HanesBrands reported a solid finish for the year, with revenue, operating profits, EPS, and operating cash flow coming in above expectations, led by double-digit growth for its Champion brand. Officials also detailed its Full Potential plan to drive growth and profitability in the years ahead, including further steps to accelerate growth for the Champion brand globally.

Overall, the plan has four components:

  • Grow the Champion brand globally;
  • Drive growth in Innerwear with brands and products that appeal to younger consumers;
  • Build e-commerce excellence across channels;
  • Streamline global portfolio;

On a conference call with analysts, Steve Bratspies, who joined HanesBrands as CEO last August, said the company eyes “significant opportunity” to grow Champion over the next three to four years. Category expansion is expected to come from a greater focus on women’s and kids, layered outerwear, and casual athletic footwear. Steps to drive growth include further increasing direct engagement with consumers through digital platforms and leveraging its global design centers to deliver innovative products. In China, with its partners, Champion is forming an integrated front-end strategy for standalone stores and online.

“We’re making rapid progress developing our global brand strategy that defines our consumer segments, geographies, product offerings, and channels of distribution,” said Bratspies. “We have solid momentum in this business, and we’re thoughtful about how to position the brand going forward.”

Bratspies, formerly at Walmart, said Champion’s growth potential was one of the primary reasons he joined HanesBrands. He said, “This is a 100-year old brand, it’s got an incredible track record of innovation, it’s got a strong global footprint that’s continuing to grow, and we see excitement behind the brand. It’s an area that we need to lean into, and we need to continue to build upon.”

Among the other components of the Full Potential plan, Bratspies said the U.S. innerwear, which includes Hanes, Maidenform and Bali, has seen “inconsistent” growth over the last few years. Growth in the category is coming from younger consumers, with the segment’s brands skewing older. Bratspies said, “I think, in particular, the Hanes brand is a bit under leveraged right now and has massive opportunity to grow as we expand that.”

Building “e-commerce excellence” relates to leveraging data analytics to understand better and engage consumers, improving performance marketing so consumers can find products online and further developing a frictionless shopping experience on its own and retail partner sites.

Online, including third-party sites and Hanesbrands’ websites, represented about 21 percent of sales in the quarter, growing 46 percent year-over-year.

Finally, streamlining the global portfolio relates to discontinuing PPE (Personal Protective Equipment). Bratspies said HanesBrands no longer sees PPE as a growth category as COVID-19 vaccines roll out worldwide, retail orders slow, and “a flood of competitive offerings” have reached the marketplace. HanesBrands is also exploring strategic alternatives, including a possible sale, of its European innerwear business and is looking to reduce its SKUs count by 20 percent across brands, including Champion. Bratspies said, “This will allow us to focus our resources and efforts on higher growth, higher-margin business.”

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.

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

“We are implementing our Full Potential plan to create 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.”

In the fourth quarter ended January 2, net sales grew 2.9 percent to $1.8 billion, well above Wall Street’s consensus of $1.64 billion. Excluding net sales of $88 million from the exited C9 Champion mass program at Target and DKNY intimate apparel license recorded in the prior-year period, total currency-neutral sales expanded 6 percent.

Fourth-quarter GAAP net loss totaled $332 million, or 95 cents per share, up from earnings of $185 million, or 51 cents, a year ago. Excluding after-tax charges of $467 million, or $1.33 per share, related to the Full Potential plan, earnings totaled $135 million, or 38 cents, down 16.8 percent from $162.3 million, or 42 cents, a year ago, but ahead of Wall Street’s consensus target of 29 cents.

Adjusted gross margin declined 80 basis points to 41 percent but exceeded expectations for the quarter due to higher sales and a favorable product mix. Adjusted operating margin fell 250 basis points over the prior year to 12 percent as the gross margin decline, along with the expected higher COVID-19-related costs and its Full Potential plan, more than offset benefits from higher sales and a favorable mix.

Among segments, Activewear sales grew 7.1 percent in the quarter to $403.1 million, while operating profit declined 32.4 percent to $35.7 million.

The gains were driven by growth in the online wholesale and distributor channels. While the sports and college licensing business declined year-over-year due to continued campus closures and limited attendance at sporting events, sales saw sequential improvement in revenue trends in the fourth quarter. The segment includes Champion, Hanes’ activewear business, Alternative, and Gear for Sports.

Champion sales grew 11 percent in the U.S. Activewear segment. Global Champion sales were also up 11 percent in constant currency. Excluding the sports and college licensing business, global Champion sales increased 18 percent in constant currency.

Activewear’s operating margin was 8.9 percent in the fourth quarter. As expected, activewear’s margin declined compared to the prior year due to the expected negative manufacturing variances, which were partially offset by higher sales and mix benefits.

In the U.S. Innerwear segment, revenues grew 19.7 percent in the quarter to $668.2 million, while operating profits rose 16.6 percent to $160.8 million.

The sales gains reflected an 18 percent increase in basics, an 8 percent gain in intimates and the inclusion of $22 million of PPE revenue. Excluding PPE, U.S. innerwear sales climbed 16 percent. The gains were driven by strong consumer demand at point-of-sale, space gains in kid’s underwear, continued inventory restocking by retailers, and the contribution from the 53rd week. Basics saw growth in each product category. In intimates, bras grew at a double-digit rate to offset a COVID-19-driven decline in shapewear.

Operating margin in the U.S. Innerwear segment declined 60 basis points to 24.1 percent, driven primarily by higher distribution costs partially offset by the benefits from higher sales and mix.

In the International segment, sales improved 2.2 percent to $664.9 million, with the Champion brand increasing 6 percent. On a constant currency basis, international sales declined 3 percent over the prior year. COVID-19-driven declines in Asia and Europe offset growth in Australia, Canada and Latin America. Operating earnings in the International segment were down 8.9 percent to $88.1 million.

For the first quarter, HanesBrands expects:

  • Sales in the range of $1.49 billion to $1.52 billion, representing growth of 14 percent at the midpoint of guidance;
  • GAAP operating profit ranges from $140 million to $150 million, and 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 4.8 percent a year ago. The expected year-over-year expansion is due to higher sales, positive manufacturing variances and the anniversary of last year’s COVID-19-driven volume de-leverage.
  • GAAP and adjusted EPS are expected to range from 24 cents to 27 cents compared to year-ago GAAP and adjusted EPS, excluding actions, were a loss of 2 cents and earnings of 5 cents, respectively.

Photos courtesy HanesBrands/Champion