Kontoor (KTB) Q1 2026 Earnings Call Transcript

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Date

Thursday, May 7, 2026 at 8:30 a.m. ET

Call participants

• President and Chief Executive Officer — Scott Baxter
• Executive Vice President and Chief Financial Officer — Joseph Alkire

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Takeaways

• Lee brand divestiture -- Kontoor (NYSE:KTB) announced the decision to divest the Lee brand, with the process initiated in the fiscal first quarter and strong interest from multiple parties, expecting an agreement later this year.
• Wrangler revenue growth -- Wrangler global revenue rose 2%, with U.S. revenue up 1% and international revenue up 9%, including 24% growth in DTC and 7% in wholesale channels.
• Helly Hansen revenue growth -- Global revenue for Helly Hansen reached $176 million, up 16% on a reported basis and high-single digits in constant currency; global revenue including the China JV rose over 20% pro forma.
• Market share -- Wrangler achieved its 16th consecutive quarter of share gains in men’s and women’s bottoms, gaining over 100 basis points in the fiscal first quarter as measured by Circana.
• Adjusted gross margin -- Expanded 470 basis points to 50.6%, driven by Project Genius, Helly Hansen’s contribution, and favorable channel mix; Helly Hansen was accretive to margin by 200 basis points.
• Adjusted SG&A expense -- Reached $224 million, increasing 60% versus prior year due to the Helly Hansen acquisition, higher investments in demand creation, digital, and variable expenses, offset partially by Project Genius.
• Adjusted earnings per share -- Adjusted EPS was $1.06, a 67% increase from prior year, including a $0.26 contribution from Helly Hansen and an $0.11 impact from unmitigated expenses reallocated from the Lee business.
• Inventory -- Ended the quarter at $464 million, which includes Helly Hansen; inventory quality and composition were described as strong.
• Net debt and liquidity -- Net debt stood at $1.1 billion, cash on hand was $56 million, and the $500 million revolver remained undrawn; $250 million in voluntary term loan payments were made since the Helly Hansen closing.
• Share repurchase authorization -- Board approved a $750 million share repurchase authorization to replace the prior program, with $25 million of shares repurchased during the quarter.
• Tariff recovery -- Recognized a net receivable of $54 million for probable recovery of IEPA tariffs as of March 2026, with a $49 million reduction in cost of goods sold (of which $29 million related to 2025 tariffs).
• Full-year revenue outlook -- Total revenue expected in the range of $3.41 billion-$3.46 billion, including discontinued operations; revenue from continuing operations is projected between $2.66 billion-$2.71 billion.
• Adjusted gross margin outlook -- Full-year margin from continuing operations anticipated between 48.3%-48.5%, up 180-200 basis points from the prior year, reflecting Helly Hansen, Project Genius, and mix benefits.
• Adjusted SG&A outlook -- Expected to increase approximately 18% for the year, reflecting Helly Hansen’s full-year impact, higher growth investments, and partial offset from Project Genius and the prior year's 53rd week.
• Adjusted operating income outlook -- Expected between $411 million-$418 million from continuing operations, including $40 million unmitigated expenses formerly allocated to Lee; Lee operating income is expected to approximate $65 million, now classified as discontinued operations.
• Full-year adjusted EPS guidance -- From continuing operations, adjusted EPS is expected in the $5.15-$5.25 range after $0.55 of unmitigated expenses reallocated from Lee; Lee discontinued operations expected to contribute approximately $0.90 to EPS.
• Cash generation and debt paydown -- Full-year cash from operations is projected at $450 million; $225 million in voluntary term loan payments planned, with expectation to end 2026 at or below 1.5x net leverage.
• Dividend -- Quarterly cash dividend held at $0.53 per share.
• Strategic focus -- Management confirmed intent to concentrate all resources and capital on Wrangler and Helly Hansen, aiming to accelerate long-term growth, profitability, and capital allocation flexibility.
• Helly Hansen margin expansion -- Management targets mid-teens operating margin for Helly Hansen over time, citing nearly doubled operating margin versus the previous year in the fiscal first quarter and benefits from integration and portfolio streamlining.

Summary

The call highlighted a transformative portfolio reshaping as Kontoor commits to sharpening its focus on growth, announcing the strategic divestiture of the Lee brand to maximize long-term shareholder value. Management detailed that expected proceeds from the Lee sale will primarily fund accelerated share repurchases, leveraging the new $750 million authorization, and further strengthen the balance sheet through debt reduction. Helly Hansen reported rapid topline growth, with management articulating a clear ambition for further expansion across North America, Europe, and category adjacencies such as technical outdoor and workwear. The Wrangler brand is positioned to benefit from intensified investment, particularly in women's, international, and direct-to-consumer channels, with new store openings in Texas announced and a long-term revenue goal articulated. The company updated its multi-year financial benchmarks, projecting higher adjusted margins, robust cash generation, and an accelerated timeline to sub-1.5x net leverage. Management also confirmed the recognition of a $54 million receivable for tariff recovery as a material short-term benefit reflected in results.

• Management projected that the divestiture of Lee will be "immaterial to earnings per share over a 12- to 18-month period" due to expected offset from cost mitigation and capital deployment.
• The company announced an Investor Day to be held in September in Norway, signaling a forthcoming update on Helly Hansen’s medium-term growth and profitability plan.
• Helly Hansen’s operating margin in the fiscal first quarter "has nearly doubled as compared to a year ago," attributed to integration, mix shift, and synergy realization.
• Wrangler’s addressable women’s market is "larger than men's," while the women’s segment currently comprises just 10% of Wrangler revenue, indicating substantial expansion room.
• Kontoor reported $25 million repurchased shares during the quarter, with the majority of Lee sale proceeds intended for further buybacks, as stated: "the majority of those proceeds we would intend to deploy against the buyback."
• Order books and POS for both Wrangler and Helly Hansen were described as "strong" and "consistent," with clean retail inventory levels supporting growth confidence.

