HanesBrands Inc. announced results for the third quarter of 2021, with increased sales, operating profit, earnings per share and operating cash flow driven by strong point-of-sale performance and market share gains in its innerwear and activewear businesses.

“I want to thank our associates for delivering strong results in the quarter, particularly our manufacturing team, which has put us in a position to meet consumer demand,” said Chief Executive Officer Steve Bratspies. “We are maintaining our fourth-quarter outlook for net sales and adjusted operating profit, driven by continued demand for our brands, our strong inventory position and our global team’s proven ability to manage ongoing macro challenges.

“We continue to make progress on our Full Potential plan as we invest in our iconic brands, build talent, enhance e-commerce capabilities and modernize our technology. We’re excited by the early results from Full Potential and are confident we can deliver the long-term plan we announced in May.”

Highlights from the quarter, as compared to 2019, include:

  • Strong revenue and profit performance that was in line with or exceeded the high-end of the company’s increased guidance ranges despite the unexpected lockdown in Australia that forced the closure of two-thirds of its stores for nearly the entire quarter. Stores in Australia are re-opening as the lockdowns are lifted.
  • Global Champion brand sales increased 20 percent with balanced growth between the U.S. and International. Performance was driven by strong consumer demand across channels in the U.S., continued growth in Europe and the ramp-up of partners in China.
  • U.S. Innerwear sales increased 25 percent due to the combination of strong consumer demand across the company’s brand portfolio, which drove point-of-sale growth and increased market share gains, as well as the impact from pent-up consumer demand that is fueling category growth rates above historical levels. Performance in the quarter was driven by momentum in shapewear and innovation in bras and men’s underwear.
  • Consistent with the company’s Full Potential plan to build its iconic brands, global media and marketing investment increased $25 million, helping drive higher point-of-sale trends and increased market share. These investments have improved Champion’s global brand awareness and consideration of the company’s U.S. brands.
  • Full Potential plan improvements in core e-commerce capabilities delivered higher conversion rates and average order values. Total online sales grew 62 percent, including 50 percent growth on company-owned websites. The strong online performance, both domestic and international, was driven by consumer demand for the company’s brands across its owned websites, pure-plays and retailer-owned websites.

Third-Quarter 2021 Results
Net sales from continuing operations for the third quarter ended October 2, 2021 totaled $1.79 billion, an increase of $98 million, or 6 percent, including 33 percent growth in Champion brand sales globally. This compared with $1.69 billion for the quarter ended September 26, 2020, which included $179 million in sales of personal protective equipment (“PPE”) in response to the COVID-19 pandemic. Excluding PPE, net sales increased $276 million, or 18 percent, over the prior year. The year-over-year growth was driven by strong consumer demand and point-of-sale trends in the U.S., Europe, Americas and certain Asia markets, including China, which more than offset headwinds from the extended government COVID-related lockdowns in Australia and Japan. Total constant currency third-quarter net sales increased 5 percent.

Due to the significant impact of the pandemic on prior-year results, this release includes certain comparisons to the comparable 2019 periods for additional context. All 2019 results are rebased to reflect the European Innerwear business as discontinued operations as well as the exit of the C9 Champion mass program and the DKNY intimate apparel license.

Compared to third-quarter 2019, net sales from continuing operations increased $179 million, or 11 percent, including 20 percent growth in Champion brand sales globally. Total constant currency net sales increased 10 percent. Growth in the global innerwear and activewear businesses was driven by strong consumer demand, higher point-of-sale performance and market share gains.

For the third-quarter 2021, GAAP gross margin of 39.1 percent increased 530 basis points compared to the prior year and 170 basis points compared to third-quarter 2019. Adjusted gross margin of 39.1 percent increased 250 basis points over last year and approximately 65 basis points over 2019. The margin expansion in both periods was driven by cost savings programs in the supply chain and the benefits from the business mix, which more than offset higher transportation and inflation costs.

Third-quarter GAAP operating profit increased 24 percent to $235 million compared to the prior year and decreased 10 percent compared to third-quarter 2019. GAAP operating margin of 13.1 percent increased 190 basis points compared to the prior year and decreased 200 basis points compared to third quarter 2019.

Adjusted operating profit of $264 million increased $22 million, or 9 percent, compared to the prior year and $20 million, or 8 percent compared to 2019. Adjusted operating margin of 14.7 percent increased approximately 50 basis points compared to last year as the gross margin benefits more than offset increased brand marketing investments and higher levels of inflation in distribution costs. As compared to third-quarter 2019, adjusted operating margin decreased approximately 40 basis points as higher brand marketing investments and higher levels of inflation more than offset the gross margin benefits.

