Blaming the disruption to brick & mortar stores caused by the shift to online selling, HanesBrands, the parent of Champion, reported fourth-quarter earnings that missed plan. The company also provided weak guidance for 2017.
Earnings in the quarter rose 31.8 percent to $157.1 million, or 41 cents a share. Excluding pretax charges related to acquisitions and integrations, adjusted EPS increased 20 percent to 53 cents a share, short of Wall Street’s consensus estimate of 8 cents.
Companywide revenues grew 11.8 percent to $1.56 billion. Analysts on average had expected $1.7 billion.
On a conference call with analysts, Gerald Evans Jr., HanesBrands’ CEO, noted that 2016 overall was marked by the closing in the U.S. of roughly 1,200 retail doors, several retailers landing in bankruptcy court and further inventory tightening due to the shift of sales to online.
Regarding the fourth quarter, Evans said the period demonstrated “very strong results, but they were clearly below our expectations and we’re not at all satisfied with that.”
He added, “The reason for the shortfall was straightforward, while our domestic online revenue growth rate across all channels accelerated to 28 percent in the quarter. The current scale of our online business was not enough to offset the pressures in U.S. brick-and-mortar.”
He added that store traffic trends during the holiday came in below expectations and an unnamed large mass retailer cut replenishment orders in the key November and December periods.
“Both of these impacted our revenue and profit in the quarter,” said Evans. “Despite the headwinds and a challenging fourth quarter, we were still able to deliver record results for the full year through a combination of acquisitions, execution of our online growth strategy, synergies from prior deals, product innovation and strong working capital management.”
Among segments, Activewear sales increased 2.8 percent in the quarter to $383.5 million. Global Champion revenue growth accelerated to show a 10 percent gain in the quarter, driven by Europe, Asia and the second straight quarter of double-digit growth in the mass channel. The C9 By Champion brand is sold at Target. Revenue from its licensed sports apparel business, which includes Gear For Sports, increased double digits in the quarter, driven by its expansion into the high school channel and organic growth in the college bookstore channel.
Operating profits in the Activewear segment advanced 8.8 percent to $64.6 million. Operating margins increased 90 basis points over last year to 16.8 percent as volume and product mix normalized.
Said Evans, “For 2017, Activewear is well-positioned to return to growth as we anniversary the sporting goods bankruptcies benefit from our global Champion growth initiatives and expand distribution within our licensed sports apparel business.”
In the Innerwear segment, sales in the quarter were down 8.2 percent to $611.5 million. Basics and hosiery both saw declines while intimates were flat in the quarter. The segment was hurt by weak traffic at mid-tier and department store channels that resulted in fewer reorders as well as a large mass retailer cutting replenishment orders in the key November and December periods to manage inventories.
Direct-to-Consumer segment sales in the quarter were down 12.3 percent to $75.3 million. The decline reflects a transition to exit the company’s legacy catalog business and reduce noncore offerings in outlet stores and online. The segment showed an operating loss of $4.1 million against earnings of $2.5 million a year ago.
International segment sales jumped 77.6 percent to $505 million, boosted by the acquisitions of Pacific Brands of Australia, Champion Europe and Champion Japan, as well as organic growth in Asia. Operating profits in the international segment reached $70.7 million against a profit of $29.4 million a year ago.
Looking ahead, HanesBrands expects to make $1.70 to $1.82 a share, or $1.93 to $2.03 on an adjusted basis, in 2017 on $6.45 billion to $6.55 billion in sales. Analysts had projected $2.08 a share, or $2.14 a share on an adjusted basis, on $6.68 billion in revenue. In 2016, it made $1.41 a share, or $1.85 a share on an adjusted basis, on $6.03 billion in sales.
For the first quarter, earnings are expected to land in the range of 21 to 24 cents a share, with adjusted EPS expected to reach between 27 cents and 29 cents. In the year-ago period, HanesBrands earned 21 cents on a reported basis and 26 cents on an adjusted basis.
Total net sales growth is projected in the first quarter as a result of acquisition-driven International gains as well as Activewear growth. Organic sales are expected to decline in the quarter as a result of lower Innerwear sales affected by the retail climate of store closings and tight inventory as well as the exits from the company’s domestic catalog business and noncore offerings. Innerwear sales trends are expected to normalize starting in the second quarter, with expected full-year net sales comparable to 2016.
Photo courtesy Champion
