(Filed Under Financial and General Interest News). Hanes Innerwear segment sales in the third quarter fell 5.2%, while segment operating profit fell 4.7%. For the nine months ended September 30, 2017 sales for the division were down 4.4% and operating profit was down 6.4%, compared to the 39 weeks ended October 1, 2016.

Meanwhile Hanesbrands a whole, which also includes Activewear and International divisions, reported net income of $203.4 million on sales of $1.799 billion in the third quarter, both up from net income of $173.9 million on sales of $1.761 billion during the same three months in 2016.

The company noted that Innerwear sales and profits “were lower than expected as a result of a particularly challenging back-to-school retail season for the apparel sector. The company maintained market share in basics, while online sales, including those through traditional retailer websites, increased by more than 20 percent.”

In the conference call with analysts to discuss the quarter, CEO Gerald Evans Jr. explained, “With over 30% of our sales outside of the U.S., across more than 90 different countries, we are truly a global company. So let me take a minute to discuss our business performance by global product category. For the quarter, global Activewear, which represents roughly 40% of our sales, increased 5% over last year while global Innerwear sales declined roughly 60 basis points. Regionally we saw similar trends between product categories. International sales were stronger than expected, driven by double-digit Champion growth in both Europe and Asia, as well as solid growth in Innerwear sales in Australia, Mexico, Brazil and Argentina. This was partially offset by weaker than expected Innerwear and Activewear sales in the U.S. as continued declines in the overall apparel category and poor traffic trends resulted in broad based weakness at retail during the back-to-school season. Nonetheless, in the quarter, we held share in basics and saw improving POS trends within our bra business at certain key accounts in spite of the challenging market environment.”

Evans added that the Innerwear declines in the U.S. were not focused on “one gender or the other.”

CFO Richard Moss added during the conference call, “we experienced weaker than expected market trends within the U.S. And this was apparent in our Innerwear and Activewear segment results. Innerwear sales declined from last year as online sales growth of over 20% was more than offset by pressure within brick and mortar. Back-to-school trends broadly across retail channels were softer than expected, driven by weak traffic and continued declines in the overall apparel category.”

“We were certainly disappointed that Innerwear sales did not progress as we were expecting in the quarter as a result of these market pressures,” Moss continued. “However, we were able to hold that share in basics and we saw improving POS trends within our bra business at certain key accounts. Innerwear’s operating margin increased 10 basis points over last year as Booster savings more than offset the declining sales volume. In Latin America, sales increased over 15% in constant currency, driven by positive Innerwear POS trends in Mexico, the relaunch of Maidenform in Argentina and Innerwear sales in Brazil.”

Asked whether competitors might now be lowering prices to gain marketshare in the innerwear space, Evans replied, “it’s early in the holiday season yet. But from what we’ve seen, pricing’s been fairly stable in the core categories. This is a period of time where you do have some promotion activities around the holiday period. And certainly we will be engaged in some of that, but nothing out of the ordinary.”

He added that “As we begin to see the settling out of the U.S. retail challenges,” there will be “more and more stability out of our U.S. Innerwear business,” with growth moving towards “1% to 2% and hopefully move us to the higher end of that range over time.”

Evans continued, referring to the company’s acquisition last year of Pacific Brands Limited, a leading underwear and intimate apparel firm in Australia. “On the Innerwear side, we saw very solid results in Australia which is our acquisition. It’s a year old, and it’s doing very well. It was a higher growth business when we bought it in the mid-single-digit kind of growth rate. And they’re continuing to perform as their combination of driving their own direct-to-consumer business, both through their own stores and online, and a wholesale business, and it’s a very nice growth model.”

Discussing other international business, he stated that in “Latin America we’ve seen nice solid performance behind our Innerwear businesses across those regions as well, and we’ve got opportunity to both expand from a share position, but also into adjacent categories in Latin America. So you see we’ve got a nice balance of Activewear expansion in key markets as well as we’ve got some nice growth coming out of Innerwear in some of other markets that have come through a combination of – largely through acquisitions tied to some of our original international businesses in Latin America.” — NM

The complete transcript of the conference call can be see here: https://seekingalpha.com/article/4119316-hanesbrands-hbi-q3-2017-results-earnings-call-transcript?auth_param=n9vbh:1cvkr54:aa289785b97753146a2b2ae1ff1fdc82&uprof=53&dr=1

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Published 11-26-2017 by Nick Monjo