Industry glossary

• Project Genius: Kontoor's internal initiative focused on operational efficiencies, margin improvement, and reinvestment in core business growth.
• IEPA tariffs: Duties related to the International Emergency Economic Powers Act, refunded after regulatory clarification in 2026.
• ALPS region: Geographic area referring to Alpine countries in Europe, a target market for Helly Hansen’s expansion.
• TSR algorithm: Total Shareholder Return formula encompassing management's targeted mix of revenue growth, profitability, capital allocation, and returns for investors.
• DTC: Direct-to-consumer sales channel, referenced for both Wrangler and Helly Hansen growth strategies.
• POS: Point-of-sale data, used to describe retail sales performance and trends.
• DMAs: Designated Market Areas, used to strategize store rollouts based on local market strength.

Full Conference Call Transcript

Scott Baxter: Thanks, Mike, and thank you all for joining us. Today marks an important day for Kontoor. This morning, we announced we have made the decision to divest the Lee brand as part of our strong commitment to maximize value. This decision will allow us to sharpen our focus on the opportunities with the greatest potential to generate returns for our shareholders. We believe this will be a great outcome for Kontoor and the Lee business. Our discussion today will focus on 3 topics: First, our rationale to divest Lee and why now is the right time to do so.

Next, we will discuss where we are in the competitive sale process and why we are confident this result will accelerate value creation. And finally, we will discuss highlights of our first quarter results and provide an update to our stronger 2026 outlook. Since becoming a public company, we have been laser-focused on maximizing shareholder value and have executed a purposeful playbook to drive consistent revenue and profit growth. We established a multi-brand operating platform, executed Project Genius to create investment capacity to fund growth, optimized our supply chain and transformed the portfolio through the acquisition of Helly Hansen. These initiatives have resulted in improving fundamentals, accelerating capital allocation optionality and strong shareholder returns.

As a result, we have delivered over 100% combined TSR since becoming a public company. Two years ago, we recognized the need to capitalize on the opportunity to improve Lee's fundamentals. When we set out to turn the business around, we established a clear road map to do so. We focused on harmonizing talent, product, marketing and distribution to create better alignment with the brand's position as an authority in classic lifestyle denim. While it has not been linear, we are where we expected to be when we started this initiative as seen in Lee's improving fundamentals in 2025. So why choose to divest Lee now?

Our decision to initiate a sales process of the Lee business reflects the significant opportunities we see in both Wrangler and Helly Hansen. Focus is a critical element of our management approach. By dedicating the entirety of Kontoor's resources and capital towards growth-oriented brands, we are confident we can meaningfully accelerate long-term growth and profitability while unlocking significant capital allocation optionality. As we stated last year, when we announced the acquisition of Helly Hansen, our portfolio is built around strategically attractive categories. Outdoor, workwear and denim are large, growing addressable markets with structural tailwinds that afford a meaningful long-term growth opportunity. Importantly, our portfolio is built around function.

We believe function and activity-based brands offer more durable, dependable and sustainable growth characteristics with greater differentiation in the marketplace. As part of the Lee turnaround, we conducted an extensive consumer study. Our learnings confirmed the Lee brand sits outside of our strategic bull's eye. While Kontoor has the organizational muscle and discipline to continue to turn the brand around, we are confident our go-forward resources are better utilized in our remaining brands that are better aligned with our long-term focus. Let's discuss how we will better deploy our resources, starting with Wrangler. Wrangler has grown at a low single-digit rate for over the last 3 years, and 2025 marked the strongest year for the brand.

We expanded market share in our core bottoms business and drove double-digit gains in female, Western and D2C. Our investments in talent, product and demand creation have resulted in remarkable consistency. This quarter is the 16th consecutive quarter of market share gains in men's and women's bottoms as measured by Circana. Wrangler has a unique position in the market. It is the authority in Western lifestyle and offers an attractive value proposition for our core consumer. And its distribution footprint is healthy with significant white space opportunities in specialty, female and direct-to-consumer. With our team entirely focused on Wrangler, I am confident the brand's best years are ahead. Turning to Helly Hansen.

The global opportunity for the brand is significant, and we expect the business to be a substantial contributor to our growth and profit engine. It starts in the U.S., which is the largest outdoor and workwear market in the world. While it is already among Helly's fastest-growing markets, the brand remains significantly underpenetrated relative to its peers. Within sport, aided brand awareness is less than 30%. And within workwear, we are just getting started. Across both sport and workwear, we will accelerate investments in talent, direct-to-consumer and wholesale expansion and demand creation. Through improved focus and increased investment capacity, we see a clear path to double-digit growth in our home market.

We also see opportunities to accelerate investments in new category growth, including technical outdoor apparel and footwear and increased investments in the ALPS region, which like the U.S., remains underpenetrated. We expect to fund these investments through the benefits of our multi-brand platform and remain committed to increasing Helly Hansen's operating margin to mid-teens over time through a combination of gross margin expansion and expense leverage. As a result, we expect a meaningful increase in Helly's fundamental growth and margin profile. We plan to share more details at the Investor Day in September and look forward to seeing many of you there. Before turning it over to Joe, I want to reiterate the confidence I have in our future.

Our decision to divest Lee will enable sharper focus on Wrangler and Helly Hansen and supports greater shareholder returns as we align Kontoor to a higher growth profile. I want to reinforce our commitment to support the Lee brand through the sale process and personally thank the Lee team for getting us to where we are today. As I look ahead, I have never been more confident in our future as we work to deliver the next chapter of Kontoor's value creation journey. Joe?

Joseph Alkire: Thanks, Scott, and thank you all for joining us. Disciplined capital stewardship is a hallmark of our operating model and deeply embedded in the Kontoor way. The optimization of our portfolio by pursuing the divestiture of Lee will allow for greater focus on our largest growth assets that we expect to drive the most value for Kontoor and our shareholders in the years to come. This is a defining moment for Kontoor, and our ongoing transformational actions will result in several important changes within our business moving forward. First, our streamlined brand portfolio architecture will result in sharper focus on Wrangler and Helly Hansen, 2 iconic brands with significant global growth opportunities.

