Kontoor Brands (KTB) Q3 2025 Earnings Transcript

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Date

Nov. 3, 2025 at 8:30 a.m. ET

Call participants

President & Chief Executive Officer — Scott H. Baxter

Executive Vice President & Chief Financial Officer — Joseph A. Alkire

Vice President, Investor Relations — Michael Jacob Karapetian

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Takeaways

Revenue -- Global revenue rose 27% in Q3 2025, driven by the inclusion of Helly Hansen and growth in Wrangler and digital channels.

Helly Hansen Performance -- Helly Hansen revenue grew 11% to $193 million in Q3 2025, with broad-based growth across sport and workwear categories, and contributed $0.03 to adjusted EPS.

Wrangler Brand -- Wrangler global revenue rose 1% in Q3 2025; excluding shipment timing shifts, revenue increased at a mid-single-digit rate, marking the fourteenth consecutive quarter of market share gains.

Lee Brand -- Lee global revenue declined 9% in Q3 2025, mainly due to proactive actions in China; excluding these, revenue declined 4%, with digital revenue in the U.S. up 15%.

Gross Margin -- Adjusted gross margin expanded 80 basis points to 45.8%; excluding Helly Hansen, adjusted gross margin expanded 140 basis points.

SG&A Expenses -- Adjusted SG&A expense reached $269 million; excluding Helly Hansen, adjusted SG&A was flat year-over-year.

Adjusted EPS -- Adjusted earnings per share was $1.44, a 5% increase in adjusted earnings per share compared to the prior year; $0.09 above prior outlook.

Net Leverage -- Net leverage ratio at quarter-end was 2.5 times; the company targets approximately two times net leverage by year-end, supported by ahead-of-plan deleveraging and a voluntary $25 million debt repayment, with $185 million planned for the fourth quarter.

Inventory -- Inventory ended at $765 million; excluding Helly Hansen, inventory was $560 million, up 21% due to supply chain transformation, earlier receipts, and tariffs, with a $120 million reduction targeted in the fourth quarter.

Dividend -- The Board declared a regular quarterly dividend of $0.53 per share, representing a 2% increase.

Full-Year Revenue Outlook -- Full-year revenue is now expected to be at the top end of the $3.09 billion to $3.12 billion range, implying 19%-20% growth for the year; Helly Hansen is forecast to contribute $460 million to full-year revenue.

Gross Margin Guidance -- Full-year adjusted gross margin is expected at 46.4%, up 130 basis points from the prior year, while fourth quarter adjusted gross margin is projected at 45.8%, up 110 basis points from the prior year.

SG&A Outlook -- Full-year adjusted SG&A expense is expected to increase by 24%, reflecting the Helly Hansen addition and increased investments, while organic SG&A should rise at a low single-digit rate for the year.

Project Genius Savings -- Project Genius is tracking above initial expectations, with $50 million embedded in 2025 results and anticipated to reach over $100 million in annual run-rate savings by 2026.

Cash Flow -- Cash from operations is projected at $400 million, including Helly Hansen, higher than the previous outlook of $375 million.

Share Repurchases -- Share repurchases remain paused as deleveraging is prioritized, with $215 million in remaining authorization.

Return on Capital -- Adjusted return on invested capital reached 23%, up from 22% in the previous quarter (adjusted).

Order Book Momentum -- Helly Hansen’s order book for spring-summer and fall-winter 2026 shows accelerating growth trends, as discussed on the earnings call.

Summary

Kontoor Brands (NYSE:KTB) reported revenue gains mainly from the Helly Hansen acquisition and consistent Wrangler strength, while Lee's performance continued to face pressure due to restructuring in China. Management raised full-year guidance for revenue, adjusted gross margin, adjusted EPS, and cash flow, underscoring operational improvements and increased visibility for the remainder of the fiscal year. Profitability benefited from effective pricing and cost-management strategies, including Project Genius, which is tracking ahead of initial targets and supporting both investment and deleveraging progress.

Executive management highlighted a conservative outlook for retail inventory levels and point-of-sale trends, noting that recent improvements have not been fully embedded in guidance assumptions.

Helly Hansen integration was said to be progressing well, with identified run-rate synergies above $25 million expected to begin impacting results in 2026.

Dividend growth and the intent to resume share repurchases after achieving leverage targets indicate a disciplined approach to capital allocation.

Management described the Lee China turnaround as progressing, and further brand stabilization expected through the end of 2026.

Industry glossary

Project Genius: Kontoor Brands’ multi-year operational efficiency initiative focused on cost savings, supply chain improvements, and margin enhancement.

POS: Point of Sale; refers to retail sales data that reflects sell-through to end consumers.

SG&A: Selling, General & Administrative expenses; operating costs not directly tied to the production of goods.

Full Conference Call Transcript

Scott H. Baxter: Thanks, Mike, and thank you all for joining us today. Our third quarter results highlight the power of our expanded brand portfolio. Helly Hansen grew double digits, Wrangler gained market share for the fourteenth consecutive quarter, and we launched Lee's first equity campaign in years while taking proactive steps to improve the health of the marketplace. While the timing shift impacted growth in the quarter, stronger gross margin expansion and disciplined expense management drove better-than-expected earnings. Based on our year-to-date performance and improving profitability, we are raising our full-year outlook. While the environment remains dynamic, we are well-positioned to finish the year strong and enter 2026 with momentum. Now let's review highlights from Q3, starting with Helly Hansen.

