Led by robust sales in its Activewear segment, Hanesbrands Inc. reported second-quarter revenues increased 13.4 percent to $1.52 billion. Excluding foreign currency fluctuations and the acquisitions of DBApparel and Knights Apparel, sales inched up 1 percent.
Adjusted operating profit excluding non-recurring items increased 15 percent to $265 million while adjusted EPS excluding non-recurring items increased 16 percent to 50 cents a share. Adjusted earnings exclude approximately $126 million and $24 million of pretax charges related to acquisitions and other actions in the second quarters of 2015 and 2014.
Net earnings declined 38.6 percent to $94.9 million, or 23 cents a share, including those items.
In the Activewear segment, sales grew 19.0 percent to $378.2 million while operating profit advanced 29.6 percent to $61.5 million. The gains were driven by high-single-digit growth of Champion as well as $37 million in net sales from Knights Apparel, a fan apparel vendor acquired in April. Gear for Sports, another fan apparel business, also contributed to the gains.
“As expected, Champion sales in sporting goods, mid-tier and department store channels grew significantly in the quarter, up 42 percent over last year due to the concentration of new program shipments in the second quarter this year compared to the first quarter last year,” said Gerald Evans, Hanesbrands’ COO, on a conference call with analysts. “In these channels, Champion sales year-to-date are in line with our plan and we remain on track for another year of solid double digit growth.”
Rick Moss, Hanesbrands’ CFO, added that while part of Champion’s growth reflected a seasonal shift of order from Q1 to Q2, a “significant portion” is coming from new distribution.
“It's broad based, it's across both men's and women's programs,” added Moss. “I think it's really proof that we’re bringing innovation to the brand but also the brand itself is resonating in its sort of every day athlete position. It's both women's and men's and sport specialty and mid-tier department store expansion.”
Activewear's operating margins improved 130 basis points in the quarter as product mix, supply chain efficiencies and tight SG&A controls more than offset the expected dilution from Knights Apparel. Hanesbrands also said the integration plan for Knights Apparel has been designed and communicated to employees, with implementation beginning late in the fourth quarter of 2015.
Evans added that Knights Apparel is becoming a “great complement” to its Gear for Sports business. Said Evans, “It makes us a bigger player in the college-license apparel and allows us to compete more effectively in the retail channel.”
In its other segments, Innerwear sales dipped 1.4 percent to $777.6 million as declines in intimate apparel offset gains in basics, including underwear and socks. Operating profits in the segment grew 6.6 percent to $196.0 million. The segment includes Hanes, Playtex, DIM, Bali, Maidenform, Flexees, JMS/Just My Size and Wonderbra.
Direct-to-consumer sales were down 2.7 percent to $101.5 million while operating earnings eased 6.5 percent to $11.2 million. International sales surged 101.2 percent to $131.5 million due to the acquisition of DBApparel in Europe and strong results in Japan while operating earnings gained 31.8 percent to $15.9 million.
Looking ahead, Hanesbrands now expects full-year net sales for 2015 of slightly less than $5.9 billion, compared with a previous guidance range issued with first-quarter results of $5.9 billion to $5.95 billion. Adjusted operating profit is expected to reach $855 million to $875 million, up $2 million on the low end and high end of the range versus previous guidance. Management continues to forecast adjusted EPS of $1.61 to $1.66.