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HanesBrands Sees Strong First Quarter but Retail Store Closures Pose Challenges

Lifted by strong Champion consumer direct sales, HanesBrands scored broad-based first quarter sales gains and eked out a gain in income.

In a Nutshell: HanesBrands said first-quarter results exceeded guidance, including net sales growth of 8 percent, operating profit growth and reduced debt leverage, but headwinds still exist.

The company reiterated full-year 2019 issued guidance for the second quarter. It expects 2019 net sales of $6.89 billion to $6.99 billion and operating profit of $900 million to $930 million.

For the second quarter, net sales are expected to be roughly $1.74 billion to $1.77 billion. Operating profit is expected to be $223 million to $233 million.

However, adverse foreign currency exchange rates are expected to reduce net sales for the year by close to $115 million compared with last year, up from previous expectations of roughly $60 million. The estimate includes the $46 million impact in the first quarter compared with last year, and an estimated $40 million impact expected in the second quarter compared to the year prior.

For operating profit, adverse foreign currency exchange rates are expected to reduce full-year results by $17 million compared with 2018, up from previous expectations of a $7 million effect. On Tuesday, the dollar was trading at $1.12 to 1 euro.

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

Sales: Net sales for the first quarter ended March 30 increased 8 percent to $1.59 billion and organic sales in constant currency increased 10 percent, the seventh consecutive quarter of constant-currency organic growth. Sales were fueled by strong U.S. activewear growth, broad-based international gains and increased sales of U.S. innerwear basics. Globally, Champion sales growth accelerated.

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Growth initiatives drove a 75 percent increase in constant-currency global Champion sales outside the mass channel, with double-digit increases in all regions. Contributors included U.S. expansion across retail and online channels, strong wholesale expansion in northern and western Europe, and strong wholesale and consumer-direct growth in Asia, including continued store openings in China.

Total company consumer-direct sales, defined as brand stores and all online business, increased 16 percent in the quarter. E-commerce sales increased for each of the innerwear, activewear and international segments.

Earnings: Net income for the period inched up 0.1 percent to $79.49 million. Operating profit in the quarter was up 1.4 percent to $148.04 million.

CEO’s Take: Gerald W. Evans Jr., CEO, said: “We are generating broad-based growth across businesses and geographies. Our brands are strong and growth-related investment is delivering results. In addition to the acceleration of Champion growth globally, innerwear sales increased in Asia, Australia and the Americas, and sales of U.S. innerwear basics increased for the second consecutive quarter.”