Third quarter results exceeded expectations with revenue growth of 11% and $0.03 of earnings accretion. Growth was broad-based across both Sport and workwear in all regions. The business is performing at a high level. The integration is progressing well, and we continue to uncover new opportunities to create significant value together. To build on this momentum, we are focused on our strategic pillars. First, accelerate growth. It starts with product. Iconic platforms including Crew, Alpha Legendary, and LiFA Merino continue to differentiate Helly in the marketplace and generate strong demand from our consumers. Our latest product launches have made 2025 a record year. We won six Red Dot Design Awards, our most ever in a single year.

Award-winning products include the Odent Ultimate Infinity Jacket, Arctic Patrol Down Parka, and within workwear, the Magne Evolution Jacket. These are scalable platforms we will drive global growth, and nowhere is that opportunity greater than in the U.S. We see significant room to grow through a combination of new distribution, D2C growth, and investments in demand creation to increase brand awareness. Currently, awareness in the U.S. is only 29%. This has grown by six points since 2019 while revenue has more than doubled. Starting next year, we will be making investments in funnel demand creation to increase awareness and fuel accelerated growth. Within workwear, there are considerable market share opportunities leveraging Helly's unique dual brand position.

The connection to technical outdoor products worn by professionals on the mountain or water has made Helly a leader in pro-grade workwear in Europe. In the U.S., we are leading with footwear in regions where Helly Sport penetration is greatest. Over time, this will expand to include the broader apparel assortment supported by further development of our lightweight and cooling platforms to drive growth in warmer climates. Outside the U.S., we see opportunities entering new markets in Asia and increasing penetration in key markets within Europe, Germany, Austria, and Switzerland. In addition, we will continue to support our business in China, which we operate through a joint venture. China is on track for over 70% growth this year.

Second, double operating margin. We expect to increase operating margin from high single digits today to mid-teens through a combination of gross margin expansion and SG&A benefits. We are leveraging our global operating model, supply chain, and technology platforms as well as Project Genius. This will create greater back-end efficiency and increased investment capacity to support our growth initiatives. Helly is headed into the fourth quarter with incredible momentum, and I could not be more confident in the opportunities ahead. Turning to Wrangler. Global revenue increased 1%, including 12% growth in digital. Wholesale growth was impacted by a timing shift into the fourth quarter. Excluding this shift, global revenue increased at a mid-single-digit rate.

The third quarter marked Wrangler's fourteenth consecutive quarter of share gains according to Surcana. In our core men's and women's bottoms business, we gained 80 basis points of market share. Our female business had another strong quarter with growth of 20%. Our collaboration with Lainie Wilson continues to exceed expectations. Her latest collection is performing very well while supporting more premium AURs and increased penetration with younger consumers. B Spoke is now the number one female style at select specialty retailers. This has been a banner year for our female business, and we expect double-digit growth for the year. Western grew high single digits in the quarter. As the number one Western apparel brand, we have never been stronger.

At the upcoming Wrangler National Finals Rodeo in Las Vegas, we will be represented by some of the top athletes in the world, as well as host events at the annual Cowboy Christmas where the Western world converges to showcase the best of Western apparel. In addition, Wrangler Country Music stars Lainie Wilson and Cody Johnson will perform sold-out shows. Western is on track for double-digit growth this year. To support this momentum, we will continue to invest behind our demand creation platforms, including live sports, streaming, and social media. In particular, our highly successful Good Mornings Make for Better Days campaign will continue through the balance of the year as we build momentum for the holidays and 2026.

Turning to Lee, revenue declined 9% as we took proactive steps to improve the health of the marketplace in China. Excluding these actions, revenue declined 4%. We are encouraged by the progress we are making against our brand realignment. Digital is leading the way with growth of 15% in the U.S. As we previewed last quarter, we launched our Built Likely equity campaign in September, the first of this scale in years. While early days, we are encouraged by the reaction in the marketplace and have seen improvements in both brand equity and perception. We are also making progress in aligning products to our refreshed brand position.

In addition to activating our iconic platforms, we are seeing success with new introductions such as Velocity Pant, in collaborations with Crayola and Buck Mason. Crayola will be Lee's strongest collaboration ever, and our second collaboration with Buck Mason is outperforming the initial launch. Importantly, our 2025 collabs are attracting three times more millennial purchasers. While the Lee turnaround will not be linear, we will do this the right way. We expect sequential improvement in the fourth quarter. Finally, we announced this morning we made an additional $25 million voluntary debt repayment in the third quarter, and we expect to further reduce debt by $180 million in Q4.

We are tracking ahead of our deleverage plan and expect to return to approximately two times by year-end, consolidating a significant increase in earnings and cash flow. Deleverage is our near-term priority, but we will take an offensive posture to deploy our cash generation to support our capital allocation framework, including our dividend and share repurchase programs. Before turning it over to Joe, let me reiterate the confidence we have in achieving our 2025 plan. Our expanded brand portfolio provides significant opportunities to create value through strong fundamentals and increasing capital allocation optionality. And while the environment remains uncertain, we are being proactive with initiatives such as Project Genius to offset headwinds in the marketplace.

We are executing at a high level, and I am confident we are on a path to drive strong value for shareholders.

Joseph A. Alkire: Thanks, Scott, and thank you all for joining us today. Our third quarter results reflect the strength of our operating model and the benefits from our expanded brand portfolio. In what remains a highly dynamic environment, our fundamentals are strong, and we are operating from a position of strength. While a timing shift impacted revenue growth in the quarter, better-than-expected revenue and profitability from Helly Hansen, stronger gross margin expansion, and further improvement in operating efficiency drove earnings upside relative to our outlook. Based on our year-to-date performance and increased visibility into the fourth quarter, we are raising our full-year revenue, gross margin, earnings, and cash flow outlook.