The GAAP and adjusted effective tax rates for the third quarter were 7.9 percent and 15.0 percent, respectively, which compare to GAAP and adjusted effective tax rates of 16.0 percent and 17.1 percent, respectively, for the third quarter of 2020. For the third quarter of 2019, GAAP and adjusted effective tax rates were 10.5 percent and 10.2 percent, respectively.

On a GAAP basis, third-quarter income from continuing operations totaled $177 million, or $0.50 per diluted share. This compares to income from continuing operations of $118 million, or $0.34 per diluted share in the prior-year period, and income from continuing operations of $189 million, or $0.52 per diluted share in third-quarter 2019.

Adjusted income from continuing operations totaled $188 million, or $0.53 per diluted share. This compares to adjusted income from continuing operations of $160 million, or $0.46 per diluted share, in the prior-year period and adjusted income from continuing operations of $174 million, or $0.48 per diluted share, in third-quarter 2019.

Third-Quarter 2021 Business Segment Summaries

  • Innerwear (versus 2020) Sales decreased $90 million, or 11 percent due to the overlap of last year’s $166 million of PPE sales. Men’s, Kids and Socks revenue increased mid-to-high single digits while Women’s revenue increased approximately 20 percent. Excluding PPE, Innerwear sales increased 12 percent over last year with strong point-of-sale growth across channels. Operating margin of 21.0 percent decreased 70 basis points compared to the prior year due to fixed cost de-leverage from lower sales, higher transportation costs, increased investments in brand marketing and higher levels of inflation.
  • Innerwear (versus 2019) Sales increased $140 million, or 25 percent, compared to third-quarter 2019, with double-digit growth in the Kids, Socks, Women’s and Men’s businesses. The growth was driven by the combination of strong consumer demand across the company’s brand portfolio, which drove point-of-sale growth and increased market share gains, as well as the impact from pent-up consumer demand that is fueling category growth rates above historical levels. Year-to-date, the company’s U.S. innerwear market share has increased approximately 140 basis points over 2019 with increased share positions in men’s, women’s, kids’, and socks. Operating margin in the quarter expanded approximately 10 basis points to 21.0 percent as the benefits from volume leverage and business mix essentially offset increased investments in brand marketing as well as higher inflation costs.
  • Activewear (versus 2020) Activewear sales grew $138 million, or 42 percent over the prior year driven by strong double-digit growth in both the Champion and Hanes brands. The company experienced strong point-of-sale trends across several channels in the quarter. The segment continued to benefit from pent-up consumer demand and the overlap of last year’s COVID-related headwinds. Segment operating margin of 16.5 percent increased approximately 740 basis points over the prior period driven by fixed-cost leverage from higher sales and the benefits from the business mix, which more than offset higher brand marketing investment.
  • Activewear (versus 2019) Activewear revenue increased $17 million, or 4 percent. Champion brand sales within the segment increased 14 percent, which more than offset declines in other brands. The company experienced strong point-of-sale trends across the online, wholesale and distributor channels in the quarter, which was partially offset by declines in the college bookstore channel. Activewear’s operating margin decreased approximately 10 basis points compared to third-quarter 2019 as leverage from higher sales volume and benefits from business mix were essentially offset by increased investments in brand marketing.
  • International (versus 2020) International segment revenue increased $30 million, or 6 percent, compared to the prior year. Excluding $13 million of PPE sales in the prior-year quarter, third-quarter sales increased 9 percent on a reported basis and 7 percent on a constant currency basis. Constant-currency sales grew in the Americas, Europe and China driven by strong consumer demand for the company’s brands and the overlap of last year’s COVID-related headwinds. Constant currency sales declined in Japan and were consistent with the prior year in Australia as both countries were impacted by government-mandated store closings due to the ongoing pandemic. For the quarter, the International segment’s operating margin of 16.1 percent decreased 385 basis points over the prior year driven by de-leverage in the Japan and Australian businesses as well as an increased brand marketing investment.
  • International (versus 2019) International segment revenue increased $23 million, or more than 4 percent, compared to third-quarter 2019. On a constant currency basis, sales increased more than 1 percent with strong growth in Europe, the Americas and parts of Asia offsetting COVID-related headwinds in Japan and Australia. For the quarter, the International segment’s operating margin decreased 240 basis points compared to third-quarter 2019 driven by increased brand marketing investments as well as de-leverage in Japan and Australia.

Refinancing of Senior Secured Credit Facility and Retirement of 2025 Senior Notes

  • The company intends to refinance its Senior Secured Credit Facility in the fourth quarter of 2021, subject to market conditions.
  • In conjunction with the refinancing, the company intends to redeem its $700 million 5.375 percent 2025 Senior Notes using proceeds from the transaction and cash on hand.
  • The make-whole premium to redeem the 5.375 percent 2025 Senior Notes and transaction fees are estimated to result in a one-time charge of approximately $45 million, which is reflected in the company’s fourth-quarter and full-year 2021 guidance ranges.
  • The company estimates this transaction will result in approximately $35 million of annual savings in interest and other expenses, with approximately $4 million recognized in the fourth-quarter 2021. The expected interest and other expense savings are reflected in the company’s fourth-quarter and full-year 2021 guidance ranges.

