<span style="color: #9c9c9c;">Champion’s sales declined 9 percent year-over-year in the third quarter. The shortfall was traced primarily to the brand’s Sports Apparel business where COVID-19-related headwinds essentially shut down sporting events and business at college bookstores.

Excluding Sports Apparel, Champion’s sales would have been down 2 percent, said Steve Bratspies, the new CEO of HanesBrands, Champion’s parent, on a conference call with analysts.

Champion was also impacted by COVID-19-driven supply challenges in the quarter. Excluding both the supply chain issues and the Sports Apparel category, Champion sales increased over the prior year.

Bratspies noted that sequentially, Champion’s sales surged nearly 130 percent from Q220 when the coronavirus weighed heavily on retail sell-throughs due to store closures. He expressed confidence in the strong future growth potential for one of the hottest brands in the active lifestyle space prior to the pandemic.

“We expect supply challenges to improve in the fourth quarter and with global Spring/Summer 2021 bookings up over 2019 levels, we expect Champion’s momentum to carry into next year,” he said. “Looking forward, I’m excited and confident in Champion’s global potential. There’s a lot of opportunity for growth over the next several years.”

Champion’s U.S. Activewear Sales Slump 27 Percent Year-Over-Year
Within the U.S. activewear segment, sales of the Champion brand increased sequentially 85 percent from the second quarter driven by strong POS trends and continued online growth. Compared to last year, Champion’s activewear sales declined 27 percent with the vast majority of the decline due to the COVID-19-challenged Sports Apparel business.

Scott Lewis, chief accounting officer and interim CFO, said, “Despite the challenges in Sports Apparel, we continue to expect sequential improvement in Champions revenue trends in the fourth quarter driven by continued point-of-sale growth in key channels and online, as well as improved product availability.”

Overall, HanesBrand’s U.S. Activewear segment’s revenue declined 27.1 percent to $324.9 million. The segment includes the activewear business of Champion, Hanes, JMS/Just My Size, Hanes Beefy-T, the Alternative, and Gear for Sports brands.

Year-ago sales were rebased for the exit of the C9 Champion program from Target with the phase-out completed earlier this year. Including C9 Champion in the year-ago period, U.S. Activewear sales declined 41 percent.

U.S. Activewear’s operating profits in the segment fell 59.9 percent to $29,6 million, or 9.1 percent of sales, from $73.7 million, or 16.5 percent, a year ago. As expected, Activewear’s margin declined due to the timing of negative manufacturing variances, inventory reserves for some non-Champion brands and SG&A deleverage from lower sales volumes; however, the segment’s margin improved significantly from last quarter’s operating loss.

Companywide, revenue, operating profit, EPS, and operating cash flow for Hanesbrands came in above expectations, but shares fell $3.04, or 18.6 percent, to $13.33, on November 5, 2020, after the results came out due to lower guidance than expected.

HanesBrands’ Apparel Revenues Top Expectations
Third-quarter sales slid 3.2 percent to $1.81 billion. Excluding exited programs, including C9 Champion and the DKNY intimate apparel license, currency-neutral sales were up 2.2 percent.

Apparel revenue performed better than expected overall. Excluding $139 million of PPE sales, apparel revenue declined 7 percent compared to the prior year, representing a significant improvement from last quarter’s 40 percent decline.

In its other segments outside U.S. Activewear, U.S. Innerwear was the top performer, increasing 11.5 percent over the prior year excluding new PPE offerings. The gains were driven by continued POS strength and broad-based inventory restocking by retailers during the third quarter. The gains reflected a 15 percent increase in Basics and a 7 percent increase in Intimates. Including $166 million of PPE revenue, U.S. Innerwear sales jumped 41 percent.

In its International segment, revenue declined 5 percent compared to last year on a reported basis and 7 percent on a constant-currency basis. Adjusting for PPE sales, core International revenue declined 7 percent, which represented a significant improvement from a 44 percent decline in the second quarter. For the quarter, international Champion sales increased 5 percent over the prior year.

Adjusted and GAAP EPS decreased 11 percent and 43 percent over the prior year to 42 cents and 29 cents, respectively. Adjusted EPS topped Wall Street’s consensus estimate of 36 cents.

Adjusted gross margin decreased 275 basis points to 36.7 percent due to increased inventory reserves as well as negative manufacturing variances incurred earlier in the year. Restructuring and other related charges were $53 million in the quarter, approximately $49 million were non-recurring costs from restarting portions of its manufacturing network.

The stronger than expected recovery in POS led to a decision to expedite shipments via air freight as well as temporarily leveraging third-party manufacturing capacity. 

Soft Guidance Over COVID-19 Concerns
Looking ahead, HanesBrands forecasts fourth-quarter revenue of $1.6 billion to $1.66 billion, equal to a 7 percent decline at the midpoint, and EPS in the range of 25 cents to 30 cents, down from 51 cents a year ago. Both numbers were below analyst consensus at $1.71 billion and 45 cents, respectively.

Bratspies said the timing of negative manufacturing variances and higher SG&A expenses are expected to continue to pressure both gross and operating margins in the fourth quarter. He further cited “additional uncertainty from the latest COVID trends.”

Lewis said, “Our outlook is based on the current business environment which, among other items, reflects the lockdowns and curfews put in place over the past week in Europe.”

Bratspies, a former Walmart executive who joined HanesBrands as CEO on August 3, said the company had launched an in-depth business review of its “entire global portfolio” since he joined the company.

“This is a great company with a strong foundation that we can leverage,” said Bratspies. “However, in an environment where the pace of change is accelerating, for us to be successful and reach our full potential, we must become a more agile, consumer-centric, growth-oriented company.”

Providing some initial thoughts on the review, he said HanesBrands will seek to simplify the organization structure and streamline decision making to become more agile and faster to market, explore segmenting its supply chain to improve responsiveness, further expand its digital focus and capabilities, and take additional steps to become more consumer-focused.

He added, “And not surprisingly, we need to return U.S. Activewear to consistent year-over-year growth by applying a more consumer-centric approach to our brands, evolving our supply chain capabilities and capturing new opportunities.”

Photos courtesy Champion, JMS/Just My Size, Gear For Sports