We are well-positioned to finish off a record year with good momentum as we enter 2026. Let's review our third quarter results. Global revenue increased 27%, including the contribution from Helly Hansen. By brand, Wrangler global revenue increased 1%. Revenue growth was impacted by a shift in the timing of wholesale shipments from the third to the fourth quarter. Excluding the shift, global revenue increased at a mid-single-digit rate as a result of strong demand for the brand around the globe. In the U.S., revenue increased 1%, driven by 11% growth in DTC. Wholesale was flat to the prior year. However, excluding the previously mentioned timing shift, U.S. wholesale revenue increased at a mid-single-digit rate.

Growth was broad-based, driven by strong increases in female Western as well as continued market share gains. Denim grew at a low single-digit rate. Following a strong July and August, POS moderated to a low single-digit increase in September, consistent with the year-to-date average. October POS was flat compared to the prior year, with POS increasing at a mid-single-digit rate over the past two weeks. 2% driven by 19% growth in digital and 1% growth in wholesale. Turning to Lee. Global revenue decreased 9%. During the quarter, revenue was impacted by proactive actions in China to address challenges in the marketplace. We discussed our intent to execute these actions on our second quarter call.

Excluding the actions taken in China, globally, revenue decreased 4%, reflecting sequential improvement in the revenue comparison from the second quarter, and we expect further improvement in the fourth quarter. U.S. revenue decreased 9% as we work to address challenges within certain segments of our distribution footprint and drive more consistency with the brand's realignment and go-forward strategy. Digital revenue increased 15%. We remain encouraged by the momentum in our digital business, which has continued into the fourth quarter. 9% with declines in wholesale offsetting mid-single-digit growth in our brick-and-mortar stores. Excluding the actions taken in China, Lee International revenue increased approximately 3%. Now turning to Helly Hansen.

Global revenue of $193 million increased 11% compared to prior year reported results. Growth was broad-based across both sport and workwear, and in all geographic regions. We are encouraged by the stronger-than-expected results. The integration is progressing well, and we are confident Helly will be a significant contributor to both revenue and earnings growth in the coming years. We now have line of sight to greater than $25 million of run-rate synergies, which will begin to meaningfully impact profitability in 2026. These synergies will help fund investments in the business, including geographic and category expansion, demand creation, DTC, supply chain capabilities, and our technology platform. As we look forward to 2026, we expect Helly's momentum to continue to build.

The spring-summer order book has accelerated from fall-winter 2025, and workwear preorders are up at a double-digit rate. We recently kicked off the fall-winter 2026 selling season, and the feedback from the marketplace has been strong, reflecting the robust product and innovation pipeline of the brand. Moving to the remainder of the P&L. Adjusted gross margin expanded 80 basis points to 45.8%. Excluding Helly Hansen, adjusted gross margin expanded 140 basis points, driven by the benefits of Project Genius, channel and product mix, as well as targeted pricing actions. This was partially offset by increased product costs and the impact from recently enacted increases in tariffs. Helly Hansen diluted adjusted gross margin by approximately 60 basis points.

During the quarter, we took actions to improve inventory turnover, increase cash generation, and accelerate debt repayment. There is a significant opportunity at Helly Hansen to improve both gross margin and net working capital by leveraging our supply chain capabilities in the areas of planning, procurement, and inventory management. Adjusted SG&A expense was $269 million. Excluding Helly Hansen, adjusted SG&A was flat compared to the prior year, supported by lower distribution and freight expenses and the benefits of Project Genius. We remain focused on driving further improvements in operating efficiency in light of the environment. Adjusted earnings per share was $1.44, increasing 5% compared to the prior year. Adjusted EPS was $0.09 above our prior outlook.

Helly Hansen contributed $0.03 per share compared to our prior outlook of breakeven earnings. Turning to the balance sheet. Inventory at the end of the third quarter was $765 million. Excluding Helly Hansen, inventory increased 21% to $560 million, driven by a temporary increase in inventory to support our supply chain transformation, earlier-than-expected inventory receipts as a result of improved sourcing lead times, as well as the impact of tariffs. We expect inventory to normalize in the fourth quarter and decrease approximately $120 million from the third quarter to approximately $645 million. We finished the quarter with net debt of $1.3 billion and $82 million of cash on hand. Our $500 million revolver remains undrawn.

On a pro forma basis, our net leverage ratio was 2.5 times. During the quarter, we made a voluntary $25 million debt repayment. We are tracking ahead of our deleverage plan and expect to make an additional $185 million voluntary payment in the fourth quarter. We anticipate returning to approximately two times net leverage by year-end. Share repurchase activity remains on pause near-term as we focus on paying down acquisition-related debt and reducing leverage. We have $215 million remaining under our current share repurchase authorization. As previously announced, our Board declared a regular quarterly cash dividend of $0.53 per share, a 2% increase.

Finally, on a trailing twelve-month basis, adjusted return on invested capital was 23%, improving from 22% in the second quarter. Now let's review our updated outlook. Full-year revenue is now expected to be at the upper end of our prior outlook range of $3.09 billion to $3.12 billion, representing growth of approximately 19% to 20%. Helly Hansen is now expected to contribute $460 million to full-year revenue compared to our prior outlook of $455 million. Excluding Helly Hansen, we expect revenue growth of approximately 2% compared to our prior outlook of 1% to 2% growth.

