BASIS OF PRESENTATION |
6 Months Ended |
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Jul. 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. On May 20, 2026, the Company entered into a Stock Purchase Agreement (the "Purchase Agreement") with ABG-Storm LLC, a Delaware limited liability company, an affiliate of Authentic Brands Group ("Buyer"), to sell the Lee® business for $750.0 million in cash at closing with an additional $250.0 million earnout opportunity based on the future performance of the Lee® business over a five-year period. 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. Prior to the first quarter of 2026, the Lee® business was previously reported as a separate operating segment in our financial statements. Refer to Note 2 to the Company's financial statements in this Form 10-Q for additional information.
Sale of Assets of a Manufacturing Facility
During the three months ended June 2026, as part of the Company's Project Jeanius transformation program, we sold the assets of a manufacturing facility for a gain of $15.4 million which was recorded in "cost of goods sold" in the Company's statements of operations. Refer to Note 17 to the Company's financial statements in this Form 10-Q for additional information.
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 second 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 June 2026, December 2025 and June 2025 correspond to the fiscal periods ended July 4, 2026, January 3, 2026, and June 28, 2025, respectively.
Macroeconomic Environment
Global macroeconomic conditions that continued to impact the Company during the second quarter of 2026 included geopolitical impacts, global supply chain issues, inconsistent consumer demand and ongoing fluctuations in foreign currency exchange rates, interest rates and inflation. Broader macroeconomic impacts also continued to influence consumer demand.
Geopolitical tensions in the Middle East 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 commercial 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 tariff regime remains fluid. 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, 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
Beginning in 2025 and through 2026, the U.S. government 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 expired in July 2026 and have been replaced by new tariffs under Section 301 of the Trade Act.
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. In the first quarter of 2026, we concluded it was probable that we would recover the IEEPA tariffs previously paid and recognized a net receivable under the loss recovery accounting model of $53.7 million, on a consolidated basis. During the first quarter of 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. During the third quarter of 2026, the Company began to receive refunds and expects to collect all remaining amounts by the end of fiscal 2026. There continues to be uncertainty and legal challenges to current and prior tariff regimes, including a ruling in May 2026 by the CIT that the Section 122 tariffs are also invalid, which is under appeal by the U.S. government, along with an appeal of certain CIT orders related to the refund process for IEEPA tariffs. We continue to monitor U.S. tariff-related developments and ongoing legal proceedings.
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 and six months ended June 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 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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