HanesBrands, the parent of Hanes, Champion and Gear for Sports, reported adjusted earnings per share jumped 49 percent in the fourth quarter on an 18 percent revenue gain.
The full year marked record results for the second consecutive year for net sales, adjusted operating profit, and adjusted diluted earnings per share.
For full-year 2014, net sales increased 15 percent, adjusted operating profit increased 28 percent, and adjusted EPS increased 45 percent. The company’s record results and strong fourth-quarter performance were driven by superb supply chain manufacturing performance, benefits from the acquisitions of Maidenform Brands Inc. and DBApparel, and continued strong contributions from Innovate-to-Elevate product platforms.
Hanes has issued 2015 full-year guidance, including expectations for net sales growth of approximately 9 percent (approximately $5.775 billion to $5.825 billion), adjusted operating profit growth of 9 percent to 12 percent (approximately $835 million to $855 million), and adjusted EPS growth of 11 percent to 15 percent (approximately $6.30 to $6.50), all strong growth rates despite significant negative impacts from foreign currency exchange rates.
Net sales for the fourth quarter increased 18 percent to $1.52 billion compared with the year-ago quarter, and full-year sales of $5.32 billion increased by 15 percent. On a constant-currency basis, net sales increased 19 percent in the fourth quarter and 16 percent for the full year.
Adjusted EPS in the fourth quarter increased 49 percent to $1.46, and adjusted EPS for the year increased 45 percent to $5.66 from $3.91 in 2013. Wall Street's consensus estimate had been $1.45 a share. On a GAAP basis, diluted EPS was 88 cents in the quarter versus 32 cents a year ago and was $3.97 for the year, up from $3.25 a year ago.
(All adjusted consolidated measures and comparisons in this news release exclude pretax acquisition, integration and other action-related charges of $69 million in the fourth-quarter 2014, $199 million for full-year 2014, and $81 million for both the fourth-quarter and full-year 2013. See the GAAP reconciliation section below.)
“We had another outstanding year in 2014, generating significant shareholder value and again achieving record results for sales, operating profit and EPS,” Hanes Chairman and Chief Executive Officer Richard A. Noll said. “We are in the midst of a multiyear period of strong growth supported by our powerful company-owned global supply chain, Innovate-to-Elevate product platforms, and acquisitions. Our guidance for 2015 translates into another year of double-digit EPS growth and what would be another record year for sales, profit and EPS, despite the challenges of currency exchange rates.”
Fourth-Quarter and Full-Year 2014 Financial Highlights and Business Segment Summary
Key accomplishments for 2014 include:
Sales Growth in Each Business Segment. Net sales growth was at least high single digits for each business segment in 2014. Innovate-to-Elevate product platforms continue to perform well, including Hanes ComfortBlend underwear, Hanes X-Temp and Champion Vapor fabrics, and ComfortFlex Fit bras. With the exception of Activewear, each segment benefitted from acquisition contributions to sales growth.
Supply Chain Performance, Acquisitions and Innovation Drive Adjusted Operating Profit and Margin Growth. The company’s adjusted operating profit margin for the year increased 140 basis points to 14.3 percent of sales. Supply chain performance, including continued efficiency initiatives and internalization of production into the company’s self-owned facilities, contributed significantly to operating profit and margin performance.
For the fourth quarter, adjusted operating profit increased 31 percent to $200 million, and full-year adjusted operating profit increased 28 percent to $763 million. On a GAAP basis, fourth-quarter operating profit was $131 million versus $72 million in the year-ago quarter, and full-year 2014 operating profit was $564 million versus $515 million last year.
Strong Balance Sheet and Cash from Operations. Hanes generated $508 million in net cash from operating activities in 2014. The company used cash to pay regular quarterly cash dividends of $120 million. The company’s strong balance sheet allowed Hanes to make its second sizable acquisition in two years.
“Our strong balance sheet and cash flow supports our value-creating business model of innovation, supply chain leverage and acquisitions,” said Hanes Chief Financial Officer Richard D. Moss. “We have generated $1.1 billion in operating cash flow over the past two years, invested in our business, made two important acquisitions, and have sustained a growing quarterly cash dividend. We remain in a strong position to create further value.”
Successful Acquisitions and Integrations. Hanes completed the integration of Maidenform within one year of the acquisition closing in fall 2013. The first Maidenform products developed wholly within the Hanes product development process are scheduled to debut in 2015. For 2014, the Maidenform acquisition contributed $491 million in net sales.
