Q2 2025 Kontoor Brands Inc Earnings Call
Speaker #1: Greetings, and welcome to the Qontoor Brands second quarter 2025 earnings conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation.
Speaker #1: If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded.
Speaker #1: It is now my pleasure to introduce your host, Michael Carapidian, Vice President, Corporate Development and Enterprise Strategy and Investor Relations. Thank ou, sir. You may begin.
Speaker #2: Thank you, operator, and welcome to Qontoor 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.
Speaker #2: 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.
Speaker #2: 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 qontoorbrands.com.
Speaker #2: Reconciliations of gap 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.
Speaker #2: 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.
Speaker #2: Joining me on today's call are Qontoor Brands President, Chief Executive Officer, and Chairman Scott Baxter, and Chief Financial Officer and Global Head of Operations, Joe Alkire.
Speaker #2: Following our prepared remarks, we will open the call for questions. Scott?
Speaker #3: Thanks, Mike, and thank you all for joining us today. Our strong second quarter results exceeded expectations. Wrangler Growth Accelerated, the lead turnaround is on track, and Heli Hansen performed above plan.
Speaker #3: 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.
Speaker #3: Based 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.
Speaker #3: 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 Heli Hansen.
Speaker #3: 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.
Speaker #3: Supported by a strong product pipeline and accelerating order book. To build on this momentum, we are creating the investment roadmap to accelerate growth. We see significant opportunities in the US through a combination of wholesale and retail expansion as well as investments in product innovation, category expansion, and demand creation to increase brand awareness.
Speaker #3: Heli is also under-penetrated 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 Heli Hansen.
Speaker #3: The strong connection with the professional community has been a differentiator since its founding. These partnerships have made us number one in sailing, a global leader in ski apparel, and now provide a platform for expansion into outdoor.
Speaker #3: These platforms are driving the strength we see in the business today and into next year. Within Workwear, we are driving growth across three strategic categories: construction, high visibility, and footwear.
Speaker #3: 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 increase penetration in southern climates.
Speaker #3: 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.
Speaker #3: On the back end, we are leveraging our global platforms to drive greater scale and efficiency. While Heli 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.
Speaker #3: 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 has not yet included in our outlook.
Speaker #3: As we discussed last quarter, our value creation framework has now built on four pillars: accelerate growth, double Heli's operating margins, increase capital allocation optionality, and establish Qontoor as the employer of choice in the industry.
Speaker #3: 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.
Speaker #3: Revenue increased 7%, including 9% growth in the US and 16% growth in digital. Our female business continues to surpass expectations and we are in chase mode for many styles.
Speaker #3: Our investments in talent, product development, and demand creation are generating healthy returns. As an example, we spoke continues to be a tremendous success, driving strong digital growth while increasing our penetration and specialty retail.
Speaker #3: 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 Laney Wilson, who for the second year in a w won Entertainer of the ar, as well as awards for female artists and Album of the Year.
Speaker #3: 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.
Speaker #3: 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.
Speaker #3: 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.
Speaker #3: The team is executing on all fronts, and I am confident we will deliver a strong finish to the year. Turning to Lee, declines, sequentially, improved as our brand repositioning unfolds.
Speaker #3: Digital continues to lead the way. Our US 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.
Speaker #3: 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.
Speaker #3: Built on Lee's authority in 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.
Speaker #3: 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.
Speaker #3: We are being more deliberate within the US mid-tier and have identified growth opportunities that are a 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.
Speaker #3: Finally, as we announced last week, Tom Waldron will be leading Qontoor at the end of September. I would like to thank Tom for his contributions to Wrangler and Lee for almost 30 years.
Speaker #3: 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.
Speaker #3: Wrangler has significant momentum. Lee is on track, and the integration Heli 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.
Speaker #3: 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.
Speaker #3: 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.
Speaker #3: 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.
Speaker #3: Joe?
Speaker #4: 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.
Speaker #4: Now, let's iew our second quarter results. Global revenue increased 8%, including a $4.0 benefit from the contribution from Heli Hansen. By brand, Wrangler Global revenue increased 7%, in the US, revenue increased 9% driven by 16% growth in DTC and 8% growth in wholesale.
Speaker #4: 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.
Speaker #4: 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.
Speaker #4: Turning to Lee, global revenue decreased 6% and was in line with our expectations as the turnaround remains on track. US revenue decreased 5%, driven by a decline in wholesale, partially offset by 9% growth in digital.
