Kontoor Brands, Inc. Aktie

Greetings, and welcome to the Kontoor Brands Q1 2026 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Michael Karapetian, Vice President, Corporate Development, Enterprise Strategy and Investor Relations Corporate Management. Thank you. You may begin.

Thank you, operator, and welcome to Kontoor Brands First Quarter 2026 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 an adjusted dollar basis, which we clearly defined in the news release that was issued earlier this morning and is available on our website at kontoorbrands.com.

Reconciliations of GAAP measures to adjusted amounts can be found 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 in constant currency, which exclude the translation impact of changes in foreign currency exchange rates and reported results and our outlook are stated on a continuing operations basis, unless otherwise noted.

Joining me on today's call are Kontoor Brands President, Chief Executive Officer and Chairman, Scott Baxter; and Chief Financial Officer and Global Head of Operations, Joe Alkire. We anticipate this call will last 1 hour. Following our prepared remarks, we will open the call for questions. Scott?

Thanks, Mike, and thank you all for joining us. Today marks an important day for Kontoor. This morning, we announced we have made the decision to divest the Lee brand as part of our strong commitment to maximize value. This decision will allow us to sharpen our focus on the opportunities with the greatest potential to generate returns for our shareholders. We believe this will be a great outcome for Kontoor and the Lee business. Our discussion today will focus on 3 topics: First, our rationale to divest Lee and why now is the right time to do so. Next, we will discuss where we are in the competitive sale process and why we are confident this result will accelerate value creation. And finally, we will discuss highlights of our first quarter results and provide an update to our stronger 2026 outlook.

Since becoming a public company, we have been laser-focused on maximizing shareholder value and have executed a purposeful playbook to drive consistent revenue and profit growth. We established a multi-brand operating platform, executed Project Genius to create investment capacity to fund growth, optimized our supply chain and transformed the portfolio through the acquisition of Helly Hansen. These initiatives have resulted in improving fundamentals, accelerating capital allocation optionality and strong shareholder returns. As a result, we have delivered over 100% combined TSR since becoming a public company.

Two years ago, we recognized the need to capitalize on the opportunity to improve Lee's fundamentals. When we set out to turn the business around, we established a clear road map to do so. We focused on harmonizing talent, product, marketing and distribution to create better alignment with the brand's position as an authority in classic lifestyle denim. While it has not been linear, we are where we expected to be when we started this initiative as seen in Lee's improving fundamentals in 2025.

So why choose to divest Lee now? Our decision to initiate a sales process of the Lee business reflects the significant opportunities we see in both Wrangler and Helly Hansen. Focus is a critical element of our management approach. By dedicating the entirety of Kontoor's resources and capital towards growth-oriented brands, we are confident we can meaningfully accelerate long-term growth and profitability while unlocking significant capital allocation optionality. As we stated last year, when we announced the acquisition of Helly Hansen, our portfolio is built around strategically attractive categories. Outdoor, workwear and denim are large, growing addressable markets with structural tailwinds that afford a meaningful long-term growth opportunity. Importantly, our portfolio is built around function. We believe function and activity-based brands offer more durable, dependable and sustainable growth characteristics with greater differentiation in the marketplace.

As part of the Lee turnaround, we conducted an extensive consumer study. Our learnings confirmed the Lee brand sits outside of our strategic bull's eye. While Kontoor has the organizational muscle and discipline to continue to turn the brand around, we are confident our go-forward resources are better utilized in our remaining brands that are better aligned with our long-term focus.

Let's discuss how we will better deploy our resources, starting with Wrangler. Wrangler has grown at a low single-digit rate for over the last 3 years, and 2025 marked the strongest year for the brand. We expanded market share in our core bottoms business and drove double-digit gains in female, Western and D2C. Our investments in talent, product and demand creation have resulted in remarkable consistency. This quarter is the 16th consecutive quarter of market share gains in men's and women's bottoms as measured by Circana. Wrangler has a unique position in the market. It is the authority in Western lifestyle and offers an attractive value proposition for our core consumer. And its distribution footprint is healthy with significant white space opportunities in specialty, female and direct-to-consumer. With our team entirely focused on Wrangler, I am confident the brand's best years are ahead.

Turning to Helly Hansen. The global opportunity for the brand is significant, and we expect the business to be a substantial contributor to our growth and profit engine. It starts in the U.S., which is the largest outdoor and workwear market in the world. While it is already among Helly's fastest-growing markets, the brand remains significantly underpenetrated relative to its peers. Within sport, aided brand awareness is less than 30%. And within workwear, we are just getting started. Across both sport and workwear, we will accelerate investments in talent, direct-to-consumer and wholesale expansion and demand creation. Through improved focus and increased investment capacity, we see a clear path to double-digit growth in our home market. We also see opportunities to accelerate investments in new category growth, including technical outdoor apparel and footwear and increased investments in the ALPS region, which like the U.S., remains underpenetrated.

We expect to fund these investments through the benefits of our multi-brand platform and remain committed to increasing Helly Hansen's operating margin to mid-teens over time through a combination of gross margin expansion and expense leverage. As a result, we expect a meaningful increase in Helly's fundamental growth and margin profile. We plan to share more details at the Investor Day in September and look forward to seeing many of you there.

Before turning it over to Joe, I want to reiterate the confidence I have in our future. Our decision to divest Lee will enable sharper focus on Wrangler and Helly Hansen and supports greater shareholder returns as we align Kontoor to a higher growth profile. I want to reinforce our commitment to support the Lee brand through the sale process and personally thank the Lee team for getting us to where we are today. As I look ahead, I have never been more confident in our future as we work to deliver the next chapter of Kontoor's value creation journey. Joe?

Thanks, Scott, and thank you all for joining us. Disciplined capital stewardship is a hallmark of our operating model and deeply embedded in the Kontoor way. The optimization of our portfolio by pursuing the divestiture of Lee will allow for greater focus on our largest growth assets that we expect to drive the most value for Kontoor and our shareholders in the years to come. This is a defining moment for Kontoor, and our ongoing transformational actions will result in several important changes within our business moving forward.

First, our streamlined brand portfolio architecture will result in sharper focus on Wrangler and Helly Hansen, 2 iconic brands with significant global growth opportunities. The divestiture of Lee will reduce operational complexity, enable more concentrated and choiceful investments, faster execution and improved returns on our largest strategic initiatives. Within Wrangler, we expect to accelerate investments in our female business, including areas such as product development, design and demand creation. The women's denim market, as measured by Circana, is larger than men's, and Wrangler's female business comprises just 10% of revenue today. So, the runway for growth is significant.

Further, we will continue to scale our non-denim categories, including tops and bottoms through investments in product and supply chain capabilities. And we expect to invest and supercharge our digital business through improved capabilities in AI, site experience and an expanded loyalty program. We will also accelerate the pace of growth in our U.S. full-price store footprint as we establish a true omnichannel brand experience for consumers. Wrangler's full-price store in Fort Worth, Texas is a great example and has delivered strong growth and returns since its opening several years ago. We are excited to open additional doors in Texas as we deepen our presence in the heartland of Western Lifestyle and see further expansion opportunities in the Western and Southern United States. These doors further solidify Wrangler's authenticity and will create a unique brand experience that differentiates Wrangler in the marketplace.

Turning to Helly Hansen. Helly is a growth asset and is already a significant contributor to our revenue and profit growth engine. The streamlining of our portfolio will free up enterprise-level resources and investment capacity to further advance our strategic initiatives and position the brand for accelerated growth in 2027 and beyond. Within sport, we intend to accelerate investments in geographic, category and channel expansion. Under the highly capable Helly leadership team, we are bolstering the organization with more meaningful investments in the commercial and product teams. And we are scaling investments in digital and brick-and-mortar retail as well as increased demand creation to drive brand awareness globally.

To fuel accelerated expansion in technical outdoor apparel and footwear, we are making investments in product development, design and innovation. Technical outdoor apparel and footwear is the largest category within the broader outdoor market and brings better balance to the revenue and profit seasonality of the Helly business. Further, we are supporting geographic expansion, including specific investments targeting the U.S. and ALPS region in Europe. Within Workwear, we are accelerating geographic expansion. In the U.S., we are bringing increased focus through dedicated resources across the organization and in areas such as demand creation. The demand for premium workwear is increasing around the world, driven by a combination of structural factors we believe support years of profitable growth.

From a profitability perspective, we remain committed to improving Helly's operating margin from the high-single digits today to mid-teens through a combination of gross margin expansion, operating expense leverage and synergies. We are leveraging our global operating model, supply chain and technology platforms, planning capabilities as well as Project Genius. The early benefits of these improvements can be seen in better-than-expected profitability and earnings accretion in 2025 and the first quarter of 2026, where operating margin has nearly doubled as compared to a year ago.

Second, the planned divestiture of Lee strengthens our long-term TSR algorithm, resulting in higher growth, profitability and returns on capital and favorably shifts our portfolio towards higher growth categories, geographies and channels of distribution. Wrangler and Helly Hansen are strongly positioned within the combined $400 billion outdoor, workwear and denim markets globally. These large addressable markets have structural tailwinds that afford attractive long-term growth opportunities.

Helly continues to elevate its place as a leading technical performance brand in the outdoor category with high consumer loyalty. Within Workwear, Wrangler and Helly Hansen are complementary and span the entire price spectrum from value to premium with limited overlap. And within the global denim market, Wrangler's function-based value positioning and year-round replenishment model is supported by longer product life cycles that build product and margin efficiencies.

Underpinning our strategic investments for both brands is a clear focus on the consumer. We are utilizing more robust consumer insights capabilities to better inform future growth opportunities, including category adjacencies, consumer segments and distribution decisions. In addition to improved category mix, the planned divestiture enhances the quality of our distribution footprint and favorably shifts our portfolio towards the higher-growth DTC channel where we have the deepest connection with our consumers and are in the early innings of unlocking new data and analytics capabilities. Our profitability algorithm is also expected to improve. Going forward, we expect to drive further operating margin expansion as we scale Helly Hansen's profitability, while Wrangler's highly efficient operating model supports strong cash generation and returns on invested capital. As a result, we expect an improvement in our TSR algorithm driven by stronger revenue and earnings growth and durable cash generation.

And third, the planned divestiture significantly increases our capital allocation optionality. Expected proceeds from the planned divestiture later this year will enhance our balance sheet flexibility and create greater optionality, including accelerated share repurchases, deleverage and reinvestment in the business. We anticipate the primary use of proceeds from the divestiture of Lee will be used for accelerated share repurchases under our new $750 million authorization. A portion of the anticipated proceeds are also expected to be used to solidify our balance sheet and reduce net interest expense as we remain committed to exiting 2026 with net leverage at or below 1.5x.

Moving on to where we are in the Lee divestiture process. During the first quarter, we initiated a competitive process to divest the Lee business. The process has attracted strong interest from multiple parties, and the company anticipates entering into an agreement to divest the Lee business later this year. As a result, we now report the results of the Lee business as discontinued operations. Consequently, our near-term P&L on a continuing operations basis will be temporarily impacted by approximately $40 million of full year unmitigated expenses that have previously been allocated to the Lee business. We expect the divestiture of Lee to be immaterial to earnings per share over a 12- to 18-month period. The earnings contribution of the Lee business will be offset through strong capital deployment and mitigation of overhead and other expenses that have previously been allocated to the Lee business through restructuring and other mitigating cost actions.

Now let's review our first quarter results, starting with Wrangler. Global revenue increased 2%, driven by 9% growth in DTC and 2% growth in wholesale. In the U.S., revenue increased 1%, driven by 6% growth in DTC and 1% growth in wholesale. Growth was broad-based, driven by strength in denim, female and Western. POS increased at a low single-digit rate in the first quarter, consistent with trends over the past 12 to 24 months. And as measured by Circana, Wrangler gained over 100 basis points of market share in our men's and women's bottoms business. Wrangler International revenue increased 9%, driven by 24% growth in DTC and 7% growth in wholesale. We believe the brand is well positioned to drive another year of broad-based growth in 2026.

Turning to Helly Hansen. Global revenue of $176 million increased 16% compared to prior year on a pro forma basis. Within Sport, growth was balanced across all channels in North America and Europe. Sell-through is strong, retail inventory levels are clean, and order books are healthy. Within Workwear, strong momentum has carried into the year, led by growth in the Nordics and Southern and Eastern Europe. Moving to China. As a reminder, Helly Hansen's revenue results exclude the direct contribution of the China joint venture with our partner, Youngor, as the results are not consolidated under the equity method of accounting. First quarter results were strong with revenue increasing by approximately 100%, along with further improvement in profitability.

Including the China JV, Helly Hansen global revenue increased by more than 20% on a pro forma basis. While still early, the acquisition of Helly is off to a great start. We're driving significant benefits as a more synergistic brand owner and expect the business to be a significant contributor to revenue and earnings growth in the years ahead, which we will review in more detail at the Investor Day in Norway in September.

Moving to the remainder of the P&L. Adjusted gross margin expanded 470 basis points to 50.6%, driven by the benefits of Project Genius, the contribution from Helly Hansen and channel mix. This was partially offset by increased product costs, net of pricing actions. Helly Hansen was accretive to adjusted gross margin by approximately 200 basis points. Adjusted SG&A was $224 million. Adjusted SG&A increased 60% compared to prior year, driven by the impact of Helly Hansen as well as increased investments in demand creation, DSC and volume-based variable expenses. These increases were partially offset by the benefits of Project Genius. Adjusted SG&A includes the impact of unmitigated expenses previously allocated to the Lee business that have now been reported in discontinued operations. And adjusted EPS was $1.06, increasing 67% compared to prior year.

Helly Hansen contributed $0.26 per share. Adjusted EPS includes an $0.11 impact from unmitigated expenses previously allocated to the Lee business that has now been reported in discontinued operations. Including the contribution from discontinued operations, adjusted EPS was $1.55.

Turning to the balance sheet. Inventory at the end of the first quarter was $464 million, including the contribution from Helly Hansen. We are pleased with the quality and composition of our inventory. We finished the quarter with net debt of $1.1 billion and $56 million of cash on hand. Our $500 million revolver remains undrawn. We've made voluntary term loan payments of $250 million since the closing of the Helly Hansen transaction. We intend to use a portion of the expected proceeds from the sale of Lee to further strengthen and fortify our balance sheet.

Earlier today, we announced our Board of Directors approved a $750 million share repurchase authorization, which replaces our prior program. The new program reflects the confidence we have in our business and the opportunities to generate significant value from our optimized brand portfolio. During the quarter, we repurchased $25 million of shares under our prior authorization with additional capacity for future share repurchases given the strong cash generation of the business. In addition, we intend to use the majority of the expected proceeds from the planned divestiture of Lee to accelerate share repurchases. And as previously announced, our Board declared a regular quarterly cash dividend of $0.53 per share.

Moving on to tariffs. Following the U.S. Supreme Court's decision that the Emergency Economic Powers Act does not authorize tariffs, the U.S. Court of International Trade has ordered U.S. Customs and Border Protection to refund IEPA duties. We believe it is probable that we will recover the IEPA tariffs previously paid and therefore, have recognized a net receivable of $54 million as of March 2026. As a result, during the first quarter of 2026, we reduced cost of goods sold by approximately $49 million on a GAAP basis, representing the expense for IEPA tariffs on inventory previously sold. Of the $49 million reduction in cost of goods sold, $29 million was related to tariffs expensed in 2025. On an adjusted basis, we have excluded the impact of IEPA tariffs expensed in 2025 on first quarter results and in the updated 2026 outlook.

Our outlook assumes a 15% reciprocal tariff rate on applicable inventory receipts for the remainder of 2026. For applicable inventory receipts effective February 24, 2026, a 10% reciprocal tariff rate applied and remains in effect. Applicable inventory owned prior to February 24 is exempt from reciprocal tariffs. This updated outlook includes the impact from increases in tariffs on all countries from which we source product with the exception of Mexico. Based on currently available information, our imports from Mexico to the U.S. remain exempt under USMCA. We are currently evaluating the proposed trade agreement with Bangladesh. We utilize U.S. grown cotton in more than 80% of our products sourced from Bangladesh, which may qualify for a duty-free exemption under the trade agreement.

Now let's review our updated outlook. Full year revenue, including discontinued operations, is now expected to be in the range of $3.41 billion to $3.46 billion. This compares to our prior outlook range of $3.40 billion to $3.45 billion. Lee revenue is expected to approximate $750 million and is now reported in discontinued operations. Revenue from continuing operations is now expected to be in the range of $2.66 billion to $2.71 billion, which has strengthened as compared to the assumptions embedded in our prior outlook. We expect solid growth from both the Wrangler and Helly Hansen brands for the full year.

For the first half of 2026, we expect revenue from continuing operations to be in the range of $1.19 billion to $1.20 billion, reflecting approximately 3% growth for Wrangler and high-single-digit growth for Helly Hansen on a pro forma basis. Lee revenue is expected to approximate $370 million and is now reported in discontinued operations. On a comparative basis, combined revenue of $1.56 billion to $1.57 billion is consistent with our prior outlook. Full year adjusted gross margin from continuing operations is expected to be in the range of 48.3% to 48.5%, representing an increase of 180 to 200 basis points compared to prior year. Our gross margin outlook reflects the benefit of Project Genius, favorable channel and product mix and the contribution from Helly Hansen, partially offset by the increase in product costs and tariffs, net of pricing and other mitigating actions.

For the first half of 2026, we expect adjusted gross margin from continuing operations to be in the range of 50.3% to 50.5% representing an increase of 400 to 420 basis points compared to prior year. Full year adjusted SG&A from continuing operations is expected to increase approximately 18%, reflecting the annualization of Helly Hansen as well as increased investments in demand creation and other strategic growth initiatives, partially offset by Project Genius and the impact of the 53rd week in the prior year. Adjusted SG&A expense includes the impact of $35 million of unmitigated expenses that have previously been allocated to the Lee business now reported in discontinued operations. Adjusted operating income from continuing operations is expected to be in the range of $411 million to $418 million, including approximately $40 million of unmitigated expenses that have previously been allocated to the Lee business now reported in discontinued operations.

Lee operating income is expected to be approximately $65 million, excluding the impact of expenses that have been reclassified. On a comparative basis, operating income, including the expected contribution from the Lee business now reported in discontinued operations is expected to be in the range of $516 million to $523 million compared to our prior outlook range of $506 million to $512 million. Full year adjusted EPS from continuing operations is expected to be in the range of $5.70 to $5.80 before the impact of $0.55 of unmitigated expenses that have previously been allocated to the Lee business now reported in discontinued operations. Including this impact, adjusted EPS from continuing operations is expected to be in the range of $5.15 to $5.25. The expected EPS contribution from the Lee business now reported in discontinued operations is approximately $0.90 or approximately $1.45, including the impact of the expenses previously allocated to the Lee business that have now been reclassified to continuing operations.

