In a Nutshell: HanesBrands reported fourth-quarter net sales growth of 7 percent, double-digit operating profit growth, operating cash flow of $502 million and total debt reduction of $403 million.
The company, which sells innerwear and activewear under brands such as Hanes, Champion, Maidenform, Bali, Playtex, Bras N Things, L’eggs, JMS/Just My Size, Lovable and Wonderbra, also issued full-year 2019 financial guidance. It included midpoint expectations of approximately 2 percent net sales growth, and full-year net sales of $6.89 billion to $6.99 billion, and operating profit of $900 million to $930 million.
HanesBrands, based in Winston-Salem, N.C, said key assumptions in its guidance include a cautious outlook for the U.S. brick-and-mortar retail market, including continued door closures; continued progress in its U.S. innerwear revitalization initiatives; price increases, the negative effects of currency exchange rates and increased marketing investment to support brand plans.
Moody’s apparel analyst Mike Zuccaro said, “Going forward, we expect continued modest sales, operating profit and margin growth, and strong double-digit operating cash flow growth, despite increased investment in growth and a challenging global environment.”
The company noted that a 6 percent growth in constant-currency organic sales in the fourth quarter was the highest quarterly growth rate for that measure in eight years. The full-year’s 2 percent growth in constant-currency organic sales was the first annual year-over-year increase since 2014.
Organic growth contributors include global Champion expansion, international diversification and consumer-direct channel penetration. In the fourth quarter, global Champion revenue in constant currency increased more than 50 percent, excluding the U.S. mass channel.
U.S. innerwear segment sales and operating profit in the fourth quarter were flat to a year ago and the company said it will forge ahead with revitalization initiatives for the intimates business, which is more concentrated in the mid-tier and department store channel and is affected by door closings and channel disruption. The company’s ongoing bra turnaround strategy includes expansion within the online and mass channels, increased investment and speed-to-market initiatives.
Sales: Net sales for the fourth quarter ended Dec. 29 increased 7 percent to $1.77 billion from $1.65 billion in the year-ago period, the sixth consecutive quarterly increase for sales from operations owned for at least one year.
Driving results were growth in the activewear and international segments. For the year, global Champion sales excluding mass were $1.36 billion, up from approximately $1 billion for 2017.
Revenue in the consumer direct channel–company-owned stores and online sales–increased 23 percent in the fourth quarter. This represented around 25 percent of total sales.
Sales of Innerwear basics increased 2 percent, with growth in men’s and women’s underwear. Products that feature comfort innovations continue to perform well and account for 20 percent of basics sales, the company noted. Sales of Innerwear intimates decreased 7 percent in the quarter, although shapewear sales realized double-digit growth after the successful relaunch of the Maidenform product lineup featuring cooling innovations, HanesBrands reported.
U.S. activewear segment fourth-quarter sales rose 13 percent, with growth driven by increased Champion sales and American Casualwear, which consists of branded printwear sales to the screen-print industry, seasonal wholesale activewear programs, and Alternative Apparel.
Despite the adverse effects of currency exchange rates, international segment sales increased 12 percent and operating profit rose 28 percent. International growth came from Champion strength in Europe and Asia and constant-currency organic sales growth for innerwear in Australia, Asia and the Americas. In addition, net sales for Australia-based Bras N Things, acquired in February 2018, were $43 million.
For the full year, net sales increased 5.1 percent to $6.8 million, led by a 14.1 percent rise in international to $2.34 million, and an 8.3 percent gain in activewear to 1.79 million.
Earnings: Net income for the fourth quarter was $161.62 million compared to a loss of $384.61 million in the prior-year period. For the year, net income jumped nearly eightfold to $553.08 million compared to $61.89 million in 2017.
Operating profit in the quarter increased 94.8 percent to $244.94 million, led by a 27.7 percent gain in international to $98.53 million. In the full year, operating profit rose 16.6 percent to $867.95 million from $744.35 in 2017.
The adjusted operating margin in the quarter was 13.9 percent, up 630 basis points, while adjusted operating margin was 14.7 percent, up 40 basis points. The adjusted operating margin benefited from acquisition contributions and lower selling, general and administrative expenses as a percentage of sales.
CEO’s Take: Gerald W. Evans Jr., CEO, said: “We had a strong fourth quarter with organic sales growth, margin expansion, double-digit operating profit growth, strong cash generation, and significant debt and leverage reduction. Our diversification strategy is working. We had strong double-digit global Champion growth, international innerwear growth in Australia, Asia and the Americas, and increased sales for underwear and shapewear in the United States. Adjusted operating profit increased 10 percent, and adjusted operating margin increased 40 basis points. We generated record operating cash flow in the fourth quarter, and we paid down half a billion dollars of debt in the second half to reduce our leverage. Our outlook remains strong, including organic sales growth and significant cash flow growth expected in 2019, which underscores our progress toward achieving our long-term goals and enhancing value creation.”