For the fourth quarter, we expect revenue to be in the range of $970 million to $980 million, representing growth of 39% to 40%, including the expected contribution from Helly Hansen. Our outlook includes the impact of a fifty-third week, which is expected to benefit the fourth quarter by approximately four points of revenue growth. We continue to plan the business conservatively. For Wrangler and Lee, our updated outlook assumes no meaningful change in POS trends or inventory positions at retail for the balance of the year. This is consistent with our prior outlook. Excluding Helly Hansen, October revenue growth was approximately 6%, tracking slightly ahead of our anticipated organic revenue growth for the fourth quarter, excluding the fifty-third week.

For Helly Hansen, our revenue outlook is by current demand trends in the fall-winter 2025 order book, which accounts for the majority of Sport revenue. Moving to gross margin. Adjusted gross margin is now expected to be approximately 46.4%, compared to our prior outlook of approximately 46.1%. Our outlook represents an increase of approximately 130 basis points compared to the prior year. We expect fourth quarter adjusted gross margin of approximately 45.8%, representing an increase of approximately 110 basis points compared to the prior year. Adjusted SG&A expense is expected to increase approximately 24%, reflecting the contribution from Helly Hansen as well as increased investments primarily in the areas of demand creation, technology, and direct-to-consumer.

Excluding Helly, we expect SG&A to increase at a low single-digit rate, consistent with our prior outlook. We continue to anticipate Project Genius savings to mature to a full run rate in excess of $100 million of annual savings over the course of 2026. Adjusted EPS is now expected to be approximately $5.50, representing an increase of 12%. This compares to our prior outlook of approximately $5.45. Helly Hansen is expected to benefit full-year 2025 adjusted EPS by approximately $0.20, consistent with our prior outlook. We have not included any benefit from synergies in our outlook. We expect fourth quarter adjusted EPS of approximately $1.64, reflecting growth of about 19%.

Finally, we continue to expect another year of strong cash generation. Cash from operations is expected to approximate $400 million, including the contribution from Helly Hansen. This compares to our prior outlook for cash from operations to exceed $375 million. Starting in the fourth quarter, we will begin to leverage and expand our supply chain and AR financing programs to include Helly Hansen. These programs and capabilities will be a significant unlock for the business while supporting accelerated cash generation and deleverage. Before opening it up for questions, let me reiterate the confidence we have in achieving our 2025 objectives. While the environment remains dynamic, we are operating from a position of strength.

The integration of Helly Hansen is progressing well. We are ahead of our planned deleverage path, and Wrangler and Lee are on track to deliver a strong fourth quarter. Our operational execution and discipline continue to drive further improvements in our business fundamentals, supporting higher returns on capital and significant capital allocation optionality moving forward. This concludes our prepared remarks. I will now turn the call back to the operator.

Operator: Thank you. We'll now be conducting a question and answer session. Our first question is coming from Irwin Bernard Boruchow from Wells Fargo. Your line is now live.

Irwin Bernard Boruchow: Hey, everyone. Good morning. Thanks for the question. A couple from me. I guess Joe, could you just clarify Wrangler U.S. Wholesale like it was probably up mid to high single digits in the third quarter ex the shift. Can you confirm that? And then on the 4Q, can you kind of work with us on what's embedded in the Wrangler wholesale number there, both with the ship and then also organic? And I know you said POS flattened out in October, but then it sounds like it's accelerated the last couple of weeks. Kind of curious what's in the plan?

Joseph A. Alkire: Yes. Hey, Ike. Good morning. So on the timing shift, so the timing shift impacted Q3 revenue by about two points with the primary impact being on the Wrangler brand. Excluding the shift, total revenue would have been above our prior outlook driven by Helly with Wrangler increasing at a mid-single-digit rate. So we had our largest September ever as a company. However, order flow, shipment flow was more back-half weighted than what we anticipated in our prior outlook. So the demand was solid. We just had a shift in shipment timing focused on a couple of the key accounts. We did see that pull through in October.

I think I said in the prepared remarks, October was up 6% organically compared to the prior year. That's a little ahead of what we have contemplated in Q4 in terms of growth excluding the fifty-third week. So nothing we see from a demand standpoint. In fact, we've moved to the high end of the revenue range based on our year-to-date performance and our visibility into Q4, and Wrangler is probably the biggest part of that.

Irwin Bernard Boruchow: Got it. So no red flags on the consumer thus far. In terms of what you're seeing?

Scott H. Baxter: You know, and I would tell you with our broad distribution, and the campaigns that we're running right now with both of our denim brands right that are out in the marketplace in addition to the product and the design and just the demand. Fourteen consecutive quarters now. I mean, you've seen that of market share gains with Wrangler. We've put ourselves in a really good position, really like where we sit now for the foreseeable future. And we'll continue to really work that through design great product, tell great stories, broad distribution. It's been a really nice formula of success for us going forward.

Irwin Bernard Boruchow: Okay, great. Moving to Helly, so up 11 pro forma growth. I think your first half, were trending more 1% to 2%, so nice acceleration. What's driving the near-term inflection in Helly's brand revenue already? And then I guess based on the order book commentary, which is accelerating into next year, could we see Helly growth rates actually continue to accelerate over the next twelve months?

Scott H. Baxter: So, Mike, I'll go ahead and start. What you're seeing is you're seeing a company that's thriving inside of another apparel company. They haven't had that ecosystem before relative to where they've sat the last decade or so and now they're inside our ecosystem. We're thriving as far as partners working together. They're accelerating on all fronts. The European business, the China business, the U.S. business is really starting to take off. But obviously, we're feeding that. So we're investing that and we're seeing really good results. And I think the thing it starts with is they're really building great product and think they're having a lot of fun being part of our organization.

I think the two companies are working really well together. And I think we see a bright future. And I think one of the things that's been really important, because we talked about and it's important that we talk about it again is we see a big opportunity in North America. In addition to what we already have. And that is starting to come to fruition. Just having the capability, having our resources in North America to lean on and then now going ahead and making it a priority because we have made that a priority. We're starting to see those results early. So we're really, really excited about happening there in the future. Joe, anything to add?

