Kontoor Brands, the apparel company behind Wrangler jeans and outdoor brand Helly Hansen, is facing a rough patch in US wholesale orders. But UBS analysts say the pain should be short-lived, and they see a clearer growth path ahead once the company completes its planned divestiture of the Lee brand.
In a note released Friday, UBS Securities argued that weakness in US wholesale channels is likely to fade. The bank also pointed to Kontoor's early guidance of at least $6.60 in earnings per share for 2027, which gives investors a concrete baseline for the company's medium-term plan.
What's behind the wholesale squeeze?
Wholesale refers to sales made to retailers and other third-party distributors, rather than directly to consumers through stores or websites. For apparel makers like Kontoor, wholesale orders can be volatile as retailers adjust their inventories based on demand forecasts. When retailers cut orders, it can hit a brand's revenue even if consumer demand remains steady.
UBS believes the current US wholesale pressure is a temporary blip, not a sign of deeper trouble. The bank's confidence appears tied to Kontoor's post-divestiture strategy, which will put more focus on Wrangler and continue expanding Helly Hansen, the Norwegian outdoor brand Kontoor acquired in 2018.
Helly Hansen has been a bright spot. UBS noted that its pro forma sales were up 8% year to date, and October sales beat management's expectations, helped by broader distribution and product expansion. That momentum suggests the brand is gaining traction beyond its traditional markets.
What UBS changed in its forecasts
UBS made a few adjustments to its numbers. It lifted its 2026 EPS estimate by 1%, kept 2027 unchanged, and cut 2028 by 3%. The 2028 cut reflects what the bank called a "reset" to the sales and expense base underlying those later years.
That mix explains the seemingly conflicting call: UBS lowered its price target to $125 from $136 but kept a buy rating. In other words, the bank is more confident about the near-term bridge, but a bit less optimistic about how steep the profit ramp looks once you get past 2027.
For everyday investors, this is a reminder that analyst price targets are not just about the next quarter. They reflect a view of a company's earnings power over several years. A small cut to a later-year estimate can weigh on valuation even if near-term numbers look fine.
What it means for investors
Apparel companies often trade on forward earnings, not just the next quarter or next year. So even though UBS didn't change its 2027 EPS view – and Kontoor's "at least $6.60" guide helps set expectations – shaving 2028 EPS by 3% can matter more to valuation.
The reason is simple: many valuation approaches, whether investors think in price-to-earnings multiples or discounted cash flow, put a lot of weight on profits expected further out. If the market starts to treat 2028 as a lower starting point because of that "reset," Kontoor can clear its 2027 bar and still find it hard to earn a higher valuation multiple.
That dynamic is not unique to Kontoor. Investors often see similar patterns across sectors, as seen in Qualcomm's data center bet, where near-term optimism is tempered by longer-term cost concerns. Likewise, Clorox's recent beat came with warnings about future cost pressures, showing how later-year estimates can influence sentiment.
For Kontoor, the key question is whether the company can deliver on its 2027 guidance and then continue growing. The Lee divestiture should simplify the business and free up resources for Wrangler and Helly Hansen. But the 2028 reset suggests UBS sees some limits to how fast profits can climb after that.
Investors should also keep an eye on broader economic signals. US services growth cooled in October, but price pressures remain sticky, which could affect consumer spending on apparel. If shoppers tighten their belts, even strong brands like Wrangler could feel the pinch.
Ultimately, UBS's call is a vote of confidence in Kontoor's near-term direction, but with a note of caution about the longer-term profit trajectory. For investors, the takeaway is to look beyond the headline price target and understand what assumptions are baked into it.
