Shift To PPE Helps HanesBrands Post Earnings Growth In Second Quarter
In its second-quarter 2020 financial results, HanesBrands reports diluted earnings per share (EPS) growth of 12 percent despite market disruption from the COVID-19 pandemic. It attributes the earnings growth to the company’s ability to pivot to production and sales of personal protective garments (face masks and medical gowns) combined with relatively strong apparel performance in pandemic conditions, including 68-percent sales growth in the online channel. Winston-Salem, North Carolina-based HanesBrands participates in the promotional products industry as suppliers Hanes/Champion/ComfortWash (PPAI 191138, S10) and Alternative Apparel (PPAI 217134, S5).
“The HanesBrands organization did a phenomenal job overcoming significant challenges in order to mitigate the effects of the global pandemic,” says HanesBrands CEO Gerald W. Evans Jr. “The professionalism, ingenuity and dedication of our worldwide employees was on display in generating double-digit EPS growth, establishing a new protective garments business line from scratch, and starting the reopening of manufacturing, distribution and selling in the most safe and effective manner possible.”
HanesBrands reports that, in the midst of the global pandemic, it is focused on serving channels of trade that remain open; reopening production, distribution and selling operations in a safe and prudent manner; generating and preserving cash; and developing a product line of personal protective garments to meet emerging government, commercial and consumer demand.
Net sales for the second quarter, which ended June 27, were $1.74 billion compared with $1.76 billion a year ago. The company sold $752 million in protective garments globally. The year-ago quarter included net sales of $119 million from the now exited C9 Champion mass program and the DKNY intimate apparel license. Excluding the exited programs and foreign exchange rates, total constant-currency net sales for second-quarter 2020 increased seven percent.
Second-quarter GAAP (generally accepted accounting principles) operating profit increased five percent to $242 million, and the quarter’s adjusted operating profit excluding actions increased 41 percent to $305 million. GAAP EPS increased 12 percent to $0.46 in the quarter, and adjusted EPS excluding actions increased 58 percent to $0.60.
“Despite the effects of pandemic-caused disruptions to global economies, our business is in great shape,” says Evans. “We performed significantly better than our base-case scenario in both our apparel business and our new protective garment business. Point-of-sale trends are improving for apparel, and in the case of U.S. Innerwear basics and U.S. Champion, point-of-sale trends in May and June were higher than pre-COVID levels.
“Our brands are strong, and we are gaining market share and building momentum. Our liquidity remains strong allowing us to maintain our quarterly cash dividend and have ample operating flexibility. While there is still near-term uncertainty concerning the ongoing economic impact of the COVID-19 pandemic, we believe we are positioned to drive growth and seize opportunities over the next several years.”
As a result of the COVID-19 pandemic and the lack of visibility to business conditions, the company modeled several different financial scenarios based on assumptions of when retailer stores and economies would begin to reopen. Under the company’s base-case scenario, stores were assumed to gradually reopen beginning in late May. Apparel sales and protective garment sales both exceeded the base-case scenario for the quarter. HanesBrands continues to generate significant sales growth through channels of trade that have remained open during the pandemic, including online, mass retail, dollar store, and food and drug. On a rebased comparison to a year ago, second-quarter global online sales increased more than 70 percent through company ecommerce websites, retailer websites, large internet pure-plays and business-to-business customers. Excluding sales of protective garments, approximately 30 percent of total sales in the quarter were through the online channel.
HanesBrands sold $752 million in personal protection garments globally to governments, large organizations, consumers and business-to-business customers. The sales of the face masks and medical gowns significantly exceeded its initial expectations for the new business lines. As part of the protective-garment sales in the quarter, the company delivered more than 450 million cloth face coverings and more than 20 million medical gowns to the U.S. government. The company is also selling face masks to consumers under its brands globally, including HanesBrands, Champion, Bonds and Dim, and it says that protective garments represent an ongoing business opportunity. Excluding the potential for additional government contracts, HanesBrands estimates that it will sell more than $150 million in protective garments in the second half of 2020.
The company’s innerwear segment results benefited from better-than-expected apparel performance and significant sales of protective garments. Second-quarter segment revenue increased 61 percent and operating profit increased 104 percent. Its apparel performance, excluding protective garments, significantly exceeded the company’s pandemic base-case scenario with revenue decreasing 29 percent. When year-ago results are rebased to reflect the exit of the C9 Champion mass retail program and DKNY intimates license, segment revenue decreased 27 percent.
Its activewear segment’s second-quarter performance also exceeded the company’s base-case pandemic scenario. Segment sales decreased 62 percent as a result of the pandemic-related demand impacts and $98 million of C9 Champion sales in mass retail in the year-ago quarter. The COVID-19 pandemic resulted in retailer door closures and lower demand for the segment’s printwear and sports apparel businesses. Point-of-sale trends for Champion accelerated as the quarter progressed, and HanesBrands reports that strong positive trends continued in July. Sales through the enhanced Champion.com website increased nearly 200 percent in the quarter.