Joseph A. Alkire: Yes. I'd say on the order book, I mean, Spring-Summer 2026, that order book for Sport reflects an acceleration compared to Fall-Winter 2025. Fall-Winter 2025 accelerated versus Spring-Summer 2025 and even Fall-Winter 2024. So that business is performing really well. Workwear preorders have been strong. Up at a low double-digit rate and we just kicked off the Fall-Winter 2026 selling season and it's off to a really good start. The feedback from the marketplace has been really good. We also will put more investment behind the business in 2026, which should help further accelerate growth. So just a tremendous opportunity for the brand globally across both sport and work.

Scott H. Baxter: I think one of the things that's really been beneficial is management and the team is intact. From the acquisition. So they were already a strong team, and we're only making it stronger by adding and helping. But we've got a good core team that we kept through the merger and the acquisition and it's really played out really well for us.

Irwin Bernard Boruchow: That's great. And then a quick one lastly, on the inventory, Joe, can you help us get comfortable with that number? Think you said up 21% organic Q3. 6.45% for the end of the year, which implies mid-teens organic. Just doesn't sound like there's any issues at all, but can you kind of hold our hand a little bit because it is you know, it's a decent growth rate above where the core growth rate is for the business. So any more color there would helpful.

Joseph A. Alkire: Sure, Ike. So we ended the quarter excluding Helly Hansen up about 21%, about $98 million versus the prior year. So roughly $25 million of that increase related to inventory investments we made to support our supply chain transformation. So we closed our Torreon manufacturing facility in Mexico during the third quarter as part of Project Genius. We carried excess inventory to support the operational transition. So that excess inventory will wind down over the course of the fourth quarter and into the first quarter and that transition has gone really well. About $25 million of the increase relates to higher tariffs, so the cost of that is now embedded in our inventory.

And about $20 million related to earlier-than-expected receipts of sourced product as a result of lead times. Improving. So the remaining increase is really in support of the growth plans that we have for the business. We said in our prepared remarks, we expect about $120 million reduction in Q4 and we remain pleased with the overall quality and composition of our inventory.

Irwin Bernard Boruchow: Thanks so much guys.

Michael Jacob Karapetian: Thank you, Mike. Thank you. Our next question is coming from Bob Drbul from BTIG. Your line is now live.

Bob Drbul: Hi, good morning guys. Just question on pricing. When you look at your business and you look at sort of the plans into next year, what's happening with pricing with your own product? I guess, I'd be curious to see what you're seeing competitively on pricing as well?

Joseph A. Alkire: Yes. Bob, I would say for us pricing has been part of a holistic strategy to combat the impact of the tariffs, right? Pricing for us went into effect mid-June in our own DTC and in July at wholesale. So something we're watching very closely with our retail partners and look these plans were put together in collaboration with them and all of the elasticity assumptions are reflected in the outlook. We were very surgical as you would expect in terms of where we took price just as we have been in the past. And these price increases were not just a U.S.-focused effort. I think that's part of the power of a global multi-brand portfolio.

So overall, the price elasticity equation has been largely consistent with our expectation. It varies a bit by brand and category and channel certainly certain parts of the market are more sensitive, other more premium areas less so. But overall, the pricing elasticity equation has been in line with what we expected.

Scott H. Baxter: And Bob, one of the things that we pay particular attention to as an organization is that you look at all of our brands globally and in the marketplaces where each operates, we really like from a hierarchy standpoint where we sit. So we're really comfortable with where our brands are positioned and how they're priced compared to our competitors within those marketplaces. So we've been very thoughtful for a long time about how we price in the product that we have. So I'm comfortable with where we sit right now.

Bob Drbul: Got it. And just two questions on Helly if I could. I guess the first one is Scott, I think you mentioned you're seeing new opportunities. Just wondering if you could elaborate on that. And within the U.S. business, growing it from the $150 million level, is it like new distribution targets? Just if you could expand a bit on the plan in the U.S, that would be helpful. Thanks.

Scott H. Baxter: Absolutely Bob. Actually it's everywhere and everything. So it's ski shops, it's independents, it's definitely U.S. Wholesale. It's across the board, it's digital, it's owned and operated retail. So we've got multiple plans that come into different stages. As you can imagine, we've thought out from a capital standpoint and how we're going to embrace each one. And it's really interesting, Bob. We sat back and we said to ourselves, it's even better than we thought at acquisition time. We think there's more than we thought about. It's more robust than we thought.

And people are really reacting and responding very positively to our brand because they've seen it around the world before and they just haven't seen it enough here in the United States. And it's new, and it's fresh, and it's creating some excitement, but they haven't had the distribution to go ahead and purchase it for themselves. But now we're going to give them that and that is starting. And then just so you know, because we'll talk about this in the future, we are adding some really key personnel here over the next twelve to eighteen months and some significant leadership positions to help support that going forward.

So like we said before, it was a big opportunity one of the strategic reasons we bought it. But as we've sat back and now in Del gotten ourselves involved in this business, we think the opportunity is even bigger than we thought across the board.

Joseph A. Alkire: Thank you.

Bob Drbul: Thanks Bob.

Operator: Thank you. Next question is coming from Jonathan Komp from Baird. Your line is now live.

Jonathan Komp: Yes. Hi, thank you. Good morning. I want to follow-up and ask the raise to the high end of the organic revenue growth to 2% for the year. Could you just maybe talk a little bit more directly what's driving that confidence? And then Joe, it sounds like from your inventory buildup, you may be planning healthy organic growth into 2026. Just any color there would be helpful.

