HanesBrands, a leading marketer of everyday basic apparel under world-class brands, has reported net sales growth of 4% to US$ 1.72 billion versus a guidance range of US$ 1.7 billion to US$ 1.725 billion for the quarter that ended on 30 June 2018. The company’s net income for the same period was US$ 140,633, compared to US$ 172,532 for the same quarter last year, showing a 18.5% decrease.

GAAP operating profit of US$ 220 million and adjusted operating profit excluding actions of US$ 245 million each decreased by 6%, the midpoint of guidance for each. “Our results for the second-quarter were consistent with our guidance and the year is unfolding as we expected,” said Hanes CEO Gerald W. Evans Jr.

“We achieved organic growth for the fourth consecutive quarter with strong international and global Champion sales growth. We continue to address the challenging environment for intimate apparel and expect our turn-around plan to gain additional traction by the end of the year. Our cash flow from operations of US$ 64 million in the second quarter was ahead of our expectations and the outlook is strong. We continue to expect margin expansion in the second half, primarily driven by additional acquisition synergies and organic sales growth.”

Key results

The diversification of Hanes’ global business model continued to support the company’s execution of its Sell More, Spend Less and Generate Cash strategies in the second quarter and is expected to contribute to second-half improvement.

Contributors to net sales growth in the quarter included acquisition contributions, widespread global Champion strength, and increased consumer-directed sales. Net sales for Bras N Things, acquired in February 2018, and Alternative Apparel, acquired in October 2017, totalled nearly US$ 52 million in the quarter. Champion sales increased in all geographies.

Constant-currency organic sales, which exclude sales from acquisitions under a year old and the effects of changes in currency exchange rates, increased slightly, beating company projection of a slight decrease. In addition to global Champion growth, organic growth benefited from innerwear increases in US basics, the Americas, and Australia. The company expects to deliver higher levels of organic growth in the second half as a result of continued execution of strategic growth initiatives, continued product innovation success, back-to-school alignment with key US retailers, and action plans to stabilize the Innerwear segment’s US intimate apparel business.

Similarly to the first quarter, second-quarter operating profit was affected by input-cost inflation and expected increased expenses for investment in brand building and temporary distribution inefficiencies. Those factors offset benefits from acquisition synergies and strong International segment operating profit growth. The company expects a return to margin expansion in the second half as a result of additional acquisition synergies and accelerated organic sales growth.

Business segments

US Innerwear segment sales decreased by 3%, while operating profit decreased by 10%. Sales of Innerwear basics increased slightly as point-of-sale trends improved, men’s underwear sales increased, and women’s underwear returned to growth. Innerwear Intimates sales decreased in the quarter, although progress was made on key aspects of the company’s plan to stabilise the business and then return to growth.

US Activewear segment sales increased by 7%, including a 1.5% increase in organic sales fuelled by growth of Champion and the licensed sports apparel business. Segment operating profit decreased by 3% due to higher raw material costs, start-up manufacturing inefficiencies, and temporary distribution costs. The acquisition of Alternative Apparel contributed US$ 20 million in sales. Champion sales increased more than 70% outside the mass channel.

Long-term Champion outlook

HanesBrands announced that the company and Target Corporation will not renew their contract for an exclusive line of C9 by Champion activewear apparel when the current contract expires at the end of January 2020.

“The C9 by Champion programme at Target is a mature programme after 15 successful years,” said Evans. “Overall, Champion has significant momentum in all geographies globally, and we will continue to focus on growth across our Champion portfolio through expanded geographic penetration, product lines and distribution channels, including online and retail. Our core Champion sales in constant currency increased more than 30% globally in the first half of 2018.”

The C9 programme is fully booked for 2018 and the conclusion of the contract is not expected to have a meaningful effect on the company’s outlook for 2019. In the past 12 months, the company generated approximately US$ 380 million in C9 by Champion activewear sales.

www.hanes.com