We expect the divestiture of Lee to be immaterial to earnings per share over a 12- to 18-month period as the earnings contribution of the Lee business will be offset through strong capital deployment and mitigation of overhead and other expenses that have previously been allocated to the Lee business through restructuring and other mitigating cost actions. We expect the actions we are taking to offset the earnings impact of the planned Lee divestiture, coupled with stronger growth and profitability from Wrangler and Helly Hansen to result in higher earnings and earnings growth moving forward into 2027 and beyond.

For the first half of 2026, adjusted EPS, including the expected contribution from discontinued operations, is expected to be in the range of $2.77 to $2.82. This compares to our prior first half outlook range of $2.25 to $2.30. For the full year, we anticipate an effective tax rate of approximately 20%, reflecting synergy benefits as we integrate Helly Hansen into our global tax platform. For the first half of 2026, our effective tax rate is expected to approximate 25%.

Finally, we continue to expect another year of strong cash generation. Cash from operations is now expected to approximate $450 million, including the expected contribution from the Lee business now reported in discontinued operations. We'll leverage and expand our supply chain and AR financing programs to include Helly Hansen in 2026. These programs and capabilities will be a significant unlock for the business while supporting accelerated cash generation and deleverage. Our outlook assumes voluntary term loan payments of $225 million, excluding potential additional voluntary debt repayments with a portion of the expected proceeds from the planned divestiture of Lee. We're tracking ahead of our original deleverage plan and anticipate returning to less than 1.5x net leverage by the end of 2026. We expect total acquisition-related debt repayments of $475 million or approximately 70% of the total debt incurred at the close of the Helly Hansen transaction in just 18 months.

Before opening it up for questions, a few closing comments. The anticipated divestiture of Lee is a reflection of our disciplined approach to capital allocation and portfolio management and reinforces our commitment to maximize long-term value for shareholders. Our heightened focus on Wrangler and Helly Hansen will allow for increased investment in our 2 largest high-performing, strategically aligned brands that offer the greatest returns. The transaction also favorably shifts our portfolio toward higher-growth categories, geographies and channels with large addressable markets with attractive growth characteristics. Further, our streamlined portfolio offers sharper brand positioning built on complementary function and activity-based brands with significant global growth opportunities. And importantly, the divestiture will result in an improved TSR algorithm driven by accelerated revenue and earnings growth and strong cash generation that supports increased capital allocation optionality while further strengthening our balance sheet.

When coupled with an increased emphasis on a more growth-oriented performance-based culture, I am confident we are on a path to fully unlock the potential of Kontoor Brands and create significant value for our shareholders in the years to come.

This concludes our prepared remarks. I will now turn the call back to the operator.

[Operator Instructions] The first question is from Ike Boruchow from Wells Fargo.

I guess 2 questions for me. First, at a high level on Lee. Maybe just more information on kind of how we got here. You guys have put a lot of work into the reset. You were kind of getting comfortable that maybe we were going to stabilize. And I understand you're weighing the pros and cons of owning the brand. But kind of just how did this all play out? Because it kind of felt like you guys have done a lot of work and we're getting ready to see some stabilization.

I'll go ahead and kick it off. It's Scott. This really was about us reaching our full potential as a company and how and why. And after the acquisition of Helly Hansen, it really helped us shift into growth mode, which was really, really important for our company, important for our investors that we believe that we have the team and the assets in place to be a real high-level growth company. And Helly really gave us that confidence to do that and how Helly is accelerating. And then it made us really think about how well Wrangler has been doing and what if we put a full concerted effort in all of our energy and investment from a denim side in Wrangler that we think right now can be a $5 billion global brand, not that long from now in the 2030s.

So, when you think about those 2 things and the powerful combination of both, it was just leaning into our strengths and giving Lee a chance to be important to someone else in their portfolio. And we really wanted to prioritize that growth culture because it's got our folks pretty excited about how well Helly is doing, about how well Wrangler has always done and about the investments we can make and the focus that we can have on those 2 big brands. And I think it's one of those things that we see a great opportunity on both and now it was time to bring that to the marketplace and show everybody why. And so, it's going to be one of those situations now where over time, you're going to see the results of that focus and that investment on the brands and why we pivoted to a growth company. So, we have expectations of even improvement on what they're both doing right now, which is really good, but we have high expectations that both are going to improve because we're going to invest more in both, spend more time and really focus on their efforts going forward. So those expectations will grow with time.

We think that that is the right time to do it, and we've got Helly under control. We've done an amazing job integrating Helly. I couldn't be more proud and happy with the team -- both the team in Norway and the team here and the supply chain and the whole group as far as bringing that asset in-house, making sure that it's in a really good place and putting it on a steady course. So that's why the timing of it now. And we have had a lot of discussions like you said. And one of the things that was really important to us, and I want to make this point very clear, is that we were going to make sure that when we did divest this business, we were going to make sure the business was in a good place. And you heard today in our commentary that the business is in a very good place. So, I think I'm really proud of the teams that have been behind that, and it puts us in a good place because we're selling on our front foot, which is the most important thing when you're selling an asset. So that's kind of what our thinking has been.

Yes. No, that makes sense, Scott. It sounds like you'll probably get a better price because of the work you guys did. I guess my follow-up, I don't know, Scott, if this is you or Joe, and I know this is not going to be an easy answer. But just a follow-up on the whole divestiture and the timing and flow-through of how this plays out. I guess, specifically, the Street is around $7 for next fiscal year. Do you think that number needs to move down based on the timeline? Or does that still seem like a reasonable or even a conservative number now, albeit with very different drivers to get there post today's news?

Yes, it's Joe. I can start. Yes, I think short answer is no, I don't think that's an unreasonable number, but it's a question of Horizon. And the reason I say that is until we get the business sold, we get the business closed, we won't have the ability to begin to mitigate these overhead costs that will come back to Kontoor, and we won't have the benefit of the use of proceeds. So big picture, you're going to have the Lee earnings coming out. And then over a period of 12 to 18 months, we'll mitigate those costs. We'll have use of proceeds. We'll put more investment behind the Wrangler and Helly business, which we believe we can accelerate growth, profitability and returns, et cetera, et cetera. So big picture, no, just how that plays out quarter-by-quarter, we'll see how this process unfolds with Lee.

And Ike, I'll make a quick point. No one does it better than us from a cost standpoint. We are best-in-class period. So, when I think about the fixed costs that are in the business that we have to go ahead and take care of, I have 100% confidence and guarantee that we will get that done quickly, and we will get all of it period. So, no worries there at all.

The next question is from Bob Drbul from BTIG.

Just got a couple of questions from my side, I don't know if Aaron is in the room, but the Helly order book and the distribution expansion plans, can we just talk through the visibility that you have, the U.S. piece specifically, how the order book shaped up for the fall, the door expansion that you were targeting, how that's going? And I guess the other question I have is just on the $750 million share repurchase authorization. Just in terms of is it predicated off of the sale of Lee? Just updated current thoughts around capital allocation and the timing of it.

So let me go ahead and start. We are in a really good place, what we committed to from a Helly Hansen standpoint on our distribution, on how we're going about that and also the geography that we're hitting. So let me give you a really good example. We are going to, this fall, have our first distribution with DICK's Sporting Goods in their House of Sports concepts. And as you know, that is a fantastic concept, great store, heavy outdoor store, and we will have a really nice product placement there for the first time. So that gives you an example about distribution and new stores that we're getting. And there are others, too.

So, our commitment to North America is on track. We're very close to hiring a general manager for the region, and we're also placing some assets in our workwear business in the marketplace, too. And that is coming along as smoothly and even better than we thought it was going to at the very beginning. So, we feel really good about that business and still feel really good about the upside everywhere. And I do want to make a quick point from a standpoint on product. We just saw the new product coming out. All of us got a chance to go over and see that at the sales meeting and also at corporate headquarters and the product looks amazing. We're a product company and I couldn't be more proud of what's coming to the marketplace here real soon. And I think that's going to be a real eye-opener for everybody out there. So, with that, I think I'll pop it over to you, Joe, so you can talk about Bob's second question.

Bob, so for 2026, we expect to generate over $400 million of free cash flow. We've earmarked $225 million for debt repayment. We committed to getting our leverage at or below 1.5x. So, the residual gives us some excess capacity to continue to buy back shares. We have not included any additional buybacks in the outlook. So that could be a source of upside. And then we've got the proceeds of Lee, which based on the confidence we have in our forward plans, where the stock is currently trading from a valuation standpoint, the majority of those proceeds we would intend to deploy against the buyback, which is why the Board gave us the approval on the $750 million.

And so, Bob, I think you heard from Joe right there that our priority would be the buyback, pay back a little bit of the debt. But as you know, and you saw that we have been aggressively paying back that debt way ahead of time. Joe, how far ahead are we now on that debt payback?

We're probably 6, 9 months ahead of where we thought we would be.

So,6, 9 months ahead. So, we'll do both those things. And we already pay a fairly significant dividend, and we're pretty happy with our dividend right now. Not that we wouldn't increase it going forward, but we're going to focus our efforts from the optionality piece on the buyback and also reducing our debt.

The next question is from Adrienne Yih from Barclays.

Nice to see the changes that are being made. So, I guess my first question is kind of as you think about kind of -- taking out Lee and then incorporating Helly, Helly certainly has a little bit more seasonality to it. So how do you think about kind of structuring the business to be fairly consistent over time? And then secondly, kind of more kind of near-term tactically, are you seeing anything given kind of the global macro, oil going up, et cetera? I know that there's probably no demand incidents or issues right now. But anything on the forward order book, anything in terms of kind of freight going up, obviously, but changes in sort of input costs, et cetera, that we should be thinking about as we exit the year because you have inventory probably for the next 2 to 3 quarters?

Adrienne, I'll start, and then I'll hand it over to Joe. From -- it's a good question because I've dealt with it before in my past, obviously, from the seasonality of the outdoor brand. And we are spending -- it's one of the initiatives that we have with the brand. So, I'm glad you asked because it's really important. When I mentioned that we saw a product as a team here recently, one of the things that we did see was a real emphasis on Q2 and new lines of product and categories that we're going into relative to that seasonality in that time. So, a long way to just say that, yes, we've captured this time from a product standpoint, and Helly hasn't really done that before. They've been very focused on the winter months. We've captured those other months, those warmer months with some product, and I'm really excited for the marketplace to see it.

But when I step back and I think about Helly Hansen and I think about the entirety of the business, there are a couple of things going for Helly Hansen that are a little bit different than other outdoor brands. That being that we have a very strong #1 position in sailing, which is a year-round business. So, it's very steady. It's really good. We hold the preeminent position, and we're on -- everybody's back that's on the ocean, and it's a really steady business that we like.

Two, our workwear business is even bigger than our sailing business. It's a 12-month business. It's very steady. There is no up and down cycle. And we're also starting to see a little bit more work happening around the globe, I guess, is the best way to see people going back to work and the type of product that we sell. And just as importantly, that is predominantly a European business because there was never an effort or a focus to bring that to the states in a really significant way, but that is also one of our initiatives to go ahead and increase our penetration of business in North America. So, when I step back and think about a pure outdoor company and think about the struggles that some had during that seasonality, a big chunk of our business is that sailing and also workwear. So, we have some of that eliminated already, and then we will fix that Q2 issue, and then we'll have a really nice machine all year long and taking that seasonality bump out of it.

Adrienne, on the macro, no, we're mindful of it. We're watching it just like everybody else. But in terms of POS, what we're seeing from the consumer, it's been fairly consistent. We've talked previously about a little bit more week-to-week, month-to-month volatility. But when we look at the business and the trajectory of the business mid- to longer term, we really haven't seen it. POS has been solid. Inventory levels are lean. The breadth of the growth is what gives us a lot of confidence. You've heard us talk about Wrangler, D2C, female, right, et cetera. On the Helly side, similar story. Breadth of the growth is pretty strong. We're seeing nice growth by geography, by channel, by mix of category.

I will say on the supply chain side, on the input cost side, we have seen more volatility. From a product flow standpoint, we're not that impacted by what's going on in the Middle East. We have seen input costs rise a bit. We planned for input costs to be up. We've seen a little more over the last couple of months, but we've absorbed that in the outlook that we gave this morning.

The next question is from Brooke Roach from Goldman Sachs.

As you prioritize the growth drivers of the business following the divestiture of Lee, can you contextualize the pace and magnitude of the acceleration that you think is possible for the core Wrangler brand over the next 12 to 18 months? How fast are you planning on expanding distribution of the women's business? Are there any other core accelerators that you're going to lean into for this brand now that you're fully focused on Wrangler and Helly? And how many additional full-price stores do you think that you can open per year?

I'll start, and we'll do our best to go ahead and make sure we get the information out there that we think that we have tied down for you. But relative to new categories, for instance, we think that there's a tremendous opportunity in women's right now, just 10% of our business. We think that, that should be much, much higher than that. We've got a full line coming out in -- not to get too far into the soup, but we just made an additional commitment to hiring quite a few people within the women's category from a standpoint. Now that takes a little bit of time because those hires are coming on right now and bolstering what we already have. So that will take a little bit of time. But the way that we look at it is that's growth for years to come down the line. So, we're really pleased about that.

And right now, the Western business is very strong, continues to be very strong. We see that continuing to expand. The international business now will have a little bit different focus because it will be our only business on the denim side from an international standpoint. So, we think that there's a tremendous opportunity from an international business standpoint. And then yes, we do have some full-price stores on the docket, and they are coming, and we are rolling those out. And we are making a much more concerted effort now that we're down to that one denim brand, which is much easier for us to do from a D2C standpoint, both from a digital standpoint and also from a store standpoint, and it's just -- it's much more pure when we think about those marketplaces in those DMAs that Wrangler really has incredible strength that we could support a full-price store. Expect to see those, and we can talk about those happening.

You've seen our Fort Worth store that is a great store, and we're about to announce and maybe I can just announce it here, we're about to announce an Austin store that we're opening up in Texas. So, you'll see that, too. That's going to be a terrific store in an incredible Wrangler marketplace for our products. So that's how we're thinking about that being very strategic on how we do that but moving forward with it quickly.

Yes, Brooke, I'll chime in here. I would say some of your questions seem like great topics for an Investor Day, which you'll see the first one in September in Norway. But look, we're looking to drive high-quality, sustainable growth in both of these brands, right? It's going to take a little bit of time to turn that dial up on the growth side. We're making the appropriate investments to do that. We've got a lot of confidence in our ability to do that in both of these brands. But what -- maybe behind your question, are we going to see a dip in operating margin as we start to invest more? The answer is no. We see this as a gradual build in terms of top line growth acceleration, continued margin expansion, strong cash generation, similar to the model that you've become accustomed to, just a bit stronger now that we're more focused on Wranger and Helly.

The next question is from Mauricio Serna from UBS.

First on Helly Hansen, I mean, I think you talked about 16% growth in the quarter. Just to confirm that's in constant currency. And maybe could you talk about how that growth looks by channel and what you've been doing there to drive that growth? And then I guess, just if I look at the first half guidance, you mentioned high-single digits for Helly Hansen. So that implies some deceleration in Q2. So, I just wanted to understand what's happening there on a pro forma basis. And then just a follow-up, you gave the continuing adjusted EPS guidance of $5.15 to $5.25. What was the continued ongoing operation -- sorry, continuous operations adjusted EPS for 2025?

So let me try to cover all those, Mauricio, let me know if I miss one. So, on Helly, the 16% growth in the first quarter was on a reported basis. There is an FX benefit in there. You can think of the constant currency growth as being more in that high single-digit range, consistent with what we're trying to drive. So, our outlook for the year is consistent with that. We see high single-digit growth for the brand first half, second half. We're a few more months down the road. We've got more visibility into the fall/winter order books. So, we're feeling good about the trajectory of Helly. On the continuing ops piece, we will come behind our print today at some point soon and give you guys restated quarters with the breakout between continuing ops and discontinued ops. That will give you both the adjusted and GAAP earnings so you can clean up and get a better sense for what the baseline is moving forward.

Great. And just on the Heny Hansen piece, could you talk about what you -- what's driving like the growth across channel and just the kind of growth you're seeing by channel in Q1?

It's pretty broad, Mauricio. The spring/summer order book was fairly strong. That was landed very well. There's distribution expansion, there's market expansion. We've had pretty solid performance from a DTC standpoint. So, the breadth of the growth of the brand today is fairly broad, which is what gives us a lot of confidence in the trajectory of the business moving forward.

And just -- I mean, I wanted to understand like on the distribution side, is that like North America? Is it also like in Europe? Just trying to get a better sense of like what are the things that are happening.

Yes. It's North America, it's the U.S. It's all of Europe. We talked about China, which is why we keep saying the growth is fairly broad. It's not one market that's overdriving the growth of the business.

And not one category either. It's outdoor, it's sailing, it's workwear.

The next question is from Blake Anderson from Jefferies.

So, I wanted to first ask on the -- given the Lee divestiture you're announcing, how to think about for the rest of the year, if you're able to see margin upside? I know you've had a big emphasis on cost savings. But if you do see margin upside, how do we think about that flow-through versus the potential accelerating investments that you're talking about as you see revenue opportunities?

Yes. So, I'll take that, Blake. So, there's margin expansion embedded in the guide. So, we've got operating margins expanding, operating income growth above the pace of revenue growth. If the question is around the $0.55 and really the stranded costs, we'll begin to mitigate those once the transaction is closed, but the planning and those mitigation plans are already underway.

Got it. And then on Wrangler, I just wanted to ask on the quarter. If you could talk about how that business was across the segments, U.S., international, D2C, just any more color would be curious on how it performed versus what you're thinking.

Sure. Very strong across all segments. International is very strong, especially in Europe. There's a real denim movement going on in Europe, and Wrangler is a huge part of that, and we're pretty excited about that future. We think it's got a lot of legs there going forward. And our distribution is starting to pick up, which is really important. Business continues to be really strong in North America. As you saw in our announcement in our press that we went ahead and gained market share again via the Circana information that we get. Our women's business grew very steadily. Our Western business was strong again. Our work business.

When you think about what's going on in the world right now and people talk about discretionary income, for us, that's a really important part of our business. But what happens is the people that wear our product for work still are working and still need our product. The people that wear our product for Western and the weekends and the Western shows and how they run their ranches are still buying our Western product, and we're picking up steam internationally. And we've got this women's initiative that's really strong.

So in a lot of fronts, we continue to push the envelope really aggressively and see our product grow. But that's because we've done a fantastic job with the product. It just looks great, and we're telling a great story to the consumer and they're really interacting with us, and we're opening up new channels. You heard me talk about the new full-price stores that we're opening up, and we've opened up some new distribution. So, all in all, the Wrangler business is strong, continues to be strong, and it's now going to get a heck of a lot more attention than it used to. And I think everyone here understands this because you've been through these type of divestitures with other companies that there are choices that companies make ongoing about where to invest in their businesses and making sure that their current business model stays really profitable and really strong. So basically, I'm saying you have to feed all your children.

Well, we now have 2 mouths to feed instead of 3, and we're going to be very aggressive there. So, I think that's going to put our business in a very advantageous position going forward. And I couldn't be any more bullish on this company right now with how we're running it and the things that we're doing to make sure that we are going to grow this business going forward.

