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Why Hanesbrands Increased its 2019 Sales and Earnings Outlook

Led by Champion and balanced omnichannel and geographic distribution, Hanesbrands increased its guidance for the year.

In a Nutshell: Hanesbrands reported third-quarter results that included growth in net sales, operating profit and earnings per share, as well as significant net debt reduction.

The company, based in Winston-Salem, N.C., said Champion achieved its ninth consecutive quarter of strong double-digit global sales growth in constant currency, excluding the U.S. mass channel. The growth was broad-based by geography, by product segment and by channel. Domestic Champion sales increased 29 percent and international Champion sales rose 24 percent, with double-digit gains in Europe, Asia, and Australia.

In the third quarter, the company also entered an agreement to add a distribution partner for Champion in South Korea. The company had previously announced the addition of a second distribution partner in China. Combined, the new distribution partners are expected to nearly double the number of Champion branded stores in China and South Korea to more than 200 by the end of 2020.

Hanesbrands reduced net debt at the end of the third quarter by approximately $250 million compared with the end of the second quarter. Compared with the end of the third quarter a year ago, net debt has been reduced by $470 million.

The company updated full-year financial guidance for 2019. It now expects 2019 net sales of $6.94 billion to $6.99 billion, operating profit of $900 million to $925 million, EPS of $1.61 to $1.67 and net cash from operations of $700 million to $800 million.

Prior guidance for the updated ranges were net sales of $6.89 billion to $6.99 billion, operating profit of $900 million to $930 million and EPS of $1.59 to $1.67.

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Key assumptions in the company’s guidance include a cautious outlook for the U.S. brick-and-mortar retail market, continued progress in U.S. innerwear revitalization initiatives, price increases, negative effects of currency exchange rates and increased marketing investment to support brand plans.

The company expects increased investment of more than $30 million for the year to support brand-building and growth versus last year. HanesBrands, based in Winston-Salem, N.C., is a socially responsible leading marketer of everyday basic innerwear and activewear apparel in the Americas, Europe, Australia and Asia-Pacific.

In addition to Champion and Hanes, the company sells T-shirts, innerwear, legwear and activewear under such brands as Maidenform, Bali, Playtex, Bras N Things, L’eggs, JMS/Just My Size, Lovable and Wonderbra.

Sales: Net sales for the third quarter ended Sept. 28, 2019, were up 1 percent to $1.87 billion compared to the year-earlier period. The company said international sales growth of 7 percent exceeded expectations with growth in activewear and innerwear. Global sales of Champion activewear and innerwear increased 25 percent, excluding the U.S. mass channel.

Global consumer-directed sales, consisting of company-owned or brand retail stores and all online channel sales, increased 10 percent, representing 23 percent of total sales.

U.S. innerwear segment net sales decreased 3.5 percent in the third quarter to $578 million, modestly below company expectations, primarily as a result of a softer-than-expected back-to-school retail environment affecting Innerwear basics replenishment.

Earnings: Net income in the quarter rose 9.5 percent to $187.78 million from $171.42 a year earlier. Operating profit increased 5 percent to $269.76 million, while adjusted operating profit rose 1 percent to $280 million. Diluted EPS of 51 cents increased 9 percent, and adjusted EPS of 54 cents rose 4 percent.

CEO’s Take: Gerald W. Evans Jr., CEO, said: “We are proud to have met or exceeded our financial guidance for each of the first three quarters of the year and we have now raised the midpoint of 2019 guidance for net sales and EPS. We have a strong diversified business model across geographies and product segments. Our international businesses are outperforming, global Champion growth continues, we are thriving in the consumer-direct channels and we are charting a path back to growth for our U.S. innerwear businesses through innovation and brand investment.

“We are driving significant operating cash flow growth, which was up approximately $100 million in the quarter, and we have reduced our net debt by nearly a half-billion dollars since a year ago at this time. Our long-term outlook is strong,” he said.