Kontoor Brands, Inc. (KTB) Q3 2026 Earnings Call Transcript

Operator: Greetings. Welcome to the Kontoor Brands third Quarter 26 Earnings Call. At this time, all participants are in a listen-only mode. Brief question-and-answer session will follow the formal presentation. Please note this conference is being recorded. I will now turn the conference over to Erinn Murphy, Global Head of Finance and Operations. Please proceed.

Erinn Murphy: Thank you, operator, and welcome to Kontoor Brands' Third Quarter 26 Earnings Conference Call. Participants on today's call will make forward-looking statements. These statements are based on current expectations and are subject to uncertainties that could cause actual results to materially differ. These uncertainties are detailed in documents filed with the SEC. We urge you to read our risk factors, cautionary language, and other disclosures contained in those reports. Amounts referred to on today's call will often be on a dollar basis. Which we clearly define in the news release issued earlier this morning that can be found on our website at contourbrands.com. Reconciliations of GAAP measures to adjusted amounts are available in the supplemental financial tables, included in today's news release. These tables identify and quantify excluded items and provide management's view of why this information is useful to investors. Unless otherwise noted, revenue growth rates referred to on this call will be on a constant currency basis. Which excludes the translation impact of changes in foreign currency rates. Reported results and our outlook are stated on a continuing operations basis unless otherwise noted. Joining me on today's call are Kontoor Brands Chief Executive Officer and Chairman, Scott H. Baxter and President and Chief Financial Officer, Joe Alkire. Following our prepared remarks, we will open the call for your questions.

Scott H. Baxter: Thanks, Erinn, and thank you all for joining us. I want to begin my remarks by acknowledging a defining milestone for the Kontoor organization. On Monday, we successfully closed the sale of the Lee business to Authentic Brands Group. The culmination of this transaction reflects the tremendous amount of work and commitment across both organizations. And I want to thank everyone who contributed to a thoughtful and professional transition. For Kontoor, the closing of this transaction meaningfully strengthens our portfolio and financial profile. It enables us to entirely focus our talent, investment capacity and execution against our greatest value creation opportunities in Wrangler and Helly Hansen. It also improves our capital allocation optionality. This morning, we announced that we intend to repurchase $450 million of shares, including a $400 million accelerated share repurchase program. Joe will cover the details shortly, but this underscores our financial strength and confidence in our organization and the future growth opportunities. So where do we go from here? The divestiture of Lee is 1 of several intentional moves we have made to simplify our portfolio and shift the organization towards a more growth oriented mindset. Including the sale of non core assets like Rock and Republic, the optimization of our owned manufacturing in Mexico, the execution and completion of Project Genius, and the acquisition of Helly Hansen, These deliberate moves will enable us to accelerate growth, create investment capacity, and drive stronger returns moving forward. Our strategy has evolved. We are entering this next chapter as a more focused company built around 2 iconic brands with distinct roles in our portfolio. Wrangler is our balanced grower. We will protect and build the core business while accelerating growth in women's, D2C and non denim categories. We expect this to support years of durable revenue growth, gross margin expansion, and strong cash generation. Helly Hansen is our growth engine. We will accelerate growth in the U.S. Win in premium outdoor and power workwear globally. The brand has significant white space across geographies, categories and channels with the potential for double digit growth in meaningful gross and operating margin expansion over time. We also know that both brands will benefit by being part of Kontoor. Our multi brand operating platform provides scale and expertise that each brand could not replicate as effectively on its own. I would like to highlight another important milestone our teams achieved. In September, we welcomed investors and analysts to Norway for Helly Hansen's first ever Investor Day. The event was an important opportunity to introduce the depth of the leadership team, demonstrate the strength and authenticity of the brand, and provide a clear road map to unlock its global potential. Results in the third quarter were in line with our expectations and provided further evidence of the progress we are making against this strategy as we build the foundation for growth. Our workwear and sport businesses both grew in the quarter and performance reflected improved full price selling, gross margin expansion, expense synergies and disciplined inventory management. Turning to Wrangler, In the third quarter, growth was led by direct to consumer, female and international. Revenue growth was also supported by new distribution gains as we reach new customers within our workwear and female businesses. We will continue to build on Wrangler's authority in Western and core mail bottoms, while increasing investment in future growth opportunities in areas such as female, non denim and a focused full price retail and digital experience. With our team now entirely focused on Wrangler, I am confident our best years are ahead. Last quarter, we discussed our primary initiatives. Build Wrangler momentum from a position of strength and sharper focus following the Lee divestiture, integrate and accelerate Helly Hansen and finish Project Genius strong. We continue to make meaningful progress against these initiatives while funding our investment roadmap through Project Genius, integration synergies and an always on cost excellence mindset. As we look to 2027, I am confident we are well positioned to translate these priorities into faster execution and stronger returns. Before turning it over to Joe, want to recognize our teams around the world. We have asked a great deal of the organization this year. Our people have managed a significant portfolio transition, continued the integration of Helly Hansen invested behind our brands and executed through a dynamic consumer and operating environment. Through it all, we expect to deliver consistent revenue growth, over 300 basis points of gross margin expansion and more than 30% earnings growth. We are strengthening our capability to fund growth, invest in our brands and position Kontoor to win in any environment. Our team's focus resilience and commitment give me great confidence in Kontoor's future and the opportunities ahead.

