Hanesbrands, Inc. lifted its sales targets for Champion, now expecting the brand to reach $3.2 billion by 2024, up from a previous goal of $3 billion. The higher expectations come as Champion delivered 10 percent global growth in the fourth quarter despite tough comparisons.

Compared to a pre-pandemic fourth quarter of 2019, global Champion brand sales jumped 25 percent compared to the fourth quarter with 33 percent growth in the U.S. and 15 percent growth internationally. The continued growth above pre-pandemic levels was driven by consumer demand across channels in the U.S., continued growth in Europe, the Americas and Australia, and the ramp-up of partners in China.

For the full year, on a two-year basis against 2019, Champion brand sales are up 20 percent.

Hanesbrands reported fourth-quarter results that were in line with plans but still raised its 2024 “Full Potential” three-year financial targets initially set in May 2021 due to the company’s progress during the pandemic.

The updated targets for 2024 call for:

  • Approximately $8 billion of sales, an increase from the prior goal of approximately $7.4 billion;
  • Approximately $3.2 billion of global Champion brand sales, an increase from the prior goal of approximately $3.0 billion;
  • Approximately $1.15 billion of adjusted operating profit, an increase from the prior goal of approximately $1.05 billion;
  • Adjusted operating margin of approximately 14.4 percent, an increase from the prior goal of nearly 14.3 percent; and
  • Approximately $1.6 billion of cumulative three-year free cash flow, an increase from the prior goal of approximately $1.5 billion.

Under its initial “Full Potential” program, Champion set a goal to become a $3 billion global brand by 2024, representing a 14 percent compound annual growth rate (CAGR). Sales were about $2 billion in 2021.

“I’m excited about the $200 million that’s coming from Champion and the momentum that we have in that business on a global basis,” said Steve Bratspies, Hanesbrands’ CEO on a call with analysts.

He said that Champion is adding new doors globally, gaining more space in existing doors, reaching new geographies, and expanding to new categories. The new geographies include recently launching in South Africa and expansion in the Middle East.

“The other thing that I think we’re starting to move a little faster on, and we have more work to do, but we’re starting to make progress on, is the innovation in that space,” said Bratspies. “I was excited to see our Champion Europe team is starting to capture some of the latest trends, like natural dying that’s derived from organic sources. That’s very hot right now, and they’re putting a line out there that includes that. Our soft-touch innovation in sports bras and leggings is starting to catch even more momentum than it has, and that’s got recycled poly material, and it’s super soft. A versatile product.”

He added that Champion is “going to get aggressive” behind its “Be Your Own Champion” campaign targeting women, seen as an underserved market for the brand. Said Bratspies, “We’re leaning into a concept called ‘Win with Women’ because we know that’s a big growth segment for us as we go forward.”

In China, traffic deterioration, overall tied to COVID-19 restrictions, is impacting the growth of the Champion brand, but partners have formed, and the Chinese consumer is responding “very well” to the label. Said Bratspies, “We’re pleased with the growing partnerships that we have there and how those continue to evolve. Like others, traffic in stores has been impacted by COVID, obviously, but we feel that consumer is responding to us really well.”

Likewise, traffic in Japan has been impacted by the Omicron variant, but Champion sees “strong” underlying fundamentals in the country.

“As I look at the business in total around Champion, we’re doing well,” said Bratspies. “I think we can do even better as we go forward and as the brand continues to grow and continues to expand. We’ve got opportunities to reach new segments that we’ve talked about in the past, get better with kids and women. We have innovation opportunities and continue to find new geographies, so the momentum behind the brand is good. We think we’re a challenger brand in this space, we’re not necessarily the biggest, but we think we’re playing the right way for our brand, and it offers opportunities for us to continue to build and add that $200 million that we’ve targeted by 2024, above our previous growth targets,” continued Bratspies.

Companywide, Hanesbrands sales for the fourth quarter, ended January 1, totaled $1.75 billion, an increase of 4 percent, led by the 10 percent growth in Champion brand global sales. Sales were in line with Wall Street’s targets. 

Excluding $28 million in personal protective equipment sales (PPE) and $45 million in sales from a 53rd week in the prior period and a $9 million headwind from exchange rates in the current period, net sales increased 9 percent over the prior year.

The year-over-year growth was driven by consumer demand and point-of-sale trends in the U.S., Europe, Americas, and certain Asia markets, including China, which more than offset lingering COVID-19-related headwinds in Australia and Japan. Total constant-currency fourth-quarter net sales increased 4 percent.

Compared to fourth-quarter 2019 impacted by the pandemic, companywide sales from continuing operations increased or 15 percent, including the 25 percent growth in Champion brand sales globally. All 2019 results were rebased to reflect its European Innerwear business as discontinued operations and the exit of the C9 Champion mass program and the DKNY intimate apparel license.

