Hanesbrands said it continues to face profitability headwinds, such as negative manufacturing conditions and higher expenses.
In a Nutshell: Hanesbrands Inc. delivered strong sales, operating profit and cash flow on improving business trends in the third quarter, despite continued market disruption from the Covid-19 pandemic.
The company had another strong cash flow quarter, generating $249 million of operating cash flow. Hanesbrands expects to end the year with higher-than-anticipated inventory of personal protective garments, but continues to expect to generate positive operating cash flow in the second half and for the full year.
The company ended the third quarter with $2 billion of liquidity, up from $1.8 billion last quarter, while paying its regular dividend and reducing debt by approximately $130 million.
In the quarter, Hanesbrands announced 2030 global sustainability goals, including addressing the use of plastics and sustainable raw materials in products and packaging and improving the lives of 10 million people through initiatives that focus on health, education and wellness. In addition, the company launched a new sustainability website, hbisustains.com, designed to increase transparency on key metrics, including diversity, human rights benchmarks and risk assessments for investors.
The company’s outlook for the fourth quarter reflects continued uncertainty due to the Covid-19 pandemic and is based on the current business environment, including the recently implemented Covid-related restrictions in Europe, but does not reflect any potential impact to the consumer or operating environments should governments or businesses institute additional lockdowns and store closings.
For the fourth quarter, net sales are expected to be approximately $1.60 billion to $1.66 billion, including around $50 million of protective garment sales and $10 million of foreign exchange benefit.
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The company said it continues to face second-half 2020 profitability headwinds. Negative manufacturing variances and higher SG&A expense are expected to pressure gross and operating margins in the fourth quarter.
Operating profit is expected to range from $154 million to $174 million. Adjusted operating profit is expected to range from $160 million to $180 million. Earnings per share (EPS) is expected to range from 24 cents to 29 cents.
For the fourth quarter of 2020, the midpoint of guidance represents a net sales decline of 7 percent compared with 2019. When comparing the midpoint of fourth-quarter 2020 guidance to 2019 results rebased to account for the exits of the C9 Champion and DKNY programs, net sales are expected to decline approximately 2 percent.
Operating profit and adjusted operating profits are expected to decline approximately 33 percent and 30 percent, respectively, and EPS is expected to decline approximately 47 percent.
Full-year 2020 net cash from operations is expected to be $300 million to $400 million, which includes the impact from the higher-than-anticipated protective garment inventory. Based on year-to-date cash flow, this implies fourth quarter net cash from operations of approximately $70 million to $170 million.
Sales: Net sales for the third quarter ended Sept. 26 dipped 3.2 percent to $1.81 billion compared with $1.87 billion a year ago. The company sells its products under the apparel brands such as Hanes, Champion, Maidenform, Bali, Playtex, Lovable, Bras NThings, L’eggs, JMS/Just My Size, Wonderbra, and Gear for Sports in the T-shirt, bra, panties, shapewear, underwear, socks, hosiery, and activewear sectors in its low-cost global supply chain.
The company said it sold $179 million in personal protective garments globally during the quarter. Hanesbrands noted that the year-ago quarter included net sales of $119 million from the now exited C9 Champion mass program and the DKNY intimate apparel license. Excluding the exited programs and the effect of changes in foreign exchange rates, total constant-currency net sales for third-quarter 2020 increased 2.6 percent.
During the quarter, the company reported improved sales trends across apparel businesses, with U.S. innerwear sales up 8.4 percent over last year and global Champion net sales grew nearly 130 percent over the previous quarter.
U.S. activewear sales declined 41 percent, a significant improvement from the second quarter. When the year-ago quarter is rebased for the C9 Champion program exit, U.S activewear sales declined 27 percent.
Excluding $103 million of C9 Champion sales in mass retail in the year-ago quarter, sales of the Champion brand showed an 85 percent increase over the second quarter, driven by strong point-of-sale trends and continued online growth. The vast majority of these declines occurred in the segment’s sports apparel business, which was significantly impacted by COVID-related issues, such as cancelled sporting events and the closure of college bookstores.
Year-over-year constant currency sales growth in the company’s Americas and Champion Europe businesses was more than offset by declines in the company’s European innerwear, Asia and Australia businesses, where COVID-related challenges continued to slow the retail recovery.
Online sales increased nearly 70 percent through company e-commerce websites, retailer websites, large internet pure-plays and business-to-business customers.
Earnings: Net income in the quarter fell 44.2 percent to $103.28 billion from $185.09 million. Third-quarter EPS declined 43 percent to 29 cents, while operating profit decreased 35 percent to $175 million.
CEO’s Take: Hanesbrands CEO Steve Bratspies said: “I’m pleased with our third-quarter results, as we saw significant improvements across our business and exceeded our expectations for sales, profits and cash flow from operations. We saw particularly strong performance in our U.S. innerwear and global Champion businesses, and I’m encouraged by our momentum even as we continue to operate in a challenging environment.”
“Hanesbrands has iconic brands, a strong balance sheet, global reach, a deep commitment to sustainability and a passionate team,” Bratspies added. “We have tremendous opportunities ahead of us, and we are committed to delivering long-term growth. We are conducting an in-depth review of our business as we build our growth strategy. Parts of our strategy will begin to unfold in the fourth quarter and I look forward to reporting on our progress in the months ahead.”