HanesBrands, the parent of Champion, announced record operating cash flow for the fourth-quarter and full-year 2019 and strong diluted earnings per share growth.

The company generated $803 million of net cash from operations in 2019, an increase of 25 percent and surpassed the high end of the company’s guidance for operating cash flow expectations of $700 million to $800 million. The company significantly reduced its debt leverage by paying down $609 million of debt in 2019.

For the fourth quarter ended December 28, 2019, net sales of $1.75 billion decreased 1 percent while constant-currency organic sales increased slightly. 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.

Fourth-quarter GAAP EPS and adjusted EPS, excluding actions, were each $0.51, increases of 24 percent and 13 percent, respectively. For the full-year, GAAP EPS increased 11 percent to $1.64 and adjusted EPS excluding actions increased 5 percent to $1.76.

“HanesBrands delivered a solid fourth quarter right in line with our guidance and concluded a very successful year with record operating cash flow, significantly reduced debt, continued organic revenue growth, and strong underlying business fundamentals,” said Hanes Chief Executive Officer Gerald W. Evans Jr. “Looking forward, we expect to create meaningful shareholder value using our strong balance sheet, stabilized Innerwear profitability, and Champion, International and consumer-directed growth. We view 2020 to be an inflection point for sales, profit and EPS growth rates that accelerate down the P&L.”

While the company has exited its C9 Champion business in the mass retail channel and its DKNY license for intimate apparel, the company expects continued growth in 2020 for its underlying business.

As a result of the program exits and negative currency exchange rates, the company expects net sales at the midpoint of full-year 2020 guidance to decline approximately 3 percent, GAAP and adjusted operating profit declines of approximately 3 percent and 4 percent, respectively, and GAAP and adjusted EPS both to be flat to a year ago. Net cash from operations is expected to be in the range of $700 million to $800 million for 2020.

When comparing the midpoint of 2020 guidance to 2019 results rebased to account for the C9 Champion and DKNY program exits, net sales would increase approximately 3 percent, adjusted operating profit would increase 7 percent, and adjusted EPS would increase 15 percent.

Fourth-Quarter 2019 Business Segment Summaries
Constant-Currency International Segment Growth Continues

International segment sales increased 7 percent while operating profit decreased 2 percent. On a constant-currency basis, net sales increased 10 percent and operating profit increased 1 percent.

Sales for the International segment’s activewear and innerwear businesses increased more than expected. Operating profit was reduced by the bankruptcy-related bad-debt expense and negative foreign exchange rates on operational transactions.

Innerwear Segment Operating Profit Increases Despite Lower Sales.
U.S. Innerwear segment sales decreased 4 percent in the fourth quarter while operating profit increased 5 percent. Segment operating profit margin of 24.6 percent increased 210 basis points, benefiting from increased pricing and lower selling, general and administrative 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 are 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.

Activewear Segment Sales And Profits Affected By Program Exits, As Expected.
U.S. Activewear segment fourth-quarter sales decreased 7 percent, slightly better than expected. Segment operating profit in the quarter decreased 8 percent as a result of higher SG&A expenses.

Champion 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 the conclusion in January 2020. Sales in the remainder of the Activewear segment declined but performed better than expected.

2020 Financial Guidance
Hanes has issued initial 2020 guidance for the fiscal year ending January 2, 2021, which includes a 53rd week. Certain year-over-year comparisons reference rebased 2019 results, which adjusts for the exited C9 Champion program and DKNY license for intimate apparel.

Full-Year Guidance
The company expects 2020 net sales of $6.675 billion to $6.775 billion, GAAP operating profit of $850 million to $880 million, adjusted operating profit excluding actions of $900 million to $930 million, GAAP EPS of $1.60 to $1.68, adjusted EPS excluding actions of $1.72 to $1.80, and net cash from operations of $700 million to $800 million.

The company 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.

First-Quarter Guidance
For the first quarter, net sales are expected to be approximately $1.466 billion to $1.496 billion. GAAP operating profit is expected to be $118 million to $128 million, and adjusted operating profit is expected to be $145 million to $155 million. GAAP EPS is expected to be $0.17 to $0.20, and adjusted EPS is expected to be $0.23 to $0.26.

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 Hanes Brands