Champion’s sales climbed 16 percent in the quarter, an acceleration from the high-single-digit rate it delivered in the first half, Hanesbrands’ officials said on a conference with analysts.
The gains were driven by double-digit Champion growth in both Europe and Asia. Domestically, Champion generated double-digit growth in the sporting goods, mid-tier and department store channels.
In the mass channel, where it sells the C9 Champion brand, Hanes CEO Gerald Evans Jr., said the company “did experience some headwinds in the mass channel as we saw the total apparel category experience some headwinds in the quarter.”
Overall, Hanesbrands’ activewear sales grew 5 percent globally. The company sells activewear under Champion, Hanes, JMS/Just My Size, Gear for Sports, Knights Apparel, GTM (Greek to Me) and the recently acquired Alternative Apparel.
Companywide, sales grew 2.2 percent to $1.8 billion, by double-digit International segment growth. Domestic sales were affected by apparel’s weaker-than-expected back-to-school retail environment, although the company held share for Innerwear basics.
Net earnings rose 17 percent to $203.4 million, or 55 cents a share. Excluding acquisition-related and integration charges, adjusted EPS was 60 cents a share, in line with its guidance calling for EPS between 59 cents to 61 cents.
By segment, domestic Activewear sales inched up 0.5 percent to $519.5 million. Operating earnings in the segment improved 8.3 percent to $79 million. The acquisition of GTM Sportswear in September 2016 contributed approximately $15 million of sales in the quarter. The segment was affected by the “muted back-to-school season” at retail, but online sales increased by more than 30 percent and Champion sales in the mid-tier, sporting goods and college bookstore channels achieved double-digit growth. Operating income in the Innerwear segment gave back 4.7 percent to $141 million. Activewear’s operating margin expanded 110 basis points over last year, driven by product mix and savings from the company’s “Project Booster” cost-containment initiative.
In the domestic Innerwear segment, sales fell 5.2 percent to $644.1 million. The segment was impacted by a “particularly challenging back-to-school retail season for the apparel sector.” Market share was maintained in basics, while online sales, including those through traditional retailer websites, increased by more than 20 percent.
International sales grew 16.4 percent to $556.7 million while operating profits climbed 24.6 percent to $76.4 million. In constant currency, International sales increased 14 percent and operating profit increased 23 percent. Champion growth in Europe and Asia, underwear and intimate apparel growth in Australia and Latin America, and widespread online growth drove results.
Activewear represented 40 percent of International sales and also 40 percent of HanesBrand’s overall sales.
Regarding its acquisition of Alternative Apparel that was completed in mid-October, Evans said the brand will provide “another distinctive growth brand” and additional channels of distribution for its Activewear segment.
“We expect this deal to deliver an after-tax unlevered IRR of at least 20 percent,” said Evans.
Asked if the Champion brand is feeling pressure from the promotions being employed by Nike and Under Armour to reduce inventories in the U.S. market, Evans said the core Champion business “was up 20 percent in our sporting goods and department store mid tiers. We now have the TSA bankruptcy behind us and we saw nice growth in our Sports License Apparel business as well.”
Noting that the 5 percent gain globally was driven by the 16 percent hike at Champion, Evans said the company remains “bullish” on the overall Activewear category.
“As we look now toward the fourth quarter, we anticipate sequentially improving organic trends driven by Champion and our Sports Apparel business,” added Evans. “And on a global basis, we expect the kind of growth we’ve seen or better as we look to Q4. So we see very positive trends globally as well as in our domestic Champion business that will be then complemented by our recent acquisition of Alternative Apparel in the U.S. market.”
Overall, HanesBrands indicated that it now expects net cash from operations to meet or exceed the midpoint of its original guidance range.
Photo courtesy Champion