The next question is from Peter McGoldrick from Stifel.

First, I just wanted to clarify on the $5 billion target in the 2030s. It sounded like you said that about Wrangler, but I wanted to clarify that, that was about the consolidated pro forma Kontoor business.

We think Wrangler can grow significantly well into the next decade. And we think there's growth for a long time to come, and we're going to accelerate that growth. And we're going to see this brand late into the 2030s, that's going to be a much, much larger brand than it is right now. And we've got very aggressive goals to get it to that place. So no, I was speaking specifically about our Wrangler business.

Okay. I guess I'd like to dive in there then that's a material acceleration to the high-single-digits. Is that driven by expanding the women's? And if so, is that taking up some of the distribution from the lead business? Or any other drivers that would help us think about moving the growth rate structurally higher?

Over time, you'll see us go ahead and grow and move that growth rate over time. And you're going to see it happen in female. You're going to see it happen in international. You're going to see it happen in our own digital footprint, our digital business in addition to our own stores. So, you're going to see all those categories grow and have investment over time over the next 15 years. So yes, we're really excited about it and pretty geared up for it.

This concludes the question-and-answer session. I'd like to turn the floor back over to Scott Baxter for closing comments.

Just a quick couple of comments before we break today. Thanks all for your participation today. I know we probably surprised a few of you today with what we presented and talked about today. I know we have follow-up calls, and we'll be able to answer all your calls in a more elegant way so that we can go ahead and make sure that you have all the information that you need. But certainly appreciate your participation and your followship with the company and look forward to talking to you again next quarter and want to make sure that everybody has the Helly Hansen Investor Day on your calendar going forward. So, thanks, everybody. Look forward to talking to you soon. Appreciate it.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Greetings, and welcome to the Kontoor Brands Q4 2025 Earnings Call. [Operator Instructions] Please note that this conference is being recorded.

I will now turn the conference over to Michael Karapetian, Vice President, Corporate Development, Enterprise Strategy and Investor Relations. Thank you, Michael. You may begin.

Thank you, operator, and welcome to Kontoor Brands' Fourth Quarter and Full Year 2025 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 an adjusted dollar basis, which we clearly defined in the news release that was issued earlier this morning and is available on our website at kontoorbrands.com.

Reconciliations of GAAP measures to adjusted amounts can be found 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 exclude the impact of the 53rd week and will be in constant which exclude the translation impact of changes in foreign currency exchange rates. Joining me on today's call are Kontoor Brands' President, Chief Executive Officer and Chairman, Scott Baxter; and Chief Financial Officer and Global Head of Operations, Joe Alkire. We anticipate this call will last one hour. Following our prepared remarks, we will open the call for questions. Scott?

Thanks, Mike, and thank you all for joining us today. 2025 was a transformational year for Kontoor. We completed the acquisition of Helly Hansen, Wrangler delivered another year of healthy growth in market share gains, we made progress repositioning Lee and executed Project Jeanius. Driven by the strength of Wrangler and strong contributions from Helly Hansen, we achieved record revenue, earnings and cash flow in 2025 while returning over $140 million to shareholders through our dividend and share repurchase programs. Importantly, our results highlight our ability to grow revenue and earnings over the near term while investing in the long term. I am particularly proud of the strong execution our team delivered in a dynamic environment. Sharp focus and clarity on our strategic priorities gives me confidence 2026 will be another record year for Kontoor.

Let's discuss our priorities, starting with Helly Hansen. Helly is a growth asset. In 2026, we will further integrate the business while taking steps to accelerate growth and profitability. Integration and growth are not sequential. They're parallel. In the 7 months under our ownership, we have strengthened the leadership team, delivered better-than-expected revenue and earnings accretion and leveraged our multi-brand platform to drive greater synergies, operational discipline and cash generation. We are bringing a renewed sense of focus to Helly's strategy while leveraging synergy opportunities to accelerate investments across the organization. We are in the early innings of unlocking geographic category and channel opportunities that will begin to accelerate in 2027 and beyond.

We will bring the strategic vision to life at the Investor Day on September 2 in Oslo, Norway. We are excited to invite many of you to Helly's headquarters, where we will share the significant opportunity that exists under our ownership.

Second, accelerate growth in Wrangler. 2025 marked another strong year for the brand. We expanded market share in our core bottoms business, drove double-digit gains in female, Western and D2C and invested behind our product assortment to drive greater category and channel diversification. Wrangler is on an incredible trajectory, and I'm confident this momentum will continue in 2026.

Third, position Lee for improving fundamentals and a return to revenue growth. We have strengthened the identity of the brand, realigned product distribution, launched the most significant equity campaign in years and elevated consumer perception. We have built the foundation needed to improve the performance of the Lee brand. We expect further progress in 2026 with improved profitability and a return to growth in the second half of the year.

And finally, finish Project Jeanius strong. When we initiated the project in 2024, we outlined how it would enhance our organization, create capacity for investment and establish a world-class multi-brand platform. With half the project now complete, I can confidently say it is delivering. The strong profit improvement and increased investment capacity we expect in 2026 is a reflection of our Project Jeanius and the benefits it has created across the business. Our global sourcing organization has been optimized to drive greater efficiency in our vendor network. Our planning teams are driving greater inventory productivity and our shared operating platform is creating immediate benefits for Helly Hansen. We will complete Project Jeanius later this year, transforming Kontoor into a best-in-class global multi-brand organization while improving our overall financial profile.

Now let's review highlights from the quarter, starting with Wrangler. Wrangler finished the year strong with revenues increasing 3%. We are seeing broad-based growth across categories and in our men's and women's bottoms business, which delivered its 15th consecutive quarter of market share gains as measured by Circana. Our female and Western business continue to be standout performers with both increasing at double-digit rate in 2025. Wrangler's innovative female franchise, Bespoke more than doubled in the fourth quarter as we continue to scale this platform and our denim bottoms business grew at a mid-single-digit rate. We linked into this momentum in the fourth quarter through incremental demand creation investments including activations around key events such as college football. Our collaborations are also performing well with Filson and Stranger Things, generating well over 3 billion media impressions and strong consumer demand. The team is executing on all fronts, and I am confident 2026 will be another exceptional year.

Turning to Lee. Revenue declined 6%. In the U.S., revenue inflected positive to 1% growth driven by increases in both wholesale and digital. Digital continues to lead the way, fueled by our refreshed creative vision that is generating results and improving brand KPIs. This is translating to increased revenue on our own digital platform as well as our wholesale partners. 2026 will be a transition year for Lee as we address distribution challenges, including U.S. mid-tier and position the brand for our return to growth in the second half of the year. We have identified growth opportunities that are better aligned with Lee's refreshed brand positioning and are evaluating opportunities to optimize distribution in Europe and Asia. I am confident we are down the right path to position Lee for sustained success.

Turning to Helly Hansen. The acquisition of Helly has exceeded expectations by every measure, and we are just getting started. In the fourth quarter, revenue grew 10% and earnings outperformed our plan by 50%. It starts with product and 2025 was a record year. We won 6 Red Dot design awards, our most ever in a single year. And recently, we were awarded 4 ISPO awards, including a gold for Lifa Merino KnitEvo.

Our innovation engine is fueled by our connection with professionals. In 2025, we celebrated the fourth anniversary of International Ski Patrol Day partnered with national ski teams in Norway and Canada and deepened our connection with the ocean and sale communities as an official partner of the Ocean Race Europe. The connection to professionals distinguishes Helly from among our peers and will be foundational to the growth acceleration in the coming years. We look forward to sharing more at the upcoming Investor Day, which we will follow with a broader Kontoor Investor Day in the first half of 2027.

Before turning it over to Joe, let me reiterate the confidence I have in our ability to achieve our '26 plan, driven by intense focus on execution and strategic clarity. Wrangler enters the year with momentum, driven by market share gains in both denim and non-denim, accretive category growth within Western and Female and incremental brand investments that are translating to strong consumer demand. Lee's turnaround is progressing supported by a clearer brand identity, improving consumer perception and double-digit growth in digital. Helly Hansen is performing ahead of plan, including better-than-expected revenue, earnings accretion and cash generation. In 2026, we will grow the business, expand operating margins and position the brand for breakout growth in 2027. And finally, we anticipate another year of strong cash generation that supports an accelerated deleveraged path and our commitment to return cash to shareholders.

While the environment remains dynamic, we are executing at a high level, and I am confident we are well positioned to create significant value for our shareholders. Joe?

Thanks, Scott, and thank you all for joining us. We delivered a strong finish to 2025, resulting in record fourth quarter revenue, earnings and cash flow while deploying approximately $250 million of capital towards debt repayments, opportunistic share repurchases and dividends. For the full year, revenue increased 18%. Adjusted operating earnings increased by more than 20%, and we generated over $450 million of cash from operations. Relative to the outlook we provided following the Helly Hansen acquisition, we outperformed our commitments across every measure.

2025 was a transformational year for Kontoor as we achieved the strongest financial performance in the company's history. Wrangler is executing at a high level. Helly Hansen is significantly improving our value creation potential and the Lee turnaround is progressing. Our Project Jeanius transformation program is having a significant impact on our results. And we're building a more performance-based culture with a greater emphasis on growth and more aligned incentives across the organization and the brands in our portfolio.

We're entering 2026 from a position of strength with sharp strategic clarity, a relentless focus on execution and a commitment to continue to drive strong returns for our shareholders. Now let's review our fourth quarter results.

Starting with Helly Hansen. Global revenue of $251 million increased 10% compared to prior year reported results. Growth was broad-based across both sport and workwear and in all geographies and product categories. On a full year pro forma basis, revenue of over $700 million increased 7%. Within sport, Full year pro forma revenue increased at a high single-digit rate. Growth was balanced across wholesale, digital and brick-and-mortar retail. Sell-through was strong during the fall/winter season, retail inventory levels are lean and we're chasing demand across several of the brand's largest product franchises.

Moving to workwear. Full year pro forma revenue also increased at a high single-digit rate. Growth accelerated to a mid-teen rate in the second half of the year, driven by greater focus on new customer acquisition and key account growth as well as improving construction activity in Europe. We've seen this momentum continue in early 2026.

The global workwear opportunity is significant. Helly's product and innovation pipeline is unmatched and demand for premium workwear is increasing around the world, driven by a combination of structural factors and consumer trends we believe will support years of profitable growth at scale.

Moving to China. As a reminder, Helly Hansen's revenue results exclude the direct contribution of the China joint venture with our partner, Youngor, as the results are not consolidated under the equity method of accounting. On a full year basis, Helly's China business generated revenue of approximately $100 million, increasing 95% compared to prior year. As a reminder, the China JV for Helly was established just 5 years ago, so the business is just getting started and the market opportunity is massive. Including the China JV, Helly Hansen global revenue increased at a mid-teen rate on a pro forma basis for the full year. The economics of the 50-50 JV in our financial results are reflected in royalty income and our share of the net income contribution is accounted for under the equity method. The China JV generates a mid-teen operating margin, and we expect another year of strong revenue and profit growth in 2026.

The acquisition of Helly is off to a strong start, and the integration is progressing well. While still early, we're driving significant benefits as a more synergistic brand owner with a streamlined organizational structure and a strong management team in place in Oslo. Fourth quarter earnings exceeded our outlook by more than 50%, driven by stronger revenue growth, gross margin expansion and operating expense leverage due in part to synergies, all cornerstones of our operating model.

Operationally, we're driving increased discipline into the Helly business globally. On the front end, we're optimizing distribution and elevating Helly's premium position in the marketplace. We're investing more meaningfully in the commercial and product organizations and in areas such as consumer insights and innovation. We're also scaling demand creation investments with an increased focus on brand building to drive increased awareness ahead of Helly's 150th anniversary next year.

On the back end, we're strengthening the inventory management and demand planning capabilities of the business and investing in a more robust planning organization. We're seeing early returns on these investments such as improved sales quality, higher gross margin and an ability to capture more revenue opportunities. Leveraging our strong supply chain and operational capabilities were also driving a significant increase in working capital efficiency. More specifically, we've reduced inventory days outstanding by approximately 100 days compared to prior year.

In the 7 months under our ownership, Helly generated $100 million of cash from operations. As a result, we're ahead of our planned deleverage path, supporting increasing capital allocation optionality over both the near and long term. And in 2026, we expect to unlock additional working capital benefits and drive another year of strong cash generation.

Helly Hansen is a growth asset. The brand provides access to significant growth vectors in the attractive outdoor and workwear TAMs globally. The business diversifies our portfolio and complements our operational strengths. We expect Helly to be one of Kontoor's largest growth engines and a significant contributor to revenue and earnings growth in the years ahead. We're positioning the brand for accelerated growth in 2027 and beyond, and we look forward to sharing the specifics of our long-term strategic plan at the Investor Day later this year.

Now turning to Wrangler. Global revenue increased 3%, driven by 10% growth in DTC and 2% growth in wholesale. In the U.S., revenue increased 3%, driven by 10% growth in DTC and 3% growth in wholesale. Growth was broad-based, driven by strength in Denim, Female and Western. Following a softer October, trends improved in the combined November, December period with POS increasing at a low single-digit rate, consistent with the year-to-date average. Wrangler International revenue was flat with prior year, driven by an 11% increase in DTC, offset by a 3% decline in wholesale.

On a full year basis, global revenue increased 4%, driven by double-digit growth in Female, Western and DTC as well as consistent share gains in our denim and non-denim bottoms business. We expect the momentum of Wrangler to continue and the brand is well positioned to drive another year of broad-based growth in 2026.

Turning to Lee. Global revenue decreased 6%. The U.S. revenue increased 1%, driven by 8% growth in digital and 1% growth in wholesale. We're encouraged by the momentum in our digital business, which increased 11% for the full year, supported by our brand realignment initiatives and incremental demand creation investments. Lee international revenue decreased 15%, with declines in wholesale offsetting mid-single-digit growth in our brick-and-mortar stores. In China, growth in our brick-and-mortar stores was offset by declines in wholesale and digital.

As we've discussed in prior calls, 2026 will be a transition year for Lee as the turnaround continues to progress as anticipated. We expect first half revenue to decline at a low single-digit rate with second half revenue inflecting positively with improving profitability.

Moving to the remainder of the P&L. Adjusted gross margin expanded 210 basis points to 46.8%. Excluding Helly Hansen, adjusted gross margin expanded 30 basis points, driven by the benefits of Project Jeanius and channel and product mix. This was partially offset by increased product costs and the impact from increases in tariffs net of pricing actions. Helly Hansen was accretive to adjusted gross margin by approximately 180 basis points.

Adjusted SG&A expense was $326 million. Excluding Helly Hansen, adjusted SG&A increased 11% compared to prior year driven by increased investments in demand creation and volume-based variable expenses, including the impact of the 53rd week. These increases were partially offset by the benefits from Project Jeanius.

Relative to our prior outlook, we made an incremental $8 million brand and demand creation investment, primarily within the Wrangler brand in support of our growth initiatives. And adjusted earnings per share was $1.73, increasing 25% compared to prior year. Adjusted EPS was $0.09 above our prior outlook. Organic EPS included approximately $0.10 of incremental brand and demand creation investments compared to our prior outlook. Helly Hansen contributed $0.44 per share compared to our prior outlook of $0.29.

Now turning to the balance sheet. Inventory at the end of the fourth quarter was $567 million. Total inventory decreased by $198 million or 26% compared to the third quarter. The sequential decline in inventory exceeded our plan by $78 million as a result of stronger revenue growth, disciplined inventory management and net working capital improvements at Helly Hansen. We finished the quarter with net debt of [ $1.108 ] billion of cash on hand.

Our $500 million revolver remains undrawn. On a pro forma basis, our net leverage ratio was 2.0x. During the quarter, we made a voluntary $200 million term loan payment ahead of our expected $185 million payment as a result of stronger operating earnings and cash generation. We've made voluntary term loan payments of $250 million since the closing of the Helly Hansen transaction. We're tracking ahead of our original deleverage plan and anticipate returning to less than 1.5x net leverage by the end of 2026, while consolidating a significant increase in revenue, earnings and cash flow and meaningfully improving our growth profile.

During the quarter, we repurchased 25 million of shares. We are within our targeted net leverage range of 1 to 2x and we'll look to opportunistically repurchase shares, consistent with our commitment to return cash to shareholders. We have 190 million remaining under our current share repurchase authorization. And as previously announced, our Board declared a regular quarterly cash dividend of $0.53 per share. Finally, on a trailing 12-month basis, adjusted return on invested capital was 29%, improving from 23% in the third quarter.

Before moving to our outlook, let me provide an update on tariffs. Our 2026 outlook reflects the impact of higher tariffs on all countries from which we source products with the exception of Mexico, which remains exempt under USMCA. We have assumed a 15% reciprocal tariff rate effective February 24 on applicable inventory receipts on or after that date. We have assumed at least a 20% reciprocal tariff rate on applicable inventory owned as of the end of fiscal 2025 and up to February 24, 2026. We're currently evaluating the recent U.S. Supreme Court ruling on tariffs and proposed trade agreement with Bangladesh. We utilize U.S. grown cotton in more than 80% of our products sourced from Bangladesh, which may qualify for a duty-free exemption under the trade agreement. Our outlook does not assume any refunds for tariffs previously paid, which remains subject to more specific guidance from U.S. Customs and Border Protection and the International Court of trade. Trade policy is rapidly evolving, and we expect the level and structure of tariffs moving forward to remain uncertain and difficult to predict.

Now let's review our updated outlook. Full year revenue is expected to be in the range of $3.40 billion to $3.45 billion, representing growth of approximately 9%, including an approximate 2% impact from the 53rd week in the prior year. For the first half of 2026, we expect revenue to be in the range of $1.56 billion to $1.57 billion, representing growth of 22% to 23%, including the expected contribution from Helly Hansen. We expect revenue in the first half to be more heavily weighted to the second quarter. We continue to plan the business conservatively. For Wrangler and Lee, our outlook assumes no meaningful change in recent POS trends or retail inventory positions. Inventory levels at retail remains suboptimal and our retail partners continue to be in a conservative posture with regard to inventory management and forward inventory commitments. For Helly Hansen, our outlook is supported by order book visibility, current demand trends and expanding distribution within both sports and Workwear.

Moving to gross margin. Adjusted gross margin is expected to be in the range of 47.2% to 47.4%, representing an increase of 60 to 80 basis points compared to prior year. Our gross margin outlook reflects the benefit of Project Jeanius, favorable channel and product mix and the contribution from Helly Hansen, partially offset by the increases in tariffs, net of pricing and other mitigating actions.

Tariffs net of pricing represent a headwind to our gross margin rate in 2026. We've implemented price increases for Wrangler, Lee and Helly Hansen as part of a holistic plan to mitigate the impact of the increases in tariffs. Our pricing strategies were thoughtful and developed in consideration of the fluid macro environment the strength of our brands, our elasticity expectations in certain categories and channels and the retail environment around the globe. We remain fully committed to offsetting the impact of the increases in tariffs over a 12- to 18-month period through additional measures such as transferring production within our global supply chain, strategic supplier partnership initiatives, inventory management and other proactive mitigating actions.

