In a Nutshell: Hanesbrands Inc. said Thursday it exceeded guidance for sales, operating profit, operating margin and earnings per share (EPS) in the first quarter despite an increasingly challenging global operating environment.
The better-than-expected performance was driven by continued strong consumer demand for its brands and increased sales, general and administrative (SG&A) efficiency as the company benefits from its “Full Potential” initiatives.
Hanesbrands said it positively comped substantial prior-year growth rates, with revenue gains accelerating on a two-year basis for the global Champion brand domestically and internationally, as well as for each of its business segments: innerwear, activewear and international. Sales in all segments, as well as for the Champion brand, were “meaningfully above pre-pandemic levels.”
In the first quarter, the company gained retail space for its Hanes brand across all product categories and in multiple channels. It also expanded retail space with its Maidenform shapewear products and smart-size bras in the mass channel.
“Innovation and design are moving at a faster pace and the product pipeline is the broadest it has been in decades, positioning the company for continued growth in 2023, 2024 and beyond,” Hanesbrands said.
Total liquidity position at the end of first-quarter exceeded $1.4 billion, consisting of $369 million of cash and equivalents and approximately $1.05 billion of available capacity under its credit facilities.
Inventory at quarter’s end was $1.82 billion, an increase of 22 percent over the same period last year. The increase was driven by the combination of higher in-transit levels, the impact of inflation on input and transportation costs, and investments, particularly in innerwear, to rebuild safety stock.
For second quarter that ends July 2, the company expects net sales of approximately $1.68 billion to $1.73 billion, which includes a projected headwind of approximately $40 million from changes in foreign currency exchange rates. Operating profit is forecast to range from about $155 million to $175 million, and EPS is expected to range from 28 cents to 32 cents.
For fiscal-year 2022 that ends on Dec. 31, Hanesbrands foresees net sales of approximately $7 billion to $7.15 billion, which includes a projected benefit of around $125 million from changes in foreign currency exchange rates.
The company said over the past three months, increased challenges in the global operating environment have resulted in an additional $65 million of net cost headwinds relative to its prior full-year outlook. As a result, it now expects full-year results to be near the midpoint of its full-year guidance range for sales and near the low-end of its operating profit and EPS guidance ranges.
Operating profit is expected to range from about $780 million to $850 million. EPS is forecast to be $1.50 to $1.67.
Sales: Net sales in the first quarter ended April 2 increased 5 percent over the prior year to $1.58 billion, as consumer demand for the company’s brands drove growth in the U.S., Americas and Europe.
Global Champion brand sales increased 6 percent, with a 10 percent gain internationally and 2 percent in the U.S. Strong consumer demand for the Champion brand continued in the first quarter, but product supply challenges to the U.S. market did not improve as expected in the quarter, resulting in approximately $40 million of in-hand orders in the U.S. that were unfulfilled.
U.S. innerwear sales rose 1.5 percent, driven by retail space gains, higher prices and positive mix. The strong performance resulted in positive comps above last year’s rapid growth.
Earnings: Net income in the quarter was $118.7 million compared to a net loss of $263.26 million in the year-earlier period.
EPS came in at 34 cents compared to a loss per share of 75 cents in the 2021 period.
Gross profit declined 3 percent to $584 million and gross margin fell 37.1 percent, down from 40.0 percent in the prior year. The margin decline was driven by the impact from higher inflation and the higher-than-planned strategic investment in expedited freight to service new retail space gains and new product innovation. These expected headwinds more than offset efficiency improvements in manufacturing, cost savings from initiatives such as an SKU reduction program and the partial-quarter benefit from the price increase in innerwear.
CEO’s Take: Steve Bratspies, CEO, said: “I’m very proud of our team for delivering another strong quarter in an incredibly challenging time, as we exceeded expectations for sales and earnings per share. We saw continued strong demand for our brands in the quarter, with global Champion and innerwear growth accelerating on a two-year basis. At the same time, the global operating environment has deteriorated significantly over the past three months, with accelerating inflation, continued Covid-19 disruptions and logistical challenges. In this environment, we are highly focused on executing in the areas we control.”