HanesBrands, Inc. reported that second-quarter net sales from continuing operations decreased 5 percent to $1.44 billion, including an $18 million unfavorable impact from foreign exchange rates. On a constant-currency basis, net sales decreased 4 percent with growth in U.S. Innerwear and Champion in Asia more than offset by the decline in U.S. Activewear and the continued macro-driven slowdown in consumer spending impacting Australia.

Global Champion brand sales decreased 16 percent year-over-year on a reported basis, with a 25 percent decline in the U.S. and a 1 percent decline internationally. In constant-currency terms, Global Champion brand sales decreased 15 percent, with international consistent with the prior year. The constant-currency sales decline was said to be driven primarily by challenging activewear market dynamics and the near-term impact of the company’s strategic brand-related actions in the U.S.

Activewear segment sales declined 19 percent year-over-year as ongoing headwinds within the Activewear category, including soft consumer demand and excess channel inventory, combined with the company’s strategic brand-related actions continued to impact Champion sales in the U.S. Continued growth in the collegiate channel was more than offset by declines in other channels.

  • Operating margin for the segment of negative 1.2 percent decreased by approximately 810 basis points compared to the prior-year period. HBI said the decline was driven by the impact from lower sales volume, unfavorable mix, input cost inflation and higher reserves as compared to last year due to higher inventory levels at retail. These headwinds were said to be more than offset the benefit from cost savings initiatives as well as lower variable expenses.

For full details about Champion’s U.S. turnaround strategy with HBI’s CEO, direction and progress against the company’s Full Potential strategy, go here:

EXEC: HBI Leadership Outlines Champion’s U.S. Turnaround Strategy

Innerwear sales increased 3 percent compared to the prior-year quarter and were ahead of the company’s outlook as the company said it is realizing the benefits of its Full Potential strategy. The year-over-year sales performance was said to be driven by growth in its Basics business behind the launch of its Hanes Originals product, increased space for back-to-school, improved on-shelf availability through the use of data analytics and its consumer-centric pricing philosophy.

  • Segment operating margin of 17.6 percent increased approximately 440 basis points sequentially from Q1. In comparison to the second quarter of last year, the segment operating margin decreased by approximately 310 basis points. The year-over-year decline was driven primarily by input cost inflation as the company continues to sell through its higher-cost inventory, which more than offset the benefits from higher sales volume, ongoing cost savings initiatives and disciplined expense management.

International sales decreased 4 percent year-over-year on a reported basis, including $18 million from unfavorable foreign exchange rates. International sales were reportedly consistent with the prior-year quarter on a constant-currency basis.

  • By region internationally, Champion brand constant-currency sales increased in Asia, were consistent with prior-year quarter sales in Europe, and declined in Australia and the Americas. Innerwear growth in the Americas and Champion growth in Asia essentially offset the decline in Australia, which was driven by a very challenging macroeconomic environment.
  • International segment operating margin for the International segment of 8.0 percent decreased 520 basis points compared to Q2 last year, driven primarily by “the impact from unfavorable business mix and input cost inflation.”

Consolidated company gross margin declined 430 basis points year-over-year to 33.5 percent of sales in Q2. Adjusted Gross Margin of 33.6 percent, which excludes certain costs related to the company’s Full Potential transformation plan, increased approximately 90 basis points from first-quarter 2023 and declined approximately 425 basis points compared to second-quarter 2022. HBI said headwinds from commodity and ocean freight inflation represented approximately 245 basis points of year-over-year margin headwind in the quarter as the company continues to sell through its higher-cost inventory. Additional headwinds in the quarter were a business mix, including a lower DTC mix, as well as higher labor rates. Partially offsetting the margin headwinds in the quarter were benefits from lower air freight expense as compared to last year and cost savings initiatives.

SG&A expenses declined 3 percent to $413 million as compared to last year’s comparable quarter. Adjusted SG&A expenses, which exclude certain costs related to the company’s Full Potential transformation plan, declined 6 percent, or more than $23 million, year-over-year to $396 million. The year-over-year decline in adjusted SG&A was driven by benefits from cost savings initiatives, particularly in distribution, disciplined expense management, as well as lower variable expenses, including selling and marketing. As a percent of net sales, adjusted SG&A expense of 27.5 percent of sales decreased 20 basis points from the prior-year period as cost controls and expense efficiencies more than offset the fixed cost deleverage from lower sales.

Operating Profit and Operating Margin in the second quarter of 2023 were $69 million and 4.8 percent, respectively, compared to $147 million and 9.7 percent, respectively, in the prior-year quarter. Adjusted Operating Profit of $87 million declined from $154 million in the second quarter 2022. Adjusted Operating Margin of 6.1 percent declined approximately 405 basis points from the prior-year quarter.

Interest and Other Expenses for the second quarter of 2023 were $82 million as compared to $36 million in the prior-year period. This increase was said to be driven by higher interest rates on higher debt balances.

Tax Expense for second-quarter 2023 was $10 million. For the second quarter 2022, the tax expense and adjusted tax expense were $19 million and $20 million, respectively. Effective Tax Rate for the second-quarter 2023 was (80.2) percent. For the second quarter 2022, the effective tax rate and the adjusted effective tax rate was 17.0 percent. The company’s effective tax rate for the second quarter 2023 is not reflective of the U.S. statutory rate due to valuation allowances against certain net deferred tax assets.

Loss from continuing operations totaled $22 million, or a loss of 6 cents per diluted share, in Q2. This compares to income from continuing operations of $93 million, or 26 cents per diluted share, in Q2 last year. Adjusted loss from continuing operations totaled $4 million, or a loss of 1 cent per diluted share. This compares to adjusted income from continuing operations of $98 million, or 28 cents per diluted share, in the second quarter 2022.