For the first half of 2026, we expect adjusted gross margin to be in the range of 47.1% to 47.3%. Adjusted SG&A is expected to increase approximately 12% compared to prior year reflecting the contribution from Helly Hansen as well as increased investments in demand creation and other strategic growth initiatives, partially offset by Project Jeanius and the impact of the 53rd week in the prior year. Adjusted EPS is expected to be in the range of $6.40 to $6.50 representing an increase of 15% to 16%. For the first half of 2026, adjusted EPS is expected to be in the range of $2.25 to $2.30. For the full year, we anticipate an effective tax rate of approximately 20% reflecting synergy benefits as we integrate Helly Hansen into our global tax platform. For the first half of 2026, our effective tax rate is expected to approximate 23%.

Finally, we continue to expect another year of strong cash generation. Cash from operations is expected to approximate $425 million. We'll leverage and expand our supply chain and AR financing programs to include Helly Hansen in 2026. These programs and capabilities will be a significant unlock for the business while supporting accelerated cash generation and deleverage.

Our outlook assumes voluntary term loan payments of $225 million, bringing total acquisition-related debt repayments to $475 million or approximately 70% of the total debt incurred at the close of the Helly Hansen transaction in just 18 months. Moving forward, our capital allocation optionality is expected to increase significantly. We'll continue to evaluate options to enhance shareholder value by effectively utilizing our strong balance sheet and cash generation.

Before opening it up for questions, a few closing comments. I'd like to reiterate the confidence we have in our business moving forward, the power of our operating model and the global multi-brand platform we're establishing. Our growth profile is fundamentally improving, supported by the strength of Helly Hansen, continued momentum at Wrangler and our progress repositioning Lee. We expect the benefits of our transformation initiatives to continue to scale, providing us with greater investment capacity and improved operational efficiency. And we expect another strong year of cash generation, supporting an accelerated deleverage path and an increase in capital allocation optionality.

Strategic clarity, a relentless focus on execution, disciplined capital stewardship, agility and resilience. These attributes are deeply embedded in the Kontoor way. When coupled with an increased emphasis on growth in a more performance-based culture. We're excited about the road ahead and the opportunity to unlock the full potential of Kontoor brands. It has been a transformational year for Kontoor. On behalf of Scott, myself, our executive leadership team and our Board, we'd like to thank the organization for their passion, commitment and success you continue to drive for Kontoor every day. This concludes our prepared remarks, and I'll now turn the call back to the operator.

[Operator Instructions] Our first questions come from the line of Ike Boruchow with Wells Fargo.

Congrats. A couple of questions for me. First, on Helly, I'm not sure if it's for Scott or Joe. Did you specifically give an organic growth rate for Helly this year? And kind of curious the thought process around 2027 really being a much -- it sounds like 2027 is a much bigger year for the brand. Can you just kind of walk us through how we should be thinking about the brand's growth trajectory in '27?

And then just a quick follow-up on Helly. On China, Joe, I appreciate the details. Any color on what the China business for Helly should be doing with this year in 2026? And do you have any optionality to take that business in-house? Is that something you're considering? Just kind of curious on that too.

Thanks, Ike. I'll go ahead and get it started and then turn it over to Joe. From a Helly standpoint, we are making a significant investment in the team from a product standpoint in headquarters in Oslo, building out a significant and real team in the U.S. and North America, which we haven't had before. We've got some really strong leaders in that marketplace, but we need to surround that team with added talent and build a fully capable team, which is going to be a big unlock for us from a brand standpoint going forward.

And how we thought about it is '26 the first half, we haven't invested greatly from a marketing standpoint, but you're going to see it in a very significant way in the second half to build momentum going into '27. So we feel really, really good about how we thought about our plan going forward. And we have seen from the consumer a real appetite for our products. So now we're thinking about the right distribution in the U.S. marketplace going forward and making sure we see that in the correct way and really creating an atmosphere that there's a lot of opportunity for growth for a very long time brand in this marketplace and then continuing to accelerate the rest of the world, too.

So hopefully, that answers kind of how we're thinking about it here. And then Joe?

For Helly on a full year basis, revenue increased about 7%. In the back half, Q3, Q4, under our ownership, revenue increased 10% to 11%. There's a couple of points of benefit in there from a currency standpoint. As we move into 2026, mid-single-digit growth, mid- to high single-digit growth. That's what we expect for the brand. We've anchored everybody from an expectation standpoint on high single-digit growth for the brand moving forward. And we think we have an opportunity to accelerate growth even beyond that.

On China, look, we're very pleased with the performance of the China JV. We've got a strong partner in Youngor. We've got a strong management team on the ground in China that's executing very well. Part of our acquisition thesis was a view that the China business was on the cusp of an inflection, and that's exactly what has played out. This business is beginning to contribute quite meaningfully to revenue and earnings. So as part of our integration strategy, we're connecting the Helly China business more closely with the brand centered in Oslo. We're reaping the early benefits of that stronger collaboration between those two teams. So for 2026, we expect another year of strong revenue and earnings growth for the JV north of 50%.

Our next questions come from the line of Bob Drbul with BTIG.

Just a couple of questions from me. On the Helly integration, can you just talk maybe about what you've learned 7 months in so far, sort of any surprises, any disappointments? And then I think in the release, you talked about $8 million of incremental demand creation. Can you talk about sort of the overall spending level that you're thinking about for '26 maybe by brand?

Sure. Bob, I'll go ahead and start. Thanks for the questions. From a Helly standpoint, we've done a lot of these in the past, as you know, you've covered the different companies that we've been associated with and where we are now. And this has been hands down without question the best integration ever. Just I've never seen anything like it. From the execution from both teams, from the collaboration from both teams, you've heard me say it starts culturally and these two teams meshed from the very beginning. And we found the Helly team in a situation where they were kind of not a real integral part of their past company for a lot of reasons, and now they're an incredibly integral part of our company. We talk the same language, which they haven't had before. That's apparel and product. And it's just been -- I just can't get over how well this has gone. Every single part of it and I think the most important thing is that you see what's happening in the business because of this really strong integration. So incredibly pleased about this and really excited about what the future looks like here for the team.

So from an investment perspective, we're driving double-digit increases in investment behind really all the brands and demand creation, in product and consumer insights, D2C, all the areas you would expect. Those investments, that capacity is being funded in large part by Project Jeanius, which was precisely the point, right? So we'll continue to appropriately balance and evaluate our opportunities to invest with our goal of accelerating growth, but also expanding profitability and returns on capital over time.

Great. And if I could just ask one more. On capital allocation, can you just talk about the sort of plans or trade-offs here between buyback and deleverage?

Well, Bob, I'll tell you really how we're kind of thinking about it is our cash flow is so strong and improving that we feel very strongly that we can and will do both in the upcoming year. We think there's going to be certainly an opportunity to buy some share backs and look forward to that. And obviously, we're out there with a statement right now that we're going to take $225 million off of the table relative to deleveraging. So way ahead of the game on where we planned on being from a deleverage standpoint and plan on continuing to do that and then we'll be opportunistic from the standpoint of share repurchase. But as you saw, started that in the fourth quarter. We saw an opportunity there, and we'll continue in 2026 on both -- just in a position with our balance sheet that we can do both and can do them both pretty strongly.

Our next question has come from the line of Jonathan Komp with Baird.

I want to follow up on Helly Hansen. I believe it was mentioned you're expanding distribution in both sport and workwear. So if you could maybe share more thoughts on the initial thesis there, the types of opportunities you see. And then separately, just on the Wrangler business, could you maybe talk or [indiscernible] quarter some of the organic volume drivers that you see looking forward?

Thanks, Jon. Appreciate it. I'll go ahead and start with Helly. We made the acquisition and part of the thesis was the opportunity in North America because we know the market so well. And we just don't have an incredible amount of distribution right now in North America or that large of a D2C channel. So we think, going forward, we know going forward with the product that we have and the knowledge that we have in the marketplace from past experience in this category that there's a very large D2C expansion opportunity, if done right, and we're in the process of all of that planning right now.

And there's a really -- and I want to make this statement really clear for everybody, there's a really nice opportunity to grow our wholesale business with the right partners, which we're doing, and you're actually going to see some pretty significant rollouts in the second half this year. And we can talk about those. We'll talk about those in one of the upcoming quarters coming up. There's some really nice momentum from the brand and from a consumer standpoint, they're really finding the brand now.

And we think there's opportunity to do that over a period of time. So what I mean by that is we're going to go ahead and build that momentum going forward. We're just not going to go all in.

And I think that from past learnings, we are not going to try to be everything to everyone and grab any point of distribution we can just because the brand is doing really well. We're going to really cultivate the brand going forward. So hopefully, that's a great message for everybody to think about the growth opportunities here for a very, very long time.

And then from a Wrangler standpoint, really pleased with what the Wrangler team is doing. I'm very encouraged by D2C going forward. And maybe we should try to talk about that in an upcoming call. I'm very encouraged by what I'm seeing in the Western business. just from the incredible product that we're making in Western female, which has also been really, really accretive to us. And then also in things like Bespoke and our female business in general. So we continue to take Circana market share gains on a pretty significant basis, continue to grow the portfolio. And I think we have a full offering for our consumers, too, that are really attaching to the brand and we think that the future relative to Wrangler and the growth opportunity for a very long time is very, very significant.

Our next questions come from the line of Mauricio Serna with UBS.

On Helly Hansen, I think you also mentioned in your prepared remarks that you are looking to expand margins this year. Could you talk about the margins of the business on a full year basis last in 2025? And how are you thinking about that in 2026?

Yes, sure. I'll take that. So look, we're not going to provide specific guidance by brand. but we do expect strong earnings growth from Helly in 2026. That's going to be driven by both gross and operating margin expansion. We expect to grow operating earnings somewhere in that low teen rate kind of range in terms of the increase over 2025. That's inclusive of synergies, that's inclusive of the investments we're making behind the business. We've got a full year of intangible asset amortization that was created in purchase accounting as well as the impact of tariffs.

So beyond operating income, the integration of Helly into our tax platform, that's driving synergy below the operating income line. you're going to have lower interest expense in the second half of '26. That will be a tailwind that will continue into '27 as we rapidly pay down the debt incurred with the acquisition.

In terms of shaping for the first half, remember, Helly historically generates operating losses in the first half of the year, particularly in the second quarter, which is their smallest quarter of the year. In the first half, we also have interest expense, incremental interest expense from the acquisition that we did not have a year ago. So the growth -- the earnings contribution from Helly will be more back half weighted.

Very helpful. And then just a quick follow-up on gross margin. You guided to an expansion this year. Could you maybe quantify like the benefit that you get, like from the tariffs going to 15% from 20% as of -- the impact that will be for you after February? And then any sense of how much you could benefit from the -- if we do get like a -- that trade deal with Bangladesh and the cotton is exempt, giving [indiscernible] that 80% of the cotton for the U.S. is -- sorry, 80% of the products from Bangladesh uses U.S. cotton.

Yes. So a couple of things. We expect our gross margin to expand between 60 and 80 basis points for 2026. There are some pretty meaningful puts and takes within that. We expect Helly Hansen to be accretive by about 100 basis points. We expect Project Jeanius channel product mix to drive about 180 basis points and these benefits will be partially offset by higher product costs and somewhere between 160 and 180 basis points of pressure from tariffs, net of our mitigating actions.

In terms of how that's going to flow through, remember, all the inventory we owned at the end of 2025, all the inventory that we received January, February, that inventory has a 20% tariff rate attached to it. So that's going to turn through the P&L really through the first half of the year. And then the impact of the 15% tariff rate will start to influence the P&L as we get to the second half of the year.

On Bangladesh, in particular, look, there's still a lot of uncertainty around the level and structure of tariffs. We expect trade policy to remain pretty dynamic and difficult to predict. We're awaiting specific guidance from CBP as it relates to the applicability of trade agreements announced prior to the Supreme Court ruling and subsequent actions by the administration. Of particular interest to us is the trade agreement with Bangladesh, which we highlighted. That trade agreement reflected a potential reciprocal tariff ranging from 0% to 19% depending on the U.S. grown cotton content of products sourced from Bangladesh. More than 80% of the product we source from Bangladesh does include U.S. grown cotton, Bangladesh is our largest country of origin from a sourcing perspective. So by nature, it's also our largest source of tariff pressure. So we've not included any such benefit from Bangladesh trade deal in our forward outlook as, again, the applicability of the trade agreement remains uncertain. But it's material for us, potentially material for us, so we wanted to flag it for investors.

Our next questions come from the line of Brooke Roach with Goldman Sachs.

Scott, can you dive a little bit deeper into how you're feeling about the U.S. consumer and demand trends in your core U.S. denim business? What contribution are you expecting from pricing what actions are you taking in the mid-tier channel? And how impactful are those opportunities as you balance a dynamic macro backdrop into this year?

Sure I can. I think that myself and the team, and we've had quite a bit of discussion about this. We feel really, really good about the North American market and the U.S. business. I think that the consumer here is incredibly resilient. If you think about the consumer as it relates to our channels and our products, it's just really, really strong right now. And I think the macro backdrop here is only going to improve over time. I really do. And I think that we're in an age here that things are really strong, really good, really transparent. We're going to be able to go ahead and move forward with our business in a pretty significant way. I like the big wholesalers that we're aligned with that win with winners mentality. So I think we've got ourselves aligned in the proper way. And speaking to that, how we're aligning Helly Hansen going forward from a win with winners mentality and making sure that we're aligned with the right customers and the right consumers to make sure that, that brand has a long trajectory of growth.

From the standpoint of pricing, I think that we've always done. We listen to our consumers, we have really great relationships with our wholesalers. And I think we've always done a really good job of balancing that. And I think we continue to. So I think one of the things is this market has been fairly fluid from a tariff situation. So we've had to be nimble from that standpoint. And I think that we need probably 30, 60 days for some more information to come out so that we can go ahead and make some good decisions.

But I think that you've come to see from us for a long time now that we make really good decisions relative to pricing, understand our elasticity because we have a lot of data here that we've had for many years. So we understand what the ceilings are and what the floors are. So I feel really good relative to how we're strategically thinking about that both at a D2C level and at the wholesale level. And from a mid-tier standpoint, certainly hope that they continue to do the things that they need to do to get stronger, new management in several of our big mid-tier retailers, which is wonderful. New CEO leadership, which is bringing incredible energy, and that's what we're hearing. So have a lot of hope that, that is going to continue to get better with some new leadership and new energy, some new ideas, new focus, and we'll be right there for them from that standpoint.

But I think if I can just encapsulate it, I think I would say that in my time as the CEO here since 2018, I don't know that I've ever felt better about the U.S. marketplace and/or our positioning in the U.S. marketplace. I would say that right now, I'm as bullish as I've ever been.

That's great color. And then just an update for Joe. Can you provide a level set of where we are on Project Jeanius achievements to date the expected project Jeanius contribution that's embedded in this year's guide and the opportunities for future margin improvement from Project Jeanius as we look to 2027 and beyond?

For Project Jeanius, we delivered gross savings of over $50 million in 2025. For 2026, we will approach $100 million of gross savings. The benefits will build over the course of the year, and we expect to reach a full run rate in the second half of '26. So the savings we expect to deliver in 2016 are significantly bigger than those that we achieved in '25, again as the program continues to scale. You can see these benefits pulling through really both in the gross margin but also the SG&A. And these savings have allowed us to reinvest back into the business at a level beyond what we previously anticipated, and those investments continue to fuel our growth and momentum. The $8 million that we announced, the incremental $8 million in the fourth quarter is a great example of that.

So Project Jeanius remains on track. We're executing really well. And by the back half of this year, we will have delivered what we set out to do at the beginning.

And Brooke, I'm going to go ahead and tag on to Joe here a little bit. Relative to every time you run a big project like this and you transform, one of the things that became an attachment to this was that we are now moving and are really pushing forward with what we call a performance organization, which we have not put in place before. And we have a world-class HR organizational team led by [ Pete ] and just an incredible team that he has put together. And we are pushing to make our entire organization accountable driven by performance and rewarded by performance. And that all kicked off this year on January 1, and we are really excited about what results and also the actions and behaviors that's going to drive. But that is all an attitude of thinking about Project Jeanius, all that's come from Project Jeanius, how to make sure that we take those Project Jeanius learnings and everything that we're doing relative to Project Jeanius and continue to push it forward, but motivate our people the right way. And it seems to be dovetailing really nicely together. And it's one of the things that I'm most excited about for us as an organization in 2026 and beyond.

Our next questions come from the line of Blake Anderson with Jefferies.

I wanted to start with tariffs. I might have missed this, but did you quantify the gross tariff headwind as well? And then could you size up what are your key mitigating levers between pricing cost savings and sourcing [ and able ] to mitigate the tariffs and kind of what gives you confidence you can mitigate those more fully over the next 12 to 18 months as you mentioned?

Yes, I'll take that, Blake. So for 2026, the gross tariff impact remains over $100 million, right? So it still presents a significant headwind to the business. We are getting a bit of a reprieve from the 15% reciprocal rate that will begin to impact the P&L in the second half of the year. Our mitigating actions are larger in the second half of '26, and those will carry into the first half of '27 by which time we expect to fully mitigate the tariffs. That's the 12 to 18 months that we continue to talk about.

From a lever standpoint, it's really all of it, right? Pricing, we highlighted strategic supplier partnerships, right, inventory management. This is what our supply chain is really good at. We've got the ability to navigate situations like this around the globe. So we remain really confident in our ability to offset this as we get to the back half of '26 and into early '27.

Great. And then I wanted to ask on Lee, you mentioned that remains in a transition year, but you're expecting [ much ] in the growth in the second half. Can you elaborate on the key drivers of that inflection? What gives you confidence? And any more color on the quarterly trends there throughout the year?

You bet, Lee, this is Scott. From a lease standpoint, really proud of the work that the team has done relative to -- we've gone back, we put a national ad campaign together that we haven't had for many years. We're much more engaged from a marketing standpoint, both digital and regular. So that really feels good going forward.

Probably the single thing that I'm most happy about is product. We've done a really, really nice job with the product. It needed [ some ] grading, and we went ahead and have done it. And I think that the product offering that we have coming out this year and into '27 is the best that Lee has ever had. And then you just co-joined that with a really strong marketing campaign. And just more energy from the marketplace and the team about this lead turnaround and the product that they're seeing. I think all of that just kind of coming together at the same time.

These things do take a little bit of time, but we have had some really nice green shoots and we've been happy with that. And we watch things like digital and how the consumer can respond to new offerings immediately. And that's been really strong. So we've been really happy about that. So going into the second half, and you heard our commentary about where Lee will be there's a growing level of confidence. I don't think that we're getting ahead of ourselves and -- but we feel really good about the progress that Lee has made, the track that it's on, the product, the advertising, all of the above, just much, much better than it was a year to two years ago.

Our next question will come from the line of Peter McGoldrick with Stifel.