Speaker #4: 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.
Speaker #4: 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 .
Speaker #4: 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.
Speaker #4: Now, turning to Heli Hansen. Global revenue of $29 million in June exceeded our outlook of $28 to $25 million. Sport and workwear revenue was $17 million and $9 million, respectively.
Speaker #4: On a standalone basis, Heli 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.
Speaker #4: Now, moving the remainder of the P&L. Adjusted gross margin expanded 120 basis points to $46.4%, driven by the benefits of project genius, lower input costs, and mix.
Speaker #4: In addition, Heli Hansen was a creative by about 20 basis points. We exceeded our gross margin plan due to earlier-than-expected benefits from project genius, a stronger gross margin contribution from Heli Hansen, and lower product costs.
Speaker #4: Adjusted SG&A expense was $206 million, up 6% compared to prior year. Excluding Heli Hansen, adjusted SG&A expense decreased 5%, driven by prudent management of discretionary expenses, project genius, and lower distribution and freight.
Speaker #4: Partially offset by investments in demand creation. We remain focused on expense management and driving further improvements in operating efficiency in line with environment. An adjusted earnings per share was $1.21, increasing 23% compared to prior year.
Speaker #4: Heli Hansen contributed a 12-cent loss per share compared to our outlook a 28-cent loss per share. Excluding Heli Hansen, adjusted EPS was $1.33, an increased 36% compared to prior year.
Speaker #4: Turning to the balance sheet, inventory increased 40% to $686 million. Excluding Heli Hansen, inventory decreased 1% to $482 million, as we continue to drive improvements in networking capital.
Speaker #4: Over the near term, we are focused on improving Heli'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.
Speaker #4: 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.
Speaker #4: We are pleased with the quality and composition our inventory and will continue to manage working capital prudently. Excluding Heli, 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 genius-related operational transitions within the supply chain.
Speaker #4: 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.
Speaker #4: On a pro forma basis, our net leverage ratio or net debt divided by trailing 12-month adjusted EBITDA was 2.5 times. 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 Heli Hansen.
Speaker #4: We now anticipate returning to approximately two times 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.
Speaker #4: 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.
Speaker #4: 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.
Speaker #4: 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.
Speaker #4: 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.
Speaker #4: 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.
Speaker #4: We expect trade policy continue to evolve and remain highly dynamic. That said, our supply chain is a competitive advantage. While we are immune from the impact of higher tariffs, we remain confident we can substantially offset the impact to the business within a 12 to 18-month period.
Speaker #4: Now, 's review our updated outlook. Full-year revenue is now expected to be in the range of $3.09 to $3.12 billion. Representing growth of 19 to 20% compared to our prior outlook of 17 to 19% growth.
Speaker #4: Heli 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.
Speaker #4: Excluding Heli 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.
Speaker #4: 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 year.
Speaker #4: This is consistent our prior outlook. For Heli 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.
Speaker #4: For the third quarter, we expect revenue of approximately $855 million, representing growth of 28%, including the expected contribution from Heli 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%.
Speaker #4: 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.
Speaker #4: 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 Heli Hansen and an incremental $15 million of demand creation and other investments relative to our prior outlook.
Speaker #4: 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.
Speaker #4: Our investment priorities are unchanged, and with the addition of Heli Hansen, we see significant opportunities to accelerate growth through geographic, category, and channel expansion.
Speaker #4: Excluding Heli, 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.
Speaker #4: We continue to anticipate project genius savings to mature to a full run rate in excess of $100 million in 2026. Adjusted EPS is now expected to be approximately $5 and 45 cents, representing an increase of 11%.
Speaker #4: This compares to our prior outlook in the range of $5 and 40 cents to $5.50. Our outlook now includes about a 20-cent impact from higher tariffs, an approximately 20 cents of incremental demand creation and other investments compared our prior outlook.
Speaker #4: Heli Hansen is expected to continue to benefit full-year 2025 adjusted EPS by approximately 20 cents, including the impact of higher tariffs, consistent with our prior outlook.
Speaker #4: 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.
Speaker #4: 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.
Speaker #4: Heli Hansen is expected to be break-even from an earnings standpoint, as strong accretion from the operations of the business is offset by acquisition-related interest expense.
Speaker #4: 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.
