Champion Troubles Weigh on Hanesbrands
Hanesbrands Inc. shed nearly $100 million in debt during the second quarter and expects to pay down $400 million altogether before the year is over, it said Thursday, after an activist investor this week took aim at the North Carolina company’s debt, leadership and inventory bloat.
In a Nutshell: CEO Stephen Bratspies told investors in a second-quarter conference call on Thursday that the activewear apparel market pressures in the U.S. and Australia are expected to continue into the second half, but the fourth quarter should see margin gains as Hanesbrands sells lower cost merchandise currently being produced.
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In the call, Bratspies said the company wouldn’t comment on Tuesday’s attack from activist investor Barrington Capital. The hedge fund wants Hanesbrands to install new executive leadership, reduce inventory and trim some of its $3.6 billion in debt.
Bratspies said Hanesbrands could sell off some parts of the business if that’s what’s best for the company.
Despite the second-quarter miss on Wall Street’s expectations, Bratspies said Champion has over 80 percent domestic and 65 percent global awareness, represents “a significant global growth opportunity,” and shows growing footwear momentum. New brand leaders have been working to enhance talent, design and merchandising sales and will launch their first full global product line for fall/winter 2024.
Hanesbrands streamlined Champion’s supply chain operations and balanced third-party sourcing and owned manufacturing. It also consolidated sourcing partners and shifted to dedicated Champion distribution centers. “We’re going to be more efficient,” Bratspies said, adding that the company will be “faster and more flexible than we’ve been in the past.” The company is taking the “necessary steps of shifting our channel mix in the U.S.”
The seven popup Champion stores Hanesbrands opened “a few weeks” ago to clear through inventory are “off to a good start” and should stay open “at least” through the end of the year, Bratspies said. In Asia, new collaborations are resonating with consumers, and key partners are making significant investments behind the brand “because they believe in it,” he said.
The Full Potential strategy Hanesbrands unveiled two years ago helped U.S. revenue from new product innovation rise 30 percent over the prior year after the company launched the Hanes Originals line. M by Maidenform, a line of soft-on-the-skin intimate apparel products targeting younger consumers, is set to launch this fall in the mass and department store channels and on hanes.com. It’s one of the ways Hanesbrands is “getting younger” to keep pace with a new generation, Bratspies said.
“Our innovation pipeline is full, providing visibility to new product launches through 2025,” Bratspies said, adding that the company has also increased its back-to-school presence with a 9 percent increase in off-shelf displays.
“Our supply chain segmentation work has driven a focus on less inventory, fewer more profitable SKUs, improved efficiencies in our DCs, and reduced product delivery times from Asia by over 40 percent,” Bratspies said. “We’re also leveraging data analytics to help our retail partners improve innerwear on-shelf availability to drive sales and make more efficient inventory investments.”
Bratspies doesn’t see the need to reduce prices but still wants to give consumers great value and “grow our [market] shares.” While the company was “thoughtful” about it prices versus margin for back-to-school, he sees “more flexibility next year with the gross margin improvement” from falling costs.
In the call, new CFO Scott Lewis, who is also chief accounting officer, cited “significantly” lower input costs. From a year ago, cotton costs are down nearly 40 percent, ocean freight rates are down 80 percent, and raw materials and work-in-progress balances have fallen 26 percent, he said.
The company said it ended the quarter with 7 percent less inventory versus the first quarter. The $1.84 billion worth of stock it held was down 12 percent from a year ago. Hanesbrands credited efforts to clear higher-cost inventory and SKU reduction work for the improvement.
Hanesbrands ended the quarter with $965 million in total liquidity, including $192 million of cash and equivalents and $773 million in available credit. This is helping the company to pay down debt “earlier than expected,” Bratspies said.
The company is also set to close its last U.S. cut-and-sew site—an Arkansas hosiery manufacturing plant—at the end of September.
Net Sales: For the quarter ended July 1, net sales fell 4.9 percent to $1.44 billion from $1.51 billion.
The company said international sales fell 4 percent, with innerwear growth in the Americas and gains in its Champion brand in Asia offsetting the decline in Australia. Global Champion sales fell 16 percent, including 25 percent drop in the U.S. and a 1 percent decrease internationally.
By category, innerwear sales rose 3 percent, driven in part by Basics growth. Activewear sales dropped 19 percent on soft consumer demand and excess inventory. Continued growth in the collegiate channel more than offset declines in other channels.
For the six months, net sales fell 8.5 percent to $2.83 billion from $3.09 billion.
Earnings: The net loss for the quarter was $22.5 million, or 6 cents a diluted share, against net income of $92.1 million, or 26 cents, in the year-ago period. On an adjusted basis, the loss from continuing operations was $4 million, or 1 cent a diluted share.
Wall Street was expecting an adjusted diluted loss per share of 2 cents on $1.46 billion in revenue.
Hanesbrands guided third-quarter net sales to the range of $1.52 billion to $1.57 billion, with EPS between 4 cents to 10 cents a share.
For the year ending Dec. 30, the company forecasted net sales in the range of $5.80 billion to $5.90 billion. It expects EPS in the range of 0 cents to 14 cents.
Hanesbrands reported a six-month net loss of $56.9 million, or 16 cents a diluted share, against net income of $210.8 million, or 60 cents, in the year-ago period.
CEO’s Take: “We’re always looking to pressure test our strategy, checking ourselves to make sure that we’re taking the right actions for the business for our shareholders as times change,” Bratspies said.
