HanesBrands Raises EPS Outlook On Improving Q3 Profitability

HanesBrands, Inc. raised its earnings guidance for the year after reporting third-quarter sales reached the mid-point of its expected range with operating profit and EPS arriving at the high-end of targets.

HanesBrands’ portfolio now includes Hanes, a U.S.-based basics apparel brand; Bonds, an Australian innerwear brand; and a bra business largely consisting of Maidenform and Bali. On September 30, HBI completed the sale of the intellectual property and certain operating assets of the global Champion business to Authentic Brands Group (Authentic).

“We delivered another strong quarter with operating profit, earnings per share, and cash flow results that exceeded our expectations. In addition, we have further reduced our leverage, expect a return to revenue growth in the fourth quarter, and raised our full-year outlook for profit and cash flow,” said Steve Bratspies, CEO. “Our strategic actions to create a more focused, simplified business are working. We are driving a step-function change in our cost structure, increasing operational efficiencies, reducing inventory, and freeing up capital to invest in growth. We expect the benefits of these actions to ramp over the next several quarters, giving us visibility and confidence to deliver continued margin improvement, cash generation, and debt reduction through 2025.”

Net sales decreased 2.5 percent compared to the prior year to $937 million, with approximately 180 basis points due to the divestiture in the prior year of the U.S. Sheer Hosiery business and approximately 75 basis points due to the unfavorable impact from foreign exchange rates. On an organic constant currency basis, net sales were consistent with prior year.

Gross margin and adjusted gross margin increased approximately 530 and 525 basis points, respectively, to 41.7 percent and 41.8 percent, respectively. The year-over-year gains were driven by lower input costs as the company continues to anniversary the impact from peak inflation, the benefits from its cost savings initiatives, and the benefits from its assortment management initiative. In the quarter, the company continued its consolidation and other optimization actions in its supply chain to lower fixed cost, increase efficiencies, and further improve customer service and in-stocks with lower levels of inventory. The company expects these actions to drive continued benefits in the fourth quarter 2024 and through 2025.

Selling, general and administrative (SG&A) expenses, as a percentage of net sales, increased over prior year driven primarily by a 150 basis point increase in brand investments, which was partially offset by benefits from cost savings initiatives and disciplined expense management. SG&A expenses were $287 million, or 30.7 percent of net sales, which represents an increase over prior year of 7 percent and 270 basis points, respectively. Adjusted SG&A expenses were $269 million, or 28.7 percent of net sales, which represents an increase of nearly 1 percent and 90 basis points, respectively.

Operating profit increased 27 percent to $103 million and operating margin increased 255 basis points to 11.0 percent as compared to prior year. Adjusted operating profit increased 46 percent to $122 million and adjusted operating margin increased 435 basis points to 13.0 percent as compared to prior year.

Income from continuing operations totaled $32 million, or 9 cents per diluted share in third-quarter 2024. This compares to a loss from continuing operations of $(6) million, or $(0.02) per diluted share, in third-quarter 2023. Adjusted income from continuing operations totaled $52 million, or $0.15 per diluted share. This compares to an adjusted loss from continuing operations of $(8) million, or $(0.02) per diluted share, in third-quarter 2023.

U.S. net sales decreased 1 percent as compared to prior year. Despite the anticipated total market decline in the quarter, the company said its strategy of consumer-centricity is working. The company’s point-of-sale trends have outperformed the total market year-to-date as increased brand investments and product innovation in its Hanes, Maidenform and Bali brands are driving permanent retail space and market share gains, particularly with younger consumers.

Operating margin of 22.1 percent increased approximately 665 basis points over prior year. The increase was driven by lower input costs, favorable product mix, and benefits from cost savings initiatives, which helped fund a 55 percent increase in brand investments to drive consumer demand behind new product innovation in both Men’s and Women’s.

International net sales increased 1 percent on a reported basis, which included a $7 million headwind from unfavorable foreign exchange rates. International sales increased 4 percent on a constant currency basis compared to prior year as sales grew in the Americas and Asia and were consistent with prior year in Australia as the company begins to anniversary the worst of Australia’s macroeconomic-driven headwinds.

Operating margin of 14.2 percent increased approximately 465 basis points compared to prior year driven primarily by lower input costs and benefits from cost savings initiatives.

Total liquidity position at the end of third-quarter 2024 was more than $1.4 billion, consisting of $317 million of cash and equivalents and approximately $1.1 billion of available capacity under the company’s credit facilities.

Based on the calculation as defined in the company’s senior secured credit facility, the leverage ratio at the end of third-quarter 2024 was 4.3 times on a net debt-to-adjusted EBITDA basis, which was below its third-quarter 2024 covenant of 6.63 times and below prior year’s 5.5 times. Subsequent to the end of third-quarter 2024, the company paid down an additional approximately $870 million of debt in October 2024.

Inventory at the end of third-quarter 2024 of $928 million decreased 13 percent, or $138 million, year-over-year. The year-over-year decrease was driven predominantly by the benefits of its inventory management capabilities, including SKU discipline and lifecycle management, lower input costs as the company continued to anniversary the impact from peak inflation, and improving sales trends.

Cash flow from operations was $197 million year-to-date at the end of the third-quarter 2024 as compared to $287 million last year. Free cash flow year-to-date was $165 million at the end of the third-quarter 2024 as compared to $252 million last year.

For fiscal year 2024, which ends on December 28, 2024, the company currently expects:

For fourth-quarter 2024, which ends on December 28, 2024, the company currently expects: