$31.00
$87.00
bear $31.00
base $68.00
bull $87.00
margin of safety $38.00
market price* $73.28
Kontoor Brands owns three apparel brands: Wrangler (79 years old), Lee (137 years) and, since May 31, 2025, Helly Hansen and Musto (Helly Hansen is 149 years old), a premium outdoor, sailing and workwear business bought for about US$957.5 million. Products are sold wholesale and direct-to-consumer, mainly in the United States and also in Europe, the Middle East and Africa, Asia-Pacific and the non-U.S. Americas, with some licensing. Walmart alone was 30% of revenue in 2023, 2024 and 2025, and the ten largest customers were 53% of 2025 revenue. What we measure: cash from operations, less the cash swings in working capital (receivables, inventory, payables, taxes), less stock compensation as a real cost, less only the capital spending needed to stand still. On that basis, owner earnings per share were $4.02 (2021), $4.65 (2022), $4.26 (2023), $4.68 (2024) and $4.77 (2025). We use the median, $4.65, as the earnings level. Earlier years are excluded: 2019 cash flow was inflated by a one-time $532.2 million settlement with the former parent at the spin-off, and 2020 (revenue down 18% to $2.10 billion) carried non-cash charges we could not fully reconcile. Revenue was flat from 2022 to 2024 ($2.63 billion, $2.61 billion, $2.61 billion), so nearly all capital spending (about 0.8% of revenue) is treated as maintenance. Growth: owner earnings per share rose 2% in 2025 ($4.68 to $4.77), and we assume no growth in any case. The brands have not shown a steady, self-funded expansion pattern, and Helly Hansen's hoped-for growth in outdoor, footwear and workwear, and management's expansion goals, have not happened yet, so they are left out. The 2025 figures include only seven months of Helly Hansen, and new borrowing of about $400 million lifted long-term debt to $1.14 billion (from $740 million); interest is already inside the cash flow. First-half 2026 net income of $157 million versus $117 million a year earlier is encouraging, but the second quarter was lower than the prior year ($65 million versus $74 million), so we do not yet raise the earnings level. Base case, about $68 a share: owner earnings hold at $4.65 for 25 years, then fade evenly to zero over the following 25 years. What supports the long run is the age and continuity of the brands, which have kept selling through a weak year: in 2020, net income fell 30% (to $68 million from $97 million) on 18% lower revenue, then recovered to $195 million in 2021.
Bear case, about $31 a share: Walmart, 30% of revenue, cuts volume or forces price concessions, and the debt taken on for Helly Hansen absorbs cash, so owner earnings settle near $3.00 for ten years and then fade to zero over the next fifteen.
Bull case, about $87 a share: a full year of Helly Hansen and the first-half 2026 profit pace lift owner earnings to $6.00, held for 25 years and then faded to zero over 25 years; no further growth is credited. We tested the base case against customer concentration: because one customer is 30% of revenue, the bear case is set well below the base case. What would prove this wrong: loss of Walmart or Target shelf space, or weaker Helly Hansen results than the seven months reported so far.