The divestiture of Lee will reduce operational complexity, enable more concentrated and choiceful investments, faster execution and improved returns on our largest strategic initiatives. Within Wrangler, we expect to accelerate investments in our female business, including areas such as product development, design and demand creation. The women's denim market, as measured by Circana, is larger than men's, and Wrangler's female business comprises just 10% of revenue today. So the runway for growth is significant. Further, we will continue to scale our non-denim categories, including tops and bottoms through investments in product and supply chain capabilities. And we expect to invest and supercharge our digital business through improved capabilities in AI, site experience and an expanded loyalty program.

We will also accelerate the pace of growth in our U.S. full-price store footprint as we establish a true omnichannel brand experience for consumers. Wrangler's full-price store in Fort Worth, Texas is a great example and has delivered strong growth and returns since its opening several years ago. We are excited to open additional doors in Texas as we deepen our presence in the heartland of Western Lifestyle and see further expansion opportunities in the Western and Southern United States. These doors further solidify Wrangler's authenticity and will create a unique brand experience that differentiates Wrangler in the marketplace. Turning to Helly Hansen.

Helly is a growth asset and is already a significant contributor to our revenue and profit growth engine. The streamlining of our portfolio will free up enterprise-level resources and investment capacity to further advance our strategic initiatives and position the brand for accelerated growth in 2027 and beyond. Within sport, we intend to accelerate investments in geographic, category and channel expansion. Under the highly capable Helly leadership team, we are bolstering the organization with more meaningful investments in the commercial and product teams. And we are scaling investments in digital and brick-and-mortar retail as well as increased demand creation to drive brand awareness globally.

To fuel accelerated expansion in technical outdoor apparel and footwear, we are making investments in product development, design and innovation. Technical outdoor apparel and footwear is the largest category within the broader outdoor market and brings better balance to the revenue and profit seasonality of the Helly business. Further, we are supporting geographic expansion, including specific investments targeting the U.S. and ALPS region in Europe. Within Workwear, we are accelerating geographic expansion. In the U.S., we are bringing increased focus through dedicated resources across the organization and in areas such as demand creation. The demand for premium workwear is increasing around the world, driven by a combination of structural factors we believe support years of profitable growth.

From a profitability perspective, we remain committed to improving Helly's operating margin from the high-single digits today to mid-teens through a combination of gross margin expansion, operating expense leverage and synergies. We are leveraging our global operating model, supply chain and technology platforms, planning capabilities as well as Project Genius. The early benefits of these improvements can be seen in better-than-expected profitability and earnings accretion in 2025 and the first quarter of 2026, where operating margin has nearly doubled as compared to a year ago. Second, the planned divestiture of Lee strengthens our long-term TSR algorithm, resulting in higher growth, profitability and returns on capital and favorably shifts our portfolio towards higher growth categories, geographies and channels of distribution.

Wrangler and Helly Hansen are strongly positioned within the combined $400 billion outdoor, workwear and denim markets globally. These large addressable markets have structural tailwinds that afford attractive long-term growth opportunities. Helly continues to elevate its place as a leading technical performance brand in the outdoor category with high consumer loyalty. Within Workwear, Wrangler and Helly Hansen are complementary and span the entire price spectrum from value to premium with limited overlap. And within the global denim market, Wrangler's function-based value positioning and year-round replenishment model is supported by longer product life cycles that build product and margin efficiencies. Underpinning our strategic investments for both brands is a clear focus on the consumer.

We are utilizing more robust consumer insights capabilities to better inform future growth opportunities, including category adjacencies, consumer segments and distribution decisions. In addition to improved category mix, the planned divestiture enhances the quality of our distribution footprint and favorably shifts our portfolio towards the higher-growth DTC channel where we have the deepest connection with our consumers and are in the early innings of unlocking new data and analytics capabilities. Our profitability algorithm is also expected to improve. Going forward, we expect to drive further operating margin expansion as we scale Helly Hansen's profitability, while Wrangler's highly efficient operating model supports strong cash generation and returns on invested capital.

As a result, we expect an improvement in our TSR algorithm driven by stronger revenue and earnings growth and durable cash generation. And third, the planned divestiture significantly increases our capital allocation optionality. Expected proceeds from the planned divestiture later this year will enhance our balance sheet flexibility and create greater optionality, including accelerated share repurchases, deleverage and reinvestment in the business. We anticipate the primary use of proceeds from the divestiture of Lee will be used for accelerated share repurchases under our new $750 million authorization.

A portion of the anticipated proceeds are also expected to be used to solidify our balance sheet and reduce net interest expense as we remain committed to exiting 2026 with net leverage at or below 1.5x. Moving on to where we are in the Lee divestiture process. During the first quarter, we initiated a competitive process to divest the Lee business. The process has attracted strong interest from multiple parties, and the company anticipates entering into an agreement to divest the Lee business later this year. As a result, we now report the results of the Lee business as discontinued operations.

Consequently, our near-term P&L on a continuing operations basis will be temporarily impacted by approximately $40 million of full year unmitigated expenses that have previously been allocated to the Lee business. We expect the divestiture of Lee to be immaterial to earnings per share over a 12- to 18-month period. The earnings contribution of the Lee business will be offset through strong capital deployment and mitigation of overhead and other expenses that have previously been allocated to the Lee business through restructuring and other mitigating cost actions. Now let's review our first quarter results, starting with Wrangler. Global revenue increased 2%, driven by 9% growth in DTC and 2% growth in wholesale.

