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NEW YORK — Sara Lee Corp.’s Intimates and Underwear unit managed a hefty increase in operating profit in the fourth quarter and nearly matched year-ago sales levels despite the divestiture of numerous businesses.
Separately, Sara Lee chief executive officer Steven McMillan endorsed the new federal law requiring ceo’s and chief financial officers to certify annual and quarterly results and said he and Sara Lee cfo Theo de Kool will be doing so when Sara Lee’s Form 10-K is filed on or about Sept. 27. “We strongly believe that it is incumbent upon today’s business leaders to work vigorously to restore investor confidence in this volatile marketplace,” McMillan said in a statement.
During the fourth quarter ended June 29, Intimates and Underwear — the division responsible for the Hanes, Playtex and Bali brands — generated operating income of $232 million, 19 percent above the $195 million yielded in the prior-year quarter. The Chicago-based consumer goods giant said that all three apparel-related units — intimate apparel, knit products and legwear — boosted their profit performance. Sales dropped 1.2 percent to $1.62 billion from $1.64 billion, but rose 2 percent among its continuing operations.
During 2001, or the first quarter of 2002, Sara Lee spun off Coach through an initial public offering and sold International Fabrics and parts of its Champion operation, among other holdings.
Sara Lee’s net income dropped 63.9 percent to $351 million, or 43 cents a diluted share, from $973 million, or $1.19, in the year-ago quarter. Excluding an array of unusual items that cover the company’s Reshaping plan, accounting changes and the benefit from the Coach spinoff last year, earnings per share reached 42 cents, on par with estimates and above the 37 cents reported in the comparable-quarter last year.
In its discussion of divisional results, Sara Lee noted that the gain in operating income of apparel was achieved despite a 16 percent increase, year-over-year, in advertising and promotional spending.
“In particular, this business benefited from increased sales of higher margin products and significant cost savings and production efficiencies derived from Reshaping activities over the last 24 months,” the firm reported. “Total unit volumes for Intimates and Underwear increased 2 percent in both the fourth quarter and full year, benefiting from intimate apparel and legwear gains during both periods.”
Sara Lee noted that worldwide unit volumes in intimate apparel rose 5 percent for the quarter and 3 percent for the year, with particular strength in the U.S., where unit share of the bra market rose more than 2 percent to 31 percent. The Bali Shoulder Spa introduced this past year “has already achieved significant market share” and sales of the Playtex brand to Wal-Mart increased nearly 30 percent in the year’s final quarter.
Global knit products experienced flat unit volume in the quarter but were up 1 percent for the year. U.S. underwear unit sales were up 2 percent in the quarter as unit share rose to 37.6 percent in men’s and 34.3 percent in women’s. Activewear unit volume increased 3 percent in the quarter, led by double-digit advances in sales of printables, as that segment of the market rebounded.
Legwear unit volume inched ahead 3 percent in the quarter and 1 percent in the year, as socks were strong throughout and sheer hosiery sales posted a strong fourth quarter.
Reflecting earlier divestitures, Intimate and Underwear operating profits receded 19.9 percent to $676 million from $844 million, while sales contracted 13.4 percent to $6.46 billion from $7.45 billion. Overall, Sara Lee saw net income recede 55.4 percent to $1.01 billion, or $1.23 a diluted share, from $2.27 billion, or $2.65 a share, in fiscal 2001. Excluding unusual items, yearend EPS was $1.36, on par with both consensus estimates and prior-year performance. Corporate sales rose 6 percent to $17.63 billion from $16.63 billion.
For the full year, Intimates and Underwear generated 36.6 percent of corporate sales versus 44.8 percent in 2001.
In guidance, the firm said the Intimates and Underwear revenues would be adversely affected by the discontinuation of certain business in the first quarter of fiscal 2003, “but operating income is expected to increase at a strong double-digit rate.” Sara Lee projects first-quarter EPS of between 27 and 29 cents versus 26 cents in the first quarter of 2002. Full-year EPS is currently slated to land between $1.44 and $1.50.