Hanesbrands Inc., the parent of Champion, reported Q3 2010 net sales increased 10.8% and diluted earnings per share increased 47% to 63 cents, up from 43 cents a year ago.

Earnings growth in the quarter was propelled by the third consecutive quarter of accelerated sales growth and lower restructuring costs, which overcame a higher income tax rate. Strong sales growth in the company’s three largest business segments – Innerwear, Outerwear and International – drove a net sales increase of $115 million to $1.17 billion. Net sales in the year-ago quarter were $1.06 billion.

Based on performance in the first three quarters and the pending Gear For Sports acquisition, Hanesbrands updated its 2010 guidance. Full-year net sales are expected to be approximately $4.3 billion, an increase of more than 10 percent over last year’s net sales of $3.9 billion. Full-year EPS is expected to be in the range of $2.27 to $2.32, more than four times last year’s EPS of $0.54. The company’s previous guidance for 2010 was a range of $2.25 to $2.35.

Business Segment Summary and Highlights

The company’s significant retail shelf-space gains for 2010 and solid back-to-school sales results were the foundation for the quarter’s sales growth. New programs and shelf-space gains contributed approximately 7 percentage points of the quarter’s 10.8% sales growth. The remaining growth came from increased retail sell through, retailer inventory restocking, and favorable foreign currency exchange rates in the quarter.

Double-digit sales increases in the Innerwear, Outerwear and International segments combined for $122 million in sales growth. Direct to Consumer sales were up slightly, and sales in the Hosiery and Other segments declined by $7 million combined.

Key business segment highlights include:

  • Innerwear sales increased by nearly 10%, driven by strong results for male underwear and intimate apparel. The segment achieved growth with mass, mid-tier, department store and dollar-store retail customers. Men’s underwear, which continues to make significant share gains, recorded its third consecutive quarter of strong double-digit sales growth. Segment operating profit increased by 2% in spite of higher input costs, including cotton, and higher distribution costs.
  • Across-the-board growth in the Outerwear segment, led by the Champion, Just My Size and Hanes brands, resulted in a 19% sales increase for the quarter. Retail activewear, retail casualwear and wholesale casualwear all had double-digit sales gains. Segment operating profit decreased by 11% as a result of higher input and distribution costs.
  • International segment sales increased by 13%, the third consecutive quarter of double-digit growth. Sales gains across numerous countries included strong double-digit growth in Argentina, Brazil, China, India and Mexico. Segment operating profit increased by 31%.

Gear For Sports

Hanesbrands expects to complete its acquisition of graphic apparel company GearCo, Inc., known as Gear For Sports, on Nov. 1. A leading seller of licensed logo and graphic apparel in collegiate bookstores and other channels, Gear For Sports had sales of approximately $225 million in its fiscal year ended in June.

Based on the timing of the acquisition, Gear For Sports is expected to contribute sales of approximately $30 million in the fourth quarter and add incremental revenue of approximately $200 million in 2011.

Macro Trends and Factors for 2011

Hanesbrands has secured price increases to offset annualized input cost inflation of approximately $150 million in 2011. The company knows its input costs for the first two quarters of 2011 and has informed customers that if current high commodity and other related costs remain in place the company will increase prices on appropriate products effective midyear in 2011.

Hanesbrands expects to issue its 2011 net sales and EPS guidance in January when it reports fourth-quarter 2010 earnings. Hanesbrands could see high-single-digit to double-digit sales growth in 2011 based on macro trends and other factors, including product pricing and sales volume, the Gear For Sports acquisition, flat to moderate consumer spending, and benefits of net shelf-space gains in 2010 and 2011. For EPS, Hanesbrands is seeking to achieve its annual long-term growth goal of 10% to 20% in 2011, with a desire to be in the upper half of that range.