Speaker #4: Cash from operations is expected to exceed $375 million. Including contribution from Heli Hansen. This compares to our prior outlook for cash from operations to exceed $350 million.
Speaker #4: 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.
Speaker #4: Our teams are executing at a high level, and our expanded brand portfolio and strong operating model provide multiple paths to drive revenue and earnings growth.
Speaker #4: As we move into 2026, we expect our capital allocation optionality to be significant. Supported by strengthening cash flow, an accelerated debt repayment, while tariff headwinds will likely remain, we have multiple levers within our supply chain combined with scaling project genius savings to mitigate the impact to the business.
Speaker #4: We are operating from a position of strength, and I am confident we are on path to create significant value for our areholders in the years ahead.
Speaker #4: This concludes our prepared remarks. I will now turn the call back to the operator.
Speaker #1: Thank you. We will now be conducting a estion and answer session. If you would like ask a question, please press star one on your telephone keypad.
Speaker #1: A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue.
Speaker #1: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we pull for questions.
Speaker #1: Thank you. Our first question comes from a line of Ike Burochow with Wells Fargo. Please proceed your estion.
Speaker #5: Hey, good morning, everyone. Congrats on the good results. Two from me. I think both for Joe, but the first question is basically, Joe, you raised the Heli Hansen revenue to $455.
Speaker #5: Can you tell us what the EBIT contribution is? This fiscal year, and then just bigger picture, just on a could you obviously don't have a full year of this on an annualized basis.
Speaker #5: What is Heli currently run rating on revenue and EBIT?
Speaker #4: Yep. Hey, good morning, Ike. So when we announced the transaction, we highlighted about $680 million of revenue for Heli, and about $50 million of operating income.
Speaker #4: That really hasn't changed in terms of our expectations, but it's evolved a bit given the impact of tariffs, etc. I'd say when you look at our second half outlook and what's implied, we've got about $425 million of revenue assumed.
Speaker #4: 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 $32 cents of accretion implied in the second half, and that includes a pretty meaningful drag from the acquisition-related interest expense, right?
Speaker #4: So that will begin to abate as we move into '26.
Speaker #5: Got it. And then that was kind of my next question is just there's a lot moving pieces with the interest expense and your plan for debt down and half a year of Heli or 75% of a year of Heli.
Speaker #5: I guess it just might be pful, 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 Heli, 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?
Speaker #5: Because obviously, Heli 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?
Speaker #5: Just any puts and takes at a level would be great.
Speaker #4: Yep. So look, certainly appreciate the question given the moving pieces to the story. I'd say on Heli, big picture, we expect high single-digit growth over time.
Speaker #4: 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.
Speaker #4: And as we work more closely with that team, the list of synergies is growing. So that's how I would think about Heli. 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.
Speaker #4: I an, barring a major slowdown in the macro environment, we expect the organic business to grow next year. That'll be largely driven by Wrangler.
Speaker #4: 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.
Speaker #4: 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.
Speaker #4: But we've got more time to respond. We've got more levers to pull, and we'll do so accordingly. Certainly, project genius, you have those benefits scaling.
Speaker #4: We talked about approaching a full run rate as we move across 2026. And then you've got capital allocation regenerating a of cash. We're repaying debt more quickly.
Speaker #4: So again, we like where we are. We like our model. We've got a lot of optionality. To drive accelerated growth and return. So hopefully, that's pful.
Speaker #5: Thanks, Joe.
Speaker #1: Our next question comes from a line of Mauricio Sarno with UBS. Please proceed with your estion.
Speaker #6: Great. Good morning. Thanks for taking my question. I guess could you elaborate a little bit more on the cadence for the second half revenue growth?
Speaker #6: I think if you do the math, it's like 31% in the third quarter, and then it accelerates to, oh, well, yeah. So you're maintaining 30 and then it accelerates, sorry, it's like 28% and accelerates then to 38%.
Speaker #6: So just trying to understand what's driving that acceleration. And the fourth quarter, and then on Lee, could you elaborate a little bit more about, you know, you talked about some opportunities with distribution, and some actions in APAC to clean up like the, you know, the business.
Speaker #6: Maybe could you talk a little bit more about what's happening in that part of business? Thank ou.
Speaker #4: Joe, you want to take the first one, and then you I will do the second one?
Speaker #2: Sure, Scott. So Mauricio, yeah, 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.
