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Champion Owner Raises Second-Half Outlook

HaneBrands Inc. reported improving sales and stronger gross margins in the second quarter, with innerwear and activewear gaining momentum.

In a Nutshell: Champion led the way in Q2 with 120 percent sales growth versus 2020, a result that was still up 21 percent over the comparable 2019 period.

“Our iconic brands continue to resonate with consumers around the world, and I’m very encouraged by the progress on our Full Potential growth plan,” said HanesBrands CEO Steve Bratspies, a former Walmart executive who joined the basics maker in August last year.

“We’ve accomplished a lot in a relatively short period of time,” Bratspies told Wall Street analysts during a Wednesday morning conference call, adding that a newly “refreshed” leadership team is “setting a new pace, and driving change.”

What’s more, the company has “taken action to simplify the portfolio, streamline decision making and organize the business to optimize future growth,” Bratspies added, though the vertically integrated firm is “still early in our journey.”

HanesBrands managed to shake off the “increasingly challenged global environment” and rising inflation to deliver revenue, operating profit, operating margin and earnings per share that “all exceeded the high end of our guidance range,” Bratspies said.

As part of the Full Potential plan to cultivate Champion into $3 billion behemoth, the basics brand grew its sweats business, added several new “performance and lifestyle products “for women’s as well as new offerings for kids, pursued adjacent categories, and plans to debut several new fleece items in the U.S, Bratspies said. What’s more, the company “more than doubled” Champion’s distribution points in the first half, in addition to augmenting the number of pairs sold by a factor of two versus 2019, he added.

HanesBrands is also tweaking its direct-to-consumer platform to boost not just the overall site experience but conversion and speed as well. “Repeat consumers not only spend more,” they are also “an important indicator of consumer engagement,” Bratspies said.

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As it’s slashed its SKU count, HanesBrands has seen a corresponding rise in manufacturing and distribution efficiency. Bratspies said the company is looking an “big ideas” like “global vendor consolidation” as well as raw material platform to generate similarly sizable annual savings.

Consumers may soon pay more for products from HanesBrands, which is is striving to offset inflationary headwinds. “Pricing is certainly a tool in our arsenal,” Bratspies said, adding that “pricing power in the market” enables the company to be “selective and strategic in our approach, always keeping an eye on price gaps because we know the competitive nature [of] our business.”

Owning its supply chain has proven to be an invaluable competitive advantage, said chief financial officer Michael Dastugue, who like Bratspies left Walmart to join the basics maker in April. Inflationary pressures, he said, run the gamut from transportation and commodity costs to rising wages. “It’s not restricted to any particular part of the world,” he said. “It’s a global challenge.”

CEO Steve Bratspies said SKU reductions created manufacturing efficiencies and cost savings, but price increases remain a lever if needed.
A Hanes underwear display at a store in Charlotte, N.C. Chuck Burton/AP Photo

Separately, Champion released its second Muhammad Ali collection Wednesday. Retailing for $35-$125 in the United States, the men’s and women’s collections span sizes XS-2XL and include Reverse Weave hoodies, quarter-zip pullovers, joggers, shorts, graphic T-shirts, crop tops, bike shorts, hats and a satin boxing robe.

“Muhammad Ali was an artist in the ring and a champion of the people outside of it, inspiring his fans across the globe to be their very best,” said Jon Ram, group president of global activewear for HanesBrands. “The second drop in this collection allows everyone from professional athletes to backyard sports enthusiasts and culture curators to truly be their own Champion by finding the joy in dressing for self-expression and feeling confident while being comfortable.”

Champion said the capsule’s design elements “evoke the ethos of the sports legend during his inspirational gold medal win during the 1960 Games in Rome as an 18-year-old,” including Games decals and famous Ali quotes like “I am the greatest, I said that even before I knew I was.”

“Ali would say: ‘Champions aren’t made in gyms, champions are made from something they have deep inside them—a desire, a dream, a vision,’” said Katie Jones, senior vice president, entertainment, Authentic Brands Group, which owns the Muhammad Ali license. “This partnership continues to honor what was most important to Ali during his lifetime.”

Net Sales: Net sales rose 13.5 percent to $1.75 billion from $1.54 billion for the second quarter ended July 3. The year-ago quarter included $614 million in sales of personal protective equipment (PPE). Excluding PPE sales, net sales in the current period rose 88 percent over the prior year. Strong point-of-sales (POS) trends, comparisons to last year’s Covid shutdowns and stimulus checks all helped fuel gains. The report on net sales is for continued operations. The company is exploring options for its European innerwear business.

The increase was 15 percent over second-quarter 2019 results, which were “rebased” to reflect the European Innerwear business as discontinued operations, as well as the exit of the C9 Champion mass program and the DKNY intimate apparel license.

Gross margin in the quarter rose 38.9 percent from last year.

By category, innerwear sales fell by $314 million, or 29 percent, due to the overlap of last year’s $614 million of PPE sales. Basics revenue rose 48 percent, while intimates revenue increased 150 percent in both bras and shapewear. Compared with 2019, sales rose by $123 million, or 19 percent.

In activewear, sales grew $236 million, or 140 percent over the prior year, driven by the Champion and Hanes brands. The company said it saw strong POS trends across several channels in the quarter. Sales also rose in the sports and college licensing business. Compared with 2019, activewear revenue rose $53 million, or up 15 percent, driven by growth across the online, wholesale and distributor channels. And while both brands saw sales climb versus 2019 levels, Champion sales jumped 20 percent.

International revenue rose $228 million, or 91 percent, versus 2020 figures. “On a constant currency basis, sales increased 70 percent with strong growth in Australia, the Americas, Europe and Asia Pacific driven by strong consumer demand and the overlap of last year’s Covid-related shutdowns,” the company said. Compared with 2019, international revenue rose $48 million, or 11 percent.

For the six months, sales rose 18.7 percent to $3.26 billion from $2.75 billion.

Earnings: Net income for the second quarter fell 20 percent to $128.7 million, or 37 cents a diluted share, from $161.2 million, or 46 cents, a year ago.

For the third quarter ending Oct. 2, the company expects net sales from continuing operations of $1.78 billion to $1.81 billion, with an earnings per share (EPS) estimate for continuing operations ranging from 42 cents to 45 cents.

For the fourth quarter ending Jan. 1, 2022, the company guided net sales from continuing operations to between $1.71 billion to $1.78 billion, on EPS for continuing operations at between 29 cents to 34 cents.

For the full fiscal year 2021, ending Jan. 1, 2022, net sales from continuing operations were guided to the range of $6.75 billion to $6.85 billion, on EPS for continuing operations between $1.50 to $1.58. The company expects $100 million in annual capital expenditures.

For the six months, HanesBrands posted a net loss of $134.6 million, or 38 cents a diluted share, against net profit of $153.3 million, or 43 cents in the year-ago period.

CEO’s Take: “We are seeing strong momentum across our business and have raised our outlook for the second half of the year,” Bratspies said.