Kontoor Brands is seeking to sell its denim business as the apparel company sharpens its focus on growth brands including Wrangler and Helly Hansen.
The company said Thursday it has already received significant interest from multiple potential buyers and expects a transaction to close this year. Lee has now been classified as a discontinued operation in Kontoor’s earnings reporting.
The move marks a major strategic shift for the company, which was spun out of VF Corporation in 2018 with Wrangler and Lee as its core denim brands.
CEO Scott Baxter said the decision followed extensive consumer research that found Lee no longer fit the company’s long-term strategic focus despite recent progress in the brand’s turnaround efforts.
“Our learnings confirmed the Lee brand sits outside of our strategic bullseye,” Baxter told analysts. “We are confident our go-forward resources are better utilized in our remaining brands.”
The announcement surprised some analysts because Lee had recently shown signs of improvement following restructuring initiatives, including the company’s “Project Jeanius” turnaround programme.
Lee generated $195 million in first-quarter revenue before being moved into discontinued operations.
Excluding Lee, Kontoor reported Q1 revenue growth of 45% year over year to $613 million, helped by the addition of Helly Hansen, which the company acquired last year for $957.5 million.
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Wrangler revenue rose 4% to $436 million during the quarter, while gross margin from continuing operations expanded 810 basis points to 53.7%.
Baxter said Wrangler is positioned to become a $5 billion brand during the 2030s as the company increases investment in underpenetrated categories including women’s apparel and direct-to-consumer channels.
Analysts at UBS said the Lee divestment could accelerate growth opportunities for both Wrangler and Helly Hansen, particularly as Helly Hansen expands distribution through Dick’s Sporting Goods House of Sport locations.
However, some analysts questioned the long-term growth potential of Helly Hansen itself. BNP Paribas analyst Laurent Vasilescu said the outdoor brand has shown limited growth in recent years and warned expectations around margin expansion may prove difficult to achieve.
Proceeds from the Lee sale are expected to be used primarily for share buybacks and debt reduction, according to company executives.
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