Hanesbrands Inc., the parent of Champion, reported that first-quarter 2010 net sales increased 8.2% and diluted earnings per share increased to 37 cents a share from a loss of 20 cents a year ago.
The strong earnings growth was primarily a result of increased sales (which contributed 17 cents of EPS growth), improved operating margin (25 cents of growth), and lower restructuring (15 cents of growth).
Net sales increased by $70 million to $927.8 million with every business segment except Hosiery reporting sales growth. Net sales in the year-ago quarter were $857.8 million.
The company’s significant retail shelf-space gains contributed approximately 6 percentage points of sales growth, while approximately 2%age points of growth was driven by increased retail sell through, retailer inventory restocking, and foreign currency exchange rates.
“We are off to a strong start to 2010 as a result of our investment in our brands and in our supply chain during the recession,” Hanesbrands Chairman and Chief Executive Officer Richard A. Noll said. “Our brands are stronger than ever, gaining significant retail shelf space across all channels of trade. We expect to maintain this momentum throughout 2010.”
Based on the strong performance in the quarter, Hanesbrands is revising its 2010 guidance for net sales and is raising its 2010 EPS guidance. For the year, net sales are expected to increase by 6% to 8%, and EPS is expected to be in the range of $2.15 to $2.27.
Business Segment Summary and Highlights
Of the $70 million in sales growth in the first quarter, the Innerwear segment contributed $33 million, Outerwear contributed $24 million, Direct to Consumer accounted for $3 million and International contributed $15 million, with those gains slightly offset by the $5 million combined decline in the Hosiery and Other segments.
The business segments generated $46 million of increased operating profit in the quarter. The Innerwear segment contributed $28 million of the increase, Outerwear contributed $19 million, Hosiery contributed $1 million despite a sales decline, and International added $2 million. The Direct to Consumer segment had $4 million lower operating profit than a year ago.
Key business segment highlights include:
— Innerwear sales were driven by increases in all product categories, with double-digit sales growth of male underwear. Retail sell-through rates were slightly above expectations throughout the quarter. The segment had strong operating profit growth even with a $6 million increase in media and other marketing investment in the quarter.
— The first quarter is the seasonal low quarter for Outerwear, but the segment produced 11% sales growth and a $19 million increase in operating profit. The company’s Just My Size brand of plus-size apparel drove retail casualwear sales growth of nearly 50%, while retail activewear and wholesale casualwear both delivered mid-single-digit sales gains.
— International segment sales increased in all geographies except Japan and Western Europe.
Other Comments
Inventories at the end of the quarter were $1.18 billion, a 9% decrease from last year’s quarter end. Hanesbrands increased its inventories from the beginning of the fiscal year in order to build for the seasonally stronger second quarter and back-to-school period, in order to support new programs, and due to slightly higher work-in-progress as a result of disrupted Haiti production and the Nanjing, China, textile plant ramp-up.
Earnings before interest, taxes, depreciation and amortization nearly tripled in the first quarter to $107 million from $36 million a year ago.
Hanesbrands has earned the U.S. Environmental Protection Agency’s Energy Star 2010 Partner of the Year award for its accomplishments in strategic energy management. The company also launched a new corporate social responsibility section on its corporate website that outlines the company’s worldwide goals to reduce energy use and carbon emissions, including goals to use renewable energy for 30% of its energy needs and to reduce carbon dioxide emissions by 15% per product produced.
2010 Guidance
Hanesbrands has revised its 2010 net sales guidance to 6% to 8% growth. The company continues to expect slightly more than 5%age points of growth from retail shelf-space gains. Based on strong first-quarter performance, the company expects sales growth of at least 1 to 3%age points from an overall increase in consumer spending and retailer inventory restocking.
As a result of increased sales expectations, the company will invest an incremental $5 million to $10 million in advertising and trade spending over the remainder of the year and has raised its 2010 EPS guidance to a range of $2.15 to $2.27. As communicated with previous EPS guidance, if earnings approach the high end of the range, the company expects to consider additional investment in advertising and trade promotion to support 2011 growth.
HANESBRANDS INC.
Condensed Consolidated Statements of Income
(Amounts in thousands, except per-share amounts)
(Unaudited)
Quarter Ended
April 3, 2010 April 4, 2009 % Change
Net sales $ 927,840 $ 857,841 8.2 %
Cost of sales 600,410 599,965
Gross profit 327,430 257,876 27.0 %
As a % of net sales 35.3 % 30.1 %
Selling, general and administrative expenses 241,718 223,238
As a % of net sales 26.1 % 26.0 %
Restructuring - 18,671
Operating profit 85,712 15,967 436.8 %
As a % of net sales 9.2 % 1.9 %
Other expenses 1,406 3,946
Interest expense, net 37,495 36,800
Income (loss) before income tax expense (benefit) 46,811 (24,779 )
Income tax expense (benefit) 10,298 (5,451 )
Net income (loss) $ 36,513 $ (19,328 ) NM
Earnings (loss) per share:
Basic $ 0.38 $ (0.20 )
Diluted $ 0.37 $ (0.20 ) NM
Weighted average shares outstanding:
Basic 96,326 94,493
Diluted 97,493 94,493