Scott H. Baxter: Yes, John, it's Scott. I'll go ahead and start. Really John, we're looking at our business and we're just seeing real strength across the board. Let me start with Helly. I mean, we've talked about the fact that Helly is really coming online very quickly, faster than we thought. Companies are working really well together and we're seeing opportunity across the board. And more importantly than anything, we're seeing our consumer want to take out our business. So our POS is strong. We watch really closely our digital business because it's an opportunity for our consumer to purchase immediately. And it's been very strong across our brands.

And strong with lead too, which gives confidence in our turnaround because it's the first opportunity that people can interact with us after we put our turnaround in play. But across the board really strong from a digital standpoint. So that gave us confidence. The strength of our business here in the third quarter as we reached towards the end of the third quarter and saw this really strong uptick in POS, gave us a lot of confidence. And then I would tell you that October gave us a lot of confidence. October came in on plan, no issue at all.

So really feeling good about that as we come through the first month of the fourth quarter, feel confident there. And then more than anything, our team is designing really good products and we're telling we've got two right now, two national campaigns going on. With Wrangler and Lee which has got us in the marketplace in a fairly significant way which is really important. And weather is really cooperating. I'll give you a great example. Helly is a rainwear and outdoor and ski and active and pro business and we've had more rain across this world, Europe, Asia and The United States.

And now we've got early snow across Europe and also here, which we didn't have last year at this stage. So that gives us a really, really good push forward as we enter into that really critical period. So lots to be thankful for right now, but mostly for our great folks here that are got their heads down and working hard. Joe?

Joseph A. Alkire: Yes, John. And on inventory, I know it's a little noisy here with the addition of Helly and some of transitory impacts that I highlighted. But we're comfortable with the composition of the inventory, the sequential progression we have planned, how that's positioned in support of the growth plans and Helly as well. We've talked on prior calls about the net working capital opportunity at Helly, you'll begin to see the impact of that starting in the fourth quarter and into the 2026, could help to frame up as we think about the contribution from Genius where you stand and the incremental benefit that you may achieve?

And then also Helly Hansen operating contribution I think you reiterated $0.20 for this year, but what are some of the factors that might impact how that can grow into next year? Thanks again.

Joseph A. Alkire: Yes, I'll take that John. So, on '26, certainly not giving an outlook today, but I'll give you a high-level framework just given all of the moving parts. So expect the organic business to continue to grow. We are performing well. That's going to be mainly driven by the Wrangler brand. '26 will be a transition year for Lee. The Helly business is performing really well. As you've seen, we will delever quickly, which will create an earnings tailwind as well as additional capital allocation optionality as we consolidate and grow that cash flow.

And earnings stream, you'll have synergies that will scale more meaningfully across 2026 and you've got Project Genius savings that will be maturing to more of a full run rate. We will have a bigger impact of tariffs next year. For 2026. The full-year unmitigated impact is about $135 million which we are clearly working to mitigate a significant portion of that. But those are the biggest factors influencing '26. We like where we are. We like where we like our model and we've got a lot of optionality to continue to drive the growth and returns that we expect.

Jonathan Komp: Great. That's helpful. Thanks again.

Joseph A. Alkire: Thanks, John.

Operator: Thank you. Next question is coming from Mauricio Serna Vega from UBS. Your line is now live.

Mauricio Serna Vega: Great. Good morning. Thanks for taking my questions. First, maybe could you tell us or confirm like what kind of like the Q4 organic revenue growth that you're expecting in your guide? I mean, you talked about October being 6%. I just wanted to get a sense of what's the expectation for the full quarter. And then on Helly Hansen, you raised revenue contribution a little bit for the year, but there was no really change on the EPS revision of $0.20. So just was wondering what were the puts and takes on that? Thank you.

Joseph A. Alkire: Hey, good morning Mauricio. I'll take those. So for the full-year outlook, raised the outlook, right, Part of that was the Q3 outperformance that we had. Part of that is the increased visibility into the fourth quarter. So we now expect to be at the high end of the prior outlook range on revenue organically. We've got a stronger contribution from Helly Hansen and we increased our gross margin earnings and cash flow. For the fourth quarter, our outlook implies about 6% growth on an organic basis that includes the fifty-third week which is contributing about four points to the growth. You also have the benefit of the timing shifts that impacted us in the third quarter.

So when you put all that together, we have modest growth contemplated for the business in the fourth quarter. Helly Hansen is expected to contribute close to $240 million of revenue as well. In the fourth quarter, growing nicely compared to the prior year. So the assumptions underlying the organic revenue, we've assumed POS trends that are modestly positive. Which is what we've seen for majority of the year. Things have been a little stronger over the last couple of weeks. As weather has been more cooperative. And then inventory levels at retail, we really haven't assumed any meaningful any meaningful change.

Our retail partners remain in a fairly conservative posture as they have all year and we don't expect that don't expect that to change.

Mauricio Serna Vega: Got it. Very helpful. And then maybe just very quickly on Lee, you know, you sound very positive about the feedback that you're getting from the equity campaign. Maybe could you talk a little bit more about more green shoots on the brand? And you've mentioned, like, sequential improvement for fourth quarter. Is that sequential improvement versus the 9% decline or versus like the 4% excluding the China proactive actions? Thank you.

Joseph A. Alkire: Yeah. Mauricio, I'll take the latter part and then Scott can take the first part. So the sequential improvement that we referenced is excluding the impact of the China actions. In the third quarter. So I would think about sequential improvement relative to the 4% decline that we saw in the third quarter.

