HanesBrands, Inc. reported net sales in the first quarter increased 7 percent on a constant-currency basis with 6 percent growth for Champion on a global basis. U.S. Innerwear sales increased 1.5 percent over the prior year. Earnings and sales exceeded guidance and the company reaffirmed its guidance for the year.

“I’m very proud of our team for delivering another strong quarter in an incredibly challenging time as we exceeded expectations for sales and earnings per share,” said Steve Bratspies, CEO. “We saw continued strong demand for our brands in the quarter, with global Champion and innerwear growth accelerating on a two-year basis.”

Bratspies continued, “At the same time, the global operating environment has deteriorated significantly over the past three months, with accelerating inflation, continued COVID-19 disruptions and logistical challenges. In this environment, we are highly focused on executing in the areas we control. We are unwavering in our commitment to investing in our people, brands and technology, and I remain confident that we will deliver on our Full Potential plan.”

First-Quarter Highlights

  • HanesBrands exceeded guidance for sales, operating profit, operating margin and earnings per share despite an increasingly challenging global operating environment. The better-than-expected performance was driven by continued strong consumer demand for its brands and increased SG&A efficiency as the company benefits from its Full Potential initiatives.
  • The company positively comped substantial prior-year growth rates. Revenue growth accelerated on a two-year stack basis for the global Champion brand, both domestically and internationally, as well as for each of its business segments—Innerwear, Activewear and International. Sales in all segments as well as for the global Champion brand remain meaningfully above pre-pandemic levels.
  • Champion launched its ‘Win with Women’ campaign, continuing to expand product offerings for younger female consumers centered on its Soft Touch sports bras and leggings.
  • The Hanes Total Support Pouch innovation platform continued to drive increased engagement with younger male consumers. HanesBrands launched a platform that includes its X-Temp technology. In April, the company leveraged its global operating capabilities to also launch Total Support Pouch with X-Temp in the U.S. and Australia, supported by marketing campaigns tailored to regional audiences.
  • New retail space gains in U.S. Innerwear business. The company gained retail space in its Hanes brand across all product categories and in multiple channels. The company also gained retail space with its Maidenform shapewear products and smart-size bras in the mass channel as the brand continues to attract younger consumers and diversify its distribution.
  • Robust product and innovation pipeline developed in both its Innerwear and Champion businesses as the company is seeing the benefits of its global design initiatives under the Full Potential plan.
  • Returned $77 million to shareholders, including $52 million from its regular quarterly dividend and $25 million in share repurchases in the quarter.

