Champion doesn’t think it needs Target to stay on the pedestal — but Wall Street’s not as sure.
Shares of Hanesbrands Inc. dropped 19.3 percent to $17.95 Wednesday after the company said Target decided to axe C9 by Champion — an offshoot of the 99-year-old active brand that the discounter has sold under license since 2004. The C9 business, which produced sales of $380 million over the past year, will exit Target in January 2020.
The move surprised analysts, who wondered aloud on a conference call with Hanesbrands management why Target would walk away from the business during something of a renaissance for the brand. Champion had lately enjoyed buzzy collaborations with Vetements and Supreme, is growing quickly internationally and is still targeting sales of $2 billion by 2022, even without the mass channel — up from about $1.4 billion currently.
Turns out, the brand is gaining momentum, just not at Target.
Gerald Evans, chief executive officer, told analysts: “Global Champion sales in constant currency have grown at a mid- to high-teens rate in each of the past four quarters with all of the growth coming from outside the U.S. mass channel. Excluding the U.S. mass channel, Champion’s constant currency growth has been in the high 20 percent to low 30 percent range over the last four quarters.”
The C9 Target business was “mature,” the ceo said.
John Kernan, retail analyst at Cowen and Co., said investors were overreacting.
“The C9 loss [at Target] will be an issue, but I don’t think it’s worth 20 percent of the stock,” he said.
The market decline reflected skepticism that Champion will be able to achieve its growth goals without Target.
“It certainly won’t be easy,” Kernan said. “They’ll probably have to grow its [compound annual growth rate] at a double-digit rate through 2022 to hit these targets.…This was done by Target probably to go down the private label line, and you’re seeing that across all of retail and you’re going to see it more on Amazon. That’s a theme that will continue.”
A Target spokeswoman noted, “As part of our broad strategy to reimagine our owned and exclusive brand portfolio, Target will continue to have a presence in the activewear and sporting goods categories after the transition.”
Target’s move away from C9 and the Champion brand’s resurgence offers up an unusually succinct sign of the times in fashion.
The brand is succeeding by using the modern fashion playbook — drops, collaborations, dedicated stores and a global outlook that mines a deep history in its category — while the older way of business falls off and stores increasingly try to go their own way.
The C9 line was one of the first steps by Hanesbrands to gain some more traction with the classic brand as it was a move further into active by Target.
But it’s Hanesbrands that has more luck, tapping into the broader cultural movements pushing a more active and more street aesthetic.
Evans said consumers are “demanding brands with athletic authenticity.”
“We have been evolving the Champion business over the last few years from what was a domestic business with a maturing mass component to a global growth story, and it’s been through our elevation strategy, and it started with repurchasing the Champion Europe business and the Japanese licensee, and we evolved our business from a U.S. business to what’s now a global business selling across multiple channels and creating a number of avenues to growth,” he said.
And Champion is flexing its retail muscles, for instance, with a store on La Brea Avenue in Los Angeles, which sells the European and Japanese collections and lets shoppers customize their looks.
The question is how much cool can Champion keep as it grows — and the answer is key for investors.
Hanesbrands reported that second-quarter net income fell 18.5 percent to $140.6 million, or 39 cents a diluted share — the result of a higher corporate tax rate for the firm and higher interest expense — as sales rose 4.2 percent to $1.72 billion. Those results were in line with the company’s prior projections, although adjusted earnings per share of 45 cents just missed Wall Street’s target of 46 cents.