Joseph A. Alkire: Thanks, Scott. Thank you all for joining us today. I would like to start by extending my appreciation and gratitude to our teams around the world for the significant effort that went into completing the divestiture of Lee. The closing of the transaction was the culmination of many months of hard work and commitment to prepare the business for a very complex global separation with multiple parties involved. With the support of our partners, our teams delivered a successful outcome for Lee, Authentic Brands Group and Kontoor. For Kontoor, it represents an important milestone on our value creation and transformation journey and positions us for stronger growth within our core addressable markets of denim, outdoor and workwear. With the divestiture of Lee, we have solidified our foundation. We are concentrating our focus, resources, and investment where we have the strongest right to win while evolving our operating model and building more robust enterprise capabilities to unlock accelerated growth moving forward. As Scott mentioned, in September, we hosted our first Helly Hansen Investor Day. We outlined a focused strategy built around 3 priorities: supercharge the U.S., win in premium outdoor, and power workwear. Our 2030 financial commitments reflect our confidence in the Helly team and the global opportunity for the brand. We expect to grow revenue at a double digit CAGR to $1.1 billion, double the operating margin of the business and deliver more than $500 million of cumulative cash flow. We are off to a great start as Helly continues to perform ahead of our acquisition plan. Looking forward, we are pleased with the growth of our SpringSummer 27 order book in Sport, and we just kicked off our fallwinter 27 selling season and feedback from the marketplace has been strong. Within Workwear, we are bringing new technical innovation around heat stress cooling technologies and weather protection, which will continue to drive our momentum. From an integration perspective, we remain on track to complete the majority of non IT activities by year end. At the same time, progressing the IT systems migration advancing supply chain and planning improvements building dedicated sport and workwear capabilities and investing in the talent and marketing to support Helly's growth acceleration. Now let's review our third quarter results. Revenue from continuing operations was $685 million, increasing 3% compared to prior year, driven by 3% growth in both Wrangler and Helly Hansen. Within Wrangler, global revenue was $485 million, an increase of 3%. Growth was led by direct to consumer, female, international and distribution expansion. U.S. revenue increased 2% driven by 7% growth in direct to consumer and 2% growth in wholesale. New distribution gains contributed to growth while the core business continues to navigate a more dynamic consumer environment and conservative inventory management by our largest retail partners. International revenue increased 7%, driven by 26% growth in direct to consumer and 5% growth in wholesale. During the quarter, revenue in our denim and non denim bottoms business increased at a mid single digit rate, consistent with our year to date results. That said, we saw POS trends in our men's bottoms business soften from 3% growth in July year to date to 1% growth in September. Despite POS variability, which we have navigated throughout the last 2 years, the Wrangler brand continued to gain market share over the last 12 months and in September the latest data we have available. Our largest retail partners continue to manage inventory levels conservatively in light of the consumer environment. At the end of the third quarter, inventory levels at these partners were down at a high single digit rate compared to the prior year. This is not a new dynamic for us. The Wrangler brand is strong. Through operational discipline, and execution excellence, we remain confident in our ability to drive consistent profitable growth in our largest points of distribution. Our strategic focus remains on protecting the core men's bottoms business maintaining the brand's leadership in Western, scaling female and non denim categories and expanding full price brand enhancing DTC. As we approach the holiday season, we are balancing near term execution and disciplined market marketplace management with the investments required to accelerate Wrangler growth over time. Turning to Helly Hansen. Global revenue was $191 million and increased 3%. Helly's performance during the quarter was consistent with our expectations and year to date revenue increased 8% on a reported pro forma basis ahead of our acquisition plan. Sport revenue was $147 million, an increase of 2% compared to prior year as growth was led by our core categories, including sailing and winter sports. Workwear revenue was $44 million and increased 4% compared to prior year. Workwear was particularly strong in the U.S and the Alps regions. Moving to China. As a reminder, Helly Hansen's revenue results exclude the direct contribution of the China joint venture as the results are not consolidated under the equity method of accounting. Third quarter results were strong with revenue increasing approximately 65% along with strong profitability. Moving to the remainder of the P&L, Adjusted gross margin increased 32 basis points to 48.1%, The increase was driven by Project Genius, and the impact of favorable business mix and pricing net of changes in product costs. Adjusted SG&A was $229 million, or 33.4% of revenue. The increase in SG&A expenses was driven by incremental overhead and other expenses previously allocated to Lee, increased investments in direct to consumer, demand creation and technology partially offset by the benefits from Project Genius. Adjusted operating income was $101 million, an increase of 6% including incremental overhead and other expenses previously allocated to Lee as compared to the prior year. Adjusted operating margin was 14.7%, an increase of 40 basis points. Adjusted EPS from continuing operations was $1.50, an increase of 40%. Reported EPS from continuing operations was a loss of $0.62, including a $1.73 non-cash charge related to the migration of Helly Hansen intellectual property supporting integration synergies a simplified operating structure and a more optimized tax platform moving forward. Turning to the balance sheet. Inventory at the end of the third quarter was $570 million, down 6% compared to prior year. Driven by lower inventory at Helly Hansen. During the third quarter, we began to see increased supply chain volatility and longer lead times resulting in delays of product deliveries. We remain focused on disciplined inventory management while making the appropriate investments to support our future growth plans and maintain service levels for our consumers, and our customers. We finished the quarter with $1.1 billion in long-term debt and $56 million of cash on hand. Our $500 million revolver remains undrawn. During the quarter, we repurchased $20 million of common stock and year to date we repurchased $95 million of common stock. We ended the quarter with $680 million remaining under our existing share repurchase authorization. And as previously announced, our Board declared a regular quarterly cash dividend of $0.54 per share. Moving on to tariffs. As of the end of the third quarter, we have received essentially all IEPA tariff refunds. As a reminder, during the first quarter of 26, we recognized a net receivable of $54 million for AIPA tariffs previously paid. We have not recorded a receivable for Section 122 tariffs which have also been ruled invalid. And continue to monitor ongoing litigation related to the potential recovery of these tariffs. The global trade environment remains dynamic. We are currently subject to tariff rates of between 10% and 12.5% under Section 301. Based on current visibility, our outlook now assumes a 12.5% Section 301 tariff rate in the fourth quarter. As a reminder, our outlook excludes the impact of the 2025-related IEPA tariffs and associated refunds. Before turning to our updated outlook, a few details related to the divestiture of Lee. We closed the transaction on November 2 and received $698 million in net proceeds including net working capital and other closing adjustments. The net proceeds received exclude the tax on the gain on sale, which we expect to pay in the second quarter of 27, and also exclude the $250 million earn-out opportunity we have in future years based on the performance of Lee under ABG's ownership. We are deploying the net proceeds and our free