In the U.S., revenue increased 1%, driven by 6% growth in DTC and 1% growth in wholesale. Growth was broad-based, driven by strength in denim, female and Western. POS increased at a low single-digit rate in the first quarter, consistent with trends over the past 12 to 24 months. And as measured by Circana, Wrangler gained over 100 basis points of market share in our men's and women's bottoms business. Wrangler International revenue increased 9%, driven by 24% growth in DTC and 7% growth in wholesale. We believe the brand is well positioned to drive another year of broad-based growth in 2026. Turning to Helly Hansen.

Global revenue of $176 million increased 16% compared to prior year on a pro forma basis. Within Sport, growth was balanced across all channels in North America and Europe. Sell-through is strong, retail inventory levels are clean, and order books are healthy. Within Workwear, strong momentum has carried into the year, led by growth in the Nordics and Southern and Eastern Europe. Moving to China. As a reminder, Helly Hansen's revenue results exclude the direct contribution of the China joint venture with our partner, Youngor, as the results are not consolidated under the equity method of accounting. First quarter results were strong with revenue increasing by approximately 100%, along with further improvement in profitability.

Including the China JV, Helly Hansen global revenue increased by more than 20% on a pro forma basis. While still early, the acquisition of Helly is off to a great start. We're driving significant benefits as a more synergistic brand owner and expect the business to be a significant contributor to revenue and earnings growth in the years ahead, which we will review in more detail at the Investor Day in Norway in September. Moving to the remainder of the P&L. Adjusted gross margin expanded 470 basis points to 50.6%, driven by the benefits of Project Genius, the contribution from Helly Hansen and channel mix. This was partially offset by increased product costs, net of pricing actions.

Helly Hansen was accretive to adjusted gross margin by approximately 200 basis points. Adjusted SG&A was $224 million. Adjusted SG&A increased 60% compared to prior year, driven by the impact of Helly Hansen as well as increased investments in demand creation, DSC and volume-based variable expenses. These increases were partially offset by the benefits of Project Genius. Adjusted SG&A includes the impact of unmitigated expenses previously allocated to the Lee business that have now been reported in discontinued operations. And adjusted EPS was $1.06, increasing 67% compared to prior year. Helly Hansen contributed $0.26 per share. Adjusted EPS includes an $0.11 impact from unmitigated expenses previously allocated to the Lee business that has now been reported in discontinued operations.

Including the contribution from discontinued operations, adjusted EPS was $1.55. Turning to the balance sheet. Inventory at the end of the first quarter was $464 million, including the contribution from Helly Hansen. We are pleased with the quality and composition of our inventory. We finished the quarter with net debt of $1.1 billion and $56 million of cash on hand. Our $500 million revolver remains undrawn. We've made voluntary term loan payments of $250 million since the closing of the Helly Hansen transaction. We intend to use a portion of the expected proceeds from the sale of Lee to further strengthen and fortify our balance sheet.

Earlier today, we announced our Board of Directors approved a $750 million share repurchase authorization, which replaces our prior program. The new program reflects the confidence we have in our business and the opportunities to generate significant value from our optimized brand portfolio. During the quarter, we repurchased $25 million of shares under our prior authorization with additional capacity for future share repurchases given the strong cash generation of the business. In addition, we intend to use the majority of the expected proceeds from the planned divestiture of Lee to accelerate share repurchases. And as previously announced, our Board declared a regular quarterly cash dividend of $0.53 per share. Moving on to tariffs. Following the U.S.

Supreme Court's decision that the Emergency Economic Powers Act does not authorize tariffs, the U.S. Court of International Trade has ordered U.S. Customs and Border Protection to refund IEPA duties. We believe it is probable that we will recover the IEPA tariffs previously paid and therefore, have recognized a net receivable of $54 million as of March 2026. As a result, during the first quarter of 2026, we reduced cost of goods sold by approximately $49 million on a GAAP basis, representing the expense for IEPA tariffs on inventory previously sold. Of the $49 million reduction in cost of goods sold, $29 million was related to tariffs expensed in 2025.

On an adjusted basis, we have excluded the impact of IEPA tariffs expensed in 2025 on first quarter results and in the updated 2026 outlook. Our outlook assumes a 15% reciprocal tariff rate on applicable inventory receipts for the remainder of 2026. For applicable inventory receipts effective February 24, 2026, a 10% reciprocal tariff rate applied and remains in effect. Applicable inventory owned prior to February 24 is exempt from reciprocal tariffs. This updated outlook includes the impact from increases in tariffs on all countries from which we source product with the exception of Mexico. Based on currently available information, our imports from Mexico to the U.S. remain exempt under USMCA.

We are currently evaluating the proposed trade agreement with Bangladesh. We utilize U.S. grown cotton in more than 80% of our products sourced from Bangladesh, which may qualify for a duty-free exemption under the trade agreement. Now let's review our updated outlook. Full year revenue, including discontinued operations, is now expected to be in the range of $3.41 billion to $3.46 billion. This compares to our prior outlook range of $3.40 billion to $3.45 billion. Lee revenue is expected to approximate $750 million and is now reported in discontinued operations.

Revenue from continuing operations is now expected to be in the range of $2.66 billion to $2.71 billion, which has strengthened as compared to the assumptions embedded in our prior outlook. We expect solid growth from both the Wrangler and Helly Hansen brands for the full year. For the first half of 2026, we expect revenue from continuing operations to be in the range of $1.19 billion to $1.20 billion, reflecting approximately 3% growth for Wrangler and high-single-digit growth for Helly Hansen on a pro forma basis. Lee revenue is expected to approximate $370 million and is now reported in discontinued operations. On a comparative basis, combined revenue of $1.56 billion to $1.57 billion is consistent with our prior outlook.

Full year adjusted gross margin from continuing operations is expected to be in the range of 48.3% to 48.5%, representing an increase of 180 to 200 basis points compared to prior year. Our gross margin outlook reflects the benefit of Project Genius, favorable channel and product mix and the contribution from Helly Hansen, partially offset by the increase in product costs and tariffs, net of pricing and other mitigating actions. For the first half of 2026, we expect adjusted gross margin from continuing operations to be in the range of 50.3% to 50.5% representing an increase of 400 to 420 basis points compared to prior year.

