UBS analyst Mauricio Serna isn’t concerned about near-term headwinds at Kontoor Brands Inc.
In fact, Serna said in a research note: “We see solid long-term growth despite near-term headwinds.”
Kontoor owns the Wrangler and Lee jeans brands. It just inked a deal to acquire Norwegian outdoor and workwear brand Helly Hansen, which CEO Scott Baxter said is accretive in year one. After five years working on the separation from its former parent VF Corp. where it focused primarily on its core business, Kontoor is now thinking big in terms of other segments and opportunities for growth.
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The analyst said Kontoor’s fourth quarter results “underscored solid underlying demand for its brands, as down by ongoing point-of-sale share gains and direct-to-consumer sales growth acceleration.
Serna said the long-term view is “positive,” and noted that the pending Helly Hansen acquisition brings “meaningful potential upside to Kontoor’s long term growth algorithm.
Kontoor is projecting Fiscal Year 2025‘s adjusted diluted earnings per share in the range of $5.20 to $5.30, on a revenue forecast between $2.63 billion and $2.69 billion, which excludes the potential impact of tariffs and future contribution from the acquisition of Helly Hansen..
In the near term, Serna is expecting lower sales due to adverse foreign exchange rates and weaker Lee revenues. He also estimated a $30 million impact from tariffs on gross margins. But the analyst also expects Kontoor to realize more benefits over time from its cost savings program and initiatives to mitigate tariffs.
As for the denim market in general, Serna said the denim industry will grow an estimated 2 percent to 3 percent. “We expect emerging markets to fuel strong sales growth. Improved product innovation capabilities from several denim players should be a second driver,” he said. “Plus, the trends towards comfort and more casual dress should help drive the category’s sales.”
He expects Kontoor to see growth acceleration from new wholesale partnerships, share gains from existing wholesale partners, and direct-to-consumer channel expansion.
For now, Wrangler is expected to outperform Lee. That’s because the Lee brand has a higher skew to more challenged European and Asian regions, its seasonal merchandise, and how the brand optimizes its U.S. wholesale distribution, the analyst said. He expects Lee to resume a growth trajectory in Fiscal Year 2026.
Serna has a “Buy” rating on shares of Kontoor.
“Kontoor Brands has two widely recognized denim brands and has strengthened its position as one of the leading players in the category while expanding into other segments,” Serna said.
