The Winston-Salem, N.C.-based innerwear and activewear company — parent to brands such as Hanes, Bali, Playtex, Maidenform, L’eggs and Wonderbra, among others — reported quarterly earnings Thursday morning before the market opened, improving on top and bottom lines as the company gears up to sell its European innerwear business and considers raising prices globally.
“I want to thank our associates for delivering strong results in the quarter, particularly our manufacturing team, which has put us in position to meet consumer demand,” Steve Bratspies, HanesBrands chief executive officer, said in a statement. “We are maintaining our fourth-quarter outlook for net sales and adjusted operating profit, driven by continued demand for our brands, our strong inventory position and our global team’s proven ability to manage ongoing macro challenges.
“We continue to make progress on our Full Potential plan as we invest in our iconic brands, build talent, enhance e-commerce capabilities and modernize our technology,” Bratspies continued. “We’re excited by the early results from Full Potential and are confident we can deliver the long-term plan we announced in May.”
For the three-month period ending Oct. 2, sales were $1.78 billion, compared with $1.69 billion in 2020’s third quarter. The company logged nearly $152 million in profits as a result, up from $103 million the same time last year.
By category, the Champion brand continued to shine the brightest, with global revenues up 33 percent during the quarter, compared with the same time last year, or up 20 percent compared with 2019’s pre-pandemic levels.
“I don’t see Champion slowing down anytime soon,” Bratspies said on Thursday morning’s conference call with analysts. He pointed to strength in Champion’s European footwear and children’s businesses. “And we’re kind of just getting started in Australia. I have high expectations for champion.com and what it can do for us over time.”
Activewear also had another strong quarter, growing $138 million during the three-month period, or 42 percent, year-over-year, with double-digit growth in both the Champion and Hanes brands.
Innerwear sales fell 11 percent during the quarter, or $90 million, year-over-year, but only because of the overlap from last year’s personal protective equipment sales. (The company made the decision to exit the PPE business earlier this year.) Excluding PPE, sales of men’s and children’s innerwear, including socks, increased mid- to high-single digits during the quarter, while sales of women’s innerwear grew about 20 percent, compared with 2020 levels. Compared with 2019, total U.S. innerwear revenues increased 25 percent, or $140 million, during the quarter, driven by strength in shapewear, bras, socks and the men’s business.
Total online sales increased 62 percent, including 50 percent growth on company-owned websites, during the quarter, compared with 2019 levels.
Revenues in the firm’s international division also grew during the quarter, up 6 percent, or $30 million, compared with last year.
Still, HanesBrands moved forward with its previously announced plans to sell its European innerwear business, despite the roughly $500 million to $600 million in sales the business generated in 2020.
“The [European innerwear business] has some really strong brands and we’ve got some really strong teams over there,” Bratspies said in February. “But for us, we have finite resources and we are focusing on where we think we can generate the best long-term return, so it’s a good business, but we’re just questioning if it’s the right business for us right now.”
The company said Thursday that it had reached an agreement to sell the business to an affiliate of Regent L.P. The transaction is expected to close in the first quarter of 2022.
“Focusing our portfolio is crucial to our long-term growth and selling our European innerwear business represents a significant step forward in our Full Potential plan,” Bratspies said Thursday. “Our European innerwear business has strong brands and great people and this transaction helps position them for long-term success. I want to thank our European innerwear associates for their commitment and all they have done for the company over the years.”
Meanwhile, HanesBrands’ China businesses continue to grow, up 140 percent, compared with 2019 levels, as it ramps up new store openings. (There are currently more than 300 doors in the region.)
“So we feel good,” Bratspies said on the call. “And what I feel good about is the growth is balanced between men’s, women’s, kids’ [and] both physical and e-comm businesses as we enter new platforms there.”
HanesBrands expects net sales for the current quarter to be between $1.71 billion and $1.78 billion. That’s a 3 percent growth, compared with the same time a year ago. For the year, the retailer is expecting net sales to grow about 11 percent over the prior year’s midpoint, to between roughly $6.76 billion and $6.83 billion.
But investors weren’t satisfied. Shares fell 2.63 percent to $17.80 apiece Thursday.
“The competitive environment across intimates and athleisure, activewear from private label and emerging tech-enabled d-to-c brands continues to pressure [long-term] growth and margin expectations,” John Kernan, an analyst at Cowen, wrote in a note.
Other headwinds include continued supply chain pressures, such as higher transportation and freight costs. Ocean freight expenses are up between 400 and 500 percent.
“And we’re also doing more air freight than what we would normally be doing because of in-transit times,” Michael Dastugue, HanesBrands’ chief financial officer, said on the call. “There are some commodity prices — clearly cotton and some of oil, et cetera —that have gone up. And we saw some of that in the third quarter. You’ll see some more of it definitely in the fourth quarter and that’s reflected in our guidance.”
Bratspies added that transportation bottlenecks around the world and higher levels of inflation are “lengthening the time it takes to get product from our manufacturing facilities to our customers. It’s also increasing costs. Making our product has not been a significant challenge for us, but we are not immune to the other macro challenges.
“Looking into 2022, we expect the broad-based inflation pressures to continue,” the CEO continued. “This isn’t anything that’s unique to us. Inflation is impacting everyone globally. We’re aware of the pressures and we’re working to mitigate the impact.”
Some of the measures the company is using to alleviate pressures include consolidating third-party suppliers, reducing sku counts and raising prices globally.
“We know we have pricing power,” Bratspies said.
Ike Boruchow, senior retail analyst at Wells Fargo, rated the stock “overweight” and wrote in a note that the firm remains “all in, despite headwinds from [the] supply chain and inflation; we remain confident in [HanesBrands] ability to continue its march toward 14 percent [or higher] operating margin and $2 [or more] in [earnings-per-share] by [fiscal year] 2024.”
HanesBrands ended the quarter with nearly $874 million in cash and cash equivalents, $3.6 billion in long-term debt and nearly 1,000 company-owned brick-and-mortar stores around the world.
Shares of HanesBrands are up 33.5 percent, year-over-year.