Hanesbrands Inc., the parent of Champion and Hanes, reported total sales in the second quarter declined by 8% to $986.0 million, while GAAP earnings per diluted share were 32 cents a share, compared with 60 cents in the year-ago second quarter. Excluding restructuring and other actions, non-GAAP earnings per diluted share in the second quarter were 42 cents, compared with.65 cents a year ago.
“We are pleased with our second-quarter performance in the midst of a significant recession,” Hanesbrands Chairman and Chief Executive Officer Richard A. Noll said. “We achieved the sales trend improvement that we expected versus the first quarter, and our operating margin excluding actions of 9.8% was greater than 2008s full-year margin of 9.7%. We remain sharply focused on execution, cost control, conservative inventory management, and generating cash to pay down debt.”
Second-quarter sales were $986.0 million, compared with $1.07 billion a year ago. The 8% sales decline was better than the decline rate of the past two sequential quarters, which were also impacted by the recession. Total net sales declined by 13% in the first quarter 2009 and by 11% in the 14-week fourth quarter of 2008.
The sales decline rate for the Innerwear segment, which consists of replenishment-oriented basic apparel, continued in the mid-single digits. Second-quarter sales declined by 4%, compared with a decline of 6% in the first quarter.
Outerwear segment sales saw the significant trend improvement that the company anticipated. Second-quarter outerwear sales declined by 11%, compared with the first quarters 21% decline. Based on the strength of advance orders, especially fleece, the company expects continued sequential improvement in the segments sales decline rate with third-quarter sales expected to decline in the mid-single digits or better.
The second-quarter sales decline in the International segment was 20%, similar to the decline in the first quarter. Excluding the impact of foreign exchange rates on currency, International sales declined by 11% in the second quarter. Based on current currency trading trends, the negative currency effect is expected to diminish in the third and fourth quarters.
Hosiery segment sales declined by 14% in the second quarter, compared with a 21% decline in the first quarter.
“We are trending in the right direction,” Noll said. “We saw the decline rate improve sequentially in three of our four primary segments. We are now eagerly watching retail sell-through during the important back-to-school season. We expect single-digit declines in the third quarters total net sales, and depending on retail sell-through during the back-to-school season, the rate of sales decline could improve over the second-quarters sales decline.”
GAAP operating profit was $84.1 million in the quarter, down from $113.1 million a year ago.
Hanesbrands was able to protect its margins through cost-reduction efforts despite sales declines. The second-quarters operating profit margin excluding actions was 9.8%, which was better than the 2008 full-year operating profit margin excluding actions of 9.7%.
Hanesbrands ended the quarter with inventory of $1.23 billion, down $56 million from the beginning of the year and in line with the companys plan to reduce its year-end inventory to $1.15 billion or less. Inventory reduction supports Hanesbrands goal to reduce long-term debt by $300 million in 2009.
“We are very pleased with our ability to protect margins in this economic climate,” Hanesbrands Executive Vice President and Chief Financial Officer E. Lee Wyatt said. “This is a significant achievement. We are tightly managing our SG&A and are executing on the business model that we laid out for this year, which includes inventory and debt reduction.”
Hanesbrands said it continues to leverage the strength of its brands and the companys marketing investments. In April, Hanesbrands entered a multiyear agreement with a major mass merchandise retailer to become the exclusive supplier of plus-sized T-shirts, fleece and other outerwear apparel through its Just My Size brand across all the retailers doors.
In August, Hanesbrands will begin shipping Playtex 18-hour bras to a national department store chain, increasing the brands leading distribution in the United States to the mass, mid-tier and department store channels.
Continued marketing investment in Hanes is allowing the brand to continue to broaden distribution with space and share gains in the important mid-tier retailer channel. For example, Hanes is launching new innerwear programs beginning in January 2010 in two major national mid-tier store chains. The Champion brand is also capitalizing on its strength as evidenced by increased penetration of the sporting-goods and department-store channels, including new programs in 2010.
These continued investments in driving big brands through key items play an important role as the company strives to reach its long-term growth goals.
“Our strategies are working, and the year is progressing as we expected,” Noll said. “We are successfully navigating the recession, and we are nearing the startup of our Asian fabric manufacturing plant in Nanjing, China, as we seek to generate growth momentum going into 2010.”
