Hanesbrands delivered significant gains in first-quarter sales and income, driven by Champion, innerwear and online growth.
In a Nutshell: Hanesbrands Inc., in releasing its firs- quarter results on Tuesday, unveiled “Full Potential,” a three-year growth plan designed to drive an estimated $1.2 billion in incremental revenue and expand operating margins to 14.3 percent.
Full Potential aims to unlock what the company sees as significant opportunities by building on its well-known brands, comprehensive supply chain, deep consumer loyalty, broad channel distribution and global footprint. The plan drives rapid growth of the Champion brand by investing in key geographic markets–North America, China, Japan, South Korea and the Big 5 markets in Europe, expanding into women’s and kids’ apparel and casual footwear, and creating a premiere online experience at champion.com.
The plan calls for Champion to become a $3 billion global brand by 2024, representing a 14 percent compound annual growth rate (CAGR) from projected 2021 sales of approximately $2 billion.
Full Potential also seeks to drive renewed innerwear growth by delivering innovation and breakthrough marketing that appeals to younger consumers. The company is investing in its portfolio of leading innerwear brands and expanding its e-commerce and digital capabilities to deliver a seamless consumer experience to drive growth with retail partners and in online channels.
The company expects global innerwear revenue growth of approximately $200 million through 2024, driven by sales in the U.S. and Australia. This represents 2 percent growth on top of 2021 projected sales of nearly $3.7 billion.
In the U.S., the company is pivoting to accelerated and sustainable revenue and profit growth by revitalizing its core, with a focus on doubling its share with consumers under the age of 39. The company believes it can capture significant growth opportunities by leveraging its brands such as Hanes, Maidenform and Bali. Hanesbrands is also applying a more consumer-centric, globally coordinated approach to product design and innovation, as well as increasing investments in brand marketing and e-commerce initiatives.
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In supply chain, Hanesbrands plans to add capabilities to address the needs of each of its brands, increase speed-to-market and become more efficient in serving direct-to-consumer channels. The company is also investing in data analytics and technologies to reduce costs, gain business insights and improve decision making, forecasting and planning.
Hanesbrands expects the Full Potential plan to generate higher and more consistent levels of revenue growth, while increasing overall profitability. Using the midpoint of the company’s 2021 guidance for continuing operations as the base year, the Full Potential plan calls for revenue to increase to $7.4 billion by 2024 from $6.25 billion, with approximately $1 billion of growth in its global activewear business to be driven predominantly by Champion.
Operating margins are projected to expand 100 basis points to about 14.3 percent in 2024, compared to the midpoint of the company’s 2021 guidance of 13.3 percent.
Incremental investments of approximately $160 million over the three-year period ending 2024 include $90 million in brand marketing, $40 million of depreciation related to growth-driving capital investments and $30 million for technology and people. By 2024, the company expects its annual brand marketing investments to essentially double as compared to 2020, to 4 percent of sales.
Targeted cost savings of about $160 million are expected to fully offset the increased investments. Cost savings initiatives designed to drive efficiencies and accelerate revenue growth fall into three broad categories–sustainability initiatives, technology advancements and cost management.
An incremental $300 million of capital investment above the historical run-rate is planned over three years, with the vast majority going to supply chain and technology initiatives. On average, this represents annual CAPEX spend of approximately $185 million per year, although the company anticipates higher than average spend levels in the first two years of the plan in order to realize projected growth and cost savings initiatives in 2024 and beyond.
For the second quarter of 2021 that ends on July 3, the company expects net sales of $1.56 billion to $1.59 billion, which represents around a 2 percent growth. Operating profit is projected to range from $179 million to $189 million. Earnings per share (EPS) is expected to be 32 cents to 35 cents.
For fiscal year 2021, Hanesbrands expects net sales to total $6.2 billion to $6.3 billion. This compares to net sales of $6.13 billion in 2020.
Operating profit is seen ranging from $730 million to $760 million. EPS is expected to range from $1.33 to $1.41.
Sales: Net sales for the first quarter ended April 3 increased 25 percent to $1.51 billion compared to the three months ended March 28, 2020.
Double-digit growth in global innerwear and activewear was driven by strong point-of-sale performance across all major channels, led by 82 percent growth in online. First-quarter sales growth also benefited from a comparison with the initial pandemic shutdowns in the year-ago period and certain one-time contributions, including government stimulus and retailer restocking, the company noted.
U.S. innerwear sales of $570 million rose 35 percent over the prior year, boosted by point-of-sale growth and market share gains combined with the overlap of the initial pandemic shutdown. Basics revenue increased 39 percent, with growth across all product categories. Intimates revenue was up 27 percent, with double-digit growth in bras.
U.S. activewear sales increased 26 percent over the prior year to $364 million, driven by growth in the online channel, including champion.com and pure play and retail partner sites, and wholesale brick-and-mortar channels. Champion sales increased 34 percent and revenue from the company’s other activewear brands increased 16 percent.
Earnings: First-quarter income totaled $128 million, or 37 cents per diluted share, compared to income of $5 million, or 1 cent per diluted share, in the prior-year period.
First-quarter gross margin of 40 percent increased 520 basis points compared to the year-earlier period. The improvement in gross margin was driven mainly by the leverage of higher sales volume from strong point-of-sale growth. This was partially offset by higher transportation costs, which resulted from increased shipping rates globally, as well as costs associated with expediting product to meet stronger-than-expected customer demand.
CEO’s Take: Steve Bratspies, CEO, said: “Our strong first-quarter results showed growth across all business segments. Champion continued its rapid growth, driven by strong consumer demand. We gained share in U.S. innerwear and our Hanes Total Support Pouch launch shows how our brands can appeal to younger consumers with a combination of innovative products and compelling marketing. Our global online sales grew more than 80 percent as we focus on empowering consumers to shop when, where and how they want to shop.”
“Our first-quarter results show the competitive advantages of our supply chain, as well as the rapid progress we’re making on our Full Potential plan to generate long-term revenue and profit growth,” Bratspies added.