HanesBrands Inc. announced results for the second quarter of 2021, with increased sales, operating profit and cash flow driven by strong performance across its global innerwear and activewear businesses.
Net sales from continuing operations for the second quarter ended July 3, 2021, totaled $1.75 billion, an increase of $208 million, or 13 percent, compared with $1.54 billion for the quarter ended June 27, 2020, which included $614 million in sales of personal protective equipment (“PPE”) in response to the COVID-19 pandemic. Wall Street’s consensus estimate had been $1.59 billion.
Excluding PPE, net sales increased 88 percent over the prior year. The growth was driven by strong point-of-sales trends, the overlap of last year’s COVID-19-related shutdowns and the benefit of transitory items such as government stimulus. Total constant currency second-quarter net sales increased 10 percent.
“Our iconic brands continue to resonate with consumers around the world, and I’m very encouraged by the progress on our Full Potential growth plan,” said Chief Executive Officer Steve Bratspies. “I’m extremely proud of the way our associates performed under challenging conditions, delivering sales, profit, and earnings growth above our expectations and above the second quarter of both 2020 and 2019. We are seeing strong momentum across our business and have raised our outlook for the second half of the year.”
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 second-quarter 2019, net sales from continuing operations increased $233 million, or 15 percent, and total constant currency net sales increased 14 percent. Double-digit growth in the global innerwear and activewear businesses was driven by strong point-of-sale performance as well as the benefit of several transitory items, including retailer inventory restocking, government stimulus and pent-up consumer demand.
For the second quarter 2021, GAAP gross margin of 38.9 percent increased 560 basis points compared to the prior year and 200 basis points compared to second-quarter 2019. Adjusted gross margin of 39.0 percent increased 450 basis points over last year and approximately 75 basis points over 2019. The expansion in both periods was driven by higher sales, product mix and the impact from foreign exchange rates, which more than offset higher expedite costs that resulted from stronger-than-expected demand.
Second-quarter GAAP operating profit increased 8 percent to $217 million compared to the prior year and decreased 1 percent compared to second-quarter 2019. GAAP operating margin of 12.4 percent decreased 70 basis points and 100 basis points compared to the second quarter of 2020 and 2019, respectively. Adjusted operating profit of $236 million increased $2 million, or 1 percent, compared to the prior year and $29 million, or 14 percent compared to 2019. Adjusted operating margin of 13.5 percent decreased 170 basis points compared to last year due to the overlap of last year’s PPE sales and temporary cost savings initiatives that were implemented to partially mitigate the impact of COVID-19-driven declines in apparel sales.
In the second quarter of 2020, the company implemented several temporary SG&A cost savings initiatives such as furloughs and salary reductions, which generated approximately 600 basis points of one-time operating margin benefit in the year-ago quarter. As compared to second-quarter 2019, adjusted operating margin decreased approximately 15 basis points as higher brand marketing investments essentially offset the fixed-cost leverage from higher sales.
The GAAP and adjusted effective tax rates for the second quarter were 14.6 percent and 14.2 percent, respectively, which compares to GAAP and adjusted effective tax rates of 12.7 percent and 14.1 percent, respectively, for the second quarter of 2020. For the second quarter of 2019, GAAP and adjusted effective tax rates were 9.4 percent and 9.0 percent, respectively.
On a GAAP basis, second-quarter income from continuing operations totaled $148 million, or $0.42 per diluted share. This compares to income from continuing operations of $137 million, or $0.39 per diluted share in the prior-year period, and income from continuing operations of $150 million, or $0.41 per diluted share in second-quarter 2019.
Adjusted income from continuing operations totaled $165 million, or $0.47 per diluted share. This compares to adjusted income from continuing operations of $162 million, or $0.46 per diluted share, in the prior-year period and adjusted income from continuing operations of $139 million, or $0.38 per diluted share, in second-quarter 2019. Wall Street’s consensus estimate was 39 cents.
Second-Quarter 2021 Business Segment Summaries
- Innerwear (versus 2020) — Sales decreased $314 million, or 29 percent due to the overlap of last year’s $614 million of PPE sales. Basics revenue increased 48 percent with double-digit growth in each product category while intimates revenue increased 150 percent with triple-digit growth in both bras and shapewear. Excluding PPE, Innerwear sales increased 62 percent over last year driven by strong point-of-sale growth, the overlap of last year’s COVID-19-related shutdowns as well as the benefit of several transitory items, including retailer inventory restocking, government stimulus and pent-up consumer demand. Operating margin of 23.8 percent decreased 400 basis points compared to the prior year due to fixed-cost deleverage from lower sales, higher expedite costs from stronger-than-expected demand in basics and intimates as well as increased investments in brand marketing.
- Innerwear (versus 2019)—Sales increased $123 million, or 19 percent, compared to second-quarter 2019, with comparable double-digit growth in both basics and intimates. The growth was driven by strong underlying point-of-sale growth, yielding approximately 160 basis points of market share gains, as well as the benefit of certain transitory items, such as retailer inventory restocking and government stimulus, which drove category growth rates above historical levels. Operating margin expanded 150 basis points to 23.8 percent driven by volume leverage and sales mix, which more than offset higher expedite costs and increased investments in brand marketing.
- Activewear (versus 2020)—Activewear sales grew $236 million, or 140 percent over the prior year driven by growth in both the Champion and Hanes brands. The company experienced strong point-of-sale trends across several channels in the quarter. Sales also increased in the sports and college licensing business. The segment benefited from strong pent-up consumer demand as pandemic restrictions were lifted, as well as from government stimulus payments. Segment operating margin of 10.2 percent increased 1,360 basis points over the prior period driven by fixed-cost leverage from higher sales, which more than offset higher brand marketing investment.