Full year adjusted SG&A from continuing operations is expected to increase approximately 18%, reflecting the annualization of Helly Hansen as well as increased investments in demand creation and other strategic growth initiatives, partially offset by Project Genius and the impact of the 53rd week in the prior year. Adjusted SG&A expense includes the impact of $35 million of unmitigated expenses that have previously been allocated to the Lee business now reported in discontinued operations. Adjusted operating income from continuing operations is expected to be in the range of $411 million to $418 million, including approximately $40 million of unmitigated expenses that have previously been allocated to the Lee business now reported in discontinued operations.

Lee operating income is expected to be approximately $65 million, excluding the impact of expenses that have been reclassified. On a comparative basis, operating income, including the expected contribution from the Lee business now reported in discontinued operations is expected to be in the range of $516 million to $523 million compared to our prior outlook range of $506 million to $512 million. Full year adjusted EPS from continuing operations is expected to be in the range of $5.70 to $5.80 before the impact of $0.55 of unmitigated expenses that have previously been allocated to the Lee business now reported in discontinued operations.

Including this impact, adjusted EPS from continuing operations is expected to be in the range of $5.15 to $5.25. The expected EPS contribution from the Lee business now reported in discontinued operations is approximately $0.90 or approximately $1.45, including the impact of the expenses previously allocated to the Lee business that have now been reclassified to continuing operations. We expect the divestiture of Lee to be immaterial to earnings per share over a 12- to 18-month period as the earnings contribution of the Lee business will be offset through strong capital deployment and mitigation of overhead and other expenses that have previously been allocated to the Lee business through restructuring and other mitigating cost actions.

We expect the actions we are taking to offset the earnings impact of the planned Lee divestiture, coupled with stronger growth and profitability from Wrangler and Helly Hansen to result in higher earnings and earnings growth moving forward into 2027 and beyond. For the first half of 2026, adjusted EPS, including the expected contribution from discontinued operations, is expected to be in the range of $2.77 to $2.82. This compares to our prior first half outlook range of $2.25 to $2.30. For the full year, we anticipate an effective tax rate of approximately 20%, reflecting synergy benefits as we integrate Helly Hansen into our global tax platform.

For the first half of 2026, our effective tax rate is expected to approximate 25%. Finally, we continue to expect another year of strong cash generation. Cash from operations is now expected to approximate $450 million, including the expected contribution from the Lee business now reported in discontinued operations. We'll leverage and expand our supply chain and AR financing programs to include Helly Hansen in 2026. These programs and capabilities will be a significant unlock for the business while supporting accelerated cash generation and deleverage. Our outlook assumes voluntary term loan payments of $225 million, excluding potential additional voluntary debt repayments with a portion of the expected proceeds from the planned divestiture of Lee.

We're tracking ahead of our original deleverage plan and anticipate returning to less than 1.5x net leverage by the end of 2026. We expect total acquisition-related debt repayments of $475 million or approximately 70% of the total debt incurred at the close of the Helly Hansen transaction in just 18 months. Before opening it up for questions, a few closing comments. The anticipated divestiture of Lee is a reflection of our disciplined approach to capital allocation and portfolio management and reinforces our commitment to maximize long-term value for shareholders. Our heightened focus on Wrangler and Helly Hansen will allow for increased investment in our 2 largest high-performing, strategically aligned brands that offer the greatest returns.

The transaction also favorably shifts our portfolio toward higher-growth categories, geographies and channels with large addressable markets with attractive growth characteristics. Further, our streamlined portfolio offers sharper brand positioning built on complementary function and activity-based brands with significant global growth opportunities. And importantly, the divestiture will result in an improved TSR algorithm driven by accelerated revenue and earnings growth and strong cash generation that supports increased capital allocation optionality while further strengthening our balance sheet. When coupled with an increased emphasis on a more growth-oriented performance-based culture, I am confident we are on a path to fully unlock the potential of Kontoor Brands and create significant value for our shareholders in the years to come. This concludes our prepared remarks.

I will now turn the call back to the operator.

Operator: [Operator Instructions] The first question is from Ike Boruchow from Wells Fargo.

Irwin Boruchow: I guess 2 questions for me. First, at a high level on Lee. Maybe just more information on kind of how we got here. You guys have put a lot of work into the reset. You were kind of getting comfortable that maybe we were going to stabilize. And I understand you're weighing the pros and cons of owning the brand. But kind of just how did this all play out? Because it kind of felt like you guys have done a lot of work and we're getting ready to see some stabilization.

Scott Baxter: I'll go ahead and kick it off. It's Scott. This really was about us reaching our full potential as a company and how and why. And after the acquisition of Helly Hansen, it really helped us shift into growth mode, which was really, really important for our company, important for our investors that we believe that we have the team and the assets in place to be a real high-level growth company. And Helly really gave us that confidence to do that and how Helly is accelerating.

And then it made us really think about how well Wrangler has been doing and what if we put a full concerted effort in all of our energy and investment from a denim side in Wrangler that we think right now can be a $5 billion global brand, not that long from now in the 2030s. So, when you think about those 2 things and the powerful combination of both, it was just leaning into our strengths and giving Lee a chance to be important to someone else in their portfolio.

And we really wanted to prioritize that growth culture because it's got our folks pretty excited about how well Helly is doing, about how well Wrangler has always done and about the investments we can make and the focus that we can have on those 2 big brands. And I think it's one of those things that we see a great opportunity on both and now it was time to bring that to the marketplace and show everybody why. And so, it's going to be one of those situations now where over time, you're going to see the results of that focus and that investment on the brands and why we pivoted to a growth company.

So we have expectations of even improvement on what they're both doing right now, which is really good, but we have high expectations that both are going to improve because we're going to invest more in both, spend more time and really focus on their efforts going forward. So those expectations will grow with time. We think that is the right time to do it, and we've got Helly under control. We've done an amazing job integrating Helly.

