Analysis: Kontoor Brands shares on a rise

Over the past six years, Kontoor Brands has established itself as a significant player in the global apparel industry. The company, which was spun off from VF Corporation in May 2019, focuses on the design, manufacturing, and distribution of high-quality apparel. An analysis indicates a period of significant change and strategic realignment. This is particularly evident following its recent acquisition of Helly Hansen, a move that initially caused share price volatility. However, the company's stock is now on a recovery path moving back to its all-time high. This analysis examines the company's financial health, market position, and future prospects to provide a comprehensive overview for industry professionals.

Company profile and history

Kontoor Brands, a US-based clothing company, was spun off from VF Corporation in May 2019. The company's core activities revolve around the design, manufacturing, and marketing of denim and casual apparel, with a brand portfolio that includes Wrangler, Lee, Rock & Republic, Musto and Helly Hansen.

The company's business model is centered on leveraging the heritage and brand recognition of its key labels. Kontoor Brands has evolved its product offering to include a broader range of styles and fits, appealing to a wider consumer base beyond traditional denim. The company has a significant global presence, with a combination of brick and mortar retail locations, e-commerce platforms, and a large network of wholesale partners. Its products are typically in a mid-range price bracket, with examples such as a pair of Wrangler men's jeans priced at around 59 dollars and a Lee women's denim jacket at 98 dollars. The majority of the company's production is carried out through a global supply chain, with significant operations in countries like India.

A noteworthy development over the last two years has been the acquisition of Helly Hansen in February 2025. This strategic move aims to diversify the company's portfolio beyond denim and tap into the growing outdoor apparel market.

The share price of Kontoor Brands experienced a significant crash in February 2025. This could be primarily attributed to the market's reaction to the Helly Hansen acquisition, with investor concerns over the high debt load and integration risks associated with the deal. However, the share price has seen a strong rise over the past half year. The key reasons for this recovery can be seen in the company's strong second quarter 2025 results, which showed better-than-expected revenue and earnings per share, and an improved outlook for the rest of the year. The initial market apprehension has given way to optimism as the company has demonstrated solid performance and a clear plan for integrating the newly acquired brand.

Scott Baxter is CEO and also serves as chairman of the board. Baxter led the company through its separation from VF Corporation and has been instrumental in shaping its strategic direction. Other key executives include Joe Alkire, executive vice president, chief financial officer, and global head of operations; and Jenni Broyles, executive vice president, chief commercial officer, and global head of brands.

Performance and financial outlook

As a VF Corporation spin-off, Kontoor Brands started trading on the NYSE in May 2019. Its share price on the first day of trading was around 35 dollars. The all-time high closing price was 91 dollars in January 2025, while the all-time low price was 14 dollars in May 2020. At the start of this year, the share price was 85 dollars. The lowest price this year was 52 dollars.

Over the past year, the share price has experienced significant swings. After reaching its all-time high in late January, the stock crashed in February before beginning a steady recovery. The long-term share price performance over the past five years has shown a general upward trend, albeit with considerable volatility.

Revenue and growth

Over the past five years, Kontoor Brands has seen a modest increase in revenue. In 2021, revenue was 2.47 billion dollars; in 2022, it was 2.63 billion dollars; and in 2023, it was 2.60 billion dollars. Revenue for 2024 was 2.60 billion dollars and in 2025 is forecast to be 3.11 billion dollars, with the Helly Hansen acquisition having a substantial impact. The primary drivers of revenue growth are strong demand for the company's core brands and strategic acquisitions. Inhibitors include competition from fast fashion retailers and macroeconomic challenges affecting consumer spending.

Profitability

Kontoor Brands has demonstrated solid profitability. The company's gross margins have shown improvement, with a reported gross margin of 46% in the second quarter of 2025. This was influenced by pricing strategies and cost savings, even with the impact of recent tariff increases. Operating income has also increased, reflecting effective cost management. The company's adjusted earnings before interest, taxes, depreciation, and amortisation (EBITDA) and adjusted earnings per share (EPS) have shown a positive trend, indicating a healthy financial performance.

Dividend and cash flow

The company has a consistent dividend policy, aiming for a payout ratio of 60%. It has a current quarterly dividend of 0.52 dollars per share, translating to an annual dividend of 2.08 dollars and a dividend yield of 2.65%. The development of free cash flow has been positive, allowing the company to fund its dividends, repay debt, and invest in strategic initiatives.

