HanesBrands announced fourth-quarter and full-year 2016 results, including growth for net sales, operating profit and diluted earnings per share. The company also delivered record annual operating cash flow of $606 million.

In addition to 2016 results, Hanes announced initial financial guidance for 2017, forecasting high-single-digit growth expectations for net sales, record cash flow from operations and growth for operating profit and earnings per diluted share.

For the year ended December 31, 2016, fourth-quarter net sales increased 12 percent to $1.58 billion and full-year net sales increased 5 percent to $6.03 billion. Sales growth was driven by acquisitions but was affected by a weaker-than-expected retail environment in the fourth quarter in the United States.

On a GAAP basis, fourth-quarter EPS of 41 cents a share increased 37 percent and full-year EPS of $1.40 increased 32 percent. When excluding pretax charges related to acquisitions and integrations, adjusted EPS of 53 cents in the fourth quarter increased 20 percent and full-year adjusted EPS of $1.85 increased 11 percent.

All adjusted consolidated measures and comparison reflect continuing operations and exclude pretax charges related to acquisitions and other actions of approximately $47 million and $186 million taken in the fourth quarter and full year of 2016, respectively, and $54 million and $266 million taken in the fourth quarter and full year of 2015, respectively.

Revenues grew 11.8 percent in the quarter to $1.58 billion, while sales in the year expanded 5.2 percent to $6 billion.

“We had a strong year of sales, profit and cash flow growth with many accomplishments, including the expansion of our X-Temp product lineup, the successful launch of our Hanes FreshIQ underwear innovation, acquisition integration and new acquisitions in Europe and Australia,” said Hanes Chief Executive Officer Gerald W. Evans Jr. “Our business model allowed us to deliver benefits to shareholders, even though our record-high financial results fell short of our expectations as a result of unanticipated fourth-quarter retail weakness.

“Despite the challenging environment, we were able to manage inventory and generate cash, returning nearly $550 million to shareholders through quarterly cash dividends and share repurchases. In 2017, we anticipate another record year of cash flow. As we navigate the changing consumer marketplace and the trend toward online buying, we are well positioned to generate overall growth and drive total shareholder return.”

Key callouts for fourth-quarter and full-year 2016 financial results are as follows.

Record Cash Flow Driven By Inventory Management And Growth
Hanes generated a record $606 million in net cash from operations for the year. The company’s inventory decreased $132 million from the end of 2015, excluding $158 million of year-end inventory added as part of acquisitions in 2016.

GAAP and adjusted operating profit, and the associated operating profit margins, increased in the fourth quarter and full year. For the year, GAAP operating profit increased 30 percent to $776 million and adjusted operating profit increased 6 percent to $914 million.

Consumer Store Traffic Challenges
Slower-than-expected consumer visits to retail stores in the fourth quarter resulted in retailer inventory control through reduced replenishment orders by U.S. retailers. Innerwear sales decreased 8 percent in the fourth quarter, while Activewear sales increased 3 percent. Hanes is adapting to the growth of online sales and changing consumer buying behavior. In the fourth quarter, the online channel, including retailer websites, company websites and pure-play e-commerce sites, accounted for approximately 11 percent of U.S. sales, versus approximately 8 percent a year ago.

Acquisitions Drive International Segment Growth
The acquisitions of Pacific Brands of Australia (now referred to as Hanes Australasia), Champion Europe and Champion Japan, as well as organic growth in Asia, drove 78 percent growth in International sales in the fourth quarter and 35 percent for the full year. Acquisitions contributed approximately $243 million in sales in the fourth quarter and $456 million for the year. The International operating profit margin increased 240 basis points to 11.7 percent for the full year.

Direct To Consumer Segment
The direct to consumer segment sales decreased 12 percent in the fourth quarter and 8 percent for the year as part of a transition to exit the company’s legacy catalog business and reduce noncore offerings in outlet stores and online.

2017 Financial Guidance
Hanes has issued initial guidance for 2017 that would represent a fifth consecutive year of record net sales, operating profit and EPS. The guidance reflects acquisition contributions, growth opportunities, the effect of the ongoing consumer shift toward online purchases and negative currency impacts that are expected to dampen growth of International segment sales and operating profit.

The company expects 2017 net sales of $6.45 billion to $6.55 billion, GAAP operating profit of $845 million to $895 million, adjusted operating profit excluding actions of $935 million to $975 million, GAAP EPS for continuing operations of $1.70 to $1.82, adjusted EPS excluding actions for continuing operations of $1.93 to $2.03 and another record year of net cash from operations of $625 million to $725 million.

Compared with 2016 results, the midpoint of 2017 guidance represents net sales growth of 8 percent, GAAP operating profit growth of 12 percent, adjusted operating profit growth of 5 percent, GAAP EPS growth from continuing operations of 26 percent, adjusted EPS growth from continuing operations of 7 percent and operating cash flow growth of 11 percent.

Factors Affecting Cadence Of Guidance
Full-year net sales guidance includes expected incremental sales from acquisitions of approximately $420 million to $430 million. Approximately $410 million of incremental acquisition sales are expected in the first half, slightly weighted to the second quarter. Organic sales growth is expected to range from flat to up 2 percent.

At today’s foreign exchange rates, the stronger dollar versus last year is expected to reduce net sales growth by an estimated $30 million to $40 million and reduce operating profit growth by approximately $3 million to $4 million. Because of the second-half timing of acquisitions in 2016, the foreign exchange impact is expected to be more heavily weighted to the second half of 2017.

First-Quarter Guidance
The company expects total net sales growth in the first quarter as a result of acquisition-driven International gains as well as Activewear growth. Organic sales are expected to decline in the quarter as a result of lower Innerwear sales affected by the retail climate of store closings and tight inventory as well as the exits from the company’s domestic catalog business and noncore offerings. Innerwear sales trends are expected to normalize starting in the second quarter, with expected full-year net sales comparable to 2016.

First-quarter GAAP EPS for continuing operations is expected to be 21 cents to 24 cents, and adjusted EPS is expected to be 27 cents to 29 cents.

Additional Full-Year Guidance
The company expects approximately $15 million in synergy cost benefits in 2017 from the acquisition of Hanes Europe Innerwear and continues to internalize additional production of basics, intimates and activewear across its global supply chain. Synergies from the Hanes Australasia (Pacific Brands) and Champion Europe acquisitions are expected to substantially begin in 2018.

In conjunction with acquisition integration in 2017, the company expects to incur an estimated $80 million to $90 million of pretax charges for actions related primarily to Hanes Europe Innerwear, Knights Apparel, Hanes Australasia and Champion Europe.

Guidance for operating cash flow growth in 2017 includes the expected benefits from net income growth and lower pretax cash charges related to acquisitions.

The company expects capital expenditures of approximately $90 million to $100 million in 2017. The company is not required to make a pension contribution in 2017 and does not anticipate making a voluntary contribution, compared with a $40 million voluntary contribution in 2016.

Hanes expects interest expense and other expenses to be approximately $175 million combined, an increase of $18 million as a result of acquisitions compared with 2016. The 2017 full-year tax rate is expected to be comparable to 2016, assuming no changes to U.S. tax law and policy. The company’s guidance assumes share repurchases of approximately $300 million.

Photo courtesy HanesBrands