By Thomas J. Ryan
Champion saw 22 percent growth in the fourth quarter, in line with expectations, according to the brand’s parent, HanesBrands. The growth reflected 22 percent growth in both Champion’s domestic and international businesses.
Sales comparisons exclude revenues from C9 Champion, which is being phased out from Target.
Global revenues in the quarter reached $460 million. For the year, Champion’s sales excluding C9 finished up 40 percent.
Said Gerald Evans Jr., HanesBrands’ CEO, on the company’s fourth-quarter conference call with analysts, “On a constant currency basis, global Champion, excluding C9, generated more than $1.9 billion of revenue in 2019, an increase of more than $1.1 billion in just three years.”
T.C Robillard, HanesBrands’ chief investor relations officer, said another year of double-digit growth is expected for Champion in 2020.
“We are overlapping some very large comps in the first part of the year,” said Robillard. “So, we plan to aim for a high- to mid- to high-single-digit growth rate for Champion in the first half of the year.” Low double-digit growth is expected in the second half.
Said Robillard, “We continue to be very bullish on Champion and in its ability to continue to grow. We saw strong POS through the holiday periods around the world as well, and we are well on our way, obviously, to reaching our $2 billion goal in 2020 two years early, and we believe we can add the next billion in the next four to five years.”
Asked about the potential to add another $1 billion to Champion’s annual sales, Evans said the growth would come from “simply being predominantly a men’s brand to one that becomes across genders and includes a kid’s business as well.”
A “tremendous opportunity” exists for expanding Champion in Asia as well as further expansion in Europe. Evans added, “And then there are categories out there that we really don’t play in such as outerwear, and we also are in the midst of partnering with a company on some initial shoe offerings. So, we see a lot of avenues to grow and we would see it, or sort of, as being consistent growth over time.”
Evans added that he expects to see Champion to “continue to see the balanced growth really between international and the domestic piece.” Innerwear for Champion is “growing at a very rapid rate” to support growth potential in the core activewear business.
Said Evans, “As we’ve said before, we’ve been very successful in the men’s business, we still have room to grow as we develop a greater share in the women’s business as well as the kid’s business. And outerwear represents a new category for us as well. So, we see multiple areas that we can continue to expand the business as well as continue to grow, of course, where we have distribution today.”
Companywide, HanesBrands’ sales in the fourth quarter slipped 1.0 to $1.75 billion while constant-currency organic sales increased slightly.
Earnings improved 23.3 percent to $185.0 million, or 51 cents a share. Excluding non-recurring items, earnings were up 13.3 percent to 45 cents a share, matching Wall Street’s consensus estimates.
Activewear segment fourth-quarter sales decreased 6.7 percent to $453.0 million, slightly better than expected. The segment’s result reflects $46 million of expected year-over-year headwinds including the phase-out of the C9 Champion line.
Champion’s activewear sales, excluding C9 Champion in the mass channel, increased more than 14 percent in the quarter. C9 Champion sales decreased 26 percent as that program continued to wind down to its conclusion in January 2020. Sales in the remainder of the Activewear segment declined but performed better than expected. Other brands in the Activewear segment include Alternative and Gear for Sports as well as the active offerings of Hanes and JMS/Just My Size.
Segment operating profit in the quarter decreased 8.2 percent to $71.6 million as a result of higher SG&A expenses. Activewear’s gross margin increased in the quarter, driven by the benefits of remixing activity, including a higher mix of Champion sales. This was more than offset by higher SG&A expense including higher distribution cost.
U.S. Innerwear segment sales decreased 4.1 percent in the quarter to $569.6 million. Operating profits improved 4.7 percent to $140.4 million, benefiting from increased pricing and lower SG&A expenses.
Sales of Innerwear basics decreased 5 percent as a result of earlier-than-planned disruption from ongoing store resets in the mass channel that is expected to generate increased space and share beginning in the second half of 2020. Sales of Innerwear intimates decreased 2 percent, which was sequentially better than the third quarter and consistent with expectations. Bra revenue increased slightly and contributed significantly to segment operating margin expansion. Successful market performance of the EasyLite and DreamWire bra innovations are contributing to revitalization efforts.
In the international segment, sales were down 6.9 percent to $650.8 million. Operating earnings dipped 1.8 percent to $96.8 million. Operating profit was reduced by the bankruptcy-related bad-debt expense and negative foreign exchange rates on operational transactions. On a constant-currency basis, sales increased 10 percent and operating profits increased 1 percent. Sales for the International segment’s activewear and innerwear businesses increased more than expected.
For the full year, net sales increased 2 percent to $6.97 billion and represented the second consecutive year of constant-currency organic sales growth. GAAP EPS increased 11 percent to $1.64 and adjusted EPS excluding actions increased 5 percent to $1.76.
For the current year, Hanesbrands expects:
- Net sales in the range of $6.675 billion to $6.775 billion, down from $6.97 billion;
- GAAP operating profit in the range of $850 million to $880 million, against $889.7 million a year ago;
- Adjusted operating profit excluding actions in the range of $900 million to $930 million; against $953.2 million;
- GAAP EPS in the range of $1.60 to $1.68, against $1.64;
- Adjusted EPS excluding actions in the range of $1.72 to $1.80 against $1.76; and
- Net cash from operations in the range of $700 million to $800 million against $803 million.
Hanesbrands said it continues to expect growth for its underlying business on a rebased basis when isolating program exits. When comparing the midpoint of 2020 guidance to 2019 results rebased to account for the exits of the C9 Champion and DKNY programs, full-year net sales are expected to increase 3 percent, adjusted operating profit is expected to increase 7 percent, and adjusted EPS is expected to increase 15 percent.
For the first quarter, Hanesbrands expects:
- Net sales to be in the range of $1.466 billion to $1.496 billion, down from $1.59 billion;
- GAAP operating profit to be in the range of $118 million to $128 million, down from $148 million;
- Adjusted operating profit to be in the range of $145 million to $155 million against $169 million a year ago;
- GAAP EPS to be in the range of 17 cents to 20 cents, down from 22 cents; and
- Adjusted EPS to be in the range of 23 cents to 26 cents., against 27 cents.
For the first-quarter 2020, the midpoint of guidance represents a net sales decrease of 7 percent compared with 2019, GAAP operating profit and adjusted operating profit declines of approximately 18 percent and 12 percent, respectively, and GAAP and adjusted EPS declines of approximately 14 percent and 7 percent, respectively.
When comparing the midpoint of first-quarter 2020 guidance to 2019 results, rebased to account for the exits of the C9 Champion and DKNY programs, net sales are expected to decrease 1 percent, adjusted operating profit is expected to be flat, and adjusted EPS is expected to increase 14 percent.
Photo courtesy Champion