(Filed Under Financial and General Interest News). Hanesbrands Innerwear division sales fell yet again in the first quarter, down 3.1%, following a string of quarterly declines last year. Segment operating profit, however, was up 3.2%.
The company overall, which also includes Activewear and International divisions, reported a 7.9% increase in sales in the quarter, along with a slight increase in net income.
Hanes attempted a positive spin on the Innerwear results, declaring that it had been expecting a 4% decline in sales, as opposed to the actual 3.1% drop. It added that “sales of Innerwear basics increased nearly 2%, while Innerwear intimates decreased in line with company expectations. Sales increased for underwear, socks, and shapewear, while the company’s bra turnaround initiatives are continuing. Sales of Innerwear in the online channel increased 6%.”
It continued, referring to its new Australian retail chain, “Bras N Things growth, including increases in comparable-store sales, contributed to increased organic sales after the anniversary of its acquisition in February. The business contributed $18 million in non-organic sales prior to the acquisition anniversary.”
Looking ahead, the company sees more challenges. “U.S. Innerwear net sales at the midpoint of guidance for both the full year and second quarter are expected to decrease approximately 2%, reflecting a cautious outlook for the impact from retail door closings and benefits from price increases taken in the first quarter.”
In the conference call with analysts to discuss the company results, CEO Gerald Evans argued that there were some signs of hope. “Looking further at the quarter’s organic constant currency performance, in each region of our global Innerwear business, we delivered sales and operating profit that were above or in line with our forecast. International Innerwear sales were up over last year, with growth in Asia, Australia and the Americas, more than offsetting the expected decline in Europe. We are encouraged by the performance of our U.S. Innerwear business in the quarter, while our revenue was down compared to last year, we were pleased that both sales and operating profit were above our expectations. The upside was driven in part by a better than expected net benefit from pricing.”
“We also saw continued strong performance from our innovation platforms including Comfort Flex Fit and Hanes and Cool Comfort and Maidenform. In addition, Hanes displaced a private label sock program at a national value retail. This reinforces the view that brands remain the number one driver of consumer purchase intent in our categories. We are committed to returning our US Innerwear business to long-term growth with specific actions in 2019, that include increased marketing investments, particularly within Intimates, as well as the launch of additional innovations.”
During the call, CFO Barry Hytinen, provided more detail on Innerwear. Despite the drop in overall sales, “operating margin increased 130 basis points to 22%. Basics revenue increased 1.5%, our second straight quarter of low single-digit growth. Intimate sales declined 12% in the quarter, in line with our expectation. Bra sales were lower as planned, while our shapewear revenue grew for the third consecutive quarter. Shapewear’s growth was driven by continued positive consumer reception to our new product designs and Cool Comfort innovation.”
CEO Evans said he was “focusing heavily” on the U.S. Innerwear business to return “that business to growth. And we’ve added, particularly in our Intimates business this year, and so, we just began for example, a campaign behind Maidenform, targeted at the millennial consumer tied to influencers, and we’re already seeing results of that traction in the first week that we started the campaign. So, we intend to keep driving our Innerwear business as well. And then, we are selectively spending in our International business, including Australia, to drive Innerwear there as well.”
Evans added, “we continue to be very excited about our men’s underwear business. It continues to perform very well and you can see that in the performance of our Basics, in total it was up in the quarter and certainly underwear is a key part of that. Our shares build nicely in the most recent rolling three-month period, as we see broad growth in that business. As we look at our branded business, we continue to feel brands matter, the research and the numbers consistently say that, and it’s hard to dispute the facts and in the case of the numbers, they suggest that brands in Innerwear generally hold an 80% to 90% share of the market and have consistently done so over time. And as we look at brands in the US, for example, that share has actually grown over the last 12 months. And we know why, because consumers -- the key purchase driver is brands and price is a distant affair.”
He also referred to other recent product improvements. “Our Comfort Flex Fit innovation has worked very effectively in our underwear business and, in fact, we’re going to be pushing it in the back half of the year into our women’s underwear business as well. And we’re getting ready to upgrade our X-Temp to an X-Temp 2.0, which works even faster in cooling the consumers.”
In the first quarter, Innerwear segment net sales were $475.9 million, compared to $491.1 million in the three months ended March 31, 2018. Innerwear segment operating profit was $104.6 million for the quarter ended March 30, 2019, compared to $101.4 million in the same period last year.
Overall, Hanes earned $79.5 million on sales of $1.588 billion in the first quarter, compared to a net profit of $79.4 million on sales of $1.472 million during the first three months of last year.
Looking ahead at the full year, Hanes said it “expects 2019 net sales of $6.885 billion to $6.985 billion, GAAP operating profit of $900 million to $930 million, adjusted operating profit of $955 million to $985 million, GAAP EPS of $1.59 to $1.67, adjusted EPS of $1.72 to $1.80, and net cash from operations of $700 million to $800 million.” — NM
The full transcript of the conference call can be found here: https://seekingalpha.com/article/4259195-hanesbrands-inc-hbi-ceo-gerald-evans-q1-2019-results-earnings-call-transcript
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