In a Nutshell: Hanesbrands Inc. released results for the fourth quarter and fiscal year 2021 that saw increased sales and better-than-expected profitability driven by continued growth in consumer demand and market share gains in its innerwear and activewear businesses.
The company said it exceeded its initial full-year 2021 outlook provided at its May Investor Day, despite greater-than-expected headwinds from inflation and global logistics challenges. Sales exceeded the midpoint of its prior range by approximately $550 million, adjusted operating profit was approximately $100 million higher, adjusted earnings per share were approximately 30 cents higher and operating cash flow was approximately $100 million higher.
For the first quarter of 2022 that ends on April 2, the company expects net sales of approximately $1.51 billion to $1.57 billion, which includes a projected headwind of approximately $35 million from changes in foreign currency exchange rates. At the midpoint, this represents approximately 2 percent growth over the prior-year period.
Operating profit from continuing operations is forecast to range from $120 million to $150 million and adjusted operating profit to range from about $135 million to $165 million, including a projected headwind of about $5 million from changes in foreign currency exchange rates. The midpoint of adjusted operating profit represents an operating margin of 9.7 percent.
Earnings per share (EPS) is expected to range from approximately 20 cents to 27 cents, with adjusted EPS coming in at 24 cents to 31 cents.
For fiscal year 2022 that ends on Dec. 31, Hanesbrands currently expects net sales of $7 billion to $7.15 billion, which includes a projected headwind of around $100 million from changes in foreign currency exchange rates. At the midpoint, this represents about 4 percent growth over the prior year.
Operating profit from continuing operations is seen ranging from $780 million to $850 million and adjusted operating profit to be $840 million to $910 million, which includes a projected benefit of $14 million from changes in foreign currency exchange rates. The midpoint of adjusted operating profit guidance range represents an operating margin of 12.4 percent.
EPS is forecast to be approximately $1.50 to $1.67, while adjusted earnings per share is seen at $1.64 to $1.81.
Hanesbrands also raised its “2024 Full Potential” financial targets driven by increased consumer demand for its brands globally, the traction of its growth strategy and the “proven ability of the global team to execute and consistently deliver results, particularly in one of the most challenging macro environments in decades.”
The company increased its 2024 revenue target to approximately $8 billion, which includes an increase in global Champion brand sales to $3.2 billion. It also increased its adjusted operating margin to 14.4 percent and cumulative three-year free cash flow to $1.6 billion.
The Full Potential growth plan, focused on investing in the company’s brands and the simplifying the business portfolio, has global media and marketing investment rising $70 million for the full-year, helping to drive higher point-of-sale (POS) trends and increased market share.
At the end of fiscal year 2021, Hanesbrands had a liquidity position of $1.75 billion, consisting of $536 million of cash and equivalents and approximately $1.2 billion of available capacity under its credit facilities.
Inventory at the end of fiscal year 2021 was $1.6 billion, an increase of 16 percent over the prior year due to the combination of higher levels of in-transits and the strategic decision to invest in inventory in the quarter to capture increased consumer demand. As compared to 2019, inventory declined 8 percent. At the end of fiscal year 2021, the company had reduced its SKUs more than 30 percent compared to the prior year.
Sales: Net sales for the fourth quarter ended Jan. 1 rose 4 percent to $1.75 billion, including 10 percent growth in Champion brand sales globally. The year-over-year growth in net sales was driven by strong consumer demand and POS trends in the U.S., Europe, Americas and certain Asia markets, including China, which more than offset lingering Covid-related headwinds in Australia and Japan.
Global Champion brand sales increased 25 percent and 20 percent compared to fourth-quarter and full-year 2019, respectively. The continued growth above pre-pandemic levels was driven by strong consumer demand across channels in the U.S., continued growth in Europe, the Americas and Australia, as well as the ramp-up of partners in China.
Innerwear sales increased 3 percent over last year, excluding PPE, driven by POS growth across channels. Prior-year sales included significant post-Covid inventory restocking by retailers and $22 million of PPE sales.