- Activewear (versus 2019)—Activewear revenue increased $53 million, or 15 percent, driven by growth across the online, wholesale and distributor channels, which more than offset lower sales in the sports and college licensing business. By brand, sales increased in both the Champion and Hanes brands in the quarter, with Champion sales in the segment up 20 percent. Activewear’s operating margin decreased approximately 290 basis points compared to second-quarter 2019 as leverage from higher sales volume was more than offset by higher expedite and distribution costs due to stronger-than-expected demand as well as increased investments in brand marketing.
- International (versus 2020)—International segment revenue increased $228 million, or 91 percent, compared to the prior year. On a constant currency basis, sales increased 70 percent with strong growth in Australia, the Americas, Europe and the Asia Pacific driven by strong consumer demand and the overlap of last year’s COVID-19-related shutdowns. For the quarter, the International segment’s operating margin of 12.9 percent increased 1,090 basis points over the prior year driven by higher sales, sales mix and foreign exchange rates.
- International (versus 2019)—International segment revenue increased $48 million, or 11 percent, compared to second-quarter 2019. On a constant currency basis, sales increased 5 percent. Constant currency sales grew in Australia, Europe and the Americas while sales in the Asia Pacific declined driven by ongoing COVID-19-related headwinds in Japan. For the quarter, the International segment’s operating margin decreased 250 basis points compared to second-quarter 2019 levels driven by increased brand marketing investments as well as de-leverage in the Asia Pacific from lower sales.
Third-Quarter, Fourth-Quarter and Full-Year 2021 Financial Outlook
For third-quarter 2021, which ends on October 2, 2021, the company currently expects:
- Net sales from continuing operations of approximately $1.78 billion to $1.81 billion, which represents approximately 6 percent growth over the prior year at the midpoint and includes a projected benefit of approximately $16 million from changes in foreign currency exchange rates. This compares to net sales of $1.69 billion in third-quarter 2020, which included $179 million in PPE sales.
- Excluding PPE, net sales at the midpoint of the guidance range are expected to increase 19 percent over the prior-year period.
- As compared to rebased third-quarter 2019, net sales at the midpoint are expected to increase 11 percent.
- GAAP operating profit from continuing operations ranges from approximately $216 million to $226 million.
- Adjusted operating profit from continuing operations to range from approximately $235 million to $245 million. The midpoint of adjusted operating profit implies an operating margin of approximately 13.4 percent and reflects the impact of cost inflation as well as increased brand investment. This compares to an adjusted operating margin of 14.3 percent in the third quarter of 2020, which benefited from temporary COVID-19-driven cost reductions.
- Charges for actions related to Full Potential of approximately $19 million.
- Interest and Other expenses of approximately $45 million.
- An effective tax rate of approximately 12 percent on a GAAP basis and approximately 15 percent on an adjusted basis.
- GAAP earnings per share from continuing operations to range from $0.42 to $0.45. Adjusted earnings per share from continuing operations to range from $0.45 to $0.48.
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 ranges from approximately $172 million to $192 million.
- Adjusted operating profit from continuing operations to range from approximately $200 million to $220 million. The midpoint of adjusted operating profit implies an operating margin of approximately 12.0 percent and reflects the impact of cost inflation as well as increased brand investment. This compares to an adjusted operating margin of 13.5 percent in the fourth quarter of 2020.
- Charges for actions related to Full Potential of approximately $28 million.
- Interest and Other expenses of approximately $46 million.
- An effective tax rate of approximately 15 percent on a GAAP and adjusted basis.
- GAAP earnings per share from continuing operations to range from $0.29 to $0.34. Adjusted earnings per share from continuing operations to range from $0.37 to $0.42.
For fiscal year 2021, which ends on January 1, 2022, the company currently expects:
- Net sales from continuing operations to total approximately $6.75 billion to $6.85 billion, which is $550 million above its prior range of $6.2 billion to $6.3 billion and includes a projected benefit of approximately $116 million from changes in foreign currency exchange rates.
- At the midpoint, net sales guidance implies approximately 11 percent growth over the prior year and 12 percent growth adjusted for the 53rd week in 2020. 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 $795 million to $825 million, versus the prior range of $730 million to $760 million.
- Adjusted operating profit from continuing operations to range from approximately $880 million to $910 million, which is $65 million above its prior range of $815 million to $845 million. At the midpoint, adjusted operating profit guidance implies approximately 15 percent growth compared to the prior year and 9 percent growth compared to 2019. The midpoint of the adjusted operating profit guidance range suggests an operating margin of 13.2 percent.
- The full-year outlook reflects higher levels of cost inflation as compared to 2020 and 2019. Incremental brand marketing investment of $50 million as compared to 2020.
- Charges for actions related to Full Potential of approximately $85 million, which is unchanged from its prior outlook.
- Interest and Other expenses of approximately $182 million.
- An effective tax rate of approximately 13 percent on a GAAP basis and approximately 15 percent on an adjusted basis.
- GAAP earnings per share from continuing operations to range from approximately $1.50 to $1.58.
- Adjusted earnings per share from continuing operations to range from approximately $1.68 to $1.76, which compares to its prior outlook of $1.51 to $1.59.
- Cash flow from operations of approximately $550 million, versus a prior range of $500 million to $550 million.
- Capital expenditures of approximately $100 million.