Scott H. Baxter: So Mauricio, I would tell you similar to some of the comments that I've already made we're seeing that our investment is paying off. And what I mean by that is we've invested dramatically in both our product engine and also our advertising and marketing. And so creating the right product for the marketplace specifically in the channels that we sell the product in at the right price as I mentioned earlier and then telling a really great story behind that. It takes a little bit of time because as you know this business you order out over a period of time.

So to see your results it takes six, nine months, sometimes a year, except for in the digital component. And what we've seen here early on is a very strong response in the digital component from both male and female, which is really important to us. Our female business is doing exceptionally well. So our conversations with our wholesale partners across the globe and also our own retail stores across the globe have been very positive. I've been pleased we've been at this as you know for about eighteen months now and still have a little ways to go. We're never going to be satisfied obviously going forward.

But those are some of the key components as to how we look at the business and how we measure and monitor how it's doing. And the sequential improvement has been really important because it's also a shot from a morale standpoint to the team too as you can imagine. They're making product that's really working and the marketplace is talking about it, they feel really good about it. So we've got that type of momentum too. So more to come over time because I think we've been very transparent in sharing the story as we've gone along, and we'll continue to do that.

But right now, the way I would describe it is that everything is on track to how we planned it from the very beginning.

Mauricio Serna Vega: Thank you so much.

Operator: Thank you. Next question is coming from Paul David Kearney from Barclays. Your line is now live.

Paul David Kearney: Hey, good morning. Thanks for taking my question. My first is clarifying on the October organic growth of 6%. Is that including the shift of timing from Q3 into Q4? And then on the Q4 guidance, just curious on is assumed in the Q4 guidance a continuation of the POS at mid-single-digit that you saw in the last two weeks? And then a follow-up.

Joseph A. Alkire: Hey, Paul. It's Joe. On October, yes, it does include the impact of the timing shift that we talked about. And for POS, the POS assumptions for Q4 does not assume that the mid-single-digit increases that we've seen over the past several weeks continue for the balance of the quarter. Our POS assumptions for Q4 are modestly positive.

Paul David Kearney: Okay. And then my next is on, I think you pointed to $25 million of run-rate synergies for Helly Hansen for 2026. I guess can you speak to any clarity on timing on achieving some of those synergies? How should we think about flowing those through in our model versus reinvestment? And just when should we expect to achieve those and which ones? Thank you.

Joseph A. Alkire: Yes, I'll take that Paul. So we do have direct line of sight to pretty significant synergies across the business. That list of synergies is growing. The deeper we get into the business as you can imagine. Part of that is just we are a more synergistic owner as a global brand operator. And a lot of the pain points for the Helly business are there are strengths. So they'll benefit greatly. Helly will benefit greatly from being part of our platform as we more fully integrate the business. The $25 million that we talked about were starting to see it now. It's smaller for 2025. We're starting to see some of those benefits now.

Those will scale more meaningfully across the course of 2026 and we'll lay that out in the full context of 2026 outlook in February.

Paul David Kearney: Thank you. Best of luck.

Operator: Thank you. Next question today is coming from Brooke Siler Roach from Boke Goldman Sachs. Your line is now live.

Brooke Siler Roach: Good morning. Thank you for taking our question. Scott, Joe, I'm hoping you could provide an update on where you stand on Project Genius savings realization. What proportion of the greater than $100 million savings have been realized to date? What's still on the horizon into 4Q and to '26 as you mature into those savings? And how should we be thinking about the opportunity for flow through to the bottom line as you contemplate continued investments into each of your core brands, including demand creation?

Joseph A. Alkire: Yes. Hey, Brooke. So for 2025, we've got about $50 million of gross savings embed in the outlook. That's above our previous expectations. So those savings compared to our initial outlook have allowed us to reinvest back into the business at a level beyond what previously anticipated. And those investments are certainly part of the fuel for the growth and momentum that we're seeing. The benefits of Genius and the investments we've made, like I said, they're fully reflected in the outlook. We do expect those benefits to scale materially in 2026 and reach the $100 million of annual saving run rate, we will reinvest a portion of those savings.

But as we've said from the very beginning, a portion of these savings will be reinvested back into the business and a portion of these savings will drop to the bottom line and drive profitability and returns improvement.

Brooke Siler Roach: Great. And just a follow-up, I was hoping we could double click on the Lee China business. Are you fully reset in that business today? And do you expect that business to begin to return to growth as we turn the corner into 2026? Where are we in the transition?

Scott H. Baxter: Yes, I'll start. So there's no change to the significant opportunity we see in China longer term. We're more confident in our approach going forward than we've been over the past couple of years. We've got a strong team on the ground there. For the past eighteen months or so, we've been working to reestablish our foundation in China for Lee as part of the brand's global approach to the turnaround. Our results have improved over the past year, but there's still more work to be done and this market remains very dynamic as you know.

The actions we discussed in our prepared remarks reflect the next set of initiatives to really strengthen our presence in the market and build a stronger foundation going forward. So more specifically, we've been consolidating distribution partners. We've been partnering with larger, more sophisticated partners in the market that can invest with us to build and drive the brand going forward. We've taken actions to address inventory challenges in the market. We've elevated our own DTC presence. So there's a number of things that we've been working on behind the scenes, but I'd say the majority of the heavy lifting is behind us from here.

Scott H. Baxter: You know, and I would just add if you step back a little bit, Brooke. Some of the things that came out of COVID and what the world went through, there were some things that happened and some bad practices and what have you. And we've got ourselves now at a point where we've got a really impressive leadership team and a great leader over there. But in addition to that, probably the important thing is we really have a real strategy there now that makes a lot of sense for what this marketplace is going to look like going forward.

