GICS Sector : Consumer Cyclical
Kontoor Brands, Inc., a lifestyle apparel company, designs, manufactures, procures, markets, and distributes denim, apparel, and accessories under the Wrangler, Lee, and Rock & Republic brands in the United States and internationally.It operates through two segments, Wrangler and Lee.The company sells its products primarily through mass merchants, specialty stores, mid-tier and traditional department stores, company-operated stores, and online.
Kontoor Brands reported a robust financial performance in Q3 2025, with global revenue increasing by 27% to reflect the contribution from Helly Hansen. Adjusted gross margin expanded 80 basis points to 45.8%, driven by the benefits of Project Jeanius and targeted pricing actions. Earnings per share (EPS) came in at $1.44, beating analyst estimates of $1.41. The company's strong EPS performance was driven by the better-than-expected gross margin expansion and disciplined expense management.
Publication Date: Nov -10
The company's segment performance was mixed, with Helly Hansen growing revenue by 11% and Wrangler gaining market share for the 14th consecutive quarter. Lee revenue declined 9% due to proactive steps to improve the health of the marketplace in China. However, digital growth was 15%, and the company expects sequential improvement in the fourth quarter. Wrangler's global revenue increased 1%, including 12% growth in digital, with the female business having another strong quarter with growth of 20%.
The company raised its full-year outlook based on its year-to-date performance and improving profitability. The updated outlook includes full-year revenue growth of approximately 19% to 20%, with Helly Hansen contributing $460 million to full-year revenue. Adjusted EPS is now expected to be approximately $5.50, representing an increase of 12%. The company's guidance for 2026 indicates continued growth, mainly driven by the Wrangler brand, with the Helly business performing well and expected to delever quickly.
Using the current valuation metrics, Kontoor Brands has a P/E Ratio of 18.43, P/B Ratio of 7.57, and EV/EBITDA of 14.62. The company's ROE is 46.95%, indicating strong profitability. The Net Debt / EBITDA ratio is 3.82, reflecting the company's leverage. With the raised guidance and improving profitability, the company's valuation multiples may expand, driven by the expected earnings growth of 11.2% next year.
The company is making progress in its operational execution, with the integration of Helly Hansen progressing well, and the company is ahead of its planned deleverage path. The benefits of Project Jeanius are expected to scale to $100 million in annual savings by 2026, with a portion reinvested in the business and a portion driving profitability and returns improvement. As Joseph Alkire mentioned, the company's cash generation remains robust, with a raised cash flow outlook for 2025 and another year of strong cash generation in 2026.
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Wrangler's 2.0% growth is driven by increasing demand for comfort-focused denim, successful product innovations, and strategic marketing campaigns targeting younger consumers. Additionally, the brand's expansion into new markets, such as Asia, and e-commerce growth contribute to its growth momentum.
Lee's 1.8% growth is driven by increasing demand for outdoor apparel, strategic pricing, and expanding e-commerce presence. Additionally, the brand's focus on sustainability and innovative products resonates with environmentally conscious consumers, contributing to its growth momentum.
Kontoor Brands' 1.5% growth is driven by increasing demand for outdoor apparel, strategic partnerships, and expansion into new markets. The company's focus on sustainability and digital transformation also contributes to growth. Additionally, the rise of athleisure wear and growing popularity of outdoor activities further boost sales.
High-quality denim jeans for men and women, offering comfort, durability, and style
Premium denim jeans for men and women, featuring innovative fabrics and timeless designs
Fashion-forward denim and trendy apparel for men and women, emphasizing style, comfort, and quality
Kontoor Brands, Inc. operates in the apparel industry, where substitutes are available, but the company's strong brand portfolio, including Wrangler and Lee, helps to mitigate the threat.
Kontoor Brands, Inc. sells its products through various channels, including wholesale, retail, and e-commerce, which reduces the bargaining power of individual customers.
Kontoor Brands, Inc. relies on a diverse supplier base, which reduces dependence on individual suppliers, but the company still faces some pressure from suppliers, particularly in the areas of raw materials and logistics.
The apparel industry has high barriers to entry, including significant capital requirements, established distribution networks, and strong brand recognition, making it difficult for new entrants to compete with Kontoor Brands, Inc.
The apparel industry is highly competitive, with many established players, including VF Corporation, Levi Strauss & Co., and Ralph Lauren Corporation, which increases the intensity of rivalry and competition for market share.
| Value | |
|---|---|
| Debt Weight | 69.35% |
| Debt Cost | 5.65% |
| Equity Weight | 30.65% |
| Equity Cost | 9.62% |
| WACC | 6.87% |
| Leverage | 226.31% |
Value: 2.6
Growth: 6.1
Quality: 6.7
Yield: 3.0
Momentum: 8.5
Volatility: 6.7
1-Year Total Return ->
Value: 3.9
Growth: 4.0
Quality: 5.8
Yield: 7.0
Momentum: 5.0
Volatility: 4.7
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Value: 5.6
Growth: 5.6
Quality: 6.2
Yield: 3.0
Momentum: 1.0
Volatility: 6.0
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Value: 4.4
Growth: 4.9
Quality: 4.9
Yield: 3.0
Momentum: 2.0
Volatility: 5.3
1-Year Total Return ->
Value: 7.3
Growth: 4.3
Quality: 5.1
Yield: 0.0
Momentum: 3.5
Volatility: 4.0
1-Year Total Return ->
Value: 7.6
Growth: 2.1
Quality: 5.1
Yield: 0.0
Momentum: 1.5
Volatility: 4.0
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