HanesBrands Sees 25 Percent Q1 Revenue Gain

HanesBrands Inc. announced results for the first quarter of 2021, with continued sales momentum across the company’s global innerwear and activewear businesses driving strong adjusted operating profit and cash flow.

Net sales from continuing operations for the first quarter ended April 3, 2021, totaled $1.51 billion, an increase of 25 percent compared with $1.20 billion for the period ended March 28, 2020. Total constant currency first-quarter net sales increased 22 percent.

Double-digit growth in both global innerwear and activewear businesses was driven by strong point-of-sale performance across all major channels, led by 82 percent growth in online channels, and market share gains in key categories. First-quarter sales growth also benefited from a comparison with the initial pandemic shutdowns in the year-ago period and certain one-time contributions, including government stimulus and retailer restocking.

“Our strong first-quarter results showed growth across all business segments,” said Chief Executive Officer Steve Bratspies. “Champion continued its rapid growth, driven by strong consumer demand. We gained share in U.S. Innerwear, and our Hanes Total Support Pouch launch shows how our brands can appeal to younger consumers with a combination of innovative products and compelling marketing. Our global online sales grew more than 80 percent as we focus on empowering consumers to shop when, where and how they want to shop.

“I want to thank our 61,000 associates who continue to meet consumer demand around the world as we continue to face COVID-related challenges. Our first-quarter results show the competitive advantages of our supply chain as well as the rapid progress we’re making on our Full Potential plan to generate long-term revenue and profit growth.”

The company previously announced its intention to seek strategic alternatives for its European Innerwear business as it focuses on other strategic growth opportunities. In the quarter, the company reclassified this business to discontinued operations. As a result, the company recorded a non-cash impairment charge of approximately $390 million to reflect an intangible asset impairment and net asset write down. With European Innerwear now reflected in discontinued operations, all year-over-year comparisons are based on continuing operations.

First-quarter GAAP gross margin of 40.0 percent increased 520 basis points compared to the prior-year period. Adjusted gross margin of 40.2 percent increased 360 basis points over the comparable prior-year period. The year-over-year improvement in gross margin was driven predominantly by the leverage of higher sales volume from strong point-of-sale growth and the one-time items referenced above.

Also contributing to gross margin improvement in the quarter were favorable product mix, foreign exchange rates and a modest benefit from sales related to the company’s SKU reduction initiative. These were partially offset by higher transportation costs, which resulted from increased shipping rates globally as well as costs associated with expediting products to meet stronger-than-expected customer demand.

First-quarter GAAP operating profit increased 297 percent to $190 million from $48 million in the comparable prior-year period. GAAP operating margin of 12.6 percent increased 860 basis points over the prior year. Adjusted operating profit, which excludes $19 million of charges related to the Full Potential plan, increased 190 percent to $210 million from $72 million in the prior-year period. Adjusted operating margin increased 790 basis points over the prior year to 13.9 percent. The strong improvement in operating margin was driven by gross margin performance as well as SG&A leverage from higher sales, which more than offset increased investments in brand marketing in the quarter.

The GAAP and adjusted effective tax rate for the first quarter was 10 percent and 16 percent, respectively, which compares to a GAAP and adjusted effective tax rate of 12 percent and 14 percent, respectively, for the first quarter of 2020.

First-quarter GAAP income from continuing operations totaled $128 million, or $0.37 per diluted share, compared to income from continuing operations of $5 million, or $0.01 per diluted share, in the prior-year period. Adjusted income from continuing operations excluding after-tax charges totaled $136 million, or $0.39 per diluted share, compared to adjusted income from continuing operations of $26 million, or $0.07 per diluted share in the prior-year period.

First-Quarter 2021 Business Segment Summaries
(Comparisons to first-quarter 2020, unless otherwise noted)

Innerwear Segment
 U.S. Innerwear sales of $570 million increased 35 percent over the prior year. The strong year-over-year growth was driven by underlying point-of-sale growth and market share gains combined with the overlap of the initial pandemic shutdown as well as certain one-time benefits, including government stimulus and retailer restocking. For the quarter, basics revenue increased 39 percent with growth across all product categories. Intimates revenue increased 27 percent driven by double-digit growth in bras.

U.S. Innerwear segment operating profit of $127 million increased 56 percent over the prior-year period and the segment’s operating margin increased 300 basis points to 22.3 percent. The benefits from product mix and SG&A leverage from higher sales more than offset higher expedite costs from stronger-than-expected customer demand.

U.S. Innerwear results include approximately $4 million of revenue and no operating profit from the sale of personal protective garments (“PPE”) in the quarter.

Activewear Segment
 U.S Activewear sales increased 26 percent over the prior year to $364 million, driven by growth in the online channel, including both Champion.com and pure-play and retail partner sites, and wholesale brick & mortar channels, the overlap of the initial pandemic shutdown, and benefits from government stimulus. For the quarter, Champion sales increased 34 percent over the prior year and revenue from the company’s other activewear brands increased 16 percent. While the rate of decline improved from the fourth quarter, the sports and college licensing business continued to be negatively impacted by campus shutdowns and limits on sports attendance due to the COVID-19 pandemic. The company also saw the effects of an earlier-than-anticipated rebound in the printwear channel.