European Innerwear Divestiture Update
A key pillar of the Full Potential plan is focusing HanesBrands’ portfolio to enable the company to invest in the areas with the greatest potential for growth. As part of this plan, the company previously announced its intention to sell its European Innerwear business. The company has reached an agreement to sell this business to an affiliate of Regent, L.P., pending the completion of consultation with the European and French works councils representing employees of the European Innerwear business and customary closing conditions. Under the agreement, the purchaser will receive all the assets and operating liabilities of the European Innerwear business for a purchase price of one Euro. The transaction is expected to close in the first quarter of 2022.

“Focusing our portfolio is crucial to our long-term growth and selling our European Innerwear business represents a significant step forward in our Full Potential plan,” Bratspies said. “Our European Innerwear business has strong brands and great people, and this transaction helps position them for long-term success. I want to thank our European Innerwear associates for their commitment and all they have done for the company over the years.”

Fourth-Quarter and Full-Year 2021 Financial Outlook
For fourth-quarter 2021, which ends on January 1, 2022, the company currently expects:

  • Net sales from continuing operations of approximately $1.71 billion to $1.78 billion, which represents approximately 3 percent growth over the prior year at the midpoint and includes a projected benefit of approximately $6 million from changes in foreign currency exchange rates. This compares to net sales of $1.69 billion in fourth-quarter 2020, which included $28 million in PPE sales and approximately $45 million from the 53rd week;
  • Adjusting for PPE and the 53rd week in 2020, net sales at the midpoint of the guidance range are expected to increase 8 percent over the prior-year period;
  • As compared to rebased fourth-quarter 2019, net sales at the midpoint are expected to increase 15 percent;
  • GAAP operating profit from continuing operations to range from approximately $182 million to $202 million;
  • Adjusted operating profit from continuing operations to range from approximately $200 million to $220 million. The midpoint of adjusted operating profit represents an operating margin of approximately 12.0 percent and reflects the impact of cost inflation as well as increased brand investment;
  • Charges for actions related to Full Potential of approximately $18 million;
  • Interest and other expenses of approximately $40 million, which excludes an approximate $45 million charge related to the expected refinancing of the company’s Senior Secured Credit Facility and the make-whole premium for the planned redemption of its $700 million 5.375 percent 2025 Senior Notes;
  • An effective tax rate of approximately 12 percent on both a GAAP and adjusted basis;
  • GAAP earnings per share from continuing operations to range from approximately $0.24 to $0.29; and
  • Adjusted earnings per share from continuing operations to range from approximately $0.40 to $0.45.

For fiscal-year 2021, which ends on January 1, 2022, the company currently expects:

  • Net sales from continuing operations totaled approximately $6.76 billion to $6.83 billion, which represents approximately 11 percent growth over the prior year at the midpoint and includes a projected benefit of approximately $108 million from changes in foreign currency exchange rates. This compares to net sales of $6.13 billion in 2020, which included $820 million in sales of PPE and approximately $45 million from the 53rd week;
  • Adjusting for PPE and the 53rd week in 2020, net sales at the midpoint of the guidance range are expected to increase 29 percent over the prior-year period;
  • As compared to rebased 2019, net sales at the midpoint are expected to increase 13 percent;
  • GAAP operating profit from continuing operations to range from approximately $825 million to $845 million;
  • Adjusted operating profit from continuing operations to range from approximately $910 million to $930 million. The midpoint of adjusted operating profit represents approximately 18 percent growth compared to the prior year and 12 percent growth compared to 2019. The midpoint of adjusted operating profit guidance range represents an operating margin of 13.5 percent;
  • Full-year outlook reflects higher levels of cost inflation as compared to 2020 and 2019;
  • Incremental brand marketing investment of more than $50 million as compared to 2020;
  • Charges for actions related to Full Potential of approximately $85 million;
  • Interest and other expenses of approximately $175 million, which excludes an approximate $45 million charge related to the expected refinancing of the company’s Senior Secured Credit Facility and the make-whole premium for the planned redemption of its $700 million 5.375 percent 2025 Senior Notes;
  • An effective tax rate of approximately 11 percent on a GAAP basis and approximately 14 percent on an adjusted basis;
  • GAAP earnings per share from continuing operations to range from approximately $1.53 to $1.58;
  • Adjusted earnings per share from continuing operations to range from approximately $1.79 to $1.84;
  • Cash flow from operations of approximately $550 million to $600 million; and
  • Capital expenditures of approximately $75 million to $85 million.

Photo courtesy Champion