Yes. First on Helly Hansen. I wanted to ask about your comments about new distribution. Can you help us think about the reception among the key retailer base and how those retailers are supporting the rollouts that you mentioned in the second half?

Yes, I sure can, Peter. This is Scott and I'll pass it over to Joe after. But from my vantage point of doing this with another big outdoor brand for a very long time, I think that what we're seeing from key retailers is that they'd like to have another option. They'd like to go ahead and have another big, strong growing brand in their portfolio that I think there's just right now, a little bit of fatigue with some other brands, and this is exciting. It's new. It's really good product. We're really dialed in. You heard us talk about some of the awards that we've won and that brings footsteps into retailers, and it brings excitement. And so we are in a really great period right now where the opportunity, the phone calls aren't outgoing their inbound where people are asking, "Hey, we'd really like to talk to you about you being part of this here going forward, and we have the opportunity to be a little bit selective", which is really nice. And you're going to hear some of that. Like I mentioned earlier, we're happy to go ahead and expand on that a little bit at one of the upcoming calls, so that you know what to expect in the second half going into '27.

But that's happening pretty significantly here in the United States. But also, I should mention that our European team has done a fantastic job with that too in our Canadian team. So we're just seeing that there's an uptick in Helly. There's a real uptick in people that are talking about how great the product is and then some of the things that we've done relative to how we outfit some certain mountains and have some relationships with ski providers and ski mountains and what have you and put it on the experts in the coaches and all the volunteers. I think that's really helped the brand too relative to the brand strength and just creating kind of an aura around the brand, which is really nice. But like I said, I've been here before and seeing this all happen, learn some lessons along the way, and we're going to make sure that we implement those lessons as this brand starts to really blow up. And I think our team has done a really nice job with that.

And I am excited about we did buy the brand because not all -- this isn't specific, but one of the reasons we bought the brand because there was a really big opportunity here in North America and our team is getting after that right away. And you'll hear from us too, we're about to fill some very strategic North American positions that we haven't had before that if you want to play in this category, in this channel, you have to have those types of positions and we're about to do that. So lots of really good things, lots of big momentum, much more to come from a Helly standpoint. So stay tuned.

And then certainly, we're really looking forward to having everybody over to Oslo in September and having an Investor Day where we can really talk about the brand and you can meet the team and see the people and see some product and what's coming up, what's upcoming. So lots of good things happening with Helly and looking forward to the September date too in a pretty significant. Joe, anything that you would add?

I would just add the workwear opportunity around the globe is significant, right? This business has grown pretty consistently at a high single-digit rate over time. This business is primarily a European business today, but the global opportunity for workwear is significant, including in the U.S.

That's really helpful. And then there were some encouraging comments about Helly Hansen's integration. And I was hoping you could help us think about the key remaining integration milestones. Any cost synergy targets for 2026 and when you expect to reach the full run rate of synergies?

Yes, I'll take the synergies. So we continue to have direct line of sight to significant synergies across the business. That list is growing. The deeper we get into it, and we're working very collaboratively with the leadership team in Oslo. We have now identified synergies of more than $40 million. We were at $25 million before. These will come in the areas primarily sourcing logistics, distribution, technology, tax, all the things that you would expect as well as some back-end operating efficiencies. So we've got synergies baked into 2026. We will reach full run rate in terms of the $40 million as we move into 2027.

I'll tell you, Peter. This is kind of a fun one, but we talk a lot about colabs, actually, we would like to see a come between Helly and some of our other brands. That would be kind of fun from a synergy standpoint.

Thank you. We have reached the end of our question-and-answer session. I would now like to hand the call back over to Scott Baxter for any closing comments.

Thank you, everyone, for joining us today. As you can see that there's a lot of effort and energy coming from Kontoor brands. A huge thank you to our global team. I think you can count on us to keep our heads down, working really hard and continue to drive this business forward.

And -- just again, I wanted to thank the entire Helly team and welcome them to our corporation. It's been a lot of fun, a great integration that just haven't seen the likes of it in my career. And I think that you can count on us to continue to work hard in this marketplace and take advantage of the opportunities that we have.

One or two things that I would like to mention is we do have the upcoming Investor Day, and we'd like to hopefully see a strong showing for that so that we can spend the day together and really talk about the Helly brand. And then we thought because there were so many questions about that, that we do that first and really focus on it because it's such a focal part and an important part of what we're trying to do here. And then we'll follow that up very quickly, very quickly in 2027 back here in the United States with a full KTB Investor Day. So we'll hit that, kind of Bam!, Bam! right after the other. But thanks again for your questions and also your support. Really appreciate it, and we look forward to seeing everyone in September, but we look forward to talking to you at the end of the first quarter on our call. Thanks, everyone. Take care.

Thank you, ladies and gentlemen. This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time, and have a wonderful day.

Greetings, and welcome to the Kontoor Brands Q3 2025 Earnings Conference Call and Webcast. [Operator Instructions]

As a reminder, this conference is being recorded. It's now my pleasure to introduce your host, Michael Karapetian, Vice President, Corporate Development, Strategy and Investor Relations. Michael, please go ahead.

Thank you, operator, and welcome to Kontoor Brands Third Quarter 2025 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 an adjusted dollar basis, which we clearly defined in the news release that was issued earlier this morning and is available on our website at kontoorbrands.com.

Reconciliations of GAAP measures to adjusted amounts can be found 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, amounts referred to on this call will be in constant currency which exclude the translation impact of changes in foreign currency exchange rates.

Joining me on today's call are Kontoor Brands' President, Chief Executive Officer and Chairman, Scott Baxter; and Chief Financial Officer and Global Head of Operations, Joe Alkire. Following our prepared remarks, we will open the call for questions. Scott?

Thanks, Mike, and thank you all for joining us today. Our third quarter results highlight the power of our expanded brand portfolio. Helly Hansen grew double digits Ranger gained market share for the 14th consecutive quarter, and we launched Lee's first equity campaign in years, while taking proactive steps to improve the health of the marketplace.

While the timing shift impacted growth in the quarter, stronger gross margin expansion and disciplined expense management drove better-than-expected earnings. Based on our year-to-date performance and improve the profitability, we are raising our full year outlook while the environment remains dynamic, we are well positioned to finish the year strong and enter '26 with momentum.

Now let's review highlights from Q3, starting with Helly Hansen. Third quarter results exceeded expectations with revenue growth of 11% and $0.03 of earnings accretion. Growth was broad-based across both sport and workwear in all regions. The business is performing at a high level, the integration is progressing well, and we continue to uncover new opportunities to create significant value together. To build on this momentum, we are focused on our strategic pillars.

First, accelerate growth. It starts with product. Our iconic platforms, including crew, Alpha Legendary and Lifa Merino continue to differentiate Helly in the marketplace and generate strong demand from our consumers. And our latest product launches have made '25 a record year.

We won 6 Red Dot design awards, our most ever in a single year. Award-winning products include the Odin Ultimate Infinity jacket, Arctic Patrol Down Parka and within Workwear, the Magne Evolution jacket. These are scalable platforms that we will drive global growth and nowhere is that opportunity greater than in the U.S. We see significant room to grow through a combination of new distribution D2C growth and investments in demand creation to increase brand awareness.

Currently, awareness in the U.S. is only 29%. This has grown by 6 points since 2019, while revenue has more than doubled. Starting next year, we will be making investments in top funnel demand creation to increase awareness in fuel accelerated growth.

Within Workwear, there are considerable market share opportunities, leveraging Helly's unique dual brand position the connection to technical outdoor products worn by professionals on the mountain or water has made Helly a leader in pro-grade workwear in Europe. In the U.S., we are leading with footwear in regions where Helly sport penetration is greatest.

Over time, this will expand to include the broader apparel assortment supported by further development of our lightweight and cooling platforms to drive growth in warmer climates. Outside the U.S., we see opportunities entering new markets in Asia and increasing penetration in key markets within Europe, including Germany, Austria and Switzerland.

In addition, we will continue to support our business in China, which we operate through a joint venture. China is on track for over 70% growth this year; and second, double operating margin. We expect to increase operating margin from high single digits today to mid-teens through a combination of gross margin expansion and SG&A benefits. We are leveraging our global operating model supply chain and technology platforms as well as Project Genius. This will create greater back-end efficiency and increased investment capacity to support our growth initiatives.

Helly is headed into the fourth quarter with incredible momentum, and I could not be more confident in the opportunities ahead. Turning to Wrangler. Global revenue increased 1%, including 12% growth in digital Wholesale growth was impacted by a timing shift into the fourth quarter. Excluding this shift, global revenue increased at a mid-single-digit rate. The third quarter marked Wrangler's 14th consecutive quarter of share gains according to -- in our core men's and women's bottoms business, we gained 80 basis points of market share.

Our female business had another strong quarter with growth of 20%. Our collaboration with Lane Wilson continues to exceed expectations. Her latest collection is performing very well while supporting more premium AURs and increase penetration with younger consumers, and Bespoke is now the #1 female style at select specialty retailers. This has been a banner year for our female business, and we expect double-digit growth for the year.

Western grew high single digits in the quarter as the #1 Western apparel brand, we have never been stronger. At the upcoming Wrangler National Finals Rodeo in Las Vegas, we will be represented by some of the top athletes in the world as well as host events at the annual Cowboy Christmas where the Western world converges to showcase the best of Western apparel.

In addition, Wrangler Country Music Star's Lady Wilson and Cody Johnson will perform sold-out shows. Western is on track for double-digit growth this year. To support this momentum, we will continue to invest behind our demand creation platforms, including live sports, streaming and social media. In particular, our highly successful -- good morning, make for better days, campaign will continue through the balance of the year as we build momentum for the holidays and '26.

Turning to Lee. Revenue declined 9% as we took proactive steps to improve the health of the marketplace in China. Excluding these actions, revenue declined 4%. And we are encouraged by the progress we are making against our brand realignment. Digital is leading the way with growth of 15% in the U.S. As we previewed last quarter, we launched our built likely equity campaign in September.

The first of this scale in years. While early days, we are encouraged by the reaction in the marketplace and have seen improvements in both brand equity and perception. We are also making progress in aligning products to our refreshed brand position. In addition to activating our iconic platforms, we are seeing success with new introductions such as Velocity Pant and collaborations with Crayola and Buckiso. Crayola will be Lee's strongest collaboration ever and our second collaboration with Buck Mason is outperforming the initial launch.

Importantly, our 2025 collabs are attracting 3x more millennial purchasers. While the lead turnaround will not be linear, we will do this the right way. We expect sequential improvement in the fourth quarter.

Finally, we announced this morning, we made an additional $25 million voluntary debt repayment in the third quarter, and we expect to further reduce debt by $185 million in Q4.We are tracking ahead of our deleverage plan and expect to return to approximately 2x by year-end while consolidating a significant increase in earnings and cash flow.

Deleverage is our near-term priority, but we will take an offensive posture to deploy our cash generation to support our capital allocation framework, including our dividend and share repurchase programs.

Before turning it over to Joe, let me reiterate the confidence we have in achieving our '25 plan, our expanded brand portfolio provides significant opportunities to create value through strong fundamentals and increasing capital allocation optionality and while the environment remains uncertain, we are being proactive with initiatives such as Project Genius to offset headwinds in the marketplace. We are executing at a high level, and I am confident we are on a path to drive strong value for shareholders. Joe?

Thanks, Scott, and thank you all for joining us today. Our third quarter results reflect the strength of our operating model and the benefits from our expanded brand portfolio. In what remains a highly dynamic environment, -- our fundamentals are strong, and we are operating from a position of strength. While the timing shift impacted revenue growth in the quarter, better-than-expected revenue and profitability from Helly Hansen stronger gross margin expansion and further improvement in operating efficiency drove earnings upside relative to our outlook.

Based on our year-to-date performance and increased visibility into the fourth quarter, we are raising our full year revenue, gross margin, earnings and cash flow outlook. We are well positioned to finish off a record year with good momentum as we enter 2026. Let's review our third quarter results.

Global revenue increased 27%, including the contribution from Helly Hansen. By brand, Wrangler Global revenue increased 1%. Revenue growth was impacted by a shift in the timing of wholesale shipments from the third to the fourth quarter. Excluding the shift, global revenue increased at a mid-single-digit rate as a result of strong demand for the brand around the globe.

In the U.S., revenue increased 1%, driven by 11% growth in DTC. Wholesale was flat to prior year. However, excluding the previously mentioned timing shift U.S. wholesale revenue increased at a mid-single-digit rate. Growth was broad-based, driven by strong increases in female, Western as well as continued market share gains. -- denim grew at a low single-digit rate.

Following a strong July and August, POS moderated to a low single-digit increase in September, consistent with the year-to-date average. October POS was flat compared to prior year with POS increasing at a mid-single-digit rate over the past 2 weeks. Wrangler international revenue increased 2% driven by 19% growth in digital and 1% growth in wholesale.

Turning to Lee. Global revenue decreased 9%. During the quarter, revenue was impacted by proactive actions in China to address challenges in the marketplace. We discussed our intent to execute these actions on our second quarter call. Excluding the actions taken in China, Globally revenue decreased 4%, reflecting sequential improvement in the revenue comparison from the second quarter, and we expect further improvement in the fourth quarter.

U.S. revenue decreased 9% as we work to address challenges within certain segments of our distribution footprint and drive more consistency with the brand's realignment and go-forward strategy. Digital revenue increased 15%. We remain encouraged by the momentum in our digital business, which has continued into the fourth quarter. We International revenue decreased 9% and with declines in wholesale offsetting mid-single-digit growth in our brick-and-mortar stores. Excluding the actions taken in China, Lee international revenue increased approximately 3%.

Now turning to Helly Hansen. Global revenue of $193 million increased 11% compared to prior year reported results. Growth was broad-based across both sport and workwear and in all geographic regions. We are encouraged by the stronger-than-expected results. The integration is progressing well and we are confident Helly will be a significant contributor to both revenue and earnings growth in the coming years.

We now have line of sight to greater than $25 million of run rate synergies, which will begin to meaningfully impact profitability in 2026. These synergies will help fund investments in business, including geographic and category expansion, demand creation, DTC, supply chain capabilities and our technology platform. As we look forward to 2026, we expect Helly's momentum to continue to build. The Spring/Summer order book has accelerated from fall/winter 2025 and work where preorders are up at a double-digit rate.

We recently kicked off the fall/winter 2026 selling season, and the feedback from the marketplace has been strong, reflecting the robust product and innovation pipeline of the brand.

Moving to the remainder of the P&L. Adjusted gross margin expanded 80 basis points to 45.8%. Excluding Helly Hansen, adjusted gross margin expanded 140 basis points, driven by the benefits of Project Genius channel and product mix as well as targeted pricing actions. This was partially offset by increased product costs and the impact from recently enacted increases in tariffs.

Helly Hansen was diluted adjusted gross margin by approximately 60 basis points. During the quarter, we took actions to improve inventory turnover, increase cash generation and accelerate debt repayment. There is a significant opportunity at Helly Hansen to improve both gross margin and net working capital by leveraging our supply chain capabilities in the areas of planning, procurement and inventory management.

Adjusted SG&A expense was $269 million. Excluding Helly Hansen, adjusted SG&A was flat compared to prior year, supported by lower distribution and freight expenses and the benefits of Project Genius. We remain focused on driving further improvements in operating efficiency in light of the environment. And adjusted earnings per share was $1.44, increasing 5% compared to prior year.

Adjusted EPS was $0.09 above our prior outlook. Helly Hansen contributed $0.03 per share compared to our prior outlook of breakeven earnings. Turning to the balance sheet. Inventory at the end of the third quarter was $765 million. Excluding Helly Hansen, inventory increased 21% to $560 million driven by a temporary increase in inventory to support our supply chain transformation, earlier-than-expected inventory receipts as a result of improved sourcing lead times as well as the impact of tariffs.

We expect inventory to normalize in the fourth quarter and decreased approximately $120 million from the third quarter to approximately $645 million. We finished the quarter with net debt of $1.3 billion and $82 million of cash on hand. Our $500 million revolver remains undrawn. On a pro forma basis, our net leverage ratio was 2.5x. During the quarter, we made a voluntary $25 million debt repayment. We are tracking ahead of our deleverage plan and expect to make an additional $185 million voluntary payment in the fourth quarter.

We anticipate returning to approximately 2x net leverage by year-end. Share repurchase activity remains on pause near term as we focus on paying down acquisition-related debt and reducing leverage. We have $215 million remaining under our current share repurchase authorization. And as previously announced, our Board declared a regular quarterly cash dividend of $0.53 per share, a 2% increase.

And finally, on a trailing 12-month basis, adjusted return on invested capital was 23%, improving from 22% in the second quarter.

Now let's review our updated outlook. Full year revenue is now expected to be at the upper end of our prior outlook range of $3.09 billion to $3.12 billion, representing growth of approximately 19% to 20%. Helly Hansen is now expected to contribute $460 million to full year revenue compared to our prior outlook of $455 million. Excluding Helly Hansen, we expect revenue growth of approximately 2% and compared to our prior outlook of 1% to 2% growth.

For the fourth quarter, we expect revenue to be in the range of $970 million to $980 million, representing growth of 39% to 40%, including the expected contribution from Helly Hansen. Our outlook includes the impact of a 53rd week, which is expected to benefit the fourth quarter by approximately 4 points of revenue growth. We continue to plan the business conservatively.

For Wrangler and Lee, our updated outlook assumes no meaningful change in POS trends or inventory positions at retail for the balance of the year. This is consistent with our prior outlook. Excluding Helly Hansen, October revenue growth was approximately 6%, tracking slightly ahead of our anticipated organic revenue growth for the fourth quarter, excluding the 53rd week.

For Helly Hansen, our revenue outlook is supported by current demand trends in the fall/winter 2025 order book, which accounts for the majority of support revenue.

Moving to gross margin. Adjusted gross margin is now expected to be approximately 46.4% compared to our prior outlook of approximately 46.1%. Our outlook represents an increase of approximately 130 basis points compared to prior year. We expect fourth quarter adjusted gross margin of approximately 45.8%, representing an increase of approximately 110 basis points compared to prior year.

Adjusted SG&A expense is expected to increase approximately 24%, reflecting the contribution from Helly Hansen as well as increased investments, primarily in the areas of demand creation, technology and direct-to-consumer. Excluding Helly, we expect SG&A to increase at a low single-digit rate, consistent with our prior outlook.

We continue to anticipate Project Genius savings to mature to a full run rate in excess of $100 million of annual savings over the course of 2026. Adjusted EPS is now expected to be approximately $5.50, representing an increase of 12%. This compares to our prior outlook of approximately $5.45. Helly Hansen is expected to benefit full year 2025 adjusted EPS by approximately $0.20, consistent with our prior outlook.

We have not included any benefit from synergies in our outlook. We expect fourth quarter adjusted EPS of approximately $1.64, reflecting growth of about 19%.

Finally, we continue to expect another year of strong cash generation. Cash from operations is expected to approximate $400 million, including the contribution from Helly Hansen. This compares to our prior outlook for cash from operations to exceed $375 million. Starting in the fourth quarter, we will begin to leverage and expand our supply chain and AR financing programs to include Helly Hansen. These programs and capabilities will be a significant unlock for the business while supporting accelerated cash generation and deleverage.

