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HanesBrands Updates Guidance Thanks to Strength in Innerwear, Activewear



WWD

https://wwd.com/business-news/financial/hanesbrands-earnings-updates-guidance-1234893294/?cx_testId=5&cx_testVariant=cx_1&cx_artPos=3#cxrecs_s

Company shares shot up 6.32 percent Thursday as a result.


HanesBrands owns the Champion brand. HanesBrands is proving the innerwear and activewear trends are not ending anytime soon. 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, with top-line revenues rising above both last year’s and 2019’s pre-pandemic levels thanks to strength in innerwear, activewear, government stimulus checks and pent-up demand from coronavirus-related store closures. HanesBrands raised its full-year financial outlook as a result, causing company shares to close up 6.32 percent to $19.51 a piece Thursday.

“Our iconic brands continue to resonate with consumers around the world and I’m very encouraged by the progress on our Full Potential growth plan,” Steve Bratspies, HanesBrands chief executive officer, said in a statement. “I’m extremely proud of the way our associates performed under challenging conditions, delivering sales, profit and earnings growth above our expectations and above the second quarter of both 2020 and 2019. We are seeing strong momentum across our business and have raised our outlook for the second half of the year.” Total revenues for the three-month period ending July 3 increased 13 percent to $1.75 billion, compared with $1.5 billion during the same period in 2020. Still, increased selling, general and administrative expenses meant profits fell short of 2020’s second quarter. The company logged $128 million in income during the three-month period, compared with $161 million a year earlier.

Even so, Bratspies remained optimistic, telling analysts on Thursday morning’s conference call that “there are certainly some transitory issues right now that are tailwinds for us, but the underlying momentum of the business across our brands, across channels and across geographies is quite strong.

“As compared to last year and 2019, conversion and average order value are both up,” the CEO continued. “The number and value of repeat consumers continues to increase across all of our brands. Repeat consumers not only spend more, they’re an important indicator of consumer engagement. While it’s very early in our journey, we remain confident in the significant growth opportunity ahead.” Bratspies added that the additional SG&A expenses can be traced back to increased investments in digital. “And the lion’s share of that spend will be behind our big brands, our mega brands: Hanes, Champion, the Bonds [brand],” he said. “And it’s starting to work,” pointing out that the majority of new customers to the Hanes brand are under the age of 39.

“So, we like the returns that we’re seeing,” Bratspies said. “We think it’s incredibly important for us to build these brands. We think they’re winners, both short term and long term and we need to lean into them.” HanesBrands now expects net sales for the 2021 fiscal year to be between $6.75 billion and $6.85 billion, up from its previous estimates of $6.2 billion and $6.3 billion. The firm also expects adjusted earnings per share to be in the range of $1.68 to $1.76 each, up from the previous range of $1.51 to $1.59. “It is fairly noteworthy that we believe this is the first time since 2016 that [HanesBrands] has raised its [fiscal year] plan, marking a material change in setup here…and truly illustrates that this company is evolving,” Ike Boruchow, senior retail analyst at Wells Fargo, wrote in a note. “We believe the decision to reinvest in the business is a net positive, setting the foundation for [HanesBrands] to sustain top-line momentum and eventually generate operating leverage on the investments.”

Across product categories, activewear revenues surged 140 percent, or $236 million during the quarter, year-over-year, thanks to an increase in sales in the sports and college licensing businesses, as well as strength in the Champion and Hanes brands.

In fact, the company has said it plans to grow the Champion brand to $3 billion in revenues over time. During the most recent quarter, global Champion sales increased 21 percent, compared with 2019’s pre-pandemic levels, on a reported basis and 18 percent on a constant-currency basis. In the U.S., the brand’s revenues were up 25 percent, as well as 15 percent internationally, compared with 2019’s second quarter. Sales of intimates increased 150 percent, year-over-year, with triple-digit growth in bras and shapewear. Excluding personal-protective equipment, total innerwear sales increased 62 percent, compared with a year earlier.

In February, the company said it would not pursue the PPE business in the future. “It’s encouraging to see that COVID-19 vaccines are rolling out around the world,” Bratspies said at the time. “As a result, this rollout, along with slowing retail orders and a flood of competitive offerings have dramatically reduced our future sales opportunities.” In addition, during the most recent quarter, HanesBrands’ international business grew by 91 percent, or $228 million, year-over-year. But the international business also grew by 11 percent, or $48 million, when compared with 2019’s second quarter. Still, there are some company headwinds, such as increased COVID-19 cases, local lockdowns and supply chain disruptions.

“This, in turn, is driving cost pressure, as well as higher levels of inflation relative to our prior outlook,” Michael Dastugue, chief financial officer of HanesBrands, said on the call. “One of the advantages to owning our supply chain is that we have very good visibility, which allows us to be proactive. Our supply chain team is doing a great job managing these challenges, as well as identifying additional savings and efficiencies to partially offset the increase in flight pressures. The estimated increase in cost and inflation pressure is approximately 40 basis points of operating margin pressure in the second half relative to our previous outlook.” The company ended the quarter with $3.6 billion in long-term debt and $676 million in cash and cash equivalents. Hanesbrands’ stock is up nearly 37 percent, year-over-year.

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