Hanesbrands Inc. raised its 2010 sales and earnings guidance after reporting that second-quarter 2010 net sales increased 9.1% and diluted earnings per share increased by 55 cents to 87 cents, up from 32 cents a year ago.
Net sales increased by $90 million to $1.08 billion with double-digit increases for the company’s three largest business segments Innerwear, Outerwear and International.
Based on performance in the first two quarters, Hanesbrands is raising its 2010 guidance. Full-year net sales growth is expected to be 8% to 10%, up from the previous guidance of 6% to 8% issued after first-quarter results. EPS is expected to be in the range of $2.25 to $2.35, up from previous guidance of $2.15 to $2.27.
“We continued our strong start in 2010,” Hanesbrands Chairman and Chief Executive Officer Richard A. Noll said. “Our brands are performing well with consumers, helping drive share gains in core categories and delivering strong productivity for the new sales programs we secured for this year.”
Business Segment Summary and Highlights
Double-digit sales increases in the Innerwear, Outerwear and International segments combined for $103 million in sales growth, partially offset by a combined $14 million decrease in the Hosiery and Other segments. Direct-to-Consumer sales were up slightly.
The company’s operating profit margin improved to 11.4 percent of sales in the quarter, up from 8.5 percent a year ago. The Innerwear, Outerwear and International segments generated $21 million of increased operating profit in the quarter, partially offset by lower operating profit in the Hosiery and Direct to Consumer segments. Restructuring and related actions reduced operating profit in last year’s quarter by $13 million.
Key business segment highlights include:
- During the quarter, the Hanes brand launched television advertising featuring Michael Jordan for new men’s underwear products, and Playtex began airing a new television ad for 18 Hour bras. Additionally, the Barely There and Hanes brands launched new Smart Size bras featuring proprietary shape-to-fit technology in mass merchants and department stores.
- Across-the-board growth in the Outerwear segment, led by the Just My Size, Champion and Hanes brands, resulted in a 16 percent sales increase for the quarter and a doubling of operating profit over weak levels last year. Retail casualwear sales more than doubled, fueled by growth of the company’s Just My Size brand of plus-size apparel, while retail activewear and wholesale casualwear had mid-single-digit sales gains.
- International segment sales increased by 14 percent, with double-digit gains in all countries, except low single-digit growth in Mexico and a decline in Japan. Segment operating profit increased by nearly 50 percent.
Guidance
Hanesbrands raised guidance as a result of additional new sales programs for the second half of the year, higher than expected productivity of new programs from previously announced shelf-space gains, and expectations of a continued overall increase in consumer spending and retailer inventory restocking.
Operating margin improvement for the year is expected to be at the high end of the company’s previously stated goal of 50 to 100 basis points. This improvement includes the negative impact of an approximate $25 million to $30 million in expected incremental short-term costs to secure product, service customers and maximize potential sales growth in 2010. Interest expense for the year is expected to be approximately $150 million to $153 million, and the full-year tax rate, including the second-quarter adjustment, is expected to be approximately 14 percent to 15 percent, up from the 2009 rate of 12 percent.
Inventories at the end of the quarter were $1.3 billion, up $61 million, or 5 percent, from the end of last year’s second quarter. Year-end inventories are expected to increase by up to $100 million over last year, an increase of approximately 9 to 10 percent, which is in line with expected 2010 sales growth. Strong profit growth partially offset by working capital investment is expected to yield free cash flow of $200 million to $250 million in 2010. Based on the 2010 performance guidance, the company’s debt to EBITDA leverage ratio could fall to less than 3.5 times assuming free cash flow were used entirely to pay down debt to the $1.65 billion to $1.7 billion level. Hanesbrands’ EBITDA leverage ratio was 4.6 times at the end of 2009.
Because of systemic cost inflation, particularly for cotton, energy and labor, Hanesbrands is working with its customers to offset 2011 cost increases through joint efficiency initiatives as well as price increases. The timing and size of price increases will vary by product category. While some price increases will take effect in the third and fourth quarters of 2010, the majority of the pricing impact will begin in 2011.
HANESBRANDS INC. | ||||||||||||||||||||||
Condensed Consolidated Statements of Income | ||||||||||||||||||||||
(Amounts in thousands, except per-share amounts) | ||||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||
| Quarter Ended | Six Months Ended | |||||||||||||||||||||
| July 3, 2010 | July 4, 2009 | % Change | July 3, 2010 | July 4, 2009 | % Change | |||||||||||||||||
| Net sales | $ | 1,075,852 | $ | 986,022 | 9.1 | % | $ | 2,003,692 | $ | 1,843,863 | 8.7 | % | ||||||||||
| Cost of sales | 701,046 | 658,631 | 1,301,456 | 1,258,596 | ||||||||||||||||||
| Gross profit | 374,806 | 327,391 | 14.5 | % | 702,236 | 585,267 | 20.0 | % | ||||||||||||||
| As a % of net sales | 34.8 | % | 33.2 | % | 35.0 | % | 31.7 | % | ||||||||||||||
Selling, general andadministrative expenses | 252,001 | 230,699 | 493,719 | 453,937 | ||||||||||||||||||
| As a % of net sales | 23.4 | % | 23.4 | % | 24.6 | % | 24.6 | % | ||||||||||||||
| Restructuring | – | 12,544 | – | 31,215 | ||||||||||||||||||
| Operating profit | 122,805 | 84,148 | 45.9 | % | 208,517 | 100,115 | 108.3 | % | ||||||||||||||
| As a % of net sales | 11.4 | % | 8.5 | % | 10.4 | % | 5.4 | % | ||||||||||||||
| Other expenses | 2,628 | 168 | 4,034 | 4,114 | ||||||||||||||||||
| Interest expense, net | 36,573 | 44,807 | 74,068 | 81,607 | ||||||||||||||||||
| Income before income tax expense (benefit) | ||||||||||||||||||||||