U.S. Activewear segment operating profit increased 647 percent to $61 million compared to the prior-year period and the segment’s operating margin increased 1,380 basis points to 16.6 percent. The improvement in profitability was driven predominantly by expense leverage from higher sales as well as the benefit from the product mix.

International Segment
International revenue and operating profit increased 18 percent and 72 percent, respectively, over the prior year. On a constant-currency basis, sales and profit increased 8 percent and 57 percent, respectively. On a constant currency basis, the company experienced growth in the Americas, driven primarily by lapping last year’s COVID shutdown; Australia, due to continued favorable consumer sentiment; and Europe, driven by growth of Champion despite continued COVID-related headwinds in the region. Constant-currency sales in the Asia Pacific declined over the prior year, as Japan continued to be negatively impacted by COVID-related restrictions, which more than offset growth in South Korea and China.

The international segment operating profit increased 72 percent to $87 million compared to the prior-year period, and the segment’s operating margin increased 540 basis points to 17.2 percent. The improvement in profitability was driven primarily by volume leverage from higher sales.

Regular Quarterly Cash Dividend Declared
The company’s Board of Directors declared a regular quarterly cash dividend of $0.15 per share to be paid on June 1, 2021, to stockholders of record at the close of business on May 21, 2021. The declared cash dividend represents the 33rd consecutive quarterly return of cash to stockholders. The company has paid a cumulative $1.4 billion in quarterly cash dividends since initiating its program in April 2013.

Second Quarter and Full-year 2021 Financial Outlook
For the second quarter of 2021, which ends on July 3, 2021, the company currently expects:

• Net sales from continuing operations of approximately $1.56 billion to $1.59 billion, which represents approximately 2 percent growth at the midpoint and includes a projected benefit of approximately $35 million from changes in foreign currency exchange rates. This compares to net sales of $1.54 billion in second-quarter 2020, which included $614 million in PPE sales;
• Excluding PPE, net sales at the midpoint of the guidance range are expected to increase 69 percent over the prior year period;
• While the company expects a modest amount of sales from one-time benefits, including retailer restocking and stimulus-related spending, to continue into the second quarter, the benefit is expected to be significantly lower than first-quarter levels. For the second half of 2021, the company’s guidance does not assume any additional stimulus or inventory restocking benefits;
• GAAP operating profit from continuing operations to range from approximately $179 million to $189 million;
• Adjusted operating profit from continuing operations to range from approximately $200 million to $210 million. The midpoint of adjusted operating profit implies an operating margin of approximately 13.0 percent and reflects the impact of inflation, particularly transportation, as well as increased brand investment. This compares to an adjusted operating margin of 15.2 percent in the second quarter of 2020, which benefited from significant fixed cost leverage due to PPE volume-driven efficiencies in the supply chain as well as temporary COVID-driven cost reductions;
• Charges for actions related to Full Potential of approximately $21 million;
• Interest and Other expenses of approximately $45 million;
• An effective tax rate of approximately 15 percent on a GAAP and adjusted basis; and
• GAAP earnings per share from continuing operations to range from $0.32 to $0.35. Adjusted earnings per share from continuing operations to range from $0.37 to $0.40.

For the fiscal year 2021, which ends on January 1, 2022, the company currently expects:

• Net sales from continuing operations to total approximately $6.2 billion to $6.3 billion, which includes a projected benefit of approximately $100 million from changes in foreign currency exchange rates. At the midpoint, net sales guidance implies approximately 2 percent growth over the prior year, and 3 percent growth adjusted for the 53rd week in 2020. This compares to net sales of $6.13 billion in 2020, which included $820 million in sales of PPE;
• Adjusting for PPE and the 53rd week in 2020, net sales at the midpoint of the guidance range are expected to increase 19 percent over the prior-year period;
• GAAP operating profit from continuing operations to range from approximately $730 million to $760 million;
• Adjusted operating profit from continuing operations to range from approximately $815 million to $845 million. The midpoint of adjusted operating profit suggests an operating margin of 13.3 percent, compared with an adjusted operating margin of 12.7 percent in 2020;
• Incremental brand marketing investment of $50 million as compared to 2020;
• As compared to 2019, at the midpoint of the company’s full-year 2021 guidance, which includes incremental brand investment and COVID-related expenses, net sales and adjusted operating profit are expected to be above 2019 levels;
• Charges for actions related to Full Potential of approximately $85 million;
• Interest and Other expenses of approximately $185 million;
• An effective tax rate of approximately 14 percent on a GAAP basis and approximately 15 percent on an adjusted basis;
• GAAP earnings per share from continuing operations to range from approximately $1.33 to $1.41;
• Adjusted earnings per share from continuing operations to range from approximately $1.51 to $1.59;
• Cash flow from operations to range from $500 million to $550 million; and
• Capital expenditures of approximately $140 million, which includes approximately $50 million related to Full Potential.

Photo courtesy HanesBrands/Champion