cash flow toward $450 million of share repurchases in the fourth quarter along with $280 million of voluntary debt payments as capital allocation remains an important part of our value creation framework. Now turning to our updated outlook which now reflects the final terms of the divestiture of Lee. In addition, we are also updating our full year outlook to reflect stronger gross margin expansion and earnings growth as well as increased inventory investments to support our future growth plans and navigate current supply chain volatility. Our updated outlook now includes the following assumptions. We now expect revenue to approximate $2.68 billion, representing growth of approximately 12% compared to the prior year, including the impact of the 53rd week in 25. Fourth quarter revenue is expected to increase approximately 2%, excluding the impact of the 53rd week. We continue to expect Helly Hansen revenue to increase approximately 5% in the fourth quarter consistent with our previous expectations. We now expect Wrangler revenue to increase approximately 1%, reflecting a moderation in POS trends and more conservative inventory management by our largest retail partners. As a reminder, the 53rd week in 25 benefited Helly Hansen revenue by $3 million and Wrangler revenue by approximately $40 million. Full year adjusted gross margin is now expected to be in the range of 50.0% to 50.2%, representing an increase of 350 to 370 basis points compared to prior year. Our updated outlook primarily reflects stronger than expected year to date results partially offset by higher freight expenses and the foreign currency transaction impact of the strengthening U. S. Dollar. Adjusted SG&A is now expected to increase approximately 25%, driven by incremental overhead and other expenses previously allocated to Lee as compared to our prior outlook. Our outlook continues to include a full year of Helly Hansen expenses in the previously announced brand building and growth enabling investments. Adjusted operating income is now expected to approximate $400 million, an increase of approximately 12% compared to the prior year. This compares to our prior outlook of $413 million to $420 million. The change in our operating income outlook is primarily a result of $15 million of incremental overhead and other expenses previously allocated to Lee, which are largely offset by fees expected to be received for services we will provide in support of the transition of the Lee business and classified as other income in our P&L moving forward. For the full year and based on the final terms of the Lee divestiture, we expect overhead and other expenses previously allocated to Lee to approximate $55 million. We continue to expect to fully offset the impact of these costs over a 12- to 18-month period through mitigating cost actions including restructuring and fees expected to be received for services we will provide in support of the transition of the Lee business. Adjusted EPS is now expected to be $5.40, representing growth of 31%. For the full year, we now anticipate an effective tax rate of 18.5%, reflecting higher than expected tax synergies from the Helly Hansen integration. With the divestiture of Lee completed, we now expect to repurchase $450 million of common stock in the fourth quarter including $400 million through an accelerated share repurchase program. As a result, the full year weighted average share count is expected to approximate 54.8 million, including less than 50 million shares outstanding at the end of the fourth quarter. Total cash from operations is now expected to approximate $325 million. Our updated outlook reflects the loss of Lee operating cash flow for the remainder of the year and higher 1 time cost to separate the business incremental overhead and other expenses previously allocated to Lee and additional inventory investments. Our outlook now assumes voluntary term loan payments of $280 million, and we continue to anticipate returning to less than 1.5x net leverage by the end of 26. For the full year, including the use of proceeds from the divestiture of Lee, we expect to return approximately $1 billion of capital through a combination of share repurchases, dividends, and voluntary debt payments. Before I wrap up, I want to provide some initial perspectives on 2027. With our planned share repurchases in the fourth quarter, and our plans to mitigate the expenses previously allocated to Lee, we have strong visibility to 2027 adjusted EPS from continuing operations of at least $6.60, representing more than 20% growth. Additionally, we are confident in cash flow from continuing of at least $325 million for next year, which reflects the strong cash generation of both Wrangler and Helly Hansen. Our initial cash flow outlook for 2027 includes elevated 1 time cost to support the Helly Hansen systems migration and anticipated restructuring and other costs required to fully offset the expenses previously allocated to Lee. Beyond 2027, we expect our cash flow profile to normalize and exceed $400 million. While we will provide a more detailed 2027 outlook in our Q4 earnings call, we expect revenue growth at Helly Hansen to be consistent with the plan presented at the Investor Day. We have good visibility into the SpringSummer 27 order book for Scott continued momentum in workwear, as well as solid growth plans for fall winter 27 across the business. For Wrangler, we expect a positive impact from recent distribution gains and continued momentum in female, international and DTC. And we expect our recent brand building and growth enabling investments to contribute more meaningfully as we move through 2027. That said, we are taking a prudent approach in planning the business and anticipate more moderate levels of POS to continue through at least the first half of next year and expect our retail partners to continue to manage inventory levels conservatively. Regarding product costs, we have good visibility into the first half of 27 and expect a modest inflationary environment excluding the impact of tariffs. Expect freight costs to remain elevated expect gross margins in the first half of 27 to be impacted by higher tariff rates as we anniversary the AIPA tariffs that were invalidated following the Supreme Court ruling. Assuming current Section 301 tariff rates remain in effect we expect approximately $30 million of incremental expense on a full year basis primarily in the first half from higher tariffs as compared to 2026. We expect product costs in the second half 27 to be more inflationary relative to the first half based on current visibility. Despite these headwinds, we have strong mitigating actions in place including the work we have done in the area of pricing analytics, synergies from Helly Hansen, other cost actions and efficiencies within the supply chain in addition to our structural mix related gross margin drivers. Contour has a proven track record of winning and delivering strong TSR regardless of the environment. In execution excellence, along with disciplined capital stewardship remains a critical focus of our organization. Now a few closing comments. I would like to take a moment and recognize the entire Kontoor organization. 've been executing against an ambitious growth and transformation agenda while continuing to deliver strong results in a difficult and at times unpredictable operating environment. Our organization has displayed incredible resolve passion, and excitement for the opportunity ahead and I could not be more proud of our people and what they have accomplished. We have reached an important inflection point in Kontoor's evolution, Project Genius, the first iteration of our transformation program, is complete. The lead transaction is complete. Helly Hansen is performing ahead of its acquisition plan and has a clear strategy to accelerate growth and expand margins. Wrangler is strong and remains a steady, highly profitable and cash generative global brand positioned to accelerate growth over time. We are bringing greater focus and clarity to the enterprise investing behind our highest return opportunities and leveraging cost excellence to fund sustainable growth. While maintaining capital allocation optionality. Together, these actions further enhance Kontoor's long term TSR model. As I look forward, I am confident in our strategy and our transformation the organizational agility we are creating and the optionality embedded in our model as we position Contour for its next chapter of growth and success. This concludes our prepared remarks and I will now turn the call back to the operator.

