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How Champion and Product Development Lifted Hanesbrands in Q2 2019

Fabric innovations are boosting Hanesbrands’ core innerwear and activewear segments, as global growth continues.

In a Nutshell: Hanesbrands posted strong second-quarter results, with net sales, operating profit and earnings per share (EPS) achieving the high end of company guidance.

Leading the way was Champion, which saw global sales of the brand’s activewear and innerwear increase more than 50 percent, excluding the U.S. mass channel. Hanesbrands said sell-through strength at existing accounts, expanded wholesale distribution, increased consumer-direct sales, successful product offerings and channel segmentation drove the eighth consecutive quarter of strong double-digit growth for global Champion outside the mass channel.

Growth for the brands was also widespread across geographies, including North America, Europe, Asia and Australia. In China, the company’s retail partner is adding Champion-branded stores and the company has added a second retail partner to accelerate expansion of stores and online sales in 2020.

The company said innerwear initiatives have begun or are planned for the Hanes, Maidenform, Bali, DIM and Bonds brands. They include new product launches in bras, cooling innovation in shapewear, compression innovation in hosiery and second-generation X-Temp cooling fabric. The bra launches include the EasyLight lightweight bra that uses innovation for “barely there” comfort without compromising support and the Dream Wire bra that utilizes uniquely padded underwire innovation for comfort.

The company noted that Champion is taking advantage of new graphic embellishment techniques and leveraging its heritage reverse-weave fabric innovation for new products, including the introduction of sports bras made with comfortable sweatshirt fabric. The Hanes, Alternative, Champion, Bonds and DIM brands have introduced innerwear and activewear products utilizing recycled yarns, recycled polyester, organic cotton or cellulose-based fabrics.

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For the third quarter, net sales are expected to be in the range of $1.84 billion to $1.875 billion, up slightly versus a year ago. Operating profit is expected to be $264 million to $274 million.

Hanesbrands said key assumptions in its guidance include a cautious outlook for the U.S. brick-and-mortar retail market, including the effect of door closures; continued progress in U.S. innerwear revitalization initiatives; price increases; negative effects of currency exchange rates and increased marketing investment to support brand plans.

Sales: Net sales for the second quarter ended June 29 increased 3 percent to $1.76 billion. The company said innerwear segment sales met expectations, falling 2.3 percent to $678.6 million. Activewear sales rose an expected 10.5 percent to $448.28 million, and international sales exceeded expectations, rising 4.2 percent to $568.86 million. Global consumer-directed sales, consisting of company-owned stores and online channels, increased 8 percent in the quarter and represented 23 percent of total sales.

Earnings: Net income in the period rose 9.5 percent to $153.97 million compared to $140.63 million a year earlier. Second-quarter operating profit increased 6.3 percent to $234.02 million, with gains in activewear and international, and a decline in innerwear. Diluted EPS increased 8 percent to 42 cents and adjusted EPS was flat from a year earlier at 45 cents.

CEO’s Take: Gerald W. Evans Jr, CEO, said:  “Our successful growth strategies drove strong second-quarter results and first-half momentum, including outstanding Champion brand growth, very effective product innovation, international growth and continued consumer-direct sales growth. This momentum, combined with our second-half plans and visibility, gives us confidence in our ability to achieve full-year guidance at the midpoint or higher. Champion bookings remain strong, additional product innovation is planned, the outlook for International contributions remains positive and our operating margin is expanding.”