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Sara Lee Lifted by Intimates Unit

NEW YORK — Sara Lee Corp.’s Intimates and Underwear unit generated a 62.2 percent increase in its first-quarter operating income, despite nearly flat sales.<br><br>Intimates and Underwear’s income skyrocketed to $206 million in the...

NEW YORK — Sara Lee Corp.’s Intimates and Underwear unit generated a 62.2 percent increase in its first-quarter operating income, despite nearly flat sales.

Intimates and Underwear’s income skyrocketed to $206 million in the three months ended Sept. 28 from $127 million in the year-ago quarter. The unit’s sales ticked up 0.3 percent to $1.69 billion from $1.68 billion.

Overall, Sara Lee saw net income increase 27.7 percent to $308 million, or 38 cents per diluted share, from $242 million, or 30 cents, in last year’s first quarter. Excluding income associated with the exit from numerous businesses, earnings per share would have been 37 cents, versus company guidance, issued in August, of 27 to 29 cents and prior-year EPS of 26 cents.

Intimates and Underwear accounted for 41.4 percent of corporate operating income, versus 31.9 percent in last year’s quarter, and 37.3 percent of sales, versus 39.7 percent.

“I strongly believe that Sara Lee Corp. today has the right mix of food, apparel and household products to satisfy the growing appetite of consumers around the world for high-quality, convenient products that meet their everyday needs,” said Steven McMillan, chairman, president and chief executive, in a statement. “My current priority is to make certain that Sara Lee invests in new product development, marketing support for our brands and enhanced organizational structures to deliver sustainable topline growth.”

He noted that Playtex and Bali gel-strap bras were among the new products contributing to this quarter’s results, while Hanes’ new Tagless T-shirt will figure in revenue for upcoming quarters.

Among the factors contributing to the flat-sales performance of the apparel unit was a 13 percent decrease in media advertising and promotional spending for the division. “Starting with the second quarter, increased marketing for our key brands, including the launch of new campaigns for both Hanes and Playtex, is expected to drive greater advertising and promotional spending in support of this business,” the company noted, adding that, by the end of the year, the division’s marketing spending will rise by at least 10 percent.

Sara Lee said operating income rose for all three apparel segments — intimates, knits and legwear — while sales rose for intimates and knits. In intimates, U.S. unit sales rose at a “double-digit rate” while European units were up 3 percent. Bra market share in the U.S. rose more than 4 points to 31.4 percent. Global knit volume was flat, as men’s and boys’ underwear and Champion brand products logged increases and women’s and girls’ underwear and activewear products experienced declines.

For the full year, the company projected an increase of 13 to 18 percent in earnings per share, excluding one-time items, and sales growth of between 2 and 4 percent, excluding contributions from acquired businesses.

Sara Lee expects second-quarter unit sales to rise for socks, underwear and intimates, “and operating income is expected to grow at a double-digit rate.”