Operator: Thank you. Will now conduct a question-and-answer session. The first question comes from Ike Boruchow with Wells Fargo. Please proceed.

Irwin Boruchow: Hey, good morning, Scott and Joe. 2 for me. I was going to ask about the 4Q and it sounds like the early part of 2027 on the outlook. Seems to be a little bit below what you guys had kind of expected maybe 3 months ago. Seems like it is largely Wrangler POS. Maybe Joe, just a little bit more or Scott, what you saw over the past couple months and why you are expecting that to kind of continue for the next several quarters?

Joseph A. Alkire: Yes, sure. Good morning, Ike. Yes, I will start. So on the outlook, we narrowed the revenue range we previously communicated. Helly is on plan The growth outlook for Wrangler is more tempered based on what we saw towards the end of Q3 and little bit more caution heading into November and December. But our revenue range is squarely at the midpoint of what we provided at the beginning of this year despite what is been certainly a more dynamic environment. On the profitability side, we raised our gross margin outlook. We raised our raised our EPS outlook again, which includes incremental expenses from the divestiture of Lee as well as higher freight costs in FX that we have seen start to hit us, you know, late in the third quarter and into the fourth quarter. So with the Lee transaction now closed, we have updated the outlook to reflect the final accounting of that, including the higher stranded costs, the TSAs, and some mitigating actions we have in place in addition to stronger capital allocation as a result of the higher proceeds. So when you put it all together, our outlook reflects about 12% revenue growth and about 30% EPS growth, and we will leave this year with our balance sheet in really good shape.