I couldn't be more proud and happy with the team -- both the team in Norway and the team here and the supply chain and the whole group as far as bringing that asset in-house, making sure that it's in a really good place and putting it on a steady course. So that's why the timing of it now. And we have had a lot of discussions like you said. And one of the things that was really important to us, and I want to make this point very clear, is that we were going to make sure that when we did divest this business, we were going to make sure the business was in a good place.

And you heard today in our commentary that the business is in a very good place. So I think I'm really proud of the teams that have been behind that, and it puts us in a good place because we're selling on our front foot, which is the most important thing when you're selling an asset. So that's kind of what our thinking has been.

Irwin Boruchow: Yes. No, that makes sense, Scott. It sounds like you'll probably get a better price because of the work you guys did. I guess my follow-up, I don't know, Scott, if this is you or Joe, and I know this is not going to be an easy answer. But just a follow-up on the whole divestiture and the timing and flow-through of how this plays out. I guess, specifically, the Street is around $7 for next fiscal year. Do you think that number needs to move down based on the time line? Or does that still seem like a reasonable or even a conservative number now, albeit with very different drivers to get there post today's news?

Joseph Alkire: Yes, it's Joe. I can start. Yes, I think short answer is no, I don't think that's an unreasonable number, but it's a question of Horizon. And the reason I say that is until we get the business sold, we get the business closed, we won't have the ability to begin to mitigate these overhead costs that will come back to Kontoor, and we won't have the benefit of the use of proceeds. So big picture, you're going to have the Lee earnings coming out. And then over a period of 12 to 18 months, we'll mitigate those costs. We'll have use of proceeds.

We'll put more investment behind the Wrangler and Helly business, which we believe we can accelerate growth, profitability and returns, et cetera, et cetera. So big picture, no, just how that plays out quarter-by-quarter, we'll see how this process unfolds with Lee.

Scott Baxter: And Ike, I'll make a quick point. No one does it better than us from a cost standpoint. We are best-in-class period. So when I think about the fixed costs that are in the business that we have to go ahead and take care of, I have 100% confidence and guarantee that we will get that done quickly, and we will get all of it period. So no worries there at all.

Operator: The next question is from Bob Drbul from BTIG.

Robert Drbul: Just got a couple of questions from my side, I don't know if Aaron is in the room, but the Helly order book and the distribution expansion plans, can we just talk through the visibility that you have, the U.S. piece specifically, how the order book shaped up for the fall, the door expansion that you were targeting, how that's going? And I guess the other question I have is just on the $750 million share repurchase authorization. Just in terms of is it predicated off of the sale of Lee? Just updated current thoughts around capital allocation and the timing of it.

Scott Baxter: So let me go ahead and start. We are in a really good place, what we committed to from a Helly Hansen standpoint on our distribution, on how we're going about that and also the geography that we're hitting. So let me give you a really good example. We are going to, this fall, have our first distribution with DICK's Sporting Goods in their House of Sports concepts. And as you know, that is a fantastic concept, great store, heavy outdoor store, and we will have a really nice product placement there for the first time. So that gives you an example about distribution and new stores that we're getting. And there are others, too.

So, our commitment to North America is on track. We're very close to hiring a general manager for the region, and we're also placing some assets in our workwear business in the marketplace, too. And that is coming along as smoothly and even better than we thought it was going to at the very beginning. So we feel really good about that business and still feel really good about the upside everywhere. And I do want to make a quick point from a standpoint on product. We just saw the new product coming out. All of us got a chance to go over and see that at the sales meeting and also at corporate headquarters and the product looks amazing.

We're a product company and I couldn't be more proud of what's coming to the marketplace here real soon. And I think that's going to be a real eye-opener for everybody out there. So with that, I think I'll pop it over to you, Joe, so you can talk about Bob's second question.

Joseph Alkire: Bob, so for 2026, we expect to generate over $400 million of free cash flow. We've earmarked $225 million for debt repayment. We committed to getting our leverage at or below 1.5x. So the residual gives us some excess capacity to continue to buy back shares. We have not included any additional buybacks in the outlook. So that could be a source of upside. And then we've got the proceeds of Lee, which based on the confidence we have in our forward plans, where the stock is currently trading from a valuation standpoint, the majority of those proceeds we would intend to deploy against the buyback, which is why the Board gave us the approval on the $750 million.

Scott Baxter: And so, Bob, I think you heard from Joe right there that our priority would be the buyback, pay back a little bit of the debt. But as you know, and you saw that we have been aggressively paying back that debt way ahead of time. Joe, how far ahead are we now on that debt payback?

Joseph Alkire: We're probably 6, 9 months ahead of where we thought we would be.

Scott Baxter: So,6, 9 months ahead. So we'll do both those things. And we already pay a fairly significant dividend, and we're pretty happy with our dividend right now. Not that we wouldn't increase it going forward, but we're going to focus our efforts from the optionality piece on the buyback and also reducing our debt.

Operator: The next question is from Adrienne Yih from Barclays.

Adrienne Yih-Tennant: Nice to see the changes that are being made. So I guess my first question is kind of as you think about kind of -- taking out Lee and then incorporating Helly, Helly certainly has a little bit more seasonality to it. So how do you think about kind of structuring the business to be fairly consistent over time? And then secondly, kind of more kind of near-term tactically, are you seeing anything given kind of the global macro, oil going up, et cetera? I know that there's probably no demand incidents or issues right now.

But anything on the forward order book, anything in terms of kind of freight going up, obviously, but changes in sort of input costs, et cetera, that we should be thinking about as we exit the year because you have inventory probably for the next 2 to 3 quarters?