Competitor comparison

Kontoor Brands operates in a competitive market. Here is a comparison with two key competitors, Levi Strauss & Co. (LEVI) and VF Corporation (VFC).

• Growth: In 2024, Kontoor Brands had a revenue of 2.61 billion dollars, while Levi Strauss had a revenue of 6.36 billion dollars and VF Corporation had a revenue of 9.49 billion dollars. Kontoor Brands' forecasted revenue growth of 17% for 2025 is expected to outpace Levi Strauss's projected growth of 5.7% and VF Corporation's.
• Margins: Kontoor Brands has shown a net margin of 9.48%, which is higher than Levi Strauss's net margin of 8.21%.
• Valuation: Kontoor Brands has a price-to-earnings ratio of 17.29, which is more attractive than Levi Strauss's ratio of 21.70. This suggests that Kontoor Brands may be undervalued compared to its direct competitor.

Swot analysis

Strengths

• Strong brand recognition: The company's portfolio includes iconic brands like Wrangler and Lee, which have deep-rooted consumer loyalty.
• Solid financial performance: Despite recent market volatility, the company has maintained strong profitability and a healthy dividend policy.
• Diverse portfolio: The acquisition of Helly Hansen provides diversification beyond denim and a foothold in the growing outdoor apparel market.

Weaknesses

• Dependence on traditional denim: While the company is diversifying, a significant portion of its revenue still comes from a mature and competitive denim market.
• Slow adaptation to trends: The company's heritage brands can sometimes be slower to adapt to rapidly changing consumer fashion trends compared to direct-to-consumer (D2C) fast fashion rivals.
• High debt load: The recent acquisition of Helly Hansen has increased the company's debt, which could be a concern for investors.

Opportunities

• Emerging markets: Expansion into new and emerging markets, particularly in Asia, presents a significant growth opportunity.
• E-commerce and D2C: Further investment in its digital presence and direct-to-consumer channels can improve margins and customer relationships.
• Sustainability initiatives: Growing consumer demand for sustainable products can be a key driver for growth, with the company's focus on responsible sourcing and manufacturing.

Threats

• Intense competition: The company faces stiff competition from both traditional rivals like Levi Strauss and fast fashion players like H&M.
• Economic downturn: A general economic slowdown could negatively impact consumer spending on discretionary items like apparel.
• Raw material price volatility: Fluctuations in the price of cotton and other raw materials can affect the company's gross margins and profitability.

Sustainability and esg

Kontoor Brands has a stated commitment to environmental, social, and governance (ESG) factors. The company's sustainability strategy is built around four key pillars: People, Product, Planet, and Prosperity.

In terms of specific initiatives, Kontoor Brands has implemented a cotton fiber sourcing policy to ensure ethical and sustainable sourcing of its primary raw material. The company also focuses on reducing water and energy consumption in its manufacturing processes. On the social front, the company's global compliance principles ensure fair labor practices and human rights across its supply chain.

ESG factors are becoming increasingly relevant for investors and consumers. Many investors now use ESG ratings to evaluate a company's long-term risk and value creation potential. For consumers, especially those from Gen Z, a company's commitment to sustainability and ethical practices can be a decisive factor in their purchasing decisions.

Conclusion and perspective

Kontoor Brands is a company in a state of transition. While it has faced recent market volatility, its strategic moves and strong underlying financial performance suggest a resilient business model. The company's recovery from the February 2025 share price crash and its solid quarterly results indicate that its strategy, including the integration of Helly Hansen, is beginning to gain traction.

Based on this analysis, the Kontoor Brands share might be suitable for a value investor and dividend investor. The current valuation, with a lower price-to-earnings ratio compared to its competitors, suggests it could be an attractive investment for those seeking undervalued stocks with solid fundamentals. Additionally, its consistent dividend policy and healthy dividend yield make it appealing for investors looking for a stable income stream.

The key risks for the share include the successful integration of the Helly Hansen acquisition and potential challenges from a competitive market. The potential lies in the company's ability to diversify its brand portfolio and expand its market reach.

Disclaimer: This article is intended for informational purposes only and does not constitute financial or investment advice in any way. Investors should conduct their own comprehensive research and analysis before making any investment decisions.