Before opening it up for questions, let me reiterate the confidence we have in achieving our 2025 objectives. While the environment remains dynamic, we are operating from a position of strength. The integration of Helly Hansen is progressing well. We are ahead of our planned deleverage path and Wrangler and Lee are on track to deliver a strong fourth quarter.

Our operational execution and discipline continues to drive further improvements in our business fundamentals, supporting higher returns on capital and significant capital allocation optionality moving forward. This concludes our prepared remarks. I will now turn the call back to the operator.

[Operator Instructions]

Our first question is coming from Ike Boruchow from Wells Fargo.

A couple from me. I guess, Joe, could you just clarify Wrangler U.S. wholesale, it seems like it was probably up mid- to high single digits in the third quarter extashift. Can you confirm that? And then on the -- can you kind of work with us on what's embedded in your -- in the Wrangler wholesale number there, both with the ship and then also organic? And I know you said POS flattened out in October, but then it sounds like it's accelerated the last couple of weeks. So kind of curious what's in the plan.

Yes. So on the timing shift, so the timing shift impacted Q3 revenue by about 2 points, with the primary impact being on the Wrangler brand. Excluding the shift, total revenue would have been above our prior outlook driven by Helly with Wrangler increasing at a mid-single-digit rate. So we had our largest September ever as a company. However, order flow, shipment flow was more back half weighted than what we anticipated in our prior outlook.

So the demand was solid. We just had a shift in shipment timing focused on a couple of the key accounts. We did see that pull through in October. I think I said in the prepared remarks, October was up 6% organically compared to the prior year. That's a little ahead of what we have contemplated in in terms of growth, excluding the 53rd week.

So nothing we see from a demand standpoint. In fact, we've moved to the high end of the revenue range based on our our year-to-date performance and our visibility into Q4 and Wrangler is probably the biggest part of that.

Got it. So no red flags on the consumer thus far in terms of what you're seeing?

And I would tell you, with our broad distribution and the campaigns that we're running right now with both of our denim brands right now that are out in the marketplace. In addition to the product and the design and just the demand, 14 consecutive quarters now. I mean you've seen that of market share gains with Wrangler, we've put ourselves in a really good position, really like where we sit now for the foreseeable future, and we'll continue to really work that through design great product, tell great stories, broad distribution. It's been a really nice formula of success for us going forward.

Okay. Great. Moving to Helly. So up 11% pro forma growth. I think your first half, you were kind of trending more at 1% to 2%. It's a nice acceleration. What's driving the near-term inflection and Helly brand revenue already. And then I guess based on the order book commentary, which is accelerating into next year, could we see Helly growth rates actually continue to accelerate over the next 12 months?

So I'll go ahead and start. What you're seeing is you're seeing a company that's thriving inside of another apparel company. They haven't had that ecosystem before relative to where they've sat the last decade or so, and now they're inside our ecosystem. We're thriving as far as partners working together. They're accelerating in all fronts, the European business, the China business, the U.S. business is really starting to take off. But obviously, we're feeding that.

So we're investing in that and we're seeing really good results. And I think the thing it starts with is they're really building great product. And I think they're having a lot of fun being part of our organization. I think the 2 companies are working really well together. And I think we see a bright future. And I think one of the things that's been really important because we talked about it and it's important that we talk about it again, is we see a big opportunity in North America in addition to what we already have. and that is starting to come to fruition.

Just having the capability, having our resources in North America to lean on and then now going ahead and making it a priority because we have made that a priority. We're starting to see those results early. So we're really, really excited about what's happening there in the future. Joe, anything to add?

Yes, I'd say on the order book, Spring/summer '26, that order book for sport reflects an acceleration compared to fall/winter '25, fall/winter '25 accelerated versus spring/summer '25 and even fall/winter '24. So that business is performing really well. Workwear preorders have been strong, up at a low double-digit rate, and we just kicked off the fall/winter '26 selling season, and it's off to a really good start. The feedback from the marketplace has been really good.

We also will put more investment behind the business in '26, which should help further accelerate growth. So just a tremendous opportunity for the brand globally across both sport and work.

And I think one of the things that's really been beneficial is management and the team is intact on the acquisition.

So they were already a strong team, and we're only making it stronger by adding and helping, but we've got a good core team that we kept through the merger and the acquisition, and it's really played out really well for us.

That's great. And then a quick one, lastly. On the inventory, Joe, can you help us get comfortable with that number? I think you said up 21% organic for the end of the year, which implies mid-teens organic. Just it doesn't sound like there's any issues at all, but can you kind of hold our hand a little bit because it is a decent growth rate above where the core growth rate is for the business. So any more color there would be helpful.

Sure, Ike. So we ended the quarter, excluding Helly Hansen, up about 21%, about $98 million versus the prior year. So roughly $25 million of that increase related to inventory investments we made to support our supply chain transformation. So we closed our Tore on manufacturing facility in Mexico during the third quarter as part of Project Genius, and we carried excess inventory to support the operational transition.

So that excess inventory will wind down over the course of the fourth quarter and into the first quarter, and that transition has gone really, really well. About $25 million of the increase relates to higher tariffs. So the cost of that is now embedded in our inventory and about $20 million related to earlier-than-expected receipts of sourced product as a result of lead times improving.

So the remaining increase is really in support of the growth plans that we have for the business. We said in our prepared remarks, we expect about $120 million reduction in Q4, and we remain pleased with the overall quality and composition of our inventory.

Our next question is coming from Bob Drbul from BTIG.

Just question on pricing. When you look at your business and you look at sort of the plans into next year, what's happening with pricing with your own product? And I guess, I'd be curious to just see what you're seeing competitively on pricing as well.

Yes. Bob, I would say for us, pricing has been part of a holistic strategy to combat the impact of the tariffs, right? Pricing for us went into effect mid-June in our own DTC and in July at Wholesale. So something we're watching very closely with our retail partners and look, these plans were put together in collaboration with them and all of the elasticity assumptions are reflected in the outlook.

We were very surgical, as you would expect, in terms of where we took price just as we have been in the past. And these price increases were not just a U.S.-focused effort. I think that's part of the power of a global multi-brand portfolio.

So Overall, the price elasticity equation has been largely consistent with our expectation. It varies a bit by brand and category and channel, certainly, certain parts of the market are more sensitive, other more premium areas less so. But overall, the pricing elasticity equation has been in line with what we expected.

And Bob, one of the things that we pay particular attention to as an organization is that if you look at all of our brands globally and in the marketplaces where each operates, we really like from a higher arch standpoint, where we sit -- so we're really comfortable with where our brands are positioned and how they're priced compared to our competitors within those marketplaces.

So we've been very thoughtful for a long time about how we price and the product that we have. So I'm comfortable with where we sit right now.

Got it. And just two questions on Helly, if I could. I guess the first one, Scott, I think you mentioned you're seeing new opportunities. Just wondering if you could elaborate on that. And within the U.S. business, growing it from the $150 million level, is it like new distribution targets? I just if you could expand a bit on the plan in the U.S., that would be helpful.

Absolutely.Actually, it's everywhere and everything. So it's ski shops, it's independents. It's definitely U.S. wholesale. It's across the board. It's digital, it's owned and operated retail. So we've got multiple plants that come into different stages.

As you can imagine, we've thought it out from a capital standpoint on how we're going to embrace each one. And it's really interesting, Bob, we sat back and we said to ourselves, it's even better than we thought at acquisition time. We think there's more than we thought about. It's more robust than we thought. And people are really reacting and responding very positively to our brand because they've seen it around the world before and they just haven't seen it enough here in the United States and it's new and it's fresh and it's creating some excitement, but they haven't had the distribution to go ahead and purchase it for themselves.

But now we're going to give them that, and that is starting. And then just so you know, because we'll talk about this in the future, we are adding some really key personnel here over the next 12 to 18 months in some significant leadership positions to help support that going forward. So like we said before, it was a big opportunity, 1 of the strategic reasons we bought it. But as we sat back and know gotten ourselves involved in this business, we think the opportunity is even bigger than we thought across the Board.

Your next question is coming from Jonathan Komp from Baird.

I want to follow up and ask the raise to the high end of the organic revenue growth to 2% for the year. Can you just maybe talk a little bit more directly what's driving that confidence? And then Joe, it sounds like from your inventory buildup, you may be planning healthy organic growth into 2026. Just any color there would be helpful.

Yes, Jon, it's Scott. I'll go ahead and start. Really, Jon, we're looking at our business and we're just seeing real strength across the board. Let me start with Helly. I mean we've talked about the fact that Helly is really coming online very quickly, faster than we thought. Companies are working really well together, and we're seeing opportunity across the board.

And more importantly than anything we're seeing our consumer want to take out our business. So our POS is strong. We watch really closely our digital business because it's an opportunity for our consumer to purchase immediately. And it's been very strong across our brands and strong with Lee 2, which gives us confidence in our turnaround because it's the first opportunity that people can interact with us after we put our turnaround in play.

But across the Board, really strong from a digital standpoint. So that gave us confidence. The strength of our business here in the third quarter as we reached towards the end of the third quarter and saw this really strong uptick in POS gave us a lot of confidence. And then I would tell you that October gave us a lot of confidence. October came in on plan, no issue at all.

So really feeling good about that as we come through the first month of the fourth quarter, feel confident there. And then more than anything, our team is designing really good product in. We've got 2 right now, 2 national campaigns going on with Wrangler and Lee, which has got us in the marketplace in a fairly significant way, which is really important. And weather is really cooperating.

I'll give you a great example. Helly is a rainwear, outdoor and ski and active and Pro business. And we've had more rain across this world Europe, Asia and the United States. And now we've got early snow across Europe and also here, which we didn't have last year at this stage. So that gives us a really, really good push forward as we enter into that really critical period. So lots to be thankful for right now, but mostly for our great folks here that have got their heads down and working hard.

Yes, Jon. And on inventory, I know it's a little noisy here with the addition of Helly and some of the transitory impacts that I highlighted. But we're comfortable with the composition of the inventory, the sequential progression we have planned how that's positioned in support of the growth plans. And Helly as well. We've talked on prior calls about the net working capital opportunity.

At Helly, you'll begin to see the impact of that starting in the fourth quarter and into the first half of next year, which will help contribute to some strong cash generation as we move into next year.

Okay. Great. That's helpful. And maybe as a follow-up, as we look to 2026, could you help to frame up as we think about the contribution from Genius where you stand and the incremental benefit that you may achieve? And then also the Helly Hansen operating contribution, I think you reiterated $0.20 for this year. But what are some of the factors that might impact how that can grow into next year?

Yes, I'll take that, Jon. So on '26, certainly not giving an outlook today, but I'll give you a high-level framework just given all of the moving parts. So we expect the organic business to continue to grow. We are performing well. That's going to be mainly driven by the Wrangler brand. '26 will be a transition year for Lee. Helly business is performing really well. As you've seen, we will delever quickly, which will create an earnings tailwind as well as additional capital allocation optionality as we consolidate and grow that cash flow and that earnings stream, you'll have synergies that will scale more meaningfully across 2026, and you've got Project Genius savings that will be maturing to more of a to more of a full run rate.

We will have a bigger impact of tariffs next year for 2026. The full year unmitigated impact is about $135 million, which were we're clearly working to mitigate a significant portion of that. But those are the biggest factors influencing '26. We like where we are. We like our model, and we've got a lot of optionality to continue to drive the growth and returns that we expect.

Next question is coming from Mauricio Serna from UBS.

First, maybe could you tell us or confirm like what kind of like the Q4 organic revenue growth that you're expecting in your guide? I mean, you talked about October being 6%. I just wanted to get a sense of what's expectation for the fourth quarter?

And then on heavy consent, you raised revenue contribution a little bit for the year, but there was no really change in the EPS revision of $0.20. So just was wondering what were the puts and takes on that?

Mauricio, I'll take those. So for the full year outlook, we raised the outlook, right? Part of that was outperformance that we had. Part of that is the increased visibility into the fourth quarter. So we now expect to be at the high end of the prior outlook range on revenue organically. We've got a stronger contribution from Helly Hansen and we increased our gross margin, earnings and cash flow. For the fourth quarter, our outlook implies about 6% growth on an organic basis. That includes the 53rd week, which is contributing about 4 points to the growth. You also have the benefit of the timing shift that impacted us in the third quarter.

So when you put all that together, we have modest growth contemplated for the business in the fourth quarter. Helly Hansen is expected to contribute close to $240 million of revenue as well in the fourth quarter, growing nicely compared to the prior year. So the assumptions underlying the organic revenue, we've assumed POS trends that are modestly positive, which is what we've seen for the majority of the year.

Things have been a little stronger over the last couple of weeks. -- as weather has been more cooperative. And then inventory levels at retail, we really haven't assumed any meaningful change. Our retail partners remain in a fairly conservative posture as they have all year, and we don't expect that to change.

Got it. Very helpful. And then maybe just very quickly on Lee, you sound very positive about the feedback that you're getting from the equity campaign. Maybe could you talk a little bit more about more green shoots on the brand and you've mentioned like sequential improvement for fourth quarter. Is that sequential improvement versus the 9% decline or versus like the 4% excluding the China proactive actions?

Yes. Mauricio, I'll take the latter part, and then Scott can take the first part. So the sequential improvement that we referenced is excluding the impact of the China actions in the third quarter. So I would think about sequential improvement relative to the 4% decline that we saw in the third quarter.

So Mauricio, I would tell you, similar to some of the comments that I've already made, we're seeing that our investment is paying off. And what I mean by that is we've invested dramatically in both our product engine and also our advertising and marketing. And so creating the right product for the marketplace, specifically in the channels that we sell the product in at the right price, as I mentioned earlier, and in telling a really great story behind that.

it takes a little bit of time because, as you know, this business order out over a period of time. So to see your results, it takes 6, 9 months, sometimes a year, except for in the digital component. And what we've seen here early on is a very strong response in the digital component from both male and female, which is really important to us. Our female business is doing exceptionally well.

So our conversations with our wholesale partners across the globe and also our own retail stores across the globe have been very positive. I've been pleased. We've been at this, as you know, for about 18 months now and still have a little ways to go. We're never going to be satisfied obviously, going forward. But those are some of the key components as to how we look at the business and how we measure and monitor how it's doing.

And the sequential improvement has been really important because it's also a shot from a morale standpoint to the team, too, as you can imagine. -- when they're making product that's really working and the marketplace is talking about it, they feel really good about it. So we've got that type of momentum, too. So more to come over time because I think we've been very transparent in sharing the story as we've gone along, and we'll continue to do that. But right now, the way I would describe it is that everything is on track to how we planned it from the very beginning.

Next question is coming from Paul Kearney from Barclays.

My first is clarifying on the October organic growth [indiscernible]. is that including the shift of timing from Q3 into Q4? And then on the Q4 guidance, just curious on it assumed in the Q4 guidance a continuation of the POS at mid-single digit that you saw in the last 2 weeks? And then a follow-up.

Paul, it's Joe. On October, yes, it does include the impact of the timing shift that we talked about. And for POS, the POS assumptions for Q4 does not assume that the mid-single-digit increases that we've seen over the past several weeks continue for the balance of the quarter. Our POS assumptions for Q4 are modestly positive.

Okay. And my next is on -- I think you pointed to $25 million of run rate synergies for Helly Hansen for 2026. I guess -- can you speak to any clarity on timing on achieving some of those synergies? How should we think about flowing those through in our model versus reinvestment? And just when should we expect to achieve those and which ones.

Yes, I'll take that, Paul. So we do have direct line of sight to pretty significant synergies across the business. That list of synergies is growing. The deeper we get into the business, as you can imagine, Part of that is just we are a more synergistic owner as a global brand operator and a lot of the pain points for the Helly business are -- there are strengths. So they'll benefit greatly.

Helly will benefit greatly from being part of our platform as we more fully integrate the business. The $25 million that we talked about, we're starting to see it now. It's smaller for 2025. We're starting to see some of those benefits now. Those will scale more meaningfully across the course of '26, and we'll lay that out in the full context of our '26 outlook in February.

Your next question today is coming from Brooke Roach from Goldman Sachs.

Scott, Joe, I'm hoping you could provide an update on where you stand on Project Genius savings realization. What proportion of the greater than $100 million savings have been realized to date? What's still on the horizon into 4Q and to 2026 as you mature into those savings? And how should we be thinking about the opportunity for flow-through to the bottom line as you contemplate continued investments into each of your core brands, including demand creation?

Yes. Brooke, so for 2025, we've got about $50 million of gross savings embedded in the outlook. That's above our previous expectations. So those savings compared to our initial outlook have allowed us to reinvest back into the business at a level beyond what we previously anticipated, and those investments are certainly part of of the fuel for the growth and the momentum that we're seeing. The benefits of Genius and the investments we've made, like I said, they're fully reflected in the outlook.

We do expect those benefits to scale materially in 2026 and reached $100 million of annual savings run rate. We will reinvest a portion of those savings. But as we've said from the very beginning, a portion of these savings will be reinvested back into the business and a portion of these savings will drop to the bottom line and drive profitability and returns improvement.

Great. And just a follow-up. I was hoping we could double-click on the Lee China business. Are you fully reset in that business today? And do you expect that business to begin to return to growth as we turn the corner into -- where are we in the transition?

Yes, I'll start, Brooke. So there's no change to the significant opportunity we see in China longer term. We're more confident in our approach going forward than we've been over the past couple of years, we've got a strong team on the ground there. For the past months or so, we've been working to reestablish our foundation in China for Lee as part of the brand's global approach to the turnaround. Our results have improved over the past year, but there's still more work to be done, and this market remains very dynamic, as you know.

The actions we discussed in our prepared remarks reflect the next set of initiatives to really strengthen our presence in the market and build a stronger foundation going forward. So -- more specifically, we've been consolidating distribution partners. We've been partnering with larger, more sophisticated partners in the market that can invest with us to build and drive the brand going forward.

We've taken actions to address inventory challenges in the market. We've elevated our own DTC presence. So there's a number of things that we've been working on behind the scenes. But I'd say the majority of the heavy lifting is behind us from here.

And I would just add, if you step back a little bit, Brook, some of the things that came out of COVID and what the world went through, there were some things that happened and some bad practices and what have you. And we've got ourselves now at a point where we've got a really impressive leadership team and a great leader over there.

But in addition to that, probably the most important thing is we really have a real strategy there now that makes a lot of sense for what this marketplace is going to look like going forward. So over the last 9 to 12 months, have become much, much more happy with kind of how we're thinking about it and kind of really like the thought process and the strategy that's gone into it. So we felt -- and this is the point we felt really confident to make this investment, and that's what drove that. We like the strategy. We like where it's heading.

We're happy to make an investment to put them in really good footing and then we move forward from there. So I think that from the standpoint of what's happened here in the last 5 or 6 years with the whole world that we're in a better place than we've been in China in a long time. And I think the future looks bright.

