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Kontoor Brands said it plans to divest its Lee brand, marking a portfolio shift after its first-quarter 2026 results. President, CEO and Chairman Scott Baxter said the move is intended to “sharpen our focus on the opportunities with the greatest potential to generate returns for our shareholders,” with Lee now outside the company’s long-term focus on function- and activity-based brands.
CFO and Global Head of Operations Joe Alkire said Kontoor initiated a competitive process to divest Lee during the first quarter and has received “strong interest from multiple parties.” The company expects to enter into an agreement to sell the business later this year, and Lee is now being reported as discontinued operations.
Alkire said the divestiture is expected to reduce operational complexity and enable more concentrated investment in Wrangler and Helly Hansen. He added that the sale is expected to be immaterial to earnings per share over a 12- to 18-month period, with the loss of Lee earnings expected to be offset by capital deployment and cost mitigation.
Baxter said Wrangler has delivered low-single-digit growth over the past three years and posted its strongest year in 2025. He said the brand gained market share for 16 consecutive quarters in men’s and women’s bottoms, based on Circana data.
In the first quarter, Wrangler global revenue rose 2%, including 9% growth in direct-to-consumer (DTC) sales and 2% growth in wholesale. U.S. revenue increased 1%, while international revenue rose 9%, driven by 24% growth in DTC and 7% growth in wholesale. Alkire said Wrangler gained more than 100 basis points of market share in men’s and women’s bottoms during the quarter.
Management highlighted women’s apparel, Western, international markets, digital, and full-price stores as areas of opportunity for Wrangler. Baxter said the female business represents about 10% of revenue, while Alkire noted that the women’s denim market is larger than men’s, based on Circana data.
Helly Hansen also remains central to Kontoor’s growth plans. The brand generated first-quarter global revenue of $176 million, up 16% on a pro forma reported basis. Alkire said constant-currency growth was in the high-single-digit range. Including the China joint venture, which is not consolidated, Helly Hansen global revenue increased more than 20% on a pro forma basis. Alkire said the China joint venture’s revenue increased by approximately 100%.
Baxter said Kontoor sees opportunity for Helly Hansen in the U.S., where the brand remains underpenetrated. The company is preparing for its first distribution with Dick’s Sporting Goods’ House of Sport concept this fall and is close to hiring a general manager for North America.
Kontoor reported adjusted gross margin of 50.6% for the first quarter, up 470 basis points from a year earlier. Alkire said the improvement was driven by Project Genius, Helly Hansen’s contribution and channel mix, partially offset by higher product costs net of pricing actions. Helly Hansen added about 200 basis points to adjusted gross margin.
Adjusted SG&A was $224 million, up 60% from the prior year, reflecting the impact of Helly Hansen and increased investments in demand creation, DTC and variable expenses. Adjusted EPS from continuing operations was $1.06, up 67% year over year. Including discontinued operations, adjusted EPS was $1.55. Helly Hansen contributed $0.26 per share, while unmitigated expenses previously allocated to Lee reduced adjusted EPS from continuing operations by $0.11.
Kontoor ended the quarter with inventory of $464 million, net debt of $1.1 billion and $56 million in cash. The company said its $500 million revolver remained undrawn. Kontoor also reported making $250 million in voluntary term-loan payments since closing the Helly Hansen transaction.
Kontoor’s board approved a new $750 million share repurchase authorization, replacing the prior program. Alkire said the company intends to use the majority of expected proceeds from the Lee divestiture to accelerate share repurchases, while also using a portion to strengthen the balance sheet and reduce net interest expense.
The company repurchased $25 million of shares during the quarter under its prior authorization and declared a regular quarterly cash dividend of $0.53 per share.
Alkire said Kontoor expects to generate more than $400 million of free cash flow in 2026 and has earmarked $225 million for debt repayment. He said the company remains committed to exiting 2026 with net leverage at or below 1.5 times, and Baxter said Kontoor is six to nine months ahead of its original debt repayment plan.
Kontoor raised its outlook. The company now expects full-year revenue, including discontinued operations, of $3.41 billion to $3.46 billion, compared with its prior outlook of $3.40 billion to $3.45 billion. Revenue from continuing operations is projected at $2.66 billion to $2.71 billion.
Full-year adjusted gross margin from continuing operations is expected to be 48.3% to 48.5%, up 180 to 200 basis points from the prior year. Adjusted operating income from continuing operations is expected to be $411 million to $418 million, including about $40 million of unmitigated expenses previously allocated to Lee.
On a combined basis, including Lee’s expected contribution now reported in discontinued operations, adjusted operating income is expected to be $516 million to $523 million, above the prior outlook of $506 million to $512 million.
Kontoor expects adjusted EPS from continuing operations of $5.15 to $5.25, including a $0.55 impact from unmitigated Lee-related expenses. Before that impact, adjusted EPS from continuing operations is expected to be $5.70 to $5.80. Including discontinued operations, first-half adjusted EPS is expected to be $2.77 to $2.82, compared with the prior outlook of $2.25 to $2.30.
Alkire said the outlook assumes a 15% reciprocal tariff rate on applicable inventory receipts for the remainder of 2026. He also said Kontoor recognized a $54 million net receivable related to expected recovery of certain tariff payments and reduced cost of goods sold by approximately $49 million on a GAAP basis during the quarter.
Baxter said the portfolio shift is intended to accelerate growth, adding: “We now have two mouths to feed instead of three, and we’re going to be very aggressive there.”
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