First-Quarter 2022 Results

  • Net sales from continuing operations of $1.58 billion increased $68 million, or 5  percent, over the prior year. Excluding the $30 million unfavorable impacts from foreign exchange rates, net sales increased 7  percent.
  • Consumer demand for the company’s brands drove growth in the U.S., Americas and Europe.
  • Global Champion brand sales increased 6  percent over the prior year in constant currency, or 3  percent on a reported basis.
  • By geography, Champion sales internationally increased 10  percent in constant currency, or 4  percent on a reported basis, and increased 2  percent in the U.S.
  • Consumer demand for the Champion brand continued in the first quarter; however, product supply challenges to the U.S. market did not improve as expected in the quarter resulting in approximately $40 million of in-hand orders in the U.S. that were unfulfilled. Had product arrived in time, Champion sales in the U.S. would have increased at a high-teens rate and global Champion constant currency sales would have increased 14  percent for the first quarter.
  • U.S. Innerwear sales increased 1.5  percent over the prior year, exceeding the company’s outlook, driven by retail space gains, higher prices and positive mix. The strong performance resulted in positive comps above last year’s rapid growth.
  • Gross Profit of $584 million declined 3  percent as compared to the prior year. Gross margin was 37.1  percent, down from 40.0  percent in the prior year. Adjusted Gross Profit, which excludes certain costs related to the company’s Full Potential plan, was $585 million compared to $605 million last year. Adjusted Gross Margin of 37.1  percent declined approximately 305 basis points compared to prior year. The margin decline was driven by the expected impact from higher inflation and the higher-than-planned strategic investment in expedited freight to service new retail space gains and new product innovation. These expected headwinds more than offset efficiency improvements in manufacturing, cost savings from initiatives such as its SKU reduction program and the partial-quarter benefit from the price increase in its Innerwear business.
  • Selling, General and Administrative (SG&A) expenses were $414 million, consistent with $413 million in the first quarter last year. Adjusted SG&A expenses, which exclude certain costs related to its Full Potential plan, were $409 million compared to $396 million last year. As a percent of net sales, adjusted SG&A expense of 26.0  percent declined 30 basis points compared to prior year. The year-over-year improvement was driven by improved expense efficiencies from Full Potential initiatives, which more than offset planned investments in brand marketing and technology.
  • Operating Profit and Operating Margin in the first quarter of 2022 were $171 million and 10.8  percent, respectively, which compared to $190 million and 12.6  percent, respectively, in the prior year. Adjusted Operating Profit of $175 million declined $34 million as compared to the first quarter 2021. Adjusted Operating Margin of 11.1  percent was ahead of the company’s expectation. As compared to the prior year, the adjusted operating margin declined approximately 280 basis points as SG&A leverage was more than offset by the pressure from inflation and expedited freight costs on gross margin.
  • The GAAP and Adjusted Effective Tax Rates for the first quarter were both 17.0  percent. For the first quarter of 2021, GAAP and adjusted effective tax rates were 10.3  percent and 16.0  percent, respectively.
  • Income from continuing operations totaled $114 million, or $0.32 per diluted share. This compares to income from continuing operations of $128 million, or $0.37 per diluted share, last year. Adjusted income from continuing operations totaled $118 million, or $0.34 per diluted share. This compares to adjusted income from continuing operations of $136 million, or $0.39 per diluted share, in first-quarter 2021.

First-Quarter 2022 Business Segment Summary

  • Innerwear sales increased 1.5  percent over last year, positively comping last year’s significant 35  percent growth. The growth in the first-quarter o2022 was driven by retail space gains, a positive mix benefit and the partial-quarter benefit of price increases. This more than overcame last year’s one-time sales benefits from retailer restocking and government stimulus. For the quarter, sales grew in its Women’s, Men’s, and Socks product categories.Segment operating margin of 17.6  percent decreased by approximately 470 basis points compared to the prior year. The partial-quarter impact from the price increase and the benefits from volume and mix were more than offset by the expected impact from higher inflation, the higher-than-planned strategic investment in expedited freight to service new retail space gains and new product innovation, as well as increased investments in brand marketing.
  • Activewear sales grew $23 million, or 6  percent over the prior year. By brand, Champion sales were consistent with the prior year. Champion was able to comp last year’s strong growth in the segment as the result of strong growth in the collegiate channel. However, product delays resulted in approximately $40 million of in-hand orders going unfulfilled in the quarter. Had the product arrived in time, Champion sales in the U.S. would have increased at a high-teens rate, and constant currency sales for global Champion would have grown 14  percent for the quarter. In the quarter, sales of other Activewear brands increased mid-teens over the prior year. Operating margin for the segment of 12.7  percent decreased approximately 400 basis points compared to the prior period as volume benefits were more than offset by the expected impact from higher inflation, merchandise mix and increased investments in brand marketing. Activewear price increases are expected to be in effect in the third quarter.
  • International sales, on a constant-currency basis, increased 7  percent compared to the prior year driven by growth in Europe, the Americas and China. Constant currency sales declined in Japan due to ongoing COVID-related pressures and in Australia due to product delays. Including the $30 million impact from unfavorable foreign exchange rates. International sales increased 1  percent on a reported basis.Operating margin for the segment of 17.5  percent increased approximately 30 basis points over prior year driven by fixed-cost leverage from higher sales, benefits from business mix and disciplined SG&A expense management.