Scott H. Baxter: And Ike I would add that we kind of lined everything up to the current inventory levels that we have, the POS that we have seen through October. And how we think the business is going to play out through the rest of the year. So I think we have done a really nice prudent job as far as looking at our business and understanding it and understanding all the inputs. But the thing that probably has me the most excited is that you know and you heard me say this last call, and I think this is really important. Talked about spending half of our intellectual capacity on Lee. In, about 24 hours ago, that switch flipped. Now we are at a 100% of our energy now here is on Wrangler from a denim standpoint. I would tell you Ike I think the 1 thing that I have come to realize over the last couple of weeks is that it really was not a 50 split. As you have 2 brands that are really performing differently, Wrangler's performed very well for the last years and Lee had a little bit more of a struggle. But then we went ahead and spent an incredible amount of time, energy, and money the last couple of years put it in a much better place and then obviously we sold it during that time. But what I came to realize is we were spending 60% to 65% of our capacity on Lee to get it to that position. So from my vantage point, I could not be more optimistic heading into 2027 because I know the talent that is in this organization and what we can do with that talent. Fully focused now going forward. And back to Helly and Joe's comments there, Helly is in a really interesting position. This year, we have already seen snow out west. We have seen it in the Rockies. We have seen it in the Tetons. We did not see snow out west until the beginning of the year last year, January, February. And been in this outdoor business for a really long time and I will tell you snow this early really matters. People are setting their trips up now They are getting their skis ready. They are preparing to head out and go out early and maybe get 2 or 3 trips out west this year versus 1 last year. So a really important deal for us and all that is coinciding with Helly's new equity campaign that we kicked off on October 23, is really solid. Our product looks really good. We just rolled out just rolled out. it is just hitting house of sports right now as we speak. Our new line. So all those things are kind of coalescing together right now that gives me really nice optimism for 2027.

Joseph A. Alkire: And I will take your 2027 question. Which is a really important point that we want to make sure that people understand. So we committed to fully offsetting the EPS dilution from the Lee transaction over a 12- to 18-month period and we remain fully committed to that. When we announced the sale of Lee, our earnings per share outlook was about $6.75. So the floor we set next year of $6.60 gets you almost all the way there on the earlier end of that timeline. Given all the moving parts to our business with the divestiture of Lee, we thought it would be helpful to set a floor on 2027 EPS, and the bridge to that $6.60 is really just the impact of the buyback and the fees we expect to receive in support of the transition to the business. Which will immediately begin to offset stranded costs in 2027 before any other mitigating actions we plan to take. So the $6.60 is a floor we would ask you to think about it in that manner. We are not providing a specific business outlook for 2027 today, but you can read from our prepared remarks that we expect growth in the business next year which would obviously drive EPS north of $6.60. We continue to see earnings power of $7-plus over the next 12 to 18 months. And we are right in the middle of our 2027 planning as we speak.

Irwin Boruchow: Really helpful.

Scott H. Baxter: Thanks guys.

Joseph A. Alkire: You bet.

Scott H. Baxter: Thanks, Ike.

Operator: Next question comes from Matthew Boss with JPMorgan. Please proceed. Matthew, your line is live. Next question comes from Brooke Roach with Goldman Sachs. Please proceed.

Analyst: Good morning and thank you for taking our question. Scott, I was hoping you could provide some additional color on Helly Hansen as you begin to build into new distribution. Can you share any details on how your early expansion in the House of Scott is going and the expectations for the number of doors there, the impact that this has on your fourth quarter 26 outlook and how you are thinking about building into new distribution as you build into the hundred and fiftieth anniversary of Helly Hansen and into 2027?

Scott H. Baxter: Yeah. Yeah for sure, Brooke. Very excited about being in the House of Sports. And I and I would tell you for several reasons. 1, it is a go to destination Dick's Sporting Goods and House of Sports for all those, you know, ski enthusiasts and outdoor. Winter outdoor activities. So being there, you have to be there if you are a player. So you have got to have prominence on the floor. I have been in the business a long time, and I cannot tell you, and I hope that you have a chance to go see how impressed I was with the merchandising and the set that we have put out. So our product on the floor looks terrific. Now it just got there So we are in time for the season to start. So I feel really good about that. We will be in 18 stores when we are done. I feel very confident how we are going to do because had a chance to look at the floor and see the set. So I feel really good about that. And I think the thing that is most important for me is we have just hired CJ King to be our general manager for North America. As you know, we have just kicked off an equity campaign and have not had 1 in a very long time. We are bringing a lot of energy to Helly Hansen in this North American region's specifically the United States and that is all dovetailing together at the right time. And it just feels really positive moving forward. So what we need to do and what we need to have is really good weather out west, has started early, which is. And I cannot tell you how important that is to outdoor business. You know that. So that is come into play which is really important. Our product looks good and I think that we will get a very good read Brooke and we will be able to talk about this in our February call on how that product has done in the fourth quarter which we will make sure we do and how that has helped us to see more product going forward and we will have some more updates for you on that in the February call. But I would sit back and say that I am very optimistic on Helly Hansen in the fourth quarter, optimistic even more in 2027 and feel good that lots of really good things are lining up to what is most important: our technical ability there, how the product looks, the team and leadership that we have in place, the campaign, the investment that we are making, the focus in the business. And you know what? It really matters, but snow in the mountains. So for me feel pretty good.

