Kontoor Brands, Inc. (KTB Quick QuoteKTB - Free Report) reported stronger first-quarter 2026 results, with revenues and adjusted earnings from continuing operations increasing sharply year over year. The company also updated its full-year outlook and announced plans to divest the Lee business.

During the quarter, the company initiated a competitive process to divest the Lee business and indicated that multiple parties have expressed interest. Management expects to enter into a definitive agreement for the divestiture during 2026, resulting in the Lee business being reported under discontinued operations.

The company also stated that the divestiture is expected to be immaterial to earnings per share over a 12-to-18-month period, as the earnings contribution from Lee is anticipated to be offset through capital deployment initiatives, restructuring actions and mitigation of overhead and other previously allocated expenses.

KTB’s Q1 Key Metrics & Insights

Adjusted earnings per share from continuing operations totaled $1.06, up 71% from the 62 cents in the year-ago quarter. This includes a 26-cent contribution from Helly Hansen. Adjusted EPS also included 11 cents of overhead and other expenses that were previously allocated to the Lee business. Including the contribution from discontinued operations, adjusted earnings per share came in at $1.55. The Zacks Consensus Estimate for earnings is pegged at $1.17 per share.

Kontoor Brands, Inc. Price, Consensus and EPS Surprise

Kontoor Brands, Inc. price-consensus-eps-surprise-chart | Kontoor Brands, Inc. Quote

Revenue from continuing operations increased 45% year over year to $613 million from $423 million, supported by contributions from the acquisition of Helly Hansen, which was completed during the second quarter of 2025. Including discontinued operations, revenues totaled $807.6 million. The Zack Consensus Estimate for revenues is pegged at $778 million.

KTB’s Brand Wise Performance

Wrangler brand global revenue increased 4% year over year (or 2% in constant currency) to $435.8 million, slightly missing the Zacks Consensus Estimate of $437 million. Wrangler U.S. revenue rose 1%, supported by a 6% increase in direct-to-consumer sales and a 1% increase in wholesale revenue. Wrangler international revenue increased 20%, driven by 38% growth in direct-to-consumer sales and a 17% increase in wholesale revenue compared with the prior-year period.

Helly Hansen’s global revenue increased 16% year over year on a pro forma basis to $176 million. Growth was balanced across channels in North America and Europe, while Workwear momentum remained strong. Including the China joint venture, Helly Hansen’s global revenue increased more than 20% on a pro forma basis. Sport and Workwear revenues totaled $120 million and $45 million, respectively, while Musto revenues were $11 million.

Kontoor Brands’ Margin & Cost Performance

Profitability improved meaningfully on an adjusted basis. Adjusted gross margin from continuing operations expanded 470 basis points to 50.6% compared with the prior-year period, driven by the impact of Helly Hansen, benefits from Project Jeanius and favorable channel mix. These gains were partially offset by increased product costs net of pricing actions. Adjusted gross margin also included $1 million of overhead and other expenses previously allocated to the Lee business.

Adjusted Selling, general & administrative expenses (SG&A) expenses from continuing operations increased 60% year over year to $223.7 million from $139.9 million, with adjusted SG&A expenses representing 36.5% of revenue. The increase was primarily driven by the impact of Helly Hansen, higher demand creation and direct-to-consumer investments and volume-based variable expenses, partially offset by benefits from Project Jeanius. Adjusted SG&A expenses also included $7 million of overhead and other expenses previously allocated to the Lee business.

On an adjusted basis, operating income from continuing operations increased 60% year over year to $86.8 million, reflecting improved operating performance compared with the prior-year period.

Kontoor Brands’ Cash Returns Rise With New Buyback Plan

Capital allocation was a major theme. The board approved a new $750 million share repurchase authorization that replaces the prior program. During the quarter, the company repurchased $25 million of shares under the previous authorization and indicated plans to use most proceeds from the planned Lee divestiture to accelerate future share repurchases. The company also declared a regular quarterly cash dividend of 53 cents per share.

Inventory was $464 million at quarter-end, including Helly Hansen. Kontoor ended the quarter with $56 million in cash and $1.14 billion of long-term debt, while management cited net debt of $1.1 billion.

KTB’s Outlook for Fiscal 2026

For the first half of 2026, the company expects revenue from continuing operations in the range of $1.19 billion to $1.20 billion, supported by approximately 3% growth for Wrangler and high-single-digit pro forma growth for Helly Hansen. Lee's revenue is expected to be approximately $370 million and is now classified under discontinued operations. On a comparative basis, combined revenue guidance of $1.56 billion to $1.57 billion remains consistent with the company’s previous outlook.

For 2026, revenue, including discontinued operations, is now expected to be between $3.41 billion and $3.46 billion, up from the prior range of $3.40 billion to $3.45 billion. Revenues from continuing operations are expected to be between $2.66 billion and $2.71 billion. Lee’s revenues are expected to be approximately $750 million and are now classified under discontinued operations. It also expects solid full-year growth from the Wrangler and Helly Hansen brands.

The company expects adjusted gross margin in the range of 48.3% to 48.5%, representing an increase of 180 to 200 basis points year over year, supported by benefits from Project Jeanius, favorable channel and product mix and the contribution from Helly Hansen. Adjusted SG&A expenses are projected to increase approximately 18%, reflecting Helly Hansen's expense annualization and higher investments in demand creation and strategic initiatives. Adjusted operating income is expected to be in the range of $411 million to $418 million, representing 15% to 17% year-over-year growth, while capital expenditures are projected to be approximately $40 million.

Shares of this Zacks Rank 3 (Hold) company have gained 17.5% in the past three months against the industry’s 9.4% decline.

Image Source: Zacks Investment Research

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