Kontoor Brands plans to direct $400 million of proceeds from the proposed sale of Lee into an accelerated share repurchase as the company works to offset the earnings impact of divesting the iconic denim brand while increasing capital returns to shareholders.
The Lee divestiture remains on track to close during the fourth quarter. Following completion of the transaction, Kontoor intends to enter into a $400 million accelerated share repurchase agreement, allowing the company to retire a significant amount of stock relatively quickly rather than conducting repurchases gradually in the open market.
Kontoor plans to use the remaining proceeds from the Lee sale for voluntary debt repayments. The combination of share repurchases and debt reduction is designed to reshape the company’s capital structure following the divestiture while returning a substantial portion of the transaction proceeds to shareholders.
The company now expects more than $900 million of total capital deployment during 2026 through share repurchases, dividends and debt reduction. That level of deployment reflects management’s confidence in the company’s cash generation and long-term strategy following the planned separation of Lee.
A major objective is to limit the effect of the divestiture on Kontoor’s earnings per share. Management expects the sale of Lee to be immaterial to EPS over a 12-to-18-month period as it uses transaction proceeds for share repurchases and takes actions to eliminate costs that were previously allocated to Lee.
Reducing the number of outstanding shares through the accelerated repurchase can help offset the loss of earnings associated with the divested business by spreading Kontoor’s remaining net income across fewer shares. Debt repayment can also reduce future interest expense, providing another source of potential earnings support.
Kontoor is additionally reviewing overhead and other expenses associated with Lee. Management intends to reduce stranded costs that would otherwise remain within the company after the brand is sold, helping ensure that the post-divestiture cost structure is appropriate for the remaining business.
The capital allocation plan comes as Kontoor raises its financial outlook for 2026. Second-quarter continuing-operations revenue increased 19% to $584 million, demonstrating continued growth across the businesses that will remain with the company following the Lee transaction.
Margins also improved sharply. Adjusted gross margin expanded 710 basis points to 53.8%, while adjusted EPS increased 13% to $1.06. Kontoor now expects full-year adjusted EPS of $5.25 to $5.35.
The improved outlook gives the company additional flexibility as it prepares for the portfolio transition. By combining stronger underlying operating performance with an accelerated repurchase, debt reduction and cost actions, Kontoor is seeking to minimize near-term earnings dilution while concentrating resources on its remaining brands and growth opportunities.
KEY QUOTES:
“With the Lee divestiture on track to close in the fourth quarter, we intend to deploy $400 million of the expected proceeds into an Accelerated Share Repurchase agreement based on the confidence we have in our long-term strategy and value creation potential.”
Joe Alkire, President and Chief Financial Officer of Kontoor Brands