Joseph A. Alkire: And Brooke, I will take the number. So for the full year, we continue to expect high single digit growth for Helly on a reported basis. that is got a little bit of a FX benefit in it. Most of that is behind us really all of that is behind us now as the majority of that. Impacted the first part of the year. For Q4, we expect growth of about 5% ex the 53rd week has not changed in terms of our expectation. October was actually ahead of our internal plans and the growth we have contemplated is supported by our order book visibility, current demand trends that we are seeing from an at once perspective and expanding distribution. So we expect the growth going forward to be very well balanced across both sport and workwear, across geographies and across our product categories. And we expect 2027 to be right in line with the investor day that we presented in September. that is really helpful color. Maybe just 1 quick follow-up for you, Joe. Can you unpack the changes in your cash flow outlook a little bit more and talk to the specific 1 timers and the sizing of those that you are seeing in both 2026 and 2027? Yes, sure, Brooke. So on the cash flow, we now expect total cash from operations of about $325 million, including the contribution from the lead business through October. That compares to our previous expectation of $450 million. So we have lowered the outlook for the following reasons. there is about a $50 million additional inventory investment in both Wrangler and Helly Hansen to support our future growth plans and maintain service levels in light of the recent supply chain. Volatility that I spoke about in the prepared remarks we view this investment as transitory. there is nothing structural here We expect to carry higher inventory levels through the first half of 2027 as the supply chain heals. This is core inventory so we see very minimal risk. From a Lee perspective that accounts for about $50 million lower than expected cash contribution from Lee year to date. As well as the lost operating cash flow from Lee for November and December and then we have got about $25 million of higher 1 time cost to support the separation of Lee on what became a more expedited close time line. So we did receive higher than expected net proceeds from the sale that was due in part to net working capital and other adjustments which get the proceeds get classified in cash from investing as you know. So net the changes for Lee are mainly geography and we expect to have a higher cash balance by the end of the year. For 27, we are confident in the initial cash flow outlook that we provided of $325 million that does carry some elevated 1 time cost as we support the Helly Hansen IT migration as well as the restructuring costs required to fully offset stranded costs from the sale of Lee. So by the time we get beyond 2027 you will start to see a more normalized cash flow, cash generation for Kontoor going forward, which we expect to exceed $400 million. Great. Thanks so much. I will pass it on. Thanks, Brooke.

Operator: The next question comes from Matthew Boss with JPMorgan. Please proceed.

Matthew Boss: Great. Thanks. So Scott, maybe relative to the 3% growth across both Wrangler and Helly in this quarter, could you elaborate on drivers of the fourth quarter acceleration at Helly versus the moderation at Wrangler. But more so if you could touch on current underlying demand trends versus sell in at each of the brands.

Scott H. Baxter: Sure. Thanks, Matthew. Thanks for the question. So from a Helly standpoint, real high level of confidence. I think that we are heading into the fourth quarter in a really good spot because I think our product is spot on with the consumer right now. I think we are getting the weather trends that we need to be successful And all I mean by that is I think everybody that is going to head out west, they are going to get 2 or 3 chances to head out west now this year instead of just 1 like last year. And 1 of the things that I have learned in the business is that when you only have 1 chance to go out, you do not replace your jacket, your pants, you do not replace your outerwear. But when you know you are going to go ahead and use it 2 or 3 times in a season, you go ahead and replace So that is really, really important to us. I think the other thing, Matthew, is people are going to see our product now in a much more highlighted area and that would be the house of Sports. So they have not seen it there before, people shop in that area and when they see that product in that area, they are really gonna know. And Joe touched on it I think this is really important, Matthew. We have got, a better handle on the inventory. So we had to work through that when we purchased the company, as you know, And I think that is just something that we do really well as far as planning and forecasting and demand. From an inventory standpoint and having the core styles and being in stock, we are investing in that, and we are gonna be in really good shape versus where we were when we originally bought the company. Now going through. And that is really important and that is really important as you know because when the demand gets really good, when the weather is really good, you gotta be there with the product for that peak time that people are purchasing especially around the holidays. So all dovetails nicely with our equity campaign. Feel real good about that. From a Wrangler standpoint, you know, we are in line with kinda we are thinking right now and how we are seeing the business. But I do go back to my commentary about how we are just gonna be so focused now on Wrangler. And it is just as it is to me, it is probably the most exciting thing I think that is happened in the company in a long time. there is a brand that has permission to grow in such a significant way. I mean, Matthew, we have not even touched the opportunity that lies out there with female. It is so significant and so big and every time we do something, I will give you a great example, bespoke. Every time we do something like that and we put out really good product, the female consumer just takes to it immediately. So they really wanna see us do more. We know the clientele and the opportunity is out there. We know there is a huge opportunity for Wrangler in non denim so we are really focused in that too and then workwear also. So feel real good about that And more importantly feel good about the fact that we are getting more in line from an inventory standpoint. I think everybody here saw that our inventories were down 6% for the quarter. We need to go ahead and be a little bit stronger than that. We have been very prudent in how we have been running it and supply chain has been a little bit bumpy. But I think you are going to see our inventories get more in line with where we think business gonna be, and we are gonna support the business that way. So optimistic going forward but I will tell you if I think about this, my optimism really lies in 2027 with both of these brands. We have done so much work to position this company from the standpoint of we are ready to accelerate this company next year. From a focus, from an investment standpoint, from a talent standpoint, So that is that is kind of where I am at. Joe, would you add anything there?

Joseph A. Alkire: Matthew, just some additional color on growth for Helly. I will give you just a full year numbers, but Q4 would certainly be representative. We have got mid to high single digit growth across both sport and workwear contemplated You have got high-single- to low-double-digit growth in regions like the U.S. And the Alps, for example, which are obviously focuses of the strategy. You have got really balanced growth across both wholesale and retail. So the growth we are seeing at Helly is really broad based.