Speaker #2: I'd say in terms of the fourth quarter waiting, there's really two things. We've a 53rd week in terms of the organic business, and Heli's business is more weighted toward the fourth quarter.
Speaker #2: As well. So that's really what's driving the Q3/Q4 cadence. Scott, you want to start with China, and then I'll I'll come behind you.
Speaker #3: Yeah, I can start with China. You know, 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.
Speaker #3: 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.
Speaker #3: So we really like team, and we really like the strategy that we have right there going forward right now. Joe?
Speaker #4: Yeah, Mauricio, we've been working on this for about 18 months to really reestablish the foundation in China for Lee. It's part of the brand's global approach to the turnaround.
Speaker #4: I'd say our results have improved over the past year, but certainly more work to be done in that market remains highly dynamic as you know.
Speaker #4: 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.
Speaker #4: So no change to the significant opportunity we see in China. Longer term, as Scott said, we've got strong team on the ground, I'd say we're more confident in our approach going forward than we've been in the last couple years.
Speaker #3: Then Mauricio, I'm ing to ask 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.
Speaker #3: The product looks really good. Here's the key, though. 're starting to see it from a digital standpoint where we touch the customer immediately. So you've seen our performance improve there.
Speaker #3: 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.
Speaker #3: It's really a good campaign. We're really pleased with it. We'll 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 ure.
Speaker #3: 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.
Speaker #3: So stay tuned. Much more of the story to come in the future. And we will make re that we keep you updated on all of it going forward.
Speaker #5: Got it. Very helpful. I just a quick follow-up on the tariff commentary. Maybe could you elaborate on the two of the initiatives that you're doing to mitigate particularly interested in hearing what you're doing in terms of transfer and production, like where are you moving things around?
Speaker #5: And I ink you've talked before you've talked about some selective price increases. What has been like the reaction or from consumers and from your wholesale partners from those pricing actions?
Speaker #5: Thank you.
Speaker #4: Joe, you ant to take the first one?
Speaker #3: I can second part.
Speaker #4: Yeah, 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 ike we're well prepared to respond to changes in the policy landscape.
Speaker #4: As well as the impact of tariffs. So we've mitigated all but 15 million or about 20 cents of the 25 impact pricing is a piece of that.
Speaker #4: 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.
Speaker #4: And we remain committed to that. So you know pricing is part of a holistic strategy moving production around as part of a holistic strategy you know we called out supplier partnerships, cost sharing, etc., other initiatives to just help minimize the impact here.
Speaker #4: And we've got a broader set of initiatives as we move into '26 that'll help us you know mitigate the impact to the business.
Speaker #3: Yeah, just Joe, good job, Joe. Just a quick comment. You know 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.
Speaker #3: So you look at the strength of Wrangler and it's you know just working with their consumer and you look at the ength of Heli Hansen and our latest acquisitions.
Speaker #3: 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.
Speaker #3: So we're being real strategic about it and real smart about it. And Joe, talked a little bit about how we're ing 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.
Speaker #3: I feel really good about where we are right .
Speaker #5: Great. Thanks so much.
Speaker #1: Our next question comes from a line of Paul Carney with Barclays. Please proceed with your estion.
Speaker #6: Good morning. Thanks for taking my question. Sorry, but just to clarifying question on the tariff impact. So the press release cites a $30 million tariff impact.
Speaker #6: 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?
Speaker #6: 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 le to fully mitigate that impact?
Speaker #6: Thank you.
Speaker #4: Hey, Paul. Good morning. Scott, I'll take this one. So the $30 million that we called out in release that's now included in the outlook, there are two pieces to that.
Speaker #4: 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.
Speaker #4: 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.
Speaker #4: 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're now we now have a 20% reciprocal rate, but our mitigating actions are now fully embedded.
Speaker #4: So the net of all that is a $15 million impact to 2025.
Speaker #6: Great. Thank ou. 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?
Speaker #6: How are they managing inventory levels in the channel and just anything that you can add for the outlook for the remainder of your own Wrangler?
Speaker #6: Thank ou.
Speaker #5: 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.
Speaker #5: You know, from a coordination effort around our brand, around product, around our marketing campaigns, around the folks that we're working with, like Eleni Wilson, our interactions and our conversations with our customer are really significantly great right now.
Speaker #5: 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 is complemented a strong men's business that we've had for a very long time.
Speaker #5: We've introduced some things that have just exceeded our expectations, like bespoke, because the product is just so good and it's just resonating, you know, with females around the country.
