HanesBrands reported sales grew 2.9 percent in the fourth quarter, led by an 11 percent gain for the Champion brand and continued momentum in U.S. Innerwear. Earnings were down but ahead of Wall Street estimates.

Net sales for the fourth quarter ended January 2, 2021, were $1.8 billion, compared with $1.75 billion for the comparable period ended December 28, 2019. Results were well above Wall Street’s consensus of $1.64 billion. The company recorded $28 million in revenue from personal protective garments (PPE) globally in the fourth quarter. Excluding net sales of $88 million from the exited C9 Champion mass program and DKNY intimate apparel license recorded in the prior-year period, and the effect of changes in foreign exchange rates, total constant-currency fourth-quarter net sales increased 6 percent.

For the full year, net sales were $6.7 billion, including net sales of $959 million of PPE, compared to $6.97 billion in the prior year, which included net sales of $419 million from the C9 Champion mass program and DKNY intimate apparel license. Excluding the exited programs and the effect of changes in foreign exchange rates, total constant-currency net sales for full-year 2020 increased 2 percent over the prior year.

“I’m extremely proud of the HanesBrands team for all it accomplished in 2020 under very challenging conditions, and I thank our global associates for their hard work and dedication,” said HanesBrands Chief Executive Officer Steve Bratspies. “We delivered solid sales growth in the fourth quarter, with continued revenue momentum in our largest businesses and strong market share performance in our Innerwear and Activewear segments.”

During the fourth quarter, the company completed a comprehensive business assessment and began implementing its Full Potential plan. The Full Potential plan focuses the company on four pillars to drive growth and long-term profitability:

  • grow the Champion brand globally;
  • drive growth in Innerwear with brands and products that appeal to younger consumers;
  • build e-commerce excellence across channels; and
  • streamline global portfolio.

The company has identified 20 strategic initiatives under these four key pillars for growth and has launched a multi-year cost savings program to substantially self-fund the investments to achieve its Full Potential plan’s objectives. The company expects to provide a comprehensive overview of the Full Potential plan at its virtual Investor Day in May.

“We are implementing our Full Potential plan with the goal of creating a consumer-centric company that delivers long-term growth and higher profitability,” Bratspies said. “I’m encouraged by our rapid progress as we work to simplify our business and transform our organization to move faster, lower costs and focus on our highest-return growth opportunities.”

As part of the implementation, the company said it no longer views PPE as a long-term growth opportunity. In addition, as the result of a comprehensive strategic inventory review, the company is reducing its SKUs by 20 percent to focus on its highest-volume, fastest-growing and profitable products.

As a result of these decisions, during the fourth quarter, the company recorded $611 million (96 percent non-cash) in inventory charges consisting of a $400 million write-off of its entire PPE inventory-related balance and an inventory valuation write-down of approximately $211 million related to the company’s SKU reduction program.

The company also announced plans to explore strategic alternatives for its European Innerwear business to simplify its operations and focus its resources on strategic growth opportunities.

Fourth-quarter GAAP operating loss totaled $444 million, including the $611 million inventory charges referenced above, as well as a $25 million non-cash impairment charge on its U.S. hosiery business due to impacts of COVID-19, a $17 million non-cash tax asset write-off and an $8 million charge primarily related to a previously disclosed supply chain restructuring. Excluding these charges, fourth-quarter adjusted operating profit of $217 million decreased 10 percent as compared with the comparable period.

The GAAP and adjusted effective tax rate for the fourth quarter was 32.8 percent and 19.0 percent, respectively, with a GAAP and adjusted effective tax rate of 5.1 percent and 12.9 percent in the fourth quarter of 2019.

Fourth-quarter GAAP net loss totaled $332 million, or 95 cents per share, compared to net income of $185 million, or 51 cents per diluted share in the prior-year period. Adjusted net income excluding after-tax charges of $467 million, or $1.33 per diluted share, totaled $135 million, or 38 cents per diluted share, which compares with Wall Street’s consensus target of 29 cents.

