Steeper prices helped Hanesbrands Inc. overcome increased cotton costs in the third quarter, turning an unexpectedly small sales gain into much better-than-projected profits — a handy trick that other apparel producers no doubt will try to replicate.
Net income increased 48.1 percent to $90.8 million, or 91 cents a diluted share, from $61.3 million, or 63 cents, a year earlier. Earnings came in 11 cents ahead of Wall Street expectations.
Sales for the three months ended Oct. 1 inched up 4.8 percent to $1.23 billion from $1.17 billion, where analysts expected the company to post nearly another $130 million in top-line growth.
The company’s gross margins expanded to 34.6 percent of sales from 31 percent a year earlier.
“Brands are more important than ever, and our price increases for cotton products are helping us mitigate the margin pressure from cotton and other cost inflation,” said William Nictakis, co-chief operating officer. “In addition to price increases in February and June, we instituted another price increase in late September for cotton-based products, and early point-of-sale performance is good.”
Still, Nictakis expressed some caution about the consumer and said the company was working on addressing weakness in its intimate apparel business, which posted sales declines given slow August sales and weaker spending trends from women over 35.
But sales gains in socks and men’s underwear — the categories that saw the biggest price increases — offset the declines in women’s intimates and pushed operating profits at the firm’s innerwear division up 43.6 percent to $79.4 million on a 0.5 percent rise in sales to $515.3 million.
The company narrowed its 2011 earnings guidance and is now looking for profits of $2.75 to $2.85 a share — allowing for a little upside to analyst estimates calling for income of $2.82.