Speaker #5: So we're in a really od position there. Western is doing really well. You know, it's a lifestyle. And it's a lifestyle that's here to stay.
Speaker #5: And it's, you know, continuing to thrive. And we're really investing in that culture through rodeos and things like that in some of our entertainers.
Speaker #5: 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 in really, in a really good place right now.
Speaker #5: Joe, anything to add?
Speaker #4: Yeah, Paul, 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.
Speaker #4: 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 en that strength continue into July.
Speaker #4: And that's after our pricing went into effect. And you know, to Scott's point, the growth has been fairly broad-based. It's been wholesale. It's been D2C.
Speaker #4: It's been female, etc. So we're in a really, really good place with the Wrangler brand as we move into the second half.
Speaker #5: Appreciate the answers. Best of luck. Thank you.
Speaker #3: Thanks, Paul.
Speaker #1: Our next question comes from a line of Peter McGoldrick with Steeple. Please proceed with your estion.
Speaker #7: Hey, thanks for taking my question. I'm interested in the Heli Hansen opportunity as you begin the integration process. I'm ious what you're seeing today, relative to at the beginning of the acquisition process.
Speaker #7: Are there any parts of the business where ou feel better about the tangibility of growth or profitability opportunities?
Speaker #3: Yeah. So I'll go head and start, Peter. You know, 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.
Speaker #3: So you ow we bought a great brand with a really good business model, with a really nice opportunity. And one of the strategic, you know, reasons that we bought the brand is because there was a big North American opportunity.
Speaker #3: And we know the business. And we think there's big outdoor business. But when you go into these, and you have to really get the culture right.
Speaker #3: And one of the things that's been really important to us is make sure that our two cultures are working together. And I've been blown away by culture at HH and how it fit our culture and how well they're working together.
Speaker #3: I got to tell ou, I'm really impressed with the talent that Heli Hansen, how easy these folks are to work with, how quickly they get it, and how our two businesses have emerged together in a very, very short period of time.
Speaker #3: We've got really good product coming out. And there's a big opportunity here from an outdoor standpoint, from a workforce standpoint, from a footwear standpoint, and we think we can get after that in a pretty elegant way going forward.
Speaker #3: 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.
Speaker #3: 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.
Speaker #3: And we'll 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.
Speaker #3: 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 plus.
Speaker #3: From all the different ones that I've done in my long career. Joe?
Speaker #4: Yeah, Peter, I think just in terms of growth and the building blocks, I mean, we've got high single-digit growth in the back half. It's fairly broad-based.
Speaker #4: 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.
Speaker #4: 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.
Speaker #4: Just as we begin to work more closely with that team and the discipline and rigor we're going put around the planning process, the inventory, you ow, process, etc.
Speaker #4: 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?
Speaker #4: So that growth will come at a really accretive rate as we move forward.
Speaker #7: All right. Thank you. And then just thinking about the opportunities in domestic market, I'm curious how we should think of the expanding domestic representation.
Speaker #7: Where will the consumer see Heli 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 and new distribution?
Speaker #3: 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 with from a digital standpoint here domestically.
Speaker #3: And '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 help them with.
Speaker #3: 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.
Speaker #3: 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 in sport and the current business that they have in sailing.
Speaker #3: 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.
Speaker #3: And you'll see us continue to go head and invest on the mountain because we think on the mountain is going to bring us, you ow, a lot of halo effect going down.
Speaker #3: So we kind of have a of opportunities in a few different spaces where we need to go head and invest and prioritize in those.
Speaker #3: But I think the single most important thing is we see years of opportunity and years of growth. And that is, again, why we made the acquisition.
Speaker #3: Now, the other interesting part about this business is the workwear piece of this business, which has a minimal impact here in the US. But we think there's incredible innovation in the workwear business globally that we haven't seen here in the United States.
Speaker #3: And Heli is going 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 the footprint standpoint there also.
Speaker #3: Leading with really innovative and technology-innovative type products. So, lots to come, but a really nice opportunity here domestically going forward for a long time.
Speaker #7: Thank ou very much.
Speaker #3: You bet.
Speaker #1: Our next question comes from Brook Roach with Goldman Sachs. Please proceed with your question.
Speaker #8: Good morning and thank ou for taking our estion. 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 Heli Hansen and the results that you expect to drive as you make those investments.
