and retail trends turned positive in May after volatility earlier in the year.
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Brooke Roach (Goldman Sachs): Inquired about the timeline for a Lee brand turnaround. CEO Baxter stated that digital traction is strong and expects the brand to return to growth, with a major equity campaign debuting in the fall.
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Paul Kearney (Barclays): Sought clarity on the $50 million unmitigated tariff impact and supply chain responses. CFO Joe Alkire explained that Mexico is now exempt under USMCA, reducing Kontoor’s exposure, and highlighted ongoing efforts to optimize sourcing.
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Peter McGoldrick (Stifel): Asked about the anticipated pace of Helly Hansen’s revenue and margin contribution. CFO Alkire projected high single-digit growth for Helly Hansen and margin uplift, while noting seasonality and workwear stability.
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Laurent Vasilescu (BNP Paribas): Queried the confidence behind second-half organic growth guidance. CEO Baxter pointed to product innovation, distribution gains, the Target partnership, and improving international performance as supporting factors.
Catalysts in Upcoming Quarters
In the coming quarters, the StockStory team will track (1) the integration progress and financial contribution of Helly Hansen, particularly regarding supply chain synergies and U.S. market expansion, (2) the trajectory of gross margin improvements and Project Jeanius cost savings as these initiatives scale globally, and (3) the effectiveness of ongoing tariff mitigation strategies and their impact on operating profit. The performance of Wrangler’s female and digital businesses, as well as the Lee brand’s repositioning, will also serve as important milestones.
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