Matthew Boss: it is great color. Joe, just on the bridge to your earnings floor of $6.60 next year, what level of revenue growth are you embedding relative to low single digits to exit this year? And just your overall confidence in this guide given the current order book visibility idiosyncratic portfolio growth opportunities for next year?

Joseph A. Alkire: Yes, Matthew, I certainly appreciate the question. I am not going to get into specifics. We tried to give you guys some incremental shaping as we sit in November on both brands relative to the top line. I think fair to assume we expect growth in both brands. We expect Helly growth to be consistent with the Investor Day that we just that we just outlined in September. And for Wrangler, you have got some puts and takes. We expect D2C to continue to grow nicely. We expect good momentum in female. We expect the impact of some of our distribution gains to wrap. On the other side, we are assuming a more moderate level of POS based on what we have seen more recently and we expect inventory levels at retail to continue to be managed very tightly. But in terms of the $6.60, Matthew, again I mentioned a floor you should think about it as a floor I just reiterate the earnings power of this business post the divestiture of Lee is $7 plus. that is really what we see over the next 12 to 18 months.

Matthew Boss: Great color. Best of luck.

Joseph A. Alkire: You, Matthew.

Operator: The next question comes from Adrienne Yee with Barclays. Please proceed.

Analyst: Hi, this is Angus Pelleher on for Adrienne Yih-Tennant. Thanks for taking our question. So congrats on closing Lee. Think you mentioned to Ike you were spending a healthy portion of your capacity on Lee and now it is all shifting to Wrangler. So my question is, what do you do with that extra capacity? And then kind of a related follow-up, with POS expected to remain a bit pressured What do you think gets Wrangler back to low single digit plus? And what should we be watching to know it is working?

Scott H. Baxter: So I would tell you that from a standpoint, what you have now and I can kind of break it down into the businesses a little When you are going through what we went through from the sales standpoint and also even more importantly, the lead up to the sale, you are-- I mentioned a little bit of this. You are thinking about things like our collaborations with and our licensing agreements and you are splitting the baby on both, right? So both brands are having to get equal opportunities with the great opportunities that are there brands from a collab standpoint and or licensing. Now we are going to be focused on 1. Product team focused on 1, relationships with our wholesale customers focused solely on Wrangler. Before when we went in, presented the for the year, talked about planning for the year, it was all a split 50. So now a complete focus there. That gives me incredibly great deal of confidence. POS from the standpoint of just growing we need to be back in line. We are gonna grow our inventories a little bit on the key styles to make sure that we are supporting the wholesale customer and also our direct-to-consumer customer on a go forward basis. And then we are doing other stuff that I am really kind of excited about. We have some new distribution. So right now we are rolling out pretty significantly with Lowe's, and we are a category and I think Lowe's has done an amazing job relative to not being in that apparel business before and how they are merchandising and how they are learning I tell you they are learning very quickly on how to merchandise apparel in their stores. it is been very impressive. And then Target's doing really well, and then we are getting back in this much stronger position with Target going forward. So as we look into next year, I look at things like female and the opportunity there. The new distribution that I just mentioned, the heightened inventory that we are going to have key and core styles going forward, and then all of that combined with the focus that we will bring to the business going forward. And I think that is what really does it for me relative to how I think about the business and how we can just focus on the results of 1 business and 1 brand in the denim category relative to how we had to before.

Joseph A. Alkire: And I just add some color, which I think will give you a better sense for the underlying strength of Wrangler. So on a year to date basis, the Western business is up high single digits Our DTC business is up low double digits. Our female business has increased at a high teen rate We have seen really solid growth on the international side. So the drag has been the inventory reduction from our largest retail partners, which I mentioned in our prepared remarks, declined at a high single digit rate, which has impacted our shipments in. POS has certainly moderated, but there is a lot of strength behind the Wrangler brand right now.

Scott H. Baxter: And I will tell you, I will add 1 last thing. We have not talked about it but something that is not as big but it is something that I think in my years of experience in watching how a brand really grows and that is the D2C stores that we are going to be adding in 2020. We have 1 right now in Fort Worth and it does exceptionally well. I think everybody here knows that Texas is an incredibly important market for the Wrangler brand. So in this coming year we are going to be adding stores in Austin, Houston, El Paso and several others in the state of Texas. So we are really going to own that state of Texas. It just helps us be able to launch new products, to bring females in, and to bring others into the brand in a really great setting that is 100% Wrangler focused from a D2C standpoint in key Wrangler markets, big key Wrangler markets. And I think it is really important our brand and how we think about it going forward. And we are really gonna get after that in earnest for the first time because we have got some capacity in the organization to do that. And we did not have that before when we the mono branded stores if you remember. So the Lee and Wrangler stores that we had before in the outlet. So now we are focused on that. I do think that is an unlock going forward. And I think that when we as an organization look back years from now and think about some of the great bread crumbs that we put out there as an organization, we are gonna go back to our key store strategy in key markets with that Wrangler brand. And I think we are going to feel really good about those decisions. that is really helpful. Thanks a bunch and best of luck with holiday and ski season for Helly. Thank you.