Callouts for Fourth-Quarter Results and Ongoing Operations

  • Momentum across the business — Revenue growth continued across all three business segments as year-over-year trends improved sequentially, excluding PPE. The company gained share in U.S. Innerwear, and global Champion sales were up 11 percent in constant currency. Excluding the sports and college licensing business, which has been heavily impacted by campus shutdowns and limits on sports attendance due to the COVID-19 pandemic, global Champion sales increased 18 percent in constant currency.
  • Sustainability Leadership — HanesBrands was recognized by CDP for its leadership in addressing climate change for the third consecutive year. CDP included the company on its 2020 A-List in recognition of HBI’s actions to cut emissions, mitigate climate risks and support the low-carbon economy. This year’s A score follows superior A- rankings in 2019 and 2018, placing HanesBrands among the top sustainable companies within its industry and worldwide.
  • COVID-related uncertainty — The company continues to operate in a highly uncertain environment due to ongoing concerns about the COVID-19 pandemic and related operating restrictions imposed by governments around the world.

Fourth-Quarter 2020 Business Segment Summaries
Comparisons to Fourth-Quarter 2019, Unless Otherwise Noted

  • Innerwear Segment — U.S. Innerwear sales, excluding PPE, increased 13 percent, driven by strong point-of-sale trends, space gains in kids’ underwear, continued inventory re-stocking by retailers and the contribution from a 53rd week. The company grew its market share in U.S. basics and intimates. When the year-ago quarter is rebased to reflect the exit of the C9 Champion mass program and the DKNY intimate apparel license, fourth-quarter 2020 sales grew 20 percent overall and excluding PPE, sales were up 16 percent.
  • Activewear Segment — U.S. Activewear marked its third consecutive quarter of sequential improvement, led by strong performance of the global Champion brand. Revenue increased 7 percent on a rebased basis, driven by growth in the online, wholesale and distributor channels.
  • International Segment — The company saw continued improvement in revenue trends in its international segment. International revenue increased 2 percent. Excluding $6 million in PPE sales, core international revenue increased 1 percent. Australia continued its strong performance with constant currency sales up 8 percent in the quarter, driven by growth in Bonds and Bras N Things. The company also saw growth in Canada and Latin America, while COVID-related disruptions continued to create challenges in Asia and Europe. On a constant currency basis, International sales declined approximately 3 percent.

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 March 9, 2021, to stockholders of record at the close of business on February 19, 2021.

The declared cash dividend represents the 32nd consecutive quarterly return of cash to stockholders. The company has returned more than $1.3 billion in quarterly cash dividends to stockholders since initiating its program in April 2013.

First-Quarter 2021 Financial Guidance
The company is providing financial guidance for the first quarter of 2021 and plans to provide a full-year 2021 outlook as well as three-year financial targets as part of its detailed review of the Full Potential plan at its upcoming Investor Day in May.

First-quarter guidance reflects continued uncertainty related to the COVID-19 pandemic and its impact on the global consumer environment.

  • The company expects first-quarter 2021 net sales to total approximately $1.485 billion to $1.515 billion. The midpoint of guidance represents net sales growth of 14 percent over first-quarter 2020 and includes a projected benefit of $50 million from changes in foreign currency exchange rates and implies growth of 10 percent in constant currency.
  • The company expects first-quarter GAAP operating profit to range from $140 million to $150 million. Adjusted operating profit is expected to range from $150 million to $160 million.
  • The midpoint of adjusted operating profit suggests an operating margin of 10.3 percent, compared with an adjusted operating margin of 4.8 percent in the first quarter of 2020. The expected year-over-year margin expansion is due to higher sales, positive manufacturing variances and the anniversary of last year’s COVID-driven volume de-leverage.
  • The company expects the first-quarter 2021 tax rate to be approximately 6 percent on a GAAP basis and approximately 16 percent on an adjusted basis.
  • GAAP and adjusted earnings per share are expected to range from 24 cents to 27 cents.

The company’s brands include Hanes, Champion, Bonds, DIM, Bali, Maidenform, Playtex, Bras N Things, Nur Die/Nur Der, JMS/Just My Size, Wonderbra, Lovable, Alternative, Berlei, L’eggs, and Gear for Sports.

Photo courtesy Champion