Total constant-currency net sales on a two-year basis increased 14 percent. Global innerwear and activewear businesses were driven by consumer demand, higher point-of-sale performance and market share gains.

Adjusted gross margin of 38.4 percent decreased 195 basis points compared to last year and approximately 235 basis points compared to fourth-quarter 2019. The margin decline was driven primarily by increased expedite costs. The company gained significant new retail space and made the strategic decision to expedite additional product to ensure arrival in time for space sets at retail partners. Efficiency improvements in manufacturing, cost savings from initiatives such as its SKU reduction program and the benefits of business mix offset the vast majority of the inflation and transportation cost headwinds in the fourth quarter.

Adjusted income totaled $156 million, or 44 cents per share and includes a 2 cents per share impact from a higher-than-expected tax rate. Results matched Wall Street’s consensus target and compared to adjusted income from continuing operations of $148 million, or 42 cents, in the prior-year period and adjusted income of $142 million, or 39 cents, in fourth-quarter 2019.

Among its three business segments, U.S. Activewear sales grew $46 million, or 11 percent in the quarter over the prior year, driven by point-of-sale trends across its activewear brands. Sales increased $73 million, or 19 percent, compared to fourth-quarter 2019.

By brand, Champion sales increased 21 percent in the U.S. Activewear segment and sales of its other active brands increased by high-teens compared to 2019. The company also makes activewear under Hanes, Alternative, JMS/Just My Size, Gear for Sports and Hanes Beefy-T.

The U.S. Activewear segment experienced strong point-of-sale trends across the online, wholesale and distributor channels in the quarter. 

Sales in the college bookstore channel returned to pre-pandemic levels and were consistent with the fourth-quarter 2019. Segment operating margin of 13.0 percent increased 420 basis points over the prior period driven by benefits from the business mix, price increases in printwear and disciplined SG&A expense management. These benefits more than offset higher levels of inflation and increased investments in brand marketing. Operating margin decreased 100 basis points compared to fourth-quarter 2019 as higher levels of inflation and increased brand marketing investments more than offset leverage from higher sales volume and benefits from the business mix.

In the U.S. Innerwear segment, sales increased 3 percent over last year, excluding PPE, driven by point-of-sale growth across channels. The company sells innerwear in the U.S. under Hanes, Champion, JMS/Just My Size, Bali, Maidenform, and Polo Ralph Lauren.

Prior year sales included significant post-COVID inventory restocking by retailers and $22 million of PPE sales. Compared to fourth-quarter 2019, sales increased $108 million, or 19 percent, with double-digit growth in the Kids, Socks, Women’s, and Men’s businesses. Relative to 2019, the company’s U.S. innerwear market share increased approximately 150 basis points with increased share positions in Men’s, Women’s, Kid’s, and Socks.

Operating margin of 16.9 percent in the U.S. Innerwear segment decreased more than 700 basis points compared to the prior year and fourth-quarter 2019. The decline was due to the expected impact from higher inflation and costs associated with the strategic decision to expedite additional products to service new retail space gains and increased investments in brand marketing, all of which impacted the business ahead of Innerwear’s first-quarter 2022 price increase.

In the International segment, sales increased $19 million, or 4 percent, in the fourth quarter compared to the prior year. Excluding $6 million of PPE sales in the prior-year quarter, fourth-quarter sales increased 5 percent on a reported basis and 7 percent on a constant currency basis. Constant-currency sales grew in the Americas, Europe and China, driven by strong consumer demand for the company’s brands. Constant- currency sales declined in Japan and Australia as both regions continued to be impacted by store closures and tentative consumer behavior resulting from the ongoing pandemic. Compared to fourth-quarter 2019, International segment revenue increased $49 million, or 10 percent. On a constant currency basis, sales increased 7 percent, with strong growth in Europe, the Americas, Australia, and China more than offsetting COVID-related headwinds in Japan.

For the quarter, the International segment’s operating margin of 19.1 percent increased 140 basis points over the prior year. Operating margin increased 190 basis points compared to fourth-quarter 2019 driven by fixed-cost leverage from higher sales, benefits from the business mix and disciplined SG&A expense management.

The company raised its 2024 “Full Potential” three-year financial targets as it exceeded its initial full-year 2021 outlook provided at its May 2021 Investor Day, despite greater-than-expected headwinds from inflation and global logistics challenges. Sales exceeded the midpoint of its prior range by approximately $550 million; adjusted operating profit was approximately $100 million higher; adjusted earnings per share were approximately 30 cents per share higher; and operating cash flow was approximately $100 million higher.

“I am very encouraged by the fast start to our Full Potential growth plan, despite the extremely challenging operating environment,” Bratspies said. “Our strong early execution in growing global Champion, re-igniting innerwear growth, driving consumer centricity and focusing our portfolio gives me confidence in what we can achieve over the next three years.”

Photo courtesy Champion