Third-Quarter Sales, Profits Up At HanesBrands
HanesBrands, Inc. has announced its third-quarter results, reporting net sales, operating profit and cash flow, and earnings per share above expectations. Net sales for the third quarter, which ended September 26, were $1.81 billion compared with $1.87 billion a year ago. 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).
HanesBrands reports that it sold $179 million in personal protective garments globally in the third quarter. 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 shuttered programs and the effect of changes in foreign exchange rates, total constant-currency net sales for third-quarter 2020 increased 2.6 percent. Third-quarter GAAP operating profit decreased 35 percent to $175 million, and the quarter’s adjusted operating profit excluding actions decreased nine percent to $227 million. Third-quarter GAAP earnings per share (EPS) decreased 43 percent to $0.29, and adjusted EPS excluding actions decreased 11 percent to $0.42.
“I want to thank our incredible team of more than 63,000 around the globe for their commitment and dedication during these challenging times,” says Hanes CEO Steve Bratspies. “I’m pleased with our third-quarter results as we saw significant improvements across our business and exceeded our expectations for sales, profits and cash flow from operations. We saw particularly strong performance in our U.S. innerwear and global Champion businesses, and I’m encouraged by our momentum even as we continue to operate in a challenging environment.”
Bratspies adds, “HanesBrands has iconic brands, a strong balance sheet, global reach, a deep commitment to sustainability and a passionate team. We have tremendous opportunities ahead of us, and we are committed to delivering long-term growth. We are conducting an in-depth review of our business as we build our growth strategy. Parts of our strategy will begin to unfold in the fourth quarter, and I look forward to reporting on our progress in the months ahead.”
The company says that apparel revenue trends improved sequentially in each business segment. Global sales of Champion grew nearly 130 percent over the previous quarter, and consumer demand remains strong. It also delivered another strong cash flow in the third quarter, generating $249 million in operating cash flow. HanesBrands expects to end the year with higher-than-anticipated inventory of personal protective garments but continues to expect to generate positive operating cash flow in the second half and for the full year.
In the third quarter, HanesBrands’ online sales increased nearly 70 percent on a rebased basis through company ecommerce websites, retailer websites, large internet pure-plays and business-to-business customers. It also ended the quarter with $2 billion of liquidity, up from $1.8 billion last quarter, while paying its regular dividend and reducing debt by approximately $130 million.
Also in the third quarter, HanesBrands announced 2030 global sustainability goals, including addressing the use of plastics and sustainable raw materials in products and packaging and improving the lives of 10 million people through initiatives that focus on health, education and wellness. In addition, the company launched a new sustainability website, www.hbisustains.com, designed to increase transparency on key metrics, including diversity, human rights benchmarks and risk assessments for investors.
U.S. innerwear sales increased 8.4 percent, excluding protective garments, with growth in the basics and intimate apparel businesses. Overall, U.S. innerwear sales increased 37 percent over the prior year driven by sales of protective garments, continued positive point-of-sale trends and inventory restocking. When the year-ago quarter is rebased to reflect the exit of the C9 Champion mass program and the DKNY intimate apparel license, sales increased 11.5 percent, excluding protective garments, and 41 percent overall.
In the U.S. activewear segment, sales declined 41 percent, representing a significant improvement from the second quarter. When the year-ago quarter is rebased for the C9 Champion program exit, U.S activewear sales declined 27 percent. Excluding $103 million of C9 Champion sales in mass retail in the year-ago quarter, sales of the Champion brand, while down 27 percent over the prior year, showed an 85 percent increase over the second quarter, driven by strong point-of-sale trends and continued online growth. The vast majority of these declines occurred in the segment’s sports apparel business, which was significantly impacted by COVID-related issues, such as cancelled sporting events and the closure of college bookstores.
HanesBrands’ international segment net sales declined five percent and operating profit declined 10 percent. On a constant currency basis, net sales decreased seven percent and operating profit declined 12 percent. Excluding sales of protective garments, core International sales declined seven percent as compared to the prior year, marking a significant improvement from the 44 percent decline in the second quarter. Year-over-year constant currency sales growth in the company’s Americas and Champion Europe businesses was more than offset by declines in the company’s European innerwear, Asia and Australia businesses, where COVID-related challenges continued to slow the retail recovery.
Looking ahead to fourth quarter, HanesBrands’ outlook reflects continued uncertainty due to the COVID-19 pandemic and is based on the current business environment, including the recently implemented COVID-related restrictions in Europe, but does not reflect any potential impact to the consumer or operating environments should governments or businesses institute additional lockdowns and store closings.
For fourth-quarter 2020, net sales are expected to be approximately $1.6 billion to $1.66 billion. Included in this sales outlook is approximately $50 million of protective garment sales and approximately $10 million of foreign exchange benefit. HanesBrands also notes that it faces second-half 2020 profitability headwinds. Negative manufacturing variances and higher SG&A expense are expected to pressure both gross and operating margins in the fourth quarter.