By Thomas J. Ryan
Hanesbrands Inc. (NYSE:HBI) reported second-quarter earnings with profits declining in both its innerwear and activewear segments.
Although earnings just missed Wall Street’s quarterly profit targets, officials assured investors that its guidance for the full year remained in line with plans.
“Year to date, our results are right where we expected them to be in terms of sales, operating profit, earnings per share and cash flow from operations,” said Gerald Evans, Hanesbrands’ COO and CEO-elect, on a conference call with analysts.
The company reiterated its guidance for the full year, which at the midpoint calls for 8 percent growth in revenue, 11-percent growth in operating profit, 16 percent growth in EPS and $800 million in cash flow from operations.
Operating earnings on an adjusted basis in the quarter slid 7.3 percent to $245.6 million while adjusted earnings crept up from 50 to 51 cents a share. Wall Street’s consensus estimate had been 52 cents. All adjusted consolidated measures and comparisons exclude approximately $72 million of pre-tax charges in the second quarter of 2016 and $126 million of pre-tax charges in the second quarter of 2015 related to acquisitions and other actions.
Overall, Hanesbrands reported profit of $221 million, or 34 cents a share, in the latest period compared with $94.9 million, or 23 cents, a year earlier.
Net sales in the second quarter slid 3.2 percent to $1.47 billion, in line with expectations.
Sales were expected to decline due to tough comparisons in basics due to the year-ago launch of Hanes X-Temp that drove mid-single-digit growth in basics a year ago. Champion also faced tough comparisons, officials said, as a shift in new program shipments in the second quarter last year from the first quarter led to a 42 percent growth in the year-ago period.
By segment, activewear sales were down 3.6 percent to $367.4 million. The sales decline was driven by its Hanes activewear business, as its U.S. Champion business was flat compared to last year. Looking at Champion by channel, mid-single-digit revenue growth was seen in mass and mid-teens growth in the college bookstore channel. Rick Moss, Hanesbrands’ CFO, said this was offset by declines in the sporting goods mid-tier and department store channels, which were impacted by bankruptcies and the tough year-ago comparisons.
Activewear’s operating profits were off 7 percent to $55.8 million. Operating margins held above 15 percent as SG&A controls helped to partially offset the volume decline. The segment also includes Gear for Sports and Knights Apparel.
In the innerwear segment, sales slumped 4.7 percent to $749.2 million. Operating earnings were down 10.2 percent to $181.4 million. The segment includes Hanes intimate apparel business as well as Playtex, DIM, Bali, Maidenform, Bonds, JMS/Just My Size, L’eggs and Wonderbra.
In its international segment, sales were up 1.9 percent to $269.7 million, driven by strength in Europe and Asia. Operating profits advanced 13.6 percent to $269.7 million, while operating margins expanded 90 basis points. International is expected to continue to be strong in the second half due to Hanes Europe synergies and momentum in Asia, as well as the addition of Champion Europe and Pacific Brands.
On a GAAP or reported basis, Hanesbrands said it now expects EPS to be in the range of $1.44 to $1.54 in the current year, compared with the previous range of $1.51 to $1.57. GAAP operating profit is expected to be in the range of $760 million to $795 million, compared with previous guidance of $780 million to $815 million. At the midpoint of guidance, the company expects growth of 41 percent and 31 percent for EPS and operating profit, respectively.
Photo courtesy Champion