Kontoor Brands Reports $622.9 Million Revenue in Q1 2025, Plans Helly Hansen Acquisition

Kontoor Brands, Inc. reported a net revenue of $622.9 million for the first quarter of fiscal year 2025, reflecting a 1% decrease from $631.2 million in the same period last year. The decline was primarily driven by an 8% drop in non-U.S. wholesale revenues, which accounted for 16% of total revenues, and a 1% decrease in U.S. wholesale revenues, representing 72% of total revenues. In contrast, direct-to-consumer revenues increased by 5%, contributing 12% to total revenues. The company's gross margin improved by 230 basis points to 47.5%, attributed to lower product costs and a favorable product mix.

Operating income for the quarter decreased by 13% to $73.3 million, down from $84.4 million in the prior year. The increase in selling, general, and administrative expenses as a percentage of net revenues to 35.7% from 31.8% was influenced by $21.5 million in acquisition-related, restructuring, and transformation charges. Net income fell by 28% to $42.9 million, with diluted earnings per share at $0.76 compared to $1.05 in the previous year.

In terms of strategic developments, Kontoor announced its intention to acquire the outdoor and workwear brand Helly Hansen for approximately $900 million, with the acquisition expected to close in the second quarter of 2025. The company has already entered into foreign currency exchange contracts to hedge the purchase price. Additionally, Kontoor incurred $19.2 million in acquisition-related costs during the quarter, which included professional fees and losses related to the hedging contracts.

Operationally, Kontoor's cash provided by operating activities increased to $77.6 million from $56.5 million year-over-year, driven by favorable changes in accounts receivable and accounts payable. The company reported total assets of $1.68 billion, with cash and cash equivalents at $356.7 million, up from $334.1 million at the end of the previous quarter. Kontoor's long-term debt stood at $735.6 million, with no current portion of long-term debt due. The company has refinanced its credit facilities to support the Helly Hansen acquisition, ensuring sufficient liquidity for future investments and operational needs.

Looking ahead, Kontoor anticipates continued challenges from macroeconomic conditions, including elevated interest rates and fluctuating consumer demand. However, the company remains focused on its strategic growth initiatives, including expanding its core U.S. wholesale business and enhancing its digital presence. The management expressed confidence in navigating these challenges while maintaining compliance with financial covenants and supporting shareholder returns through dividends and potential share repurchases.