BASIS OF PRESENTATION |
3 Months Ended |
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Apr. 04, 2026 | |
| Accounting Policies [Abstract] | |
| BASIS OF PRESENTATION | BASIS OF PRESENTATION Description of Business
Kontoor Brands, Inc. (collectively with its subsidiaries, "Kontoor," the "Company," "we," "us" or "our") is a global lifestyle apparel company, with a portfolio led by three of the world's most iconic consumer brands: Wrangler®, Lee® and Helly Hansen®. The Company designs, manufactures, procures, sells and licenses apparel, footwear and accessories, primarily under our brand names. Our products are sold in the United States ("U.S.") and internationally, primarily in the Europe, Middle East and Africa ("EMEA"), Asia-Pacific (“APAC”) and Non-U.S. Americas regions. We also license the use of our brands in certain regions.
The Company's products are sold through wholesale and direct-to-consumer channels, primarily through mass merchants, outdoor and sporting goods stores, specialty stores, department stores, Company-operated stores, concession retail stores, independently-operated partnership stores, business-to-business through our workwear and uniform businesses and online, including digital marketplaces. In China, our Helly Hansen® business is operated through a joint venture arrangement.
Planned Divestiture of the Lee® Business
The Company commenced a sale process of its global Lee® brand and associated business (the "Lee® business") during the first quarter of 2026, with an expectation of completing a transaction during fiscal 2026. At the end of the first quarter of 2026, the Company determined that the Lee® business met held-for-sale and discontinued operations accounting criteria. Accordingly, the assets and liabilities of the Lee® business are reported as held-for-sale in the Company's balance sheets for all periods presented. Additionally, the Company reported the Lee® business as discontinued operations in its statements of operations and statements of cash flows for all periods presented. Refer to Note 2 to the Company's financial statements in this Form 10-Q for additional information. The Lee® business was previously reported as a separate operating segment in our financial statements.
Sale of the Rock & Republic® Brand and Associated Business
On March 3, 2026, the Company completed a transaction to sell the Rock & Republic® brand and associated business. The Company determined that the divestiture of Rock & Republic® did not meet the discontinued operations accounting criteria and the results of Rock & Republic® are included in income from continuing operations through the date of disposition.
Acquisition of Helly Hansen
On May 31, 2025, we completed the acquisition of Helly Hansen (the "Acquisition"), and the results of operations have been included in the Company's financial statements since that date. Refer to Note 3 to the Company's financial statements in this Form 10-Q for additional information related to the Acquisition.
Fiscal Year
The Company operates and reports using a 52/53-week fiscal year ending on the Saturday closest to December 31 of each year. Accordingly, this Form 10-Q presents the first quarter of the Company's fiscal year ending January 2, 2027 ("fiscal 2026"), which is a 52-week fiscal year. For presentation purposes herein, all references to periods ended March 2026, December 2025 and March 2025 correspond to the fiscal periods ended April 4, 2026, January 3, 2026, and March 29, 2025, respectively.
Macroeconomic Environment
Global macroeconomic conditions that continued to impact the Company during the first quarter of 2026 included geopolitical impacts, global supply chain issues, inconsistent consumer demand, continued declines in interest rates, and ongoing fluctuations in foreign currency exchange rates and inflation. Broader macroeconomic impacts also influence consumer demand.
Geopolitical impacts arising from the U.S. - Iran conflict have increased uncertainty in global trade and transportation. Although we do not operate directly in the region of conflict, our supply chain and product availability are impacted by disruptions to shipping routes, higher freight, fuel and energy costs and delays at our suppliers in the production or movement of goods.
As discussed below, the U.S. government continues to enact significant changes to its tariff regime. The ongoing impact of tariff rate changes and uncertainty regarding the outcomes of trade negotiations is contributing to macroeconomic volatility.
The Company considered the impact of these developments on the assumptions and estimates used when preparing these quarterly financial statements including, but not limited to, our allowance for doubtful accounts, inventory valuations, liabilities for variable consideration, deferred tax valuation allowances, fair value measurements including asset impairment evaluations and purchase price allocation, the effectiveness of the Company's hedging instruments and expected compliance with all applicable financial covenants in our 2025 Credit Agreement (as defined in Note 10 to the Company's financial statements in this Form 10-Q). These assumptions and estimates may change as new events occur and additional information is obtained regarding the impact of the above conditions. Such future changes may have an adverse impact on the Company's results of operations, financial position and liquidity.
Other Recent Developments - U.S. Tariffs
During 2025 and at the beginning of 2026, the U.S. government enacted and continued to enact significant changes to its tariff regime which impacted rates on virtually all imports. In February 2026, the U.S. Supreme Court issued a ruling that tariffs imposed under the International Emergency Economic Powers Act ("IEEPA") on goods imported into the United States were unauthorized, effectively invalidating IEEPA tariffs that had been in effect since the second quarter of 2025. Immediately following the Supreme Court ruling, the U.S. government initiated new tariffs under Section 122 of the Trade Act ("Section 122 tariffs") which have been in effect since February 24, 2026.
