Kontoor Brands (KTB)

Clothing company Kontoor Brands (NYSE:KTB) met Wall Streets revenue expectations in Q3 CY2025, with sales up 27.3% year on year to $853.2 million. The company’s outlook for the full year was close to analysts’ estimates with revenue guided to $3.11 billion at the midpoint. Its non-GAAP profit of $1.44 per share was 3.2% above analysts’ consensus estimates.

Company Overview

Founded in 2019 after separating from VF Corporation, Kontoor Brands (NYSE:KTB) is a clothing company known for its high-quality denim products.

Thanks to social media and the internet, not only are styles changing more frequently today than in decades past but also consumers are shifting the way they buy their goods, favoring omnichannel and e-commerce experiences. Some apparel and accessories companies have made concerted efforts to adapt while those who are slower to move may fall behind.

Kontoor Brands competes with other major apparel companies including Levi Strauss & Co. (NYSE:LEVI), VF Corporation (NYSE:VFC) which owns Vans and The North Face, PVH Corp. (NYSE:PVH) which owns Calvin Klein and Tommy Hilfiger, and Gap Inc. (NYSE:GPS) with its Old Navy and Gap brands.

A company’s long-term performance is an indicator of its overall quality. Any business can have short-term success, but a top-tier one grows for years. Unfortunately, Kontoor Brands’s 6.3% annualized revenue growth over the last five years was sluggish. This was below our standard for the consumer discretionary sector and is a poor baseline for our analysis.

We at StockStory place the most emphasis on long-term growth, but within consumer discretionary, a stretched historical view may miss a company riding a successful new product or trend. Kontoor Brands’s recent performance shows its demand has slowed as its annualized revenue growth of 3% over the last two years was below its five-year trend.

We can dig further into the company’s sales dynamics by analyzing its constant currency revenue, which excludes currency movements that are outside their control and not indicative of demand. Over the last two years, its constant currency sales averaged 3.1% year-on-year growth. Because this number aligns with its normal revenue growth, we can see that Kontoor Brands has properly hedged its foreign currency exposure.

This quarter, Kontoor Brands’s year-on-year revenue growth of 27.3% was excellent, and its $853.2 million of revenue was in line with Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 21.2% over the next 12 months, an improvement versus the last two years. This projection is admirable and indicates its newer products and services will fuel better top-line performance.

Kontoor Brands’s operating margin has shrunk over the last 12 months, but it still averaged 11.7% over the last two years, decent for a consumer discretionary business. This shows it generally does a decent job managing its expenses.

In Q3, Kontoor Brands generated an operating margin profit margin of 7.5%, down 7.2 percentage points year on year. This contraction shows it was less efficient because its expenses grew faster than its revenue.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Kontoor Brands’s EPS grew at a remarkable 17.4% compounded annual growth rate over the last five years, higher than its 6.3% annualized revenue growth. However, this alone doesn’t tell us much about its business quality because its operating margin didn’t improve.

In Q3, Kontoor Brands reported adjusted EPS of $1.44, up from $1.37 in the same quarter last year. This print beat analysts’ estimates by 3.2%. Over the next 12 months, Wall Street expects Kontoor Brands’s full-year EPS of $5.23 to grow 11.2%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Kontoor Brands has shown impressive cash profitability, giving it the option to reinvest or return capital to investors. The company’s free cash flow margin averaged 13% over the last two years, better than the broader consumer discretionary sector.

Kontoor Brands’s free cash flow clocked in at $54.9 million in Q3, equivalent to a 6.4% margin. The company’s cash profitability regressed as it was 12.9 percentage points lower than in the same quarter last year, prompting us to pay closer attention. Short-term fluctuations typically aren’t a big deal because investment needs can be seasonal, but we’ll be watching to see if the trend extrapolates into future quarters.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Although Kontoor Brands hasn’t been the highest-quality company lately because of its poor top-line performance, it found a few growth initiatives in the past that worked out wonderfully. Its five-year average ROIC was 25.8%, splendid for a consumer discretionary business.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, Kontoor Brands’s ROIC averaged 5 percentage point decreases each year. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.

Kontoor Brands reported $82.43 million of cash and $1.5 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $458.1 million of EBITDA over the last 12 months, we view Kontoor Brands’s 3.1× net-debt-to-EBITDA ratio as safe. We also see its $42.41 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

It was encouraging to see Kontoor Brands beat analysts’ EBITDA expectations this quarter. We were also glad its EPS outperformed Wall Street’s estimates. On the other hand, its constant currency revenue was in line and its revenue was in line with Wall Street’s estimates. Zooming out, we think this was a mixed quarter. The stock traded up 1.7% to $82.35 immediately following the results.

Updated: December 4, 2025 at 9:53 PM EST

Before making an investment decision, investors should account for Kontoor Brands’s business fundamentals and valuation in addition to what happened in the latest quarter.

We see the value of companies helping consumers, but in the case of Kontoor Brands, we’re out. For starters, its revenue growth was weak over the last five years. On top of that, Kontoor Brands’s constant currency sales performance has disappointed, and its low free cash flow margins give it little breathing room.

Kontoor Brands’s P/E ratio based on the next 12 months is 13.3x. This valuation multiple is fair, but we don’t have much confidence in the company. There are more exciting stocks to buy at the moment.

Wall Street analysts have a consensus one-year price target of $91.50 on the company (compared to the current share price of $75.51).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.