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Intimates Lead Sara Lee Profits

NEW YORK — Increased promotional spending helped boost Sara Lee Corp.’s intimates and underwear business in the second quarter.<br><br>With comparisons helped along by heavy restructuring costs last year, the division’s operating...

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NEW YORK — Increased promotional spending helped boost Sara Lee Corp.’s intimates and underwear business in the second quarter.

With comparisons helped along by heavy restructuring costs last year, the division’s operating profits rose 273.2 percent during the quarter to $209 million from $56 million a year ago. Excluding restructuring and the effects of strengthening of foreign currencies, operating income advanced 21.5 percent to $192 million from $158 million.

Sara Lee said the business benefited during the quarter from lower cotton costs as well as cost savings and production efficiencies born of its restructuring activities for the past two years.

Sales from the division inched up 1.2 percent for the quarter ended Dec. 28 to $1.68 billion. This compared with year-ago sales of $1.66 billion. Without the results of business dispositions and currency fluctuations, sales dipped by 1 percent. Unit volumes for continuing operations were flat with an upswing in knit products offset by continued weakness in the global hosiery markets.

The soft U.S. discount sector kept comparable unit volume flat for the firm’s intimate apparel products worldwide during the quarter. Global knit products chimed in with a 5 percent increase in unit volume. U.S. activewear units grew with strength at Champion (up 9 percent) and Printables (up 16 percent). In legwear, sock unit volumes were flat for the quarter while sheer hosiery volume fell 12 percent from weak market conditions and the discontinuation of low margin products.

Media advertising and promotion spending for the intimate and underwear division surged 18 percent in the quarter with a nearly 40 percent rise in media advertising to support key brands and product introductions.

“Our increased investment in media advertising and new product development is starting to accelerate the growth of our key brands,” said chairman, president and chief executive C. Steven McMillan, in a statement. “We are especially pleased with the strong consumer acceptance of a wide range of new products including the Hanes Tagless T-shirt, Playtex and Bali gel-strap bras.”

Total second-quarter profits for the Chicago-based consumer goods firm increased 117.5 percent to $348 million, or 42 cents a diluted share, from $160 million, or 20 cents, a year ago. Costs associated with restructuring and business dispositions reduced the year-ago profits by 17 cents a share, making for a 5 cent year-over-year increase in EPS, excluding those items. Overall sales for the firm inched up 1.9 percent in the quarter to $4.78 billion from $4.69 billion a year ago.

For the six months, the intimate and underwear unit posted a 124.5 percent rise in operating profits to $422 million from $188 million. Before certain items, operating profits increased 37.2 percent to $395 million from $288 million. Sales were up 0.7 percent to $3.37 billion from $3.35 billion.

Sara Lee’s net income drove ahead 63.2 percent in the first half to $656 million, or 80 cents a diluted share, from $402 million, or 49 cents. Sales increased 4.2 percent to $9.31 billion from $8.93 billion a year ago.

For the third quarter, the company is looking for diluted earnings per share of 33 to 35 cents, versus 31 cents a year ago. Part of the increase should emanate from expected expansion of more than 10 percent in operating profits at the intimates and underwear division.

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