“We had a great quarter with record earnings and strong margins,” commented Hanes Chairman and Chief Executive Officer Richard A. Noll. “Our brands are gaining share, our supply chain is generating savings, and our product innovations are creating value. Given our strong earnings momentum, we are raising our earnings guidance for both 2013 and 2014 despite a soft retail environment.”

Hanes has increased its full-year 2013 guidance for the second consecutive quarter, which now anticipates net sales of slightly more than $4.6 billion; adjusted operating profit of $580 million to $590 million; adjusted EPS of $3.75 to $3.85; and free cash flow of $475 million to $525 million.

Key accomplishments

The company’s Innovate-to-Elevate strategy, which combines brand power, supply chain savings and product innovation, helped drive both core-product and new-product success, resulting in share gains in the quarter. New products, including Hanes X-Temp underwear and socks, ComfortBlend underwear and Smart Size bras, are performing well.

All four of the company’s business segments earned double-digit operating margins in the quarter. The year-to-date operating margin of 13.3% is 480 basis points higher than the comparable period last year.

Innerwear segment

Innerwear operating profit in the quarter was comparable to last year in spite of the increased investment in media as planned and a net sales decrease of 3%. Segment operating margin of 17.8% improved over the same period last year. Sales decreased as a result of a negative retail back-to-school selling period, but net sales were comparable to a year ago for the year-to-date period.

The company’s brands gained market share during the back-to-school selling period and retail sell-through turned slightly positive for September after declines in the key August period. The August sell-through declines impacted company sales as retailers reduced orders to adjust inventories, leading to low single-digit declines in most Hanes Innerwear categories. Sales in the quarter increased for Hanes socks, Bali bras and panties, Polo underwear, and Hanes, Playtex and Just My Size bras.

Activewear Segment

The Activewear segment achieved another quarter of strong profitability on a 2% decrease in net sales. It delivered record profitability with an operating margin of 16.9% for the third quarter and 13.1% year to date. Retail activewear and Gear for Sports achieved double-digit operating margins.

Activewear net sales decreased by 2%, primarily as a result of planned declines in sales of lower-margin branded printwear products to screen-print wholesalers, which has totalled $24 million year to date. Year-to-date sales for Gear for Sports and Champion retail activewear have increased in the low single digits.

International Segment

On a constant-currency basis, International segment net sales increased by 10% and operating profit increased by 1% in the third quarter.

As reported, segment net sales were comparable to the year-ago quarter, while operating profit decreased by 6%.

Maidenform Integration

Hanes closed its acquisition of Maidenform Brands on 7 October this year, for approximately $583 million. The company will integrate Maidenform’s front-end, supply chain, and distribution/logistics operations into its existing organisation.

Hanes expects the acquisition to annually add more than $500 million to sales, $80 million to operating profit, $0.60 EPS, and $65 million to free cash flow within three years once full synergies, expected from selling, general and administrative savings, are achieved.

The majority of the corporate SG&A savings are anticipated to begin by the middle of 2014. Benefits of supply chain actions to cost of goods sold are expected to start in 2015 and be fully realised in 2016. Complementary revenue opportunities are expected to deliver benefits in late 2015, with the majority of the benefits coming in 2016.

2013 Guidance

Hanes has significantly increased its full-year guidance for operating profit in spite of a prudently cautious outlook for the holiday sales period. The company now expects net sales of slightly more than $4.6 billion, including Maidenform, compared with previous guidance of approximately $4.55 billion.

It also expects adjusted operating profit of $580 million to $590 million versus previous guidance of $550 million to $575 million; and adjusted EPS of $3.75 to $3.85, up from previous guidance of $3.50 to $3.65. Based on the full-year guidance, expectations for the fourth quarter are net sales of slightly more than $1.2 billion, adjusted operating profit of $137 million to $147 million, and adjusted EPS of $0.82 to $0.92.

“Our strong business model continues to create value, and we are eager to start delivering the benefits of the Maidenform acquisition,” Noll said. “We are confident in our guidance for 2013 and believe a reasonable EPS goal excluding actions for 2014 is $4.25 to $4.50.”

www.hanes.com