In March 2026, the U.S. Court of International Trade ("CIT") issued an order directing U.S. Customs and Border Protection ("CBP") to process refunds of the IEEPA tariffs. In April 2026, the CBP released a new system to process IEEPA tariff refunds, allowing importers to submit refund claims. We believe it is probable that we will recover the IEEPA tariffs previously paid and have recognized a net receivable under the loss recovery accounting model of $53.7 million as of March 2026, on a consolidated basis. During the three months ended March 2026, we reduced cost of goods sold by approximately $49.0 million, representing the expense for IEEPA tariffs on inventory sold to customers since the tariffs were enacted in the second quarter of 2025. Additionally, we reduced the carrying value of inventory on hand as of March 2026 by $4.7 million for tariffs previously capitalized as cost of inventory. There continues to be uncertainty and legal challenges to current and proposed tariff regimes, including a ruling in May 2026 by the CIT that the new Section 122 tariffs are also invalid. We continue to monitor U.S. tariff-related developments.
Basis of Presentation - Interim Financial Statements
The accompanying unaudited interim financial statements have been prepared in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X and do not include all of the information and notes required by generally accepted accounting principles in the U.S. ("GAAP") for complete financial statements. In the opinion of management, the accompanying financial statements contain all normal and recurring adjustments necessary to fairly state the financial position, results of operations and cash flows of the Company for the interim periods presented. Operating results for the three months ended March 2026 are not necessarily indicative of results that may be expected for any other interim period or for fiscal 2026. The unaudited financial statements should be read in conjunction with the audited consolidated financial statements included in the Company's 2025 Annual Report on Form 10-K for the fiscal year ended January 3, 2026, as filed with the Securities and Exchange Commission on March 4, 2026 ("2025 Annual Report on Form 10-K").
Recently Adopted Accounting Standards
In July 2025, the FASB issued ASU 2025-05, "Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets," which introduces a practical expedient for all entities intended to reduce the cost and complexity of estimating credit losses for current accounts receivable and contract assets arising from transactions accounted for under ASC Topic 606, Revenue from Contracts with Customers. The guidance is effective for fiscal years beginning after December 15, 2025 and interim periods within those annual reporting periods. This guidance was adopted by the Company during the first quarter of 2026 and we elected the practical expedient, which allows the Company to utilize the current conditions as of the balance sheet date in estimating conditions over the remaining life of its current accounts receivable and contract assets. The adoption did not have a material impact on the Company’s financial statements.
Recently Issued Accounting Standards
In November 2024, the FASB issued ASU 2024-03, "Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses," and in January 2025, the FASB issued ASU 2025-01, "Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Clarifying the Effective Date." This guidance requires disclosure of detailed expense information, including inventory and manufacturing expense, employee compensation, depreciation and intangible asset amortization, for certain income statement line items. This guidance is effective for fiscal years beginning after December 15, 2026, and for interim periods beginning after December 15, 2027, with early adoption permitted. The Company does not expect that this ASU will have a material impact on its financial statements, but it will require increased disclosures within the notes to its financial statements.
In September 2025, the FASB issued ASU 2025-06, "Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software," which modernizes the accounting for internal-use software and increases the operability of the recognition guidance considering different methods of software development. The guidance is effective for fiscal years beginning after December 15, 2027, and interim periods within those annual reporting periods, with early adoption permitted. The Company is currently evaluating the impact that adoption of this guidance will have on its financial statements and disclosures.
In September 2025, the FASB issued ASU 2025-07, "Derivatives and Hedging (Topic 815) and Revenue from Contracts with Customers (Topic 606): Derivatives Scope Refinements and Scope Clarification," which clarifies the scope of derivative accounting for certain contracts. The guidance is effective for fiscal years beginning after December 15, 2026, and interim periods within those annual reporting periods, with early adoption permitted. The Company is currently evaluating the impact that adoption of this guidance will have on its financial statements and disclosures.
In November 2025, the FASB issued ASU 2025-09, "Derivatives and Hedging (Topic 815): Hedge Accounting Improvements," which includes targeted amendments to improve the clarity and operability of hedge accounting guidance and enhance consistency in the application of hedge accounting requirements. The guidance is effective for fiscal years beginning after December 15, 2026, and interim periods within those annual reporting periods, with early adoption permitted. The Company is currently evaluating the impact that adoption of this guidance will have on its financial statements and disclosures.
In December 2025, the FASB issued ASU 2025-11, "Interim Reporting (Topic 270)," which clarifies interim reporting disclosure requirements, improves the navigability of interim reporting guidance within the Codification and enhances consistency in the application of interim reporting standards. This amendment is intended to simplify the preparation and presentation of interim financial statements by consolidating existing guidance and eliminating inconsistencies. The guidance is effective for fiscal years beginning after December 15, 2027, and interim periods within those annual reporting periods, with early adoption permitted. The Company is currently evaluating the impact that adoption of this guidance will have on its financial statements and disclosures.
In December 2025, the FASB issued ASU 2025-12, "Codification Improvements," which includes targeted amendments to clarify and simplify various aspects of U.S. GAAP and improve consistency within the Codification. The amendments address a range of topics and are intended to eliminate inconsistencies, correct unintended application issues, and improve the clarity and usability of existing guidance. The guidance is effective for fiscal years beginning after December 15, 2026, and interim periods within those annual reporting periods, with early adoption permitted. The Company is currently evaluating the impact that adoption of this guidance will have on its financial statements and disclosures.
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