Best of look going forward.

Next question is coming from the line of Laurent Vasilescu from BNP Paribas.

Joe, I was hoping to get a little bit more color around FY '26. I remember last year on the third quarter call, you provided preliminary thoughts, particularly on the top line. I think you mentioned -- should grow 4%. Just curious to know, is there any rationale why we're not getting any preliminary thoughts for 1H '26 top line on an organic basis? And then I think, Scott, you mentioned Lee is not going to be linear, but how do we think about when should we actually return to growth in all markets.

Yes. Yes, I'd say on '26, I gave the framework, if you will. I'd say, this year versus last year are a few more moving pieces, as you know, and we're right in the middle of our planning process now. So we'll be back in February and give the detailed outlook as we normally do.

Laurent, as product flows and how we create and make product and go to market, I think our confidence is really building that late '26, fall/winter '26, you're going to see us even out and then start our growth algorithm right after that.

So feeling really good entering this year. We feel really good about how the product is going to flow in and feel really good about the product itself. -- that will go ahead and resonate with some stabilization by the end of the year and then growth by the end of the year, beginning of the next year.

Okay. Great, helpful. And then so just one sticking point here. There's $0.78 of adjustments is actually larger than the actual GAAP EPS number. Curious to know what the adjustments we should contemplate so we're going to actually have our models buttoned up for 4Q. What kind of adjustment should we have for 4Q? And when longer term, I think you mentioned the book, there's $50 million of gross savings from Project Genius, but when should we see the adjusted and GAAP EPS converge? And of the $100 million, how much of it actually flows through to the bottom line?

Yes, I'll take that, Laurent. So as we've discussed on prior calls, we will have onetime adjustments as we move through Project Genius as we move through the acquisition of of Helly Hansen. I think those are pretty difficult given the transformational nature of those projects. I would say the cost to date have been in line with our expectations.

The the onetime adjustments that we saw in the third quarter, primarily related to the closure of our Trion manufacturing facility as well as the integration of Helly Hansen on the SG&A side. But look, we don't pay our bills with adjusted earnings. We don't pay our shareholders with adjusted cash. So we're measuring the cash returns of Genius and the returns on Helly and our cash generation remains robust. We raised the cash flow outlook for '25, and we expect another year of strong cash generation in '26, and that includes the impact of the onetime adjustments.

Next question is coming from Peter McGoldrick from Stifel.

I am interested on the cash flow guidance following up on Laurent's question. The the step-up is significantly higher than the adjusted earnings increase in the outlook. So I'm curious if you can bridge the gap on working capital adjustments or any other items influencing the outlook to $400 million operating cash flow.

It's really the working capital. Peter, it's the sequential reduction in the inventory in addition to the earnings growth for both the organic business as well as Helly.

Okay. And then on the increased gross margin guidance for the year, can you work through the puts and takes here, whether it be by brand, Helly Hansen versus the denim brands any fundamental drivers? Or if there's any influence from the tariff assumption and inventory timing flow through?

Yes, I'll take that, Peter. So on Q3, we were up 80 basis points overall, 140 basis points, excluding Helly Hansen. For the organic piece, mix was about 170 basis point benefit, that's channel mix, product mix, business mix. Our Project Genius benefited gross margin by about 90 basis points. and then tariffs net of our mitigating actions as well as higher product costs hurt us by about 120 basis points.

For the fourth quarter, we've got 110 basis points contemplated. The organic business will be up modestly with Genius and mix being offset by tariffs, net of the mitigating actions as well as higher product costs. So the year-over-year increase in Q4 gross margin is primarily head related, which will be nicely accretive for us in the fourth quarter.

We reached end of our question-and-answer session. I'd like to turn the floor back over to Scott for any further closing comments.

Thank you. I just wanted to say a big thanks for spending time with us today and all your thoughtful questions and -- as you can see, we're working really hard here and our consumers are trusting us because they're choosing us going forward, which is really important, and we certainly appreciate that.

We've got a much broader story to tell as Helly Hansen unfolds, but I just wanted to mention that we couldn't be more pleased with our acquisition and how it's going and really enjoy working with the team there, a really good team and -- and it's been a really thoughtful merger of our 2 companies and just going really well, which we'll spend some more time talking about going forward. And because we won't spend any time together before the end of the year, I want to wish everybody a happy holiday season, and we'll look forward to seeing you after the first of the year. But again, thanks for your interest in our company. We really appreciate it.

Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.

Greetings, and welcome to the Kontoor Brands Second Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Michael Karapetian, Vice President, Corporate Development and Enterprise Strategy and Investor Relations. Thank you, sir. You may begin.

Thank you, operator, and welcome to Kontoor Brands' Second Quarter 2025 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 an adjusted dollar basis, which we clearly define in the news release that was issued earlier this morning and is available on our website at kontoorbrands.com. Reconciliations of GAAP measures to adjusted amounts can be found 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, amounts referred to on this call will be in constant currency, which exclude the translation impact of changes in foreign currency exchange rates.

Joining me on today's call are Kontoor Brands President, Chief Executive Officer and Chairman, Scott Baxter; and Chief Financial Officer and Global Head of Operations, Joe Alkire. Following our prepared remarks, we will open the call for questions. Scott?

Thanks, Mike, and thank you all for joining us today. Our strong second quarter results exceeded expectations. Wrangler growth accelerated, the Lee turnaround is on track, and Helly Hansen performed above plan. Our performance highlights the significant opportunities from our expanded brand portfolio with greater consumer, geographic and channel diversification than we've ever had.

In our first quarter as a combined company, we are off to a great start. Based on our better-than-expected first half results and improving visibility, we are raising our revenue outlook and reiterating our full year earnings outlook at the midpoint, now including tariffs and incremental demand creation investments. While the environment remains uncertain, we are entering the second half of the year from a position of strength.

Let me start with an update on Helly Hansen. First, the integration is progressing well. On the front end, the commercial teams are energized and performing at a high level. June results exceeded expectations, and this momentum has carried into the third quarter, supported by a strong product pipeline and accelerating order book. To build on this momentum, we are creating the investment road map to accelerate growth. We see significant opportunities in the U.S. through a combination of wholesale and retail expansion as well as investments in product innovation, category expansion and demand creation to increase brand awareness.

Helly is also underpenetrated in key accounts, and we are developing plans to unlock new channels of distribution starting in '26. Product and category expansion is another significant opportunity for Helly Hansen. The strong connection with the professional community has been a differentiator since its founding. These partnerships have made us #1 in saline, a global leader in ski apparel and now provide a platform for expansion into outdoor. These platforms are driving the strength we see in the business today and into next year.

Within workwear, we are driving growth across 3 strategic categories: construction, high visibility and footwear. Product segmentation along a clear, good, better, best framework underpins our go-to-market approach. This has contributed to consistent growth over the past decade. Over the near term, we are expanding our lightweight and cooling platforms to increase penetration in southern climates. In addition, we are scaling our HH Connect system, which provides unrivaled customization. This innovation has been an incredible success since launching in early '24.

On the back end, we are leveraging our global platforms to drive greater scale and efficiency. While Helly has been executing at a high level on its own, we are more confident than ever it will see significant benefits under our ownership as a more synergistic global brand operator. We have identified opportunities across supply chain, IT, HR and finance. These will materialize over time, and we will now expect to exceed our prior run rate synergy estimate of $15 million, which is not yet included in our outlook.

As we discussed last quarter, our value creation framework is now built on 4 pillars: accelerate growth, double Helly's operating margins, increase capital allocation optionality and establish Kontoor as the employer of choice in the industry. We are off to a tremendous start, and I could not be more excited about the opportunities ahead.

Now let's review highlights from Q2. Wrangler had another strong quarter. Revenue increased 7%, including 9% growth in the U.S. and 16% growth in digital. Our female business continues to surpass expectations, and we are in chase mode for many styles. Our investments in talent, product development and demand creation are generating healthy returns. As an example, bespoke continues to be a tremendous success, driving strong digital growth while increasing our penetration in specialty retail. We will continue to scale this platform in the second half of this year.

We also hosted key activations at the ACM Awards alongside the biggest stars of Country Music, including Lainey Wilson, who for the second year in a row, won Entertainer of the Year, as well as awards for female artists and Album of the Year. Our connection to Western culture is deeply rooted in Wrangler's DNA, and we see that translate to the sales momentum we have consistently demonstrated.

During the quarter, our Western business grew mid-single digits. Combined with strength in our core denim business, Wrangler drove its 13th consecutive quarter of market share gains as measured by Circana in our men's and women's bottoms business. We gained 70 basis points of market share. Wrangler has had an excellent first half of the year. Wholesale revenue grew mid-single digits and D2C grew 11%, including 15% growth in digital and 3% growth in brick-and-mortar. The team is executing on all fronts, and I am confident we will deliver a strong finish to the year.

Turning to Lee. As expected, revenue declines sequentially improved as our brand repositioning unfolds. Digital continues to lead the way. Our U.S. business grew high single digits in the quarter. Our refreshed creative vision is generating results with brand equity, purchase intent and brand favorability all increasing. This is translating to increased revenue on our own digital platform as well as our wholesale partners. To support this momentum, we will be launching our brand equity campaign in September. Built on Lee's authority and denim, it speaks to the strength and quality that has defined the brand for more than 135 years, now reimagined for today's younger generation.

Test results have been very encouraging, and we are excited to bring the new vision to life ahead of the holiday season. We are also addressing existing distribution challenges. We are being more deliberate within U.S. mid-tier and have identified growth opportunities that are better aligned with Lee's refreshed brand positioning. We are also evaluating opportunities to optimize distribution in Europe and Asia. Progress will not be linear, and it will take time to do it right, but we are confident the turnaround is on track.

Finally, as we announced last week, Tom Waldron will be leaving Kontoor at the end of September. I would like to thank Tom for his contributions to Wrangler and Lee for almost 30 years. This is a bittersweet moment, and I wish him the best as he pursues new opportunities.

Before turning it over to Joe, let me reiterate the confidence we have in achieving our '25 plan. Wrangler has significant momentum. Lee is on track and the integration of Helly Hansen is progressing well. After an uneven start to the year, trends have improved, and we are seeing this momentum carry into the third quarter. The environment remains uncertain, but we are executing at a high level and have meaningful opportunity to create shareholder value.

We are also excited to share that we are planning an Investor Day in the first half of '26. This will provide a great opportunity to share the strategic vision for our brand portfolio, the power of our improving financial model and the significant optionality that underpins our value creation framework. We will share more details in the coming months, but I am confident we are on the path to drive strong value for our shareholders. Joe?

Thanks, Scott, and thank you all for joining us today. Our second quarter results highlight the power of our operating model. While the environment remains dynamic, I am confident we have the right team, strategy and brand portfolio to create significant value for our shareholders in the years ahead. Now let's review our second quarter results. Global revenue increased 8%, including a 4-point benefit from the contribution from Helly Hansen. By brand, Wrangler global revenue increased 7%. In the U.S., revenue increased 9%, driven by 16% growth in DTC and 8% growth in wholesale.

Growth was broad-based, including continued market share gains, category expansion and solid growth in Western. Following the slowdown in February, POS trends have rebounded and increased at a mid-single-digit rate in the second quarter, with trends further accelerating in July. Wrangler International revenue decreased 6%, driven by a 6% decrease in wholesale, partially offset by a 4% increase in brick-and-mortar retail.

Turning to Lee. Global revenue decreased 6% and was in line with our expectations as the turnaround remains on track. U.S. revenue decreased 5%, driven by a decline in wholesale, partially offset by 9% growth in digital. We are encouraged by the continued strength we are seeing in our digital business, where we have seen momentum continue into the third quarter with revenue up double digits quarter-to-date. Lee International revenue decreased 6%, with declines in wholesale offsetting low single-digit growth in DTC.

We are taking further action in APAC to establish a stronger foundation from which to grow the business. While these actions will have a near-term impact on revenue in the second half of the year, we are confident these actions better position the brand and our retail partners for sustainable growth moving forward.

Now turning to Helly Hansen. Global revenue of $29 million in June exceeded our outlook of $20 million to $25 million. Sport and Workwear revenue was $17 million and $9 million, respectively. On a stand-alone basis, Helly Hansen revenue growth was slightly above our expectations in the second quarter. Revenue growth has further accelerated into the third quarter as we expect the growth rate of the business to continue to accelerate in the second half of the year.

Now moving to the remainder of the P&L. Adjusted gross margin expanded 120 basis points to 46.4%, driven by the benefits of Project Jeanius, lower input costs and mix. In addition, Helly Hansen was accretive by about 20 basis points. We exceeded our gross margin plan due to earlier-than-expected benefits from Project Jeanius, a stronger gross margin contribution from Helly Hansen and lower product costs. Adjusted SG&A expense was $206 million, up 6% compared to prior year. Excluding Helly Hansen, adjusted SG&A expense decreased 5%, driven by prudent management of discretionary expenses, Project Jeanius and lower distribution and freight, partially offset by investments in demand creation.

We remain focused on expense management and driving further improvements in operating efficiency in light of the environment. And adjusted earnings per share was $1.21, increasing 23% compared to prior year. Helly Hansen contributed a $0.12 loss per share compared to our outlook of a $0.28 loss per share. Excluding Helly Hansen, adjusted EPS was $1.33 and increased 36% compared to prior year.

Turning to the balance sheet. Inventory increased 40% to $686 million. Excluding Helly Hansen, inventory decreased 1% to $482 million as we continue to drive improvements in net working capital. Over the near term, we are focused on improving Helly's working capital and inventory turnover to increase cash generation and accelerate debt repayment. We are harmonizing processes for planning, procurement, product development and inventory management. And we will begin to leverage our global supply chain capabilities, including our supply chain and AR financing programs, which will be a significant unlock for the business. We are pleased with the quality and composition of our inventory, and we'll continue to manage working capital prudently.

Excluding Helly, we expect inventory to increase at a high single-digit rate in the third quarter, driven primarily by our growth expectations as well as Project Jeanius-related operational transitions within the supply chain. We expect inventory growth to normalize in the fourth quarter with our days on hand projected to remain consistent with prior year levels. We finished the quarter with net debt or long-term debt less cash of $1.3 billion and $107 million of cash on hand.

On a pro forma basis, our net leverage ratio or net debt divided by trailing 12-month adjusted EBITDA was 2.5x. During the quarter, we made a voluntary $25 million debt repayment. And finally, on a trailing 12-month basis, adjusted return on invested capital was greater than 30%, excluding Helly Hansen. We now anticipate returning to approximately 2x net leverage by year-end and back to pre-acquisition leverage by the middle of 2026, reflecting our expectations of stronger cash generation.

Our $500 million revolver remains undrawn and share repurchase activity remains on pause near term as we focus on paying down acquisition-related debt and reducing leverage. We have $215 million remaining under our current share repurchase authorization. And as previously announced, our Board declared a regular quarterly cash dividend of $0.52 per share.

Before moving to our outlook, let me provide an update on tariffs. Our full year outlook now includes the estimated impact of higher tariffs, net of mitigating actions. This includes transferring production within our global supply chain, pricing increases, inventory management, supplier partnership initiatives and other proactive mitigating actions. We started implementing a portion of these initiatives at the beginning of the third quarter with additional measures expected in 2026. We have assumed a 30% reciprocal tariff on all China imports and a 20% reciprocal tariff on all other countries from which we source product with the exception of Mexico.

Based on currently available information, Mexico remains exempt under USMCA. At these levels, the anticipated net impact to operating profit in 2025 is approximately $15 million or about $0.20 per share. We expect trade policy to continue to evolve and remain highly dynamic. That said, our supply chain is a competitive advantage. While we are not immune from the impact of higher tariffs, we remain confident we can substantially offset the impact of the business within a 12- to 18-month period.

Now let's review our updated outlook. Full year revenue is now expected to be in the range of $3.09 billion to $3.12 billion, representing growth of 19% to 20% compared to our prior outlook of 17% to 19% growth. Helly Hansen is now expected to contribute $455 million to full year revenue compared to our prior outlook of $425 million. Our outlook includes the impact of a 53rd week, which is not expected to meaningfully impact revenue on a full year basis. Excluding Helly Hansen, we expect revenue growth of 1% to 2%, including approximately 2% to 3% growth for the balance of the year, including the impact of the 53rd week. We continue to plan the business conservatively.

For Wrangler and Lee, our updated outlook assumes no meaningful change in POS trends or retail inventory positions for the balance of the year. This is consistent with our prior outlook. For Helly Hansen, our revenue outlook is supported by current demand trends and the fall/winter 2025 order book, which accounts for the majority of sport revenue. For the third quarter, we expect revenue of approximately $855 million, representing growth of 28%, including the expected contribution from Helly Hansen.

Moving to gross margin. Adjusted gross margin is now expected to be approximately 46.1% at the high end of our prior outlook of 45.9% to 46.1%. Our outlook represents an increase of approximately 100 basis points compared to gross margin of 45.1% in 2024. Our full year outlook now includes the impact of higher tariffs, net of mitigating actions. We expect third quarter adjusted gross margin of approximately 45.5%, representing an increase of approximately 50 basis points compared to prior year.

Adjusted SG&A is expected to increase approximately 24%, reflecting the contribution from Helly Hansen and an incremental $15 million of demand creation and other investments relative to our prior outlook. We are entering the second half of the year with strong momentum. We will continue to manage the business prudently, but believe we have an opportunity to capitalize on marketplace disruption and the strength of our brands and drive increased investment in support of our growth initiatives.

Our investment priorities are unchanged. And with the addition of Helly Hansen, we see significant opportunities to accelerate growth through geographic, category and channel expansion. Excluding Helly, we expect SG&A to increase at a low single-digit rate on an adjusted basis, consistent with our prior outlook and including the demand creation and other investments previously discussed. We continue to anticipate Project Jeanius savings to mature to a full run rate in excess of $100 million in 2026.

Adjusted EPS is now expected to be approximately $5.45, representing an increase of 11%. This compares to our prior outlook in the range of $5.40 to $5.50. Our outlook now includes about a $0.20 impact from higher tariffs and approximately $0.20 of incremental demand creation and other investments compared to our prior outlook. Helly Hansen is expected to continue to benefit full year 2025 adjusted EPS by approximately $0.20, including the impact of higher tariffs, consistent with our prior outlook.

The integration is progressing well, and we now have line of sight to greater than $20 million of synergies compared to our prior estimate of more than $15 million. We have not included any synergy benefit in our outlook at this point in the year. We expect third quarter adjusted EPS of approximately $1.35. Helly Hansen is expected to be breakeven from an earnings standpoint as strong accretion from the operations of the business is offset by acquisition-related interest expense.

Our third quarter outlook includes the impact of higher tariffs and the incremental investments previously discussed. Finally, we continue to expect another year of strong cash generation. Cash from operations is expected to exceed $375 million, including the contribution from Helly Hansen. This compares to our prior outlook for cash from operations to exceed $350 million.