Speaker #3: 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.
Speaker #3: And you're going to e us continue in the next few years to invest more money behind that big engine and that big, big machine.
Speaker #3: And I'll tell you why. It's ally simple. We believe in people that are doing it. They're doing an excellent job. They're making really great choices.
Speaker #3: Laney Wilson's a at 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.
Speaker #3: And 's helping us to drive our business. So we're going to go ahead and continue to invest in there. Now, I will tell you, we haven't done as good a ob as we need to from a lead perspective.
Speaker #3: But we're starting that. We are kicking off. And it's ally interesting. We're kicking off a huge campaign. Haven't done that in a very long time.
Speaker #3: You know, shame on us. But now we're going to do . And we've got the product to back it up. So that's what took so long.
Speaker #3: When you think about these big turnarounds that happen, you have to put all those components and pieces in place a year, a year and a half ago.
Speaker #3: So ou've got to build your product engine and sophisticated way. You've got to put the team, you ow, in place. You've got to start thinking about your distribution.
Speaker #3: You've to think about where you're going to place your bets. So we've one all that work. And now the team is put some really good work into the equity campaign.
Speaker #3: 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.
Speaker #3: And then it's 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.
Speaker #3: From a marketing standpoint, and we're seeing the customer really, you know, attract that. So that's been really important. And then we really like what Heli has done.
Speaker #3: From the standpoint of the European and Canadian markets, you know, 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.
Speaker #3: 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.
Speaker #3: It's an enviable position to be in to be able to invest back in your businesses during these times.
Speaker #8: That's really great. Thank you.
Speaker #7: From a brook, 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.
Speaker #7: We're doing that very deliberately. In front of the important holiday season.
Speaker #8: 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?
Speaker #4: Yeah, Brook, our growth for the core business in the second half is approximately 2% 3%. The big drivers of that are the 53rd week as well as the new programs in the distribution that we've talked .
Speaker #4: From an underlying POS inventory perspective, we really en't assumed any change relative to where we've been. And you know, July, July was has been running ahead of those assumptions.
Speaker #4: So we have assumed a moderation August into September. We just, you know, we're a ittle cautious here on the consumer.
Speaker #8: Great. Thanks so much. I'll pass it on.
Speaker #3: Thanks, Brook.
Speaker #1: Our next question comes from a line of Laurent, Vasilescu, with PMP Baropass. Please proceed with your estion.
Speaker #9: Good morning. Thank you very much for taking my question. I wanted to ask, Joe, what is the Heli Hansen revenue contribution for the third quarter?
Speaker #9: so that we can actually calculate the organics for 3Q. Thank you.
Speaker #4: Yep. Hey, Laurent. I would think of something in that $175 million kind of range.
Speaker #3: Okay. Thank ou very much, Joe. And then Joe, we've seen a lot of vendors so far report and see report kind of shift from 3Q into 2Q, which makes sense, ahead of August tariffs.
Speaker #3: Curious to know if you saw any shift from 3Q to 2Q because you have a large US wholesale business.
Speaker #4: Yep. 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.
Speaker #4: 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.
Speaker #3: Okay. Thank you very much. And then last question is, FX has moved quite a lot as of late. Should we assume? I think it's like 1% to 2.5% benefit from FX relative to 90 days ago, particularly, I think what I'd like to, you know, really hone in on is just like Heli Hansen.
Speaker #3: You could disclose it's 60% Europe. Just like to understand what is the FX gain on a full year for the guide relative to what 90 days ago?
Speaker #4: Yep. So on a combined basis, currency is not not a material impact. We've been helped a little bit on the translation side. That's mostly Heli-related.
Speaker #4: 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 Heli outlook is currency.
Speaker #4: But we've also seen a strengthening in s of the underlying business profile.
Speaker #3: That's great. Thank you so much for all the color. And best of luck with the rest of the quarter.
Speaker #4: Thanks, Brook. Thanks, Laurent.
Speaker #3: Thanks, Laurent.
Speaker #1: Thank you. We have no further questions at this time. Mr. Baxter, I’d like to turn the floor back over to you for closing comments.
Speaker #3: Thank ou. I just wanted to say thank ou to everyone. Thank you to team. We had a great quarter. We're working really hard. It's heads down.
Speaker #3: Drive in 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.
Speaker #3: We greatly appreciate it. Have a nice day, everyone. Thanks.