So over the last nine to twelve months, I've become much, much more happy with kind of how we're thinking about it. And kind of really like the thought process and the strategy that's gone into it. So we felt and this is the point. We felt really confident to make this investment. And that's what drove that. We like the strategy. We like where it's heading. We're happy to make an investment to put them in really good footing. And then we move forward from there.

So I think that from the standpoint of what's happened here in the last five or six years with the whole world, that we're in a better place than we've been in China in a long time. And I think the future looks bright.

Brooke Siler Roach: Thanks so much. Best of luck going forward.

Joseph A. Alkire: Thanks Brooks.

Operator: Thank you. Next question is coming from Laurent Andre Vasilescu from BNP Paribas. Your line is now live.

Laurent Andre Vasilescu: Good morning. Thank you very much for taking my question. Joe, was hoping to get a little bit more color around FY 2026. I remember last year on the third quarter call, you provided preliminary thoughts particularly on the top line. Think you mentioned 1H '25 should grow 4%. Just curious to know, is there any rationale why we're not getting any preliminary thoughts for 1H '26? Top line on an organic basis? And then I think Scott, mentioned Lee is not going to be linear, but how do we think about when should Lee actually return to growth in all markets? Thank you.

Joseph A. Alkire: Hey, Laurent, I'll start. Good morning. Yes. I'd say on '26, I gave the framework, if you will. I'd say this year versus last year, are a few more moving pieces as you know. And we're right in the middle of our planning process now. So we'll be back in February and give the detailed outlook as we normally do.

Laurent Andre Vasilescu: Laurent, as product flows and how we create and make product and go to market I think our confidence is really building that late 2026 fall-winter 2026 you're going to see us even out and then start our growth algorithm right after that. So feeling really good entering this year, feeling really good about how the product is going to flow in and feeling really good about the product itself. That will go ahead and resonate with some stabilization by the end of the year. And then growth by the end of the year beginning of the next year.

Laurent Andre Vasilescu: Okay, great. Helpful. Then, so just one sticking point here. There's $0.78 of adjustments. It's actually larger than the GAAP EPS number. To know what the adjustments we should contemplate so we can have our models buttoned up for 4Q? What kind of adjustments should we have for 4Q? And when longer term I think you mentioned to Brook, there's $50 million of gross savings from Project Junior. But when should we see the adjusted and GAAP EPS converge? And of the $100 million how much of it actually flows through to the bottom line? Thank you very much.

Joseph A. Alkire: Yes. I'll take that Laurent. So as we've discussed on prior calls, we will have one-time adjustments as we move through Project Genius, as we move through the acquisition of Helly Hansen, I think those pretty typical given transformational nature of those projects. I would say the cost to date have been in line with expectations. The one-time adjustments that we saw in the third quarter primarily related to the closure of our Torreon manufacturing facility as well as the integration of Helly Hansen on the SG&A side. But look, we don't pay our bills with adjusted earnings. We don't pay our shareholders with adjusted cash.

So we're measuring the cash returns of Genius and the returns on Helly and our cash generation remains robust. We raised the cash flow outlook for 2025 and we expect another year of strong cash generation in 2026 and that includes the impact of the one-time adjustments.

Operator: Thank you. Next question is coming from Peter Clement McGoldrick from Stifel. Your line is now live.

Peter Clement McGoldrick: Hi, thanks for taking my questions. I am interested on the cash flow guidance following up on Laurent's question. The step up is significantly higher than the adjusted earnings increase in the outlook. So I'm curious if you can bridge the gap on working capital adjustments or any other items influencing the outlook to $400 million operating free cash flow?

Joseph A. Alkire: It's really the working capital, Peter. It's the sequential reduction in the inventory in addition to the earnings growth for both the organic business as well as Helly.

Peter Clement McGoldrick: Okay. And then on the increased gross margin guidance for the year, can you walk through the puts and takes here, whether it be by brand Helly Hansen versus the denim brands? Any fundamental drivers or if there's any influence from the tariff assumption and inventory timing flow through?

Joseph A. Alkire: I'll take that Peter. So on Q3, were up 80 basis points overall, 140 basis points excluding Helly Hansen. For the organic piece, mix was about 170 basis point benefit. That's channel mix, product mix, business mix. Our Project Genius benefited gross margin by about 90 basis points and then tariffs net of our mitigating actions as well as higher product costs hurt us by about 120 basis points. For the fourth quarter, we've got 110 basis points contemplated the organic business will be up modestly with Genius and mix being offset by tariffs net of the mitigating actions as well as higher product costs.

So the year-over-year increase in Q4 gross margin is primarily Helly related, which will be nicely accretive for us in the fourth quarter.

Operator: Thank you. We've reached the end of our question and answer session. Like to turn the floor back over to Scott for any further or closing comments.

Scott H. Baxter: Thank you. I just wanted to say a big thanks for spending time with us today and all your thoughts questions. And as you can see, we're working really hard here and our consumers are trusting us because they're choosing us going forward, which is really important. And we certainly appreciate that. We've got a much broader story to tell as Helly Hansen unfolds, but I just wanted to mention that we couldn't be more pleased with our acquisition. And how it's going and really enjoy working with the team there, a really good team.

And it's been a really thoughtful merger of our two companies and just going really well, which we'll spend some more time talking about going forward. And because we won't spend any time together before the end of the year, I want to wish everybody a Happy Holidays season and we'll look forward to seeing you after the first of the year. But again, thanks for your interest in our company. We really appreciate it.

Operator: Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time and have a wonderful day. Thank you for your participation today.

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