(Filed Under Financial and General Interest News). HanesBrands innerwear sales fell 8.2% in the fourth quarter, and 2.7% for the year ended December 31, 2016. At the same time “segment operating profit” for innerwear fell 15.6% for the quarter and 5.6% for the year.
For the last three months of 2016, innerwear sales fell to $611.5 million from $666.1 million for the same three months a year ago, and for the year to $2.61 billion compared to $2.68 billion for fiscal 2015. “Segment operating profit” fell to $137.7 million in the fourth quarter, from $163.1 million in the same quarter in the prior year. Innerwear operating profit was $588.3 million in fiscal 2016, down from $623.4 million in fiscal 2015.
For HanesBrands as a whole, however, both sales and income rose in the latest quarter and for the year. Net income for the for the fourth quarter was $157.1 million on sales of $1.575 billion compared to $119.2 million on sales of $1.410 billion in the three months ended January 2, 2016. For fiscal 2016 the company earned $539.4 million on sales of $6.028 billion compared to $428.9 million on sales of $5.732 billion in fiscal 2015.
“We had a strong year of sales, profit and cash flow growth with many accomplishments, including the expansion of our X-Temp product lineup, the successful launch of our Hanes FreshIQ underwear innovation, acquisition integration, and new acquisitions in Europe and Australia,” said Hanes CEO Gerald Evans Jr. “Our business model allowed us to deliver benefits to shareholders, even though our record-high financial results fell short of our expectations as a result of unanticipated fourth-quarter retail weakness.”
In reporting the results the company emphasized “consumer store traffic challenges,” explaining that “Slower-than-expected consumer visits to retail stores in the fourth quarter resulted in retailer inventory control through reduced replenishment orders by U.S. retailers.” Despite the decrease in innerwear sales, “activewear sales increased 3 percent. Hanes is adapting to the growth of online sales and changing consumer buying behavior. In the fourth-quarter, the online channel, including retailer websites, company websites and pure-play ecommerce sites, accounted for approximately 11 percent of U.S. sales, versus approximately 8 percent a year ago.”
Looking ahead at 2017, Hanes said it “expects total net sales growth in the first quarter as a result of acquisition-driven International gains as well as Activewear growth. Organic sales are expected to decline in the quarter as a result of lower Innerwear sales affected by the retail climate of store closings and tight inventory as well as the exits from the company’s domestic catalog business and non-core offerings. Innerwear sales trends are expected to normalize starting in the second quarter, with expected full-year net sales comparable to 2016.”
The company added that it “expects approximately $15 million in synergy cost benefits in 2017 from the acquisition of Hanes Europe Innerwear and continues to internalize additional production of basics, intimates and activewear across its global supply chain. Synergies from the Hanes Australasia (Pacific Brands) and Champion Europe acquisitions are expected to substantially begin in 2018.”
In the conference call with analysts to discuss the results, company executives provided further detail. CEO Evans reported that “Last year in the U.S. roughly 1,200 retail doors closed, several retailers filed for bankruptcy, and there was further inventory tightening as the retail industry continue to adjust to the disruption caused by the shift to online.”
Richard Moss, CFO, explained that in the quarter, “Innerwear sales decreased 8% versus last year, driven by declines in basics and hosiery, while intimates was flat in the quarter. Despite easy comps, additional shopping days and more seasonal weather, traffic declines at bricks-and-mortar actually accelerated from the prior year during the holiday period and were below even our bearish expectations. This created two headwinds that weighed heavily our basics business and accounted for the vast majority of the miss relative to our guidance.”
“First, within the mid-tier and department store channels, the lower than expected traffic trends drove reduced point-of-sale, which resulted in fewer reorders. And second in the mass channel, we had a large retailer aggressively manage their total store level inventory by cutting replenishment orders in the key November and December periods, which brought their basics inventory to record low levels. This destocking alone represented roughly 600 basis points of headwind to Innerwear revenue growth in the quarter.”
Moss added that in 2017, “in the first quarter we expect Innerwear sales to be down as a result, as that segment of the business continues to digest the announced store closings at retail and this inventory tightening that we’ve seen taken place. And so, then we should see it normalize, the Innerwear business normalize in Q2. And then, again, for the full year, should be about flat.” — NM
The full transcript of the conference call can be found here: http://seekingalpha.com/article/4042296-hanesbrands-hbi-q4-2016-results-earnings-call-transcript?page=1
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