Hanes closed on the acquisition of DBApparel, a leading marketer of intimate apparel and underwear in Europe, on Aug. 29, 2014. DBA results will be reported in the International segment. Integration is under way, and Hanes continues to expect DBA’s annual operating profit to reach €100 million within three to four years through synergies, global supply chain leverage, and Innovate-to-Elevate benefits. For 2014, the DBA acquisition contributed net sales of $210 million (€168 million) in the fourth quarter and $291 million (€230 million) for the year.
Key segment highlights include:
Innerwear Segment. Innerwear net sales were comparable in the fourth quarter to a year ago and increased 11 percent for the full year. Operating profit increased 17 percent in the fourth quarter and the full year.
Profitability Improvement from Innovation and Supply Chain. The company’s innovation platforms continue to perform well, and the company’s primarily company-owned supply chain continues to drive benefits from increased scale and improvement initiatives. Hanes ComfortBlend and X-Temp underwear and socks and ComfortFlex Fit bras across multiple brands continue to do well.
Innerwear’s operating profit margin of 21 percent in the fourth quarter increased 310 basis points, and for the full year the margin increased 130 basis points to 20.4 percent.
Activewear Segment. Activewear net sales increased 10 percent in the fourth quarter and 8 percent for the full year. Champion sales, excluding those at mass retail, increased by more than 20 percent. Operating profit increased 10 percent in the quarter and 14 percent for the full year. The segment delivered record full-year profitability for the second consecutive year a 13.7 operating margin, up 70 basis points.
International Segment. International sales and operating profit increased significantly as a result of acquisitions, but currency had a significant impact on results. On a constant-currency basis, International net sales increased 157 percent in the fourth quarter and 68 percent for the full year. Operating profit on a constant-currency basis increased 236 percent in the fourth quarter and 118 percent for the full year.
Direct to Consumer Segment. The Direct to Consumer segment achieved significantly improved profitability for the second consecutive year. Net sales increased 1 percent in the fourth quarter and operating profit increased 29 percent. For the full year, net sales increased 8 percent with an operating profit increase of 17 percent.
2015 Financial Guidance
Hanes has issued full-year 2015 growth expectations and financial guidance. Incorporated into the company’s outlook are the expected negative effects of foreign currency exchange rates and Target Canada Co.’s announced plans to liquidate. In addition, the company has approved a 4-for-1 stock split to be executed through a stock dividend to be issued to stockholders March 3, 2015. EPS guidance will be provided on a pre-split and post-split basis.
For 2015, Hanes expects net sales of approximately $5.78 billion to $5.83 billion; expects adjusted operating profit excluding actions of $835 million to $855 million; expects pre-split adjusted EPS excluding actions of $6.30 to $6.50; and expects net cash from operating activities of $550 million to $600 million. On a post-split basis, adjusted EPS excluding actions is expected to be $1.58 to $1.63. The 2015 guidance assumes a euro-to-dollar exchange rate of $1.10.
The guidance reflects growth over 2014 of approximately 9 percent for net sales, approximately 9 percent to 12 percent for adjusted operating profit, and approximately 11 percent to 15 percent for adjusted EPS, even with the stronger dollar and the Target Canada liquidation. The combined effect of the stronger dollar since August and the Target Canada decision reduced the company’s guidance for net sales by approximately $230 million, adjusted operating profit by approximately $44 million, and adjusted EPS of approximately $0.37 on a pre-split basis (approximately $0.09 on a post-split basis).
The company expects the acquisition of DBA to contribute approximately €630 million of net sales in 2015 versus €230 million in 2014 and approximately €30 million of operating profit in 2015 versus €21 in 2014. For 2015, the company has fully hedged its euro-based cost of goods exposure for European operations. Integration planning for DBA has proceeded on schedule and the company expects to begin meeting with works councils in Europe in the first quarter of 2015.
Interest expense and other expense are expected to be approximately $90 million to $95 million combined. The 2015 full-year tax rate is expected to be approximately 13 percent, similar to 2014. The tax rate is expected to vary by quarter with the rate being slightly higher in the first half of the year.
The company’s 2015 pension contribution will be $100 million and capital expenditures are expected to be approximately $75 million. On a post-split basis, the company expects approximately 410 million weighted average fully diluted shares outstanding in 2015.
The company's brands include Hanes, Champion, Playtex, DIM, Bali, Maidenform, Flexees, JMS/Just My Size, Wonderbra, Nur Die, Lovable and Gear for Sports. The company sells T-shirts, bras, panties, shapewear, men’s underwear, children’s underwear, socks, hosiery, and activewear.