Joseph A. Alkire: Appreciate that.

Operator: The next question comes from Blake Anderson with Jefferies LLC. Please proceed.

Analyst: Hi, this is Erinn on for Blake. Thanks for taking our question. Good to hear about the early snow out West. Just curious with expectations for a warmer Northern U. S. This winter and if expected El Nino impacts? How much of Q4 Helly is already locked in through the order book? How should we think about Helly's durability with warmer weather than prior years, especially with the December quarter? Pretty good chunk of full year revenue in the last few years? Thanks.

Joseph A. Alkire: I can take that. So about 80% of the sport business in the second half of the year is order book driven. So you can assume that is locked in at this point. there is an at once component which are at once business has been really strong. From a weather standpoint, I mean, we do not know, right. it is been I think a little bit better than what we expected thus far. But it. But it is early, and we have got 2 of our larger months ahead of us. And I would not underestimate the amount of folks that ski out West versus the amount of folks that ski out East. When you have a good season on the West, it is a difference maker. Got it. Thanks. And maybe if we could squeeze in 1 more international B2C for Wrangler Continues To Be Really Strong. Just Wondering If You Could Just Unpack A Little Bit More In Terms Of What Been Driving The Strength There. How Does The Women's Assortment Look Relative To The U. S? And maybe any more context in terms of how we should be thinking about that momentum rolling into Q4 next year? Thanks. Yeah, I start. So really 2 markets I would call out. Europe the strength in Europe for Wrangler has been building for a number of quarters now. We have started to focus more on Canada in particular particularly on the digital side. We are seeing really strong growth, for that business right now.

Scott H. Baxter: Yes, I would ditto that. I think it is back to the focus again. And there is a real core group of consumers that have loved Wrangler for a long time. And I will tell you the other thing that is been very helpful for us is there is a real western component in Europe right now that is been happening. Lots of artists are touring throughout Europe right now, bringing a lot of excitement to the continent. And our product is really resonating. And if you follow the business, the Wrangler business has been pretty strong in Europe over the last few years. And Joe's comment about Canada, think, is really important because we are really doing well with our workwear business in Canada too. And some of the some of the product that we see that we have, had some of the product that we have kicked off. For instance, we just kicked off Toughlight and that is been very successful in Canada so far and it is really nice to see So that Canadian business is important to us. it is a smaller business that is getting bigger but growing quickly, so we are pleased with it. So again, I go back to new product introductions, focus on the business, and bringing in those new customers and I think our international business can do really well with Wrangler.

Operator: The next question comes from Bart Drbul with BTIG. Please proceed.

Analyst: Hi, this is Bob on for Robert Drbul. The. I guess, if we could just sort of drill down a bit on Wrangler. In terms of like what is happening with the market, with some of the more tempered expectations, I think you talked about Western still being high single. Any change in the Western trends that you see coming? And then just in terms of like market share positioning around The U. S. Business Is it competition that is slowing the performance? Is it just the consumer? Can you expand a bit more on those pieces? Thanks.

Joseph A. Alkire: Sure, Bob. it is Joe. I can take that. So Wrangler Q3 Wrangler year to date up 3%. Within that, our denim and non denim bottoms business, which is about you know, 80% of the business, was up at a mid single digit rate. I talked about the growth that we saw across the different aspects of the business. Our outlook did not contemplate any changes to POS trends or inventory levels at retail. We have been positioning our outlook that way for probably 2 years now. And we saw POS run at +3% in men's bottoms through July, so POS slowed to about 1% in the business in September, it was about flat for Q3. And in addition to that, more importantly, saw inventory levels at retail come in a high single digit rate. So that really impacted our shipments in beginning in the third quarter. For the fourth quarter, we have tempered our growth expectations for Wrangler and now expect 1% growth, driven by expanded distribution and continued momentum in D2C Western and female, but we have assumed no improvement in terms of POS or inventory levels at retail relative to what we saw in Q3 and into September. And our October results were in line with that outlook. Great. And I have just 1 follow-up question. On stranded costs, can you just expand a bit more? I think the $15 million higher number given, I think it is $55 million versus $40 million, is that the right way to think about it? Yes, yes, I can take that Bob. So there is about $55 million of expenses previously allocated to Lee that have now been reclassified to continuing operations. This is a little higher than what we previously communicated based on final terms and transaction structure with ABG as the deal was closed and we negotiated really the best transition support structure for the business going forward. there is no impact to us economically as we received higher net proceeds as a result and we will receive higher fees in terms of the support we are going to provide over the next 12 months or so. As we sit today, we will offset about $30 million of those costs alone from the TSA fees and we have got mitigating cost actions underway to fully offset the structural burden of these costs over the next 12 to 18 months. So there is no change to our commitment to fully offsetting the stranded cost from the Lee transaction in fairly short order.

Analyst: Thank you.

Operator: At this time, I would like to turn the call back over to Mr. Scott H. Baxter for closing comments.

Scott H. Baxter: Thank you very much. Well, folks, thank you for participating in the call. Really appreciate the interest in our company and all the great questions. Look forward to seeing you in February and sharing our business with you. And I wanted to wish everybody a happy holiday season. Thanks again for everything, and we will look forward to talking to you soon. Have a nice day everybody.

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