U.S. innerwear sales were up 19 percent in the quarter and 21 percent compared to full-year 2019. For fiscal 2021, innerwear’s market share increased approximately 150 basis points over 2019, with increased share positions in men’s, women’s, kids and socks.
Activewear sales grew 11 percent year over year, driven by strong POS trends, and were up 19 percent compared to fourth quarter 2019. Champion sales increased 21 percent and sales of other active brands increased high teens as compared to 2019. The Company experienced strong POS trends across the online, wholesale and distributor channels in the quarter. Sales in the college bookstore channel returned to pre-pandemic levels and were consistent with the fourth quarter 2019.
International sales increased 4 percent year over year. Excluding $6 million of PPE sales in the prior-year quarter, fourth-quarter sales increased 5 percent. Compared to fourth-quarter 2019, international revenue rose 10 percent.
Earnings: Fourth-quarter income from continuing operations totaled $68 million, or 19 cents per diluted share, compared to a loss of $292 million, or 83 cents per diluted share in the prior year period, and income of $159 million, or 43 cents per diluted share in fourth quarter 2019.
Gross margin for the fourth quarter of 38.1 percent increased 3,220 basis points compared to prior year and decreased 120 basis points compared to fourth-quarter 2019. Adjusted gross margin of 38.4 percent decreased 195 basis points compared to last year and approximately 235 basis points compared to the fourth quarter of 2019. Hanesbrands said the margin decline was driven primarily by higher costs to expedite goods, as the company gained significant new retail space and made the strategic decision to fast-track additional product for space sets at retail partners. Efficiency improvements in manufacturing, cost savings from initiatives such as its SKU reduction program and the benefits of business mix offset the vast majority of the inflation and transportation cost headwinds in the fourth quarter.
Fourth-quarter operating profit was $156 million compared to an operating loss of $397 million in the prior year and operating profit of $230 million in fourth quarter 2019. Operating margin of 8.9 percent improved from the 23.5 percent loss in the prior year and declined from 14.3 percent in the 2019 quarter.
Adjusted operating margin of 12.6 percent was ahead of the company’s expectation. Adjusted operating margin declined approximately 100 basis points compared to last year and 240 basis points compared to 2019. The decline was driven by the gross margin performance, as disciplined SG&A expense management essentially offset the impact from increased brand marketing investments and higher labor costs in its distribution centers.
Innerwear operating margin of 16.9 percent decreased more than 700 basis points compared to prior year and fourth-quarter 2019. The decline was due to the expected impact from higher inflation and costs associated with the strategic decision to expedite additional product to service new retail space gains, as well as increased investments in brand marketing, all of which impacted the business ahead of innerwear’s first-quarter 2022 price increase.
Activewear operating margin of 13.0 percent rose 420 basis points over the prior-year period, driven by benefits from business mix, price increases in printwear and disciplined SG&A expense management. These benefits more than offset higher levels of inflation and increased investments in brand marketing. Operating margin decreased 100 basis points compared to fourth-quarter 2019, as higher levels of inflation and increased brand marketing investments more than offset leverage from higher sales volume and benefits from business mix.
International segment operating margin increased 140 basis points over the prior-year period and was up 190 basis points compared to fourth-quarter 2019, driven by fixed-cost leverage from higher sales, benefits from business mix and disciplined SG&A expense management.
CEO’s Take: Steve Bratspies, CEO, said: “We are rapidly creating a new Hanesbrands focused on growth and serving our consumers and customers like never before. We significantly outperformed our expectations in 2021, driving increased financial projections in our three-year Full Potential growth plan.”
“As we enter 2022, our performance, operational execution and financial foundation are far stronger than they were before the pandemic,” Bratspies added. “We are implementing a three-year, $600 million stock repurchase program based on our confidence in future growth… I am very encouraged by the fast start to our Full Potential growth plan, despite the extremely challenging operating environment. Our strong early execution in growing global Champion, re-igniting innerwear growth, driving consumer centricity and focusing our portfolio gives me confidence in what we can achieve over the next three years.”