Unlock stock picks and a broker-level newsfeed that powers Wall Street.Upgrade Now
Kontoor Sees Initial $50 Million Impact From Tariffs on Mexico
Vicki M. Young
5 min read
While the implementation of tariffs on Mexican imports on March 4 remains uncertain, although still expected, Kontoor Brands Inc. is confident it can offset any potential impact in 2026.
Kontoor executive vice president and CFO Joseph A. Alkire on Tuesday told investors during an earnings conference call that 25 percent of its expected 2025 U.S. production volume originates from Mexico. He said the Wrangler and Lee parent has evaluated a range of potential outcomes and have a set of scenarios and mitigating actions should tariffs become more permanent.
“Should tariffs be implemented in March at the proposed 25 percent level on all imports from Mexico, the unmitigated impact to operating profit in 2025 is approximately $50 million,” Alkire said. That amount presumes no mitigating actions, such as transferring production within the company’s global supply chain or any pricing increases.
“We would expect the mitigated impact in 2025 to be below $50 million, and would work to largely offset any potential impact of tariffs more fully in 2026,” the CFO said. He noted that Kontoor has experienced supply chain shocks in the past, including cotton price spikes, supply chain and ocean freight disruption, as well as inflation. “While we are not immune to these events over a near-term window, we are confidence we can largely offset the impact of tariffs within a 12- to 18-month period,” Alkire said.
He also said that Kontoor’s China exposure is “immaterial.” That’s because the sourcing the company does from China is directly for China,” the CFO explained.
He also told investors that the company sees a “total run rate savings in excess of $100 million” for its Project Jeanius transformation program, with the expectations of a benefit of $30 million before reinvestment. The first half benefit will be centered on operations efficiencies, while the second half benefit will include added savings from supply chain initiatives that are expected to contribute to gross margin expansion.
“2024 was a banner year for Kontoor. We connected with more consumers in more categories, accelerated brand investments to drive market share gains, and initiated our Project Jeanius transformation,” Kontoor CEO Scott Baxter told investors. He emphasized that the company delivered on its “pivot to growth, expanded margins, and expanded” its capital allocation optionality. Baxter said that the company is operating “from a position of strength and executing at a high level.”
He also told investors and that while the retail backdrop has been uneven, consumers are choosing Kontoor’s brands. “We see this in the strength of our own digital business, which grew 11 percent for the year, including 16 percent growth in the fourth quarter,” Baxter said, noting Kontoor’s strengths are leading to stronger partnerships in the wholesale channel.
“In 2025, we are actively exploring shop-in-shops in key retailers that will elevate our presence and provide a greater experience for our consumers,” the CEO said, adding that the company has also made progress diversifying its business into new categories. He said that non-denim bottoms, tops and T-shirts grew mid-single digits in 2024 to one-third of global revenue. And Kontoor’s outdoor business grew at a mid-teens rate, helped by investments in product development and design.
Baxter also noted that consumers right now are “confused,” mostly due to worries about business, tariffs, potential layoffs, among other concerns. “Any time the consumer is feeling a little bit under attack like that, they get very conservative,” he said. “I think we’ll get through that. There’s a lot of noise in the system right now.”
Baxter told Wall Street analysts that “we’ve all been through these types of times,” adding that the most important thing Kontoor can do right now is “continue to grow these brands. We’ll continue to invest behind them, continue to talk to our consumers in a really sophisticated way.”
Last Thursday, Kontoor disclose that it inked a deal for its first acquisition, a $900 million transaction for the Norwegian outdoor and workwear brand Helly Hansen. The deal, which still requires regulatory approval, is expected to close in the second quarter.
As for its existing brands, the company said Wrangler brand global revenue rose 9 percent to $503 million for the year, helped by a U.S. revenue gain of 9 percent and international revenue for the brand up 7 percent. Lee brand global revenue fell 6 percent to $194 million. The Lee brand saw U.S. revenue decline 6 percent and international revenue slip 6 percent.
For the three months ended Dec. 28, 2024, net income fell 7 percent to $64 million, or $1.14 a diluted share, from net income of $68.8 million, or $1.21, in the same year-ago quarter. On an adjusted basis, earnings per share (EPS) was $1.38 for the quarter. Net sales were up 4.4 percent to $699.3 million from $669.8 million.
Wall Street was expecting adjusted EPS of $1.29 on revenue of $652.3 million.
For the year, net income rose 6.4 percent to $245.8 million, or $4.36 a diluted share, from net income of $231 million, or $4.06, in 2023. Net sales were flat at $2.61 billion.
The company said it expects adjusted EPS in the range of $5.20 to $5.30, on a revenue forecast in the range of $2.63 billion to $2.69 billion. The outlook excludes future contribution from the planned acquisition of Helly Hansen.