Scott Baxter: Adrienne, I'll start, and then I'll hand it over to Joe. From -- it's a good question because I've dealt with it before in my past, obviously, from the seasonality of the outdoor brand. And we are spending -- it's one of the initiatives that we have with the brand. So I'm glad you asked because it's really important. When I mentioned that we saw a product as a team here recently, one of the things that we did see was a real emphasis on Q2 and new lines of product and categories that we're going into relative to that seasonality in that time.

So a long way to just say that, yes, we've captured this time from a product standpoint, and Helly hasn't really done that before. They've been very focused on the winter months. We've captured those other months, those warmer months with some product, and I'm really excited for the marketplace to see it. But when I step back and I think about Helly Hansen and I think about the entirety of the business, there are a couple of things going for Helly Hansen that are a little bit different than other outdoor brands. That being that we have a very strong #1 position in sailing, which is a year-round business. So it's very steady. It's really good.

We hold the preeminent position, and we're on -- everybody's back that's on the ocean, and it's a really steady business that we like. Two, our workwear business is even bigger than our sailing business. It's a 12-month business. It's very steady. There is no up and down cycle. And we're also starting to see a little bit more work happening around the globe, I guess, is the best way to see people going back to work and the type of product that we sell.

And just as importantly, that is predominantly a European business because there was never an effort or a focus to bring that to the states in a really significant way, but that is also one of our initiatives to go ahead and increase our penetration of business in North America. So when I step back and think about a pure outdoor company and think about the struggles that some had during that seasonality, a big chunk of our business is that sailing and also workwear. So we have some of that eliminated already, and then we will fix that Q2 issue, and then we'll have a really nice machine all year long and taking that seasonality bump out of it.

Joseph Alkire: Adrienne, on the macro, no, we're mindful of it. We're watching it just like everybody else. But in terms of POS, what we're seeing from the consumer, it's been fairly consistent. We've talked previously about a little bit more week-to-week, month-to-month volatility. But when we look at the business and the trajectory of the business mid- to longer term, we really haven't seen it. POS has been solid. Inventory levels are lean. The breadth of the growth is what gives us a lot of confidence. You've heard us talk about Wrangler, D2C, female, right, et cetera. On the Helly side, similar story. Breadth of the growth is pretty strong.

We're seeing nice growth by geography, by channel, by mix of category. I will say on the supply chain side, on the input cost side, we have seen more volatility. From a product flow standpoint, we're not that impacted by what's going on in the Middle East. We have seen input costs rise a bit. We planned for input costs to be up. We've seen a little more over the last couple of months, but we've absorbed that in the outlook that we gave this morning.

Operator: The next question is from Brooke Roach from Goldman Sachs.

Brooke Roach: As you prioritize the growth drivers of the business following the divestiture of Lee, can you contextualize the pace and magnitude of the acceleration that you think is possible for the core Wrangler brand over the next 12 to 18 months? How fast are you planning on expanding distribution of the women's business? Are there any other core accelerators that you're going to lean into for this brand now that you're fully focused on Wrangler and Helly? And how many additional full-price stores do you think that you can open per year?

Scott Baxter: I'll start, and we'll do our best to go ahead and make sure we get the information out there that we think that we have tied down for you. But relative to new categories, for instance, we think that there's a tremendous opportunity in women's right now, just 10% of our business. We think that, that should be much, much higher than that. We've got a full line coming out in -- not to get too far into the soup, but we just made an additional commitment to hiring quite a few people within the women's category from a standpoint.

Now that takes a little bit of time because those hires are coming on right now and bolstering what we already have. So that will take a little bit of time. But the way that we look at it is that's growth for years to come down the line. So we're really pleased about that. And right now, the Western business is very strong, continues to be very strong. We see that continuing to expand. The international business now will have a little bit different focus because it will be our only business on the denim side from an international standpoint. So we think that there's a tremendous opportunity from an international business standpoint.

And then yes, we do have some full-price stores on the docket, and they are coming, and we are rolling those out. And we are making a much more concerted effort now that we're down to that one denim brand, which is much easier for us to do from a D2C standpoint, both from a digital standpoint and also from a store standpoint, and it's just -- it's much more pure when we think about those marketplaces in those DMAs that Wrangler really has incredible strength that we could support a full-price store. Expect to see those, and we can talk about those happening.

You've seen our Fort Worth store that is a great store, and we're about to announce and maybe I can just announce it here, we're about to announce an Austin store that we're opening up in Texas. So you'll see that, too. That's going to be a terrific store in an incredible Wrangler marketplace for our products. So that's how we're thinking about that being very strategic on how we do that but moving forward with it quickly.

Joseph Alkire: Yes, Brooke, I'll chime in here. I would say some of your questions seem like great topics for an Investor Day, which you'll see the first one in September in Norway. But look, we're looking to drive high-quality, sustainable growth in both of these brands, right? It's going to take a little bit of time to turn that dial up on the growth side. We're making the appropriate investments to do that. We've got a lot of confidence in our ability to do that in both of these brands. But what -- maybe behind your question, are we going to see a dip in operating margin as we start to invest more? The answer is no.

We see this as a gradual build in terms of top line growth acceleration, continued margin expansion, strong cash generation, similar to the model that you've become accustomed to, just a bit stronger now that we're more focused on Wrangler and Helly.

Operator: The next question is from Mauricio Serna from UBS.

Mauricio Serna Vega: First on Helly Hansen, I mean, I think you talked about 16% growth in the quarter. Just to confirm that's in constant currency. And maybe could you talk about how that growth looks by channel and what you've been doing there to drive that growth? And then I guess, just if I look at the first half guidance, you mentioned high-single digits for Helly Hansen. So that implies some deceleration in Q2. So I just wanted to understand what's happening there on a pro forma basis. And then just a follow-up, you gave the continuing adjusted EPS guidance of $5.15 to $5.25. What was the continued ongoing operation -- sorry, continuous operations adjusted EPS for 2025?

