Champion sales at retail exceeded $2 billion in 2013 and growth isn’t just coming at Target with its successful C9 collection, officials at its parent, HanesBrands, said last week at the company’s annual investor meeting.
At the meeting, Nadine Hall, Hanesbrands’ president, retail activewear, said Champion has secured more than 9 miles of new retail space in the sporting goods and department store channels alone for spring 2014, a 10 percent increase over last year.
Overall, Champion's dollar share has increased to 11.1 percent in 2013 from 6.4 percent in 2008, and now ranks third behind Under Armour and Nike in activewear. It holds the number two position in units, with the leading position in sports bras.
John Marsh, Hanesbrands president, activewear, said the overall opportunity for Champion and HanesBrands other activewear offerings is boosted by the “active megatrend,” a trend being driven by increased participation in personal fitness and team sports but particularly by increasing acceptance of wearing active apparel for non-exercise occasions.
The overall active category now stands at more than $33 billion at wholesale, and is strongly outpacing the growth of total apparel. Both men's and kids' active apparel are growing at high single-digit rates and women's is growing at low double-digit rates.
Specifically addressing competing brands at the sporting goods channel,
Rich Noll, Hanesbrands’ chairman and CEO, said Nike and Under Armour are positioned at the premium or “best” level and both help “educate the consumer about the benefits of performance.” By contrast, Champion has a “better” positioning as an “everyday brand, that brand for the amateur athlete”
Noll explains, ““So the better Nike and Under Armour do, that is not at our expense. It actually allows us to do even better over time. So don't think of them as competing. Think of that as actually creating that market opportunity that helps drive that ‘active megatrend’ into all of the growth characteristics that it has.”
But Hall noted that Champion is specifically benefiting from taking several steps to support its “amateur athlete” positioning. Champion gains on-field brand presence and credibility as a partner with the ESPN Wide World of Sports complex, as well through its role as the official partner of US Lacrosse. The efforts have improved purchase intent around ‘Brand I Prefer’ over the last year by 4 basis points and 'For Someone Like Me' by 6 basis points.
Also helping strengthen the brand’s positioning has been securing placement at urban and lifestyle retailers, such as Urban Outfitters and Supreme. A collaboration with Todd Snyder, an up and coming menswear designer, that led to the opening of a store in the SoHo district in New York City has also helped placement at Nordstrom and Barney's.
Investments in visual presentation at retail are also helping the brand gain more fixtures and increased rack productivity. Its concept shops have delivered “meaningful increases in retail sales performance,” with as much as a 50 percent increase relative to non-concept-shop stores. HanesBrand’s officials took investors on a tour of Modell’s flagship on 42nd St. as part of the presentation.
On the innovation side, the focus is on “fewer, bigger ideas utilizing core platform innovations with advanced technology.” A big win is the Marathon sports bra, which leveraged Flexible Fit technology from its innerwear segment. The Vapor t-shirt, described as one of the fastest drying tees in the marketplace, has also been a hit. Both the Marathon Bra and Vapor have secured placement in nearly every Champion account.
At the same time, margin expansion for Champion continues to benefit as by leveraging HanesBrands’ overall volume growth. This has led to a 15 percent reduction in performance t-shirt costs and a 20 percent reduction in sports bras.
Gerald Evans, Hanesbrands’ COO, said the recent share gains, scheduled opening on additional in-store shops and innovation pipeline promise to continue the bolster Champion’s growth in 2014. Said Evans, “The brand is really positioned with good momentum for both distribution expansion where it is not distributed, but as well as broader distribution where it is.”
Marsh said HanesBrand’s overall activewear business is $1.3 billion from a wholesale perspective. The biggest portion is retail, which includes Champion, as well as the activewear offerings of Hanes and Just My Size. It also includes Gear for Sports, the market leader in the college bookstore channel acquired in late 2010, followed by the branded printwear business which sells tees and sweats in the screenprint channel.
Specifically regarding Gear for Sports, Marsh said the integration has been successful, providing another 250 basis points improvement in profitability on a business that already had double-digit operating margins at the time of the acquisition. The brand continues to the grow at the college bookstore channel level while benefiting from leveraging technology and fabric platforms across Activewear and internalizing core styles. Gear's graphic design capabilities have been leveraged by the consolidation of its New York and L.A. graphic-design offices in its Center of Excellence in Lenexa, KS.
On the profitability side, Marsh noted that Activewear has reached its goal of improving from single-digit to double-digit operating margins. The metric reached 13.1 percent in the category last year, up from 6.9 percent in 2010. The improvement reflects its Innovate-to-Elevate strategy that focuses on leveraging resources across HanesBrands platform to boost margins as well as a heightened focus on the best opportunities. Also supporting the margin improvement is the Gear for Sports buy, SG&A leverage, and the exit of private label.
Overall, HanesBrands said it has increased its adjusted operating profit margin by 400 basis points over the past five years using the Innovate-to-Elevate strategy. It also generated $1.9 billion in cumulative cash from operations over the past five years. In 2013, the company completed its debt prepayment initiative, instituted a regular quarterly dividend, and acquired Maidenform, the bra maker. The company’s priority for cash this year will be further acquisitions.
Noll said any acquisition would have to be in one of HanesBrands’ core categories with complementary revenue growth opportunities, be able to leverage the company’s supply chain or SG&A infrastructure, and should be accretive in the first year. The ability to complete a deal depends on the time needed for successful integration rather than any financial constraints or a lack of viable candidates. Said Noll, “We are only interested in acquisitions that can drive significant incremental returns with relatively low risk. Remember, we are a nice, conservative underwear company.”
HanesBrands also reaffirmed all of its full-year 2014 guidance issued Jan. 29, 2014, including expectations for net sales of slightly less than $5.1 billion and adjusted EPS excluding actions of $4.60 to $4.80. In 2013, it earned $3.91 per share on revenues of $4.63 billion.
