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HanesBrands takes a hit as Target ends Champion contract

Shares in HanesBrands took a hit earlier this week after the basic apparel maker said department store retailer Target Corporation will not renew the contract for an exclusive activewear line when it expires in 18 months time.

HanesBrands has been supplying the C9 by Champion line to Target for 15 years, but the agreement is due to expire at the end of January 2020.

The company's shares dropped 19.7% to $18.6 on Wednesday (1 August) after it revealed the contract will not be extended and also reported a second-quarter earnings miss.

That said, it is also putting a positive spin on the development, saying it expects to achieve global Champion sales of more than $2bn by 2022 – and that the end of the C9 by Champion programme at Target is unlikely to impact that projection.

"Overall, Champion has significant momentum in all geographies globally, and we will continue to focus on growth across our Champion portfolio through expanded geographic penetration, product lines and distribution channels, including online and retail," said Hanes CEO Gerald Evans Jr.

He added: "Our core Champion sales in constant currency increased more than 30% globally in the first half of 2018."

HanesBrands says the C9 programme is fully booked for 2018 and doesn't expect the 2019 volume to be much different. In the past 12 months, the company has generated around $380m in C9 by Champion activewear sales.

Speaking on a call with analysts, Evans pointed to an "ongoing convergence of casual and performance apparel, [with] consumers demanding brands with athletic authenticity."

He added: "Over the past several years, we have driven a brand-elevation strategy for Champion to capitalise on these consumer dynamics. We have reunited the brand globally, allowing us to coordinate product design around the world [and]...selling across multiple channels and creating a number of avenues to growth.

He also noted that while the C9 by Champion business "has begun to mature," "we have a strong relationship with Target and we anticipate and expect that long standing partnership to continue as we drive mutual growth," in other categories such as innerwear.

The comments came as the Winston-Salem, North Carolina based apparel company saw its net income in the second quarter to 30 June slip 18.5% to $140.6m from $172.5m last year.

Revenue for the firm, whose brands include Hanes, Champion, Maidenform, DIM, Bali, Playtex and Wonderbra, rose 4.2% to $1.715bn, up from $1.647bn in 2017. HanesBrands continues to expect full-year 2018 sales of $6.72bn to $6.82bn.

The move by Target comes as the retailer is doubling-down on efforts to overhaul its stores, digital channels and supply chain, alongside the introduction of more than a dozen new brands – including the new JoyLab activewear brand launched last year.

Its new private label apparel lines also include A New Day, Goodfellow & Co, and Universal Thread (a denim-based women's lifestyle brand). Earlier this year it also set its sights on becoming the ultimate destination for Generation Z – a demographic expected to become the largest consumer segment over the next few years – with two exclusive new clothing lines: Wild Fable and Original Use.

Recent research suggests private label market share accounts for nearly one-third of apparel sales by value and just over one-third in units, and that growth is outstripping that of national apparel brands.