Joseph Alkire: So let me try to cover all those, Mauricio, let me know if I miss one. So on Helly, the 16% growth in the first quarter was on a reported basis. There is an FX benefit in there. You can think of the constant currency growth as being more in that high single-digit range, consistent with what we're trying to drive. So our outlook for the year is consistent with that. We see high single-digit growth for the brand first half, second half. We're a few more months down the road. We've got more visibility into the fall/winter order books. So we're feeling good about the trajectory of Helly.

On the continuing ops piece, we will come behind our print today at some point soon and give you guys restated quarters with the breakout between continuing ops and discontinued ops. That will give you both the adjusted and GAAP earnings so you can clean up and get a better sense for what the baseline is moving forward.

Mauricio Serna Vega: Great. And just on the Heny Hansen piece, could you talk about what you -- what's driving like the growth across channel and just the kind of growth you're seeing by channel in Q1?

Joseph Alkire: It's pretty broad, Mauricio. The spring/summer order book was fairly strong. That was landed very well. There's distribution expansion, there's market expansion. We've had pretty solid performance from a DTC standpoint. So the breadth of the growth of the brand today is fairly broad, which is what gives us a lot of confidence in the trajectory of the business moving forward.

Mauricio Serna Vega: And just -- I mean, I wanted to understand like on the distribution side, is that like North America? Is it also like in Europe? Just trying to get a better sense of like what are the things that are happening.

Joseph Alkire: Yes. It's North America, it's the U.S. It's all of Europe. We talked about China, which is why we keep saying the growth is fairly broad. It's not one market that's overdriving the growth of the business.

Scott Baxter: And not one category either. It's outdoor, it's sailing, it's workwear.

Operator: The next question is from Blake Anderson from Jefferies.

Blake Anderson: So, I wanted to first ask on the -- given the Lee divestiture you're announcing, how to think about for the rest of the year, if you're able to see margin upside? I know you've had a big emphasis on cost savings. But if you do see margin upside, how do we think about that flow-through versus the potential accelerating investments that you're talking about as you see revenue opportunities?

Scott Baxter: Yes. So I'll take that, Blake. So there's margin expansion embedded in the guide. So we've got operating margins expanding, operating income growth above the pace of revenue growth. If the question is around the $0.55 and really the stranded costs, we'll begin to mitigate those once the transaction is closed, but the planning and those mitigation plans are already underway.

Blake Anderson: Got it. And then on Wrangler, I just wanted to ask on the quarter. If you could talk about how that business was across the segments, U.S., international, D2C, just any more color would be curious on how it performed versus what you're thinking.

Scott Baxter: Sure. Very strong across all segments. International is very strong, especially in Europe. There's a real denim movement going on in Europe, and Wrangler is a huge part of that, and we're pretty excited about that future. We think it's got a lot of legs there going forward. And our distribution is starting to pick up, which is really important. Business continues to be really strong in North America. As you saw in our announcement in our press that we went ahead and gained market share again via the Circana information that we get. Our women's business grew very steadily. Our Western business was strong again. Our work business.

When you think about what's going on in the world right now and people talk about discretionary income, for us, that's a really important part of our business. But what happens is the people that wear our product for work still are working and still need our product. The people that wear our product for Western and the weekends and the Western shows and how they run their ranches are still buying our Western product, and we're picking up steam internationally. And we've got this women's initiative that's really strong. So in a lot of fronts, we continue to push the envelope really aggressively and see our product grow. But that's because we've done a fantastic job with the product.

It just looks great, and we're telling a great story to the consumer and they're really interacting with us, and we're opening up new channels. You heard me talk about the new full-price stores that we're opening up, and we've opened up some new distribution. So all in all, the Wrangler business is strong, continues to be strong, and it's now going to get a heck of a lot more attention than it used to.

And I think everyone here understands this because you've been through these type of divestitures with other companies that there are choices that companies make ongoing about where to invest in their businesses and making sure that their current business model stays really profitable and really strong. So basically, I'm saying you have to feed all your children. Well, we now have 2 mouths to feed instead of 3, and we're going to be very aggressive there. So I think that's going to put our business in a very advantageous position going forward.

And I couldn't be any more bullish on this company right now with how we're running it and the things that we're doing to make sure that we are going to grow this business going forward.

Operator: The next question is from Peter McGoldrick from Stifel.

Peter McGoldrick: First, I just wanted to clarify on the $5 billion target in the 2030s. It sounded like you said that about Wrangler, but I wanted to clarify that, that was about the consolidated pro forma Kontoor business.

Scott Baxter: We think Wrangler can grow significantly well into the next decade. And we think there's growth for a long time to come, and we're going to accelerate that growth. And we're going to see this brand late into the 2030s, that's going to be a much, much larger brand than it is right now. And we've got very aggressive goals to get it to that place. So no, I was speaking specifically about our Wrangler business.

Peter McGoldrick: Okay. I guess I'd like to dive in there then that's a material acceleration to the high-single-digits. Is that driven by expanding the women's? And if so, is that taking up some of the distribution from the lead business? Or any other drivers that would help us think about moving the growth rate structurally higher?

Scott Baxter: Over time, you'll see us go ahead and grow and move that growth rate over time. And you're going to see it happen in female. You're going to see it happen in international. You're going to see it happen in our own digital footprint, our digital business in addition to our own stores. So you're going to see all those categories grow and have investment over time over the next 15 years. So yes, we're really excited about it and pretty geared up for it.

Operator: This concludes the question-and-answer session. I'd like to turn the floor back over to Scott Baxter for closing comments.

Scott Baxter: Just a quick couple of comments before we break today. Thanks all for your participation today. I know we probably surprised a few of you today with what we presented and talked about today. I know we have follow-up calls, and we'll be able to answer all your calls in a more elegant way so that we can go ahead and make sure that you have all the information that you need. But certainly appreciate your participation and your followship with the company and look forward to talking to you again next quarter and want to make sure that everybody has the Helly Hansen Investor Day on your calendar going forward. So thanks, everybody.

Look forward to talking to you soon. Appreciate it.

Operator: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

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