Cash Flow, Balance Sheet and Shareholder Capital Returns

  • Total liquidity position at the end of first-quarter 2022 was more than $1.4 billion, consisting of $369 million of cash and equivalents and approximately $1.05 billion of available capacity under its credit facilities.
  • Leverage ratio at the end of first-quarter 2022 was 3.1 times on a net debt-to-adjusted EBITDA basis, consistent with 3.1 times at the end of first-quarter 2021.
  • Inventory at the end of first-quarter 2022 was $1.82 billion, an increase of 22  percent over the same period the prior year. The increase was driven by the combination of higher in-transit levels, the impact of inflation on input and transportation costs, as well as investments, particularly in Innerwear, to rebuild safety stock as the company takes action to continue improving service levels on its high-demand SKUs.
  • Cash flow from operations was a use of $231 million in the first-quarter 2022 driven primarily by working capital needs in inventory.
  • Consistent with its comments upon announcing its $600 million share repurchase program in February, the company began repurchasing shares in the first quarter 2022. Share repurchases totaled $25 million, or approximately 1.6 million shares, in the quarter.

Second Quarter and Full-Year 2022 Financial Outlook

  • Net sales from continuing operations of approximately $1.68 billion to $1.73 billion, which includes a projected headwind of approximately $40 million from changes in foreign currency exchange rates. At the midpoint, this represents net sales consistent with the prior year on a constant currency basis, or down 3  percent on a reported basis.
  • GAAP operating profit from continuing operations to range from approximately $155 million to $175 million.
  • Adjusted operating profit from continuing operations to range from approximately $170 million to $190 million and includes a projected headwind of approximately $5 million from changes in foreign currency exchange rates. The midpoint of adjusted operating profit represents an operating margin of approximately 10.5  percent.
  • Charges for actions related to Full Potential of approximately $15 million.
  • Interest and other expenses of approximately $37 million.
  • An effective tax rate of approximately 17  percent on both a GAAP and adjusted basis.
  • GAAP earnings per share from continuing operations to range from approximately $0.28 to $0.32.
  • Adjusted earnings per share from continuing operations to range from approximately $0.32 to $0.36.
  • Fully diluted shares outstanding of approximately 351 million.
  • Earnings per share and fully diluted share count guidance exclude any potential impact from future share repurchases.

Fiscal-year 2022 Outlook
(ending December 31, 2022)

  • Net sales from continuing operations of approximately $7.0 billion to $7.15 billion, which includes a projected headwind of approximately $125 million from changes in foreign currency exchange rates. At the midpoint, this represents approximately 6  percent growth over prior year on a constant currency basis and 4  percent growth on a reported basis.
  • Over the past three months, increased challenges in the global operating environment have resulted in an additional $65 million of net cost headwinds relative to the company’s prior full-year outlook. As a result, the company currently expects full-year results to be near the midpoint of its full-year guidance range for sales and near the low-end of its operating profit and earnings per share guidance ranges.
  • GAAP operating profit from continuing operations to range from approximately $780 million to $850 million.
  • Adjusted operating profit from continuing operations to range from approximately $840 million to $910 million, which includes a projected headwind of approximately $17 million from changes in foreign currency exchange rates.
  • Charges for actions related to Full Potential of approximately $60 million.
  • Interest and other expenses of approximately $148 million.
  • An effective tax rate of approximately 17  percent on both a GAAP and adjusted basis.
  • GAAP earnings per share from continuing operations to range from approximately $1.50 to $1.67.
  • Adjusted earnings per share from continuing operations to range from approximately $1.64 to $1.81.
  • Cash flow from operations of approximately $400 million.
  • Capital expenditures of approximately $150 million to $175 million.
  • Fully diluted shares outstanding of approximately 351 million.
  • Earnings per share and fully diluted share count guidance exclude any potential impact from future share repurchases.

Photo courtesy HanesBrands