By Thomas J. Ryan

<span style="color: #999999;">Champion’s revenues, excluding the C9 brand being phased out at Target, jumped more than 50 percent in the second quarter despite facing tougher comparisons. HanesBrands, Champion’s parent, said the marked the eighth consecutive quarter that Champion’s growth globally has been at or above 30 percent.

On a conference call with analysts, Gerald Evans, CEO, said Champion’s gains were driven by continued strength in both Champion innerwear and activewear products. The brand was expected to have a strong quarter but the more than 50 percent increase was 10 percentage points higher than internal expectations.

Evans said Champion has now exceeded expectations for two straight quarters and is seeing broad-based growth across geographies and across channels.

“We have great visibility to our second half bookings that are expected to be up double-digits globally,” said Evans about Champion. “And looking forward, we anticipate continued growth coming from expansion in current customers, as well as additional points of distribution. “

As an example of incremental distribution, Evans noted that in China, Champion added a second distribution partner that will accelerate the expansion of Champion branded stores and its online presence beginning in 2020.

Said Evans, “We believe we’re still in the early stages of Champion’s long-term growth opportunity. Based on our performance to date and our second half visibility, we expect global Champion sales excluding C9 to be in excess of $1.8 billion this year.”

In the quarter ended June 29, HanesBrand’s overall sales increased 2.7 percent to $1.76 billion. In constant currency, net sales increased 5 percent, the eighth consecutive quarter of organic constant-currency sales growth. Guidance had called for sales between $1.735 billion to $1.765 billion.

Second-quarter GAAP operating profit increased 6.3 percent to $234.0 million, ahead of guidance between $223 million and $233 million. Adjusted operating profit increased 1 percent to $247 million, at the upper end of guidance between $238 million and $248 million

On A GAAP basis, net earnings rose 9.5 percent to $154.0 million, or 42 cents a share, at the higher end of guidance between 40 and 42 cents. Adjusted earnings of 45 cents were the same as a year ago, again at the upper end of guidance between 43 and 45 cents.

Among its segments, U.S. Activewear’s second-quarter net sales increased more than 10 percent and operating profit increased nearly 20 percent. Operating margin increased 120 basis points to 15.3 percent.

The gains were led by Champion. The more than 50 percent growth was a result of strong sell-through, space expansion, new distribution and growth in the consumer-directed, bookstore and distributor channels. The brand’s mass business, C9 by Champion, also increased 8 percent on strong sell-through.

For the non-Champion portion of the segment, second-quarter sales declined, as expected, as the company exited the commodity-oriented business in the mass channel and continues to focus on remixing sales to improve profitability. The segments also include the Alternative and Gear for Sports brands as well as t-shirts, fleece and other non-innerwear items from Hanes, JMS/Just My Size and Hanes Beefy.

U.S. Innerwear segment net sales decreased 2 percent in the second quarter, while operating profit decreased 6 percent, in line with expectations. Sales of Innerwear basics decreased 2 percent in the quarter as expected. Sales of Innerwear intimates declined less than 3 percent in the quarter, improving sequentially from the first quarter. Intimates performance reflected continued double-digit growth for shapewear and progress in the company’s bra revitalization initiative.

International segment net sales increased 4 percent as reported and more than 10 percent in constant currency. Operating profit increased 6 percent as reported and 12 percent in constant currency. The segment’s operating margin increased 20 basis points to 14.3 percent on the strength of increased volume and integration synergies. The innerwear and activewear categories delivered growth internationally. Geographically, constant-currency sales increased by double-digits in Europe and Asia and high-single-digits in Australia.

<span style="color: #999999;">HanesBrands reiterated its guidance for the year.

Third-quarter guidance at the midpoint implies total sales growth of approximately 1.5 percent on a constant currency basis or up slightly on a reported basis. The activewear segment in the second half will be impacted by the planned wind-down of C9 and the exit of commodity programs in the mass channel. Adjusting for this, third-quarter guidance at the midpoint implies total company sales growth of approximately 3 percent and constant currency sales growth in excess of 4 percent.

With respect to segments, the midpoint of third-quarter revenue guidance assumes a 2 percent decline in US Innerwear segment unchanged from the prior outlook.

In U.S. Activewear, the midpoint of third-quarter guidance assumes revenue is consistent year-over-year, reflecting high-teens growth in Champion, excluding C9. For the remainder of the activewear segment, the guidance assumes a year-over-year decline of approximately 12 percent or $40 million. Adjusting for the wind-down of C9 and the exited businesses, third-quarter guidance implies activewear growth of over 8 percent.

In the international segment, the midpoint of guidance assumes reported sales growth of approximately 3.5 percent and constant currency sales growth approaching

GAAP operating profit is expected to be $264 million to $274 million, and adjusted operating profit is expected to be $276 million to $286 million. GAAP EPS is expected to be in the range of 49 cents to 52 cents, and adjusted EPS is expected to be between  52 cents and 55 cents.

“We believe we’re well-positioned for continued organic growth, as well as margin expansion,” said Evans. “We’ve got our price increases in place. We’re ahead of schedule on improving U.S. Activewear’s profitability as we remix to higher-margin products. And we expect to deliver additional synergies from our Australian acquisitions.”

Looking further ahead, Evans said the company remains on track with actions to reduce overhead within its Western Hemisphere supply chain network. As a result, HanesBrands believes it’s well-positioned to generate higher levels of operating cash flow. In the quarter, HanesBrands generated $137 million of cash flow from operations, which was more than double last year. HanesBrands is on track to deliver cash flow guidance, which at the midpoint reflects 17 percent growth over last year.

Photo courtesy Champion