Before opening it up for questions, I want to reiterate the confidence we have in achieving our 2025 objectives. We are entering the second half of the year with momentum. Our teams are executing at a high level and our expanded brand portfolio and strong operating model provides multiple paths to drive revenue and earnings growth. As we move into 2026, we expect our capital allocation optionality to be significant, supported by strengthening cash flow and accelerated debt repayment.

While tariff headwinds will likely remain, we have multiple levers within our supply chain, combined with scaling Project Jeanius savings to mitigate the impact to the business. We are operating from a position of strength, and I am confident we are on a path to create significant value for our shareholders in the years ahead.

This concludes our prepared remarks. I will now turn the call back to the operator.

[Operator Instructions] Our first question comes from the line of Ike Boruchow with Wells Fargo.

On the good results. Two from me, I think both for Joe. But the first question is basically, Joe, you raised the Helly Hansen revenue to $455 million. Can you tell us what the EBIT contribution is this fiscal year? And then just bigger picture, just on -- because you obviously don't have a full year of this. On an annualized basis, what is Helly currently run rating on revenue and EBIT?

So when we announced the transaction, we highlighted about $680 million of revenue for Helly and about $50 million of operating income. That really hasn't changed in terms of our expectations, but it's evolved a bit given the impact of tariffs, et cetera. I'd say when you look at our second half outlook and what's implied, we've got about $425 million of revenue assumed. That's up on a pro forma basis in the high single-digit range. And certainly, we've got the order book to support that.

From an earnings accretion standpoint, there's roughly $0.32 of accretion implied in the second half, and that includes a pretty meaningful drag from the acquisition-related interest expense, right? So that will begin to abate as we move into '26.

Got it. And then that was kind of my next question is just there's a lot of moving pieces with the interest expense and your plan for debt paydown and half a year of Helly or 75% of the year of Helly. I guess it just might be helpful, Joe, if you could give us some kind of initial shape of '26 with kind of the main question being the growth rate that you think can be sustained on the core, the algo that you're using for Helly?

And then just kind of if you can wrap roll it up and then the main question being like can you expand from the corporate margin that you're at right now in the low 14s because obviously, Helly is a lower-margin business. Just can you continue to -- do you think the operating margin of the KTB business continues to move higher next year? Just any puts and takes at a high level would be great.

Yes. So look, certainly appreciate the question given the moving pieces to the story. I'd say on Helly, big picture, we expect high single-digit growth over time, and we expect to double their operating margins, right? Certainly, synergies will be a part of that. We increased the synergy target this quarter. We've got a couple of months under our belt. And as we work more closely with that team, the list of synergies is growing. So that's how I would think about Helly. I'd say for the company in total, we're not giving a '26 outlook today, but I'll give you a high-level framework. I mean, barring a major slowdown in the macro environment, we expect the organic business to grow next year. That will be largely driven by Wrangler.

We expect '26 to be a transition year for Lee, but we certainly expect continued improvement from the brand. We said we expect to substantially offset the impact of tariffs over a 12- to 18-month period. Certainly, the tariff headwind will be bigger in '26. You've got a full year plus a 20% reciprocal versus 10% a couple of months ago. But we've got more time to respond. We've got more levers to pull, and we'll do so accordingly.

Certainly, Project Jeanius, you have those benefits scaling. We talked about approaching a full run rate as we move across 2026. And then you've got capital allocation. We're generating a lot of cash. We're repaying debt more quickly. So again, we like where we are. We like our model. We've got a lot of optionality to drive accelerated growth and returns. So hopefully, that's helpful.

Our next question comes from the line of Mauricio Serna with UBS.

I guess could you elaborate a little bit more on the cadence for the second half revenue growth? I think if you do the math, it's like 31% in the third quarter and then it accelerates to -- yes, so maintaining -- and then -- sorry, it's like 28% and accelerates then to 38%. So just trying to understand what's driving that acceleration in the fourth quarter.

And then on Lee, could you elaborate a little bit more about -- you talked about some opportunities for distribution and some actions in APAC to clean up like the business. Maybe could you talk a little bit more about what's happening in that part of the business?

Joe, do you want to take the first one and then you and I will do the second one.

Sure, Scott. So Mauricio, yes, on the back half, we gave you the revenue outlook for the third quarter of $855 million. You've got the full year, so you can back into the fourth quarter. I'd say in terms of the fourth quarter weighting, there's really 2 things. We've got a 53rd week in terms of the organic business and Helly's business is more weighted toward the fourth quarter as well. So that's really what's driving the Q3, Q4 cadence.

Scott, do you want to start with China, and then I'll come behind you.

Yes, I can start with China. We've taken some actions to improve our inventory position and also, most importantly, to go ahead and strengthen our broad base of retailers that we have there and our partner base. We think it's the right thing to do going forward. And I'll tell you the specific reason for that is because our product is so good moving forward that we have a real great opportunity to do that. So we really like the team, and we really like the strategy that we have right there going forward right now. Joe?

Yes, Mauricio, we've been working on this for about 18 months to really reestablish the foundation in China for LED. It's part of the brand's global approach to the turnaround. I'd say our results have improved over the past year, but certainly more work to be done, and that market remains highly dynamic, as you know. So these actions are really the next set of initiatives to strengthen our presence in the marketplace, establish a stronger foundation and set us up for more sustainable growth going forward with our retail partners.

So no change to the significant opportunity we see in China longer term. As Scott said, we've got a strong team on the ground, and I'd say we're more confident in our approach going forward than we've been in the last couple of years.

Mauricio, you asked a little bit about domestically. I wanted to go ahead and make sure we answered your question there. So we talked about sequentially improving over time, which we have again this quarter. The product looks really good. Here's the key, though. We're starting to see it from a digital standpoint where we touch the customer immediately. So you've seen our performance improve there. And now we're going to supplement that with our first big campaign that we've had, our first big equity campaign in a very, very long time, well over a decade.

It's really a good campaign. We're really pleased with it. We back that up with really strong product, and then we'll start to go ahead and enhance our distribution as it relates to our new product introductions and also the campaign for the consumer that we're working with going forward in the future. So we do see a really nice runway going there going forward, but we're doing it in incremental steps.

What's really happening right now is there's been a lot of work on this brand and a big thank you and shout out to the team over the last 18 months. And now you're starting to see that all fall into place. So stay tuned, much more of the story to come in the future, and we will make sure that we keep you updated on all of it going forward.

Very helpful. Just a quick follow-up on the tariff commentary. Maybe could you elaborate on the 2 of the initiatives that you're doing to mitigate? Particularly interested in hearing what you're doing in terms of transferring production, like where you moving things around? And I think you've talked about -- before you've talked about some selective price increases. What has been like the reaction from consumers and from your wholesale partners from those pricing actions?

Joe, do you want to take the first...

Yes, I can take the second part. Yes, sure. I can take this. So Mauricio, look, there's still quite a bit of uncertainty in terms of trade policy. We expect the environment to remain dynamic here. We feel like we're well prepared to respond to changes in the policy landscape as well as the impact of tariffs. So we've mitigated all but $15 million or about $0.20 of the $25 impact. Pricing is a piece of that. Scott will touch on that in a moment. But one of our competitive strengths is our global diversified supply chain.

So while we're not immune, at least in the short term, we do have the ability to mitigate the impact over a 12- to 18-month period, and we remain committed to that. So pricing is part of a holistic strategy, moving production around is part of a holistic strategy. We called out supplier partnerships, cost sharing, et cetera, other initiatives to just help minimize the impact here. And we've got a broader set of initiatives as we move into '26 that will help us mitigate the impact to the business.

Yes. Just good job, Joe. Just a quick comment. I think the single most important thing relative to how we've transitioned as an organization versus the past is, Mauricio, our brands are just in a much stronger competitive position. So you look at the strength of Wrangler and how it's just working with their consumer. And you look at the strength of Helly Hansen, our latest acquisition, you look at how we're building Lee back up, we're in a much better position from a pricing standpoint going forward. We just are doing a much better job.

So we're being real strategic about it and real smart about it, and Joe talked a little bit about how we're going about it. So I feel real confident that we're priced correctly in the marketplace, and we'll continue to work with our consumers and customers going forward. We feel really good about where we are right now.

Our next question comes from the line of Paul Kearney with Barclays.

Sorry, but just a clarifying question on the tariff impact. So the press release cites a $30 million tariff impact. Last quarter, you spoke to a $50 million unmitigated impact. Is that $30 million number net of both mitigation efforts and higher rates since then? And as we look to next year, what is a good full year run rate impact from tariffs? And when do you expect to be able to fully mitigate that impact?

Scott, I'll take this one. So the $30 million that we called out in the release that's now included in the outlook. There are 2 pieces to that. First piece is a $15 million tariff impact that's fully mitigated. So that's the hit to earnings this year as a result of tariffs now that our mitigating actions are in place. The other $15 million includes increased investments mainly around demand creation for our brands that's now included in our outlook. So that's the $30 million.

In terms of the tariff impact, Paul, I mean, we quantified $50 million of unmitigated a quarter ago. That assumed a 10% reciprocal rate. We now have a 20% reciprocal rate, but our mitigating actions are now fully embedded. So the net of all that is a $15 million impact to 2025.

Great. And if you could also just comment on -- maybe just on the Wrangler business specifically. And I know you're priced appropriately, but what are the conversations with the retailers? How are they managing inventory levels in the channel? And just anything that you can add for the outlook for the remainder of the year on Wrangler?

I'll start, Joe, and you can chime in. Our Wrangler business continues to really thrive. And it's because the team has done the right thing from a coordination effort around our brand, around product, around our marketing campaigns, around the folks that we're working with like Elaine Wilson, our interactions and our conversations with our customers are really significantly great right now. They want our product. They want to showcase our product. They want our product in the front of their stores. Our women's business is doing really well, which has complemented a strong men's business that we've had for a very long time.

We've introduced some things that have just -- they've exceeded our expectations like bespoke because the product is just so good and it's just resonating with females around the country. So we're in a really good position there. Western is doing really well. It's a lifestyle, and it's a lifestyle that's here to stay and that's continuing to thrive, and we're really investing in that culture through rodeos and things like that and some of our entertainers.

So the product pipeline looks really good. The future looks really good. Our marketing campaigns look good and our relationships with our customers and our consumers from a digital standpoint are really -- in a really good place right now. Joe, anything to add?

Yes. Well, I'd say that the outperformance in the second quarter on the top line was really driven by strength in Wrangler. And we saw POS improve. So you'll recall, February was slow. We saw trends improve into March, April. We saw POS further accelerate into May and June. And we've seen that strength continue into July, and that's after our pricing went into effect.

And to Scott's point, the growth has been fairly broad-based. It's been wholesale, it's been D2C, it's been female, et cetera. So we're in a really, really good place with the Wrangler brand as we move into the second half.

Our next question comes from the line of Peter McGoldrick with Stifel.

I'm interested in the Helly Hansen opportunity. As you begin the integration process, I'm curious what you're seeing today relative to at the beginning of the acquisition process. Are there any parts of the business where you feel better about the tangibility of growth or profitability opportunities?

Yes. So I'll go ahead and start, Peter. Peter, after doing a lot of these through the years and having some experience here, there's one thing that always gives you incredible apprehension. So you know we bought a great brand with a really good business model with a really nice opportunity. And one of the strategic reasons that we bought the brand is because there was a big North American opportunity, and we know the business. We think there's a big outdoor business. But when you go into these, you have to really get the culture right.

And one of the things that's been really important to us is make sure that our 2 cultures are working together. And I've been blown away by the culture at HH and how it fit our culture and how well they're working together. I got to tell you, I'm really impressed with the talent at Helly Hansen, how easy these folks are to work with, how quickly they get it and how our 2 businesses have emerged together in a very, very short period of time. We've got really good product coming out. And there's a big opportunity here from an outdoor standpoint from a workwear standpoint, from a footwear standpoint. And we think we can get after that in a pretty elegant way going forward.

We've got a couple of key hires to make here from a President standpoint and from some key hires in North America. But we knew that from the very beginning. It's part of our plan here in '26, and we'll go ahead and get that done in '25 into '26, and we'll get that done and will put us in a really enviable position going forward. But I think it all starts with the culture, and then you've got really great product. We're telling some great stories and the teams are working really well together. I would tell you, I give this an A to an A+ from all the different ones that I've done in my long career. Joe?

Yes. Peter, I think just in terms of growth in the building blocks, I mean, we've got high single-digit growth in the back half. It's fairly broad-based. It's sport, it's workwear, it's wholesale, it's D2C. It's fairly broad from a geographic standpoint. We've got the order book in hand. We're starting to get visibility into spring/summer next year. That's looking pretty strong as well.

And then from a margin standpoint, you can see what we've embedded in the second half of this year that really doesn't impact synergies yet. That doesn't reflect some of the opportunities we see just as we begin to work more closely with that team and the discipline and rigor we're going to put around the planning process, the inventory process, et cetera.

And I think one of the most attractive things about this is as they plug into our machine, there were many growth investments that they were having to make on their own that they now do not have to make because it's already built, right? So that growth will come at a really accretive rate as we move forward.

All right. And then just thinking about the opportunities in the domestic market, I'm curious how we should think of the expanding domestic representation. Where will the consumer see Helly Hansen showing up more strongly? And from the investment community standpoint, where should we expect the growth to come from within the distribution -- established distribution, new distribution?

So I think it starts with the fact that they already have a fairly decent base, but now you're going to layer on the machine that we're going to help them with from a digital standpoint here domestically, and we've already started that process. You're going to go ahead and layer on the fact that we've got a nice D2C engine that we're going to help them with. They've got a nice series of D2C stores, but we see an opportunity to open more stores here over the next few years as we go ahead and continue to fine-tune that model.

And then from a product standpoint, we think there's a big opportunity in outdoor, and that will relate to the current business that they have right now in sport and the current business that they have in sailing. We think that consumer all kind of navigates to the same area and shops in a very similar pattern. You'll see us in some of the more outdoor specialty opportunities, and you'll see us continue to go ahead and invest on the mountain because we think on the mountain is going to bring us a lot of halo effect going down. So we kind of have a lot of opportunities in few different spaces where we need to go ahead and invest and prioritize in those.

But I think the single most important thing is we see years of opportunity in years of growth. And that is, again, why we made the acquisition. Now the other interesting part about this business is the workwear piece of this business, which has a minimal impact here in the U.S., but we think there's incredible innovation in the workwear business globally that we haven't seen here in the United States. And Helly is going to allow us to go ahead and bring that into this huge workwear environment in a pretty significant way.

So we think there's a real nice opportunity from a footprint standpoint there also, leading with really innovative and technology innovative type product. So lots to come, but a really nice opportunity here domestically going forward for a long time.

Our next question comes from the line of Brooke Roach with Goldman Sachs.

Scott, I was hoping you could contextualize the magnitude and the timing of some of the additional marketing investments that you're making, both in your core and also in Helly Hansen and the results that you expect to drive as you make those investments?

Sure. Let's go ahead and start with Wrangler. We've made, as you know, significant investments in Wrangler through the years. And you're going to see us continue to do that. You're going to see us continue in the next few years to invest more money behind that big engine and that big machine. And I'll tell you why. It's really simple. We believe in the people that are doing it. They're doing an excellent job. They're making really great choices. Lainey Wilson is a great example, making great choices from a product standpoint. We just recently brought some new entertainers onto our platform. So a lot of great decision-making is happening in Wrangler that's helping us to drive our business. So we're going to go ahead and continue investing there.

Now I will tell you, we haven't done as good a job as we need to from a lead perspective, but we're starting that. We are kicking off. And it's really interesting. We're kicking off a huge campaign, haven't done that in a very long time, shame on us. But now we're going to do it, and we've got the product to back it up. So that's what took so long. When you think about these big turnarounds that happen, you have to put all those components and pieces in place a year, 1.5 years ago. So you've got to build your product engine in a sophisticated way. You got to put the team in place. You got to start thinking about your distribution and you got thinking about where you're going to place your bets.

So we've done all that work, and now the team has put some really good work into the equity campaign, and we're going to invest behind that. We're not going to do all that work and not go ahead and show it and invest it and make sure that everyone sees it. And there's a nice investment in our digital piece there, too. And that's probably where I'm most encouraged. I'm encouraged by the fact that we've been investing in the digital component and the D2C component. from a marketing standpoint, and we're seeing the customer really attract to that. So that's been really important.

And then we really like what Helly has done from the standpoint of in the European, the Canadian, the international markets in a really, really strong way. But we think that we can help them here understand this consumer domestically a little bit better and help them from that standpoint, and that work is being undertaken right now. And Joe talked about it, and you heard him talk about the investment that we're making in the businesses right now because our business is just so strong. It's an enviable position to be in to be able to invest back in your businesses during these times.

So from a cadence standpoint, a disproportionate amount of the $15 million investment will hit the third quarter. That's why you see the earnings growth a little more muted than what you otherwise would expect. We're doing that very deliberately in front of the important holiday season.

And then just finally for me, Joe, can you give us any quantification of the benefit that you're getting from incremental distribution opportunity in the core in the back half of this year?

Yes, Brooke, our growth for the core business in the second half is approximately 2% to 3%. The big drivers of that are the 53rd week as well as the new programs and the distribution that we've talked about. From an underlying POS inventory perspective, we really haven't assumed any change relative to where we've been. And July was -- has been running ahead of those assumptions. So we have assumed a moderation August into September. We just -- we're a little cautious here on the consumer.

Our next question comes from the line of Laurent Vasilescu with BNP Paribas.

I wanted to ask, Joe, what is the Hey Hansen revenue contribution for the third quarter so that we can actually calculate the organics for 3Q?

Laurent, I would think of something in that $175 million kind of range.

Okay. And then, Joe, we've seen a lot of vendors so far report and report kind of shift from 3Q to 2Q, which makes sense ahead of August tariffs. Curious to know if you saw any shift from 3Q to 2Q because you have a large U.S. wholesale business.

Yes. We really didn't see that, Laurent. I think we thought that might be the case as we were moving through June and saw trends accelerate a little bit, but things have further accelerated in July. So we really don't think timing has been a big driver for us, meaningful impact to us.

Okay. And my last question is, FX has moved quite a lot as of late. Should we assume -- I think it's like 1 to 2-point benefit from FX relative to 90 days ago, particularly, I think what I'd like to really hone in on is just like Hey Hansen, you can disclose it 60% Europe. Just like to understand what is the FX gain on the full year for the guide relative to what, 90 days ago?

Yes. So on a combined basis, currency is not a material impact. We've been helped a little bit on the translation side. That's mostly Helly related. We've been hurt a bit on the transaction side. That's mostly peso related given our manufacturing presence in Mexico. But part of the increase in the Helly outlook is currency, but we've also seen a strengthening in terms of the underlying business profile.

We have no further questions at this time. Mr. Baxter, I'd like to turn the floor back over to you for closing comments.

Thank you. I just wanted to say thank you to everyone. Thank you to the team. We had a great quarter. We're working really hard. It's heads down, driving results and look forward to sharing those with you upcoming here in the fall. Have a wonderful rest of the summer, and thank you for all your support. We greatly appreciate it. Have a nice day, everyone.

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