HanesBrands Reveals $60M Profit, Plans to Sell U.S. Sheer Hosiery Business
HanesBrands is proving that innerwear and activewear are pandemic-proof.
The Winston-Salem, N.C.-based innerwear and activewear company — parent to brands such as Hanes, Champion, Bali, Playtex, Maidenform, L’eggs and Wonderbra, among others — kicked off earnings season Thursday morning as it revealed quarterly and full-year results before the market opened, improving on top and bottom lines, raising its long-term growth targets and revealing plans to sell additional businesses.
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“We are rapidly creating a new HanesBrands, focused on growth and serving our consumers and customers like never before,” Steve Bratspies, HanesBrands chief executive officer, said in a statement. “We significantly outperformed our expectations in 2021, driving increased financial projections in our three-year ‘Full Potential’ growth plan. As we enter 2022, our performance, operational execution and financial foundation are far stronger than they were before the pandemic. We are implementing a three-year, $600 million stock repurchase program based on our confidence in future growth. Most importantly, I want to thank our outstanding global associates as they continue to meet every challenge to serve our consumers.”
In addition to the share-repurchase program, HanesBrands said it plans to sell its U.S. Sheer Hosiery business for an undisclosed amount. The transaction, which the company anticipates will close sometime this year, is part of the group’s continued efforts to focus on areas of the business with the greatest growth potential. HanesBrands said it expects the U.S. Sheer Hosiery business to generate about $60 million in sales, but “essentially zero” operating profit in 2022. In the near-term, during the most recent quarter, the move cost the retailer about $38 million in non-cash impairment charges.
The news of the sale follows HanesBrands’ decision last November to sell its European innerwear business, despite the roughly $500 million to $600 million in sales the division generated in 2020. The company said last fall that it had reached an agreement to sell the business to an affiliate of Regent LP and that the transaction would close in the first quarter of 2022.
In the most recent quarter, the three-month period ending Jan. 1, total revenues at HanesBrands increased $63 million, or 4 percent, to $1.75 billion, up from about $1.69 billion a year earlier. For the year, total company revenues were $6.8 billion, compared with $6.12 billion the year before.
Bright spots in the most recent quarter continued to be the innerwear, activewear and Champion businesses, the latter up 10 percent globally in the last three months, year-over-year, or up 21 percent, compared with 2019’s pre-pandemic fourth quarter.
Global sales of innerwear were roughly flat in the last three months, but continued to be dominated by strength in the men’s, women’s and children’s divisions, as well as socks. (Sales of innerwear in the U.S., however, remained solid. Excluding PPE, innerwear sales Stateside were up 3 percent for the quarter, year-over-year.) For all of 2021’s fiscal year, however, innerwear sales fell, compared with the prior year, on account of HanesBrands’ decision to exit the PPE category early last year.
Total activewear sales increased 11.4 percent, or $46 million, during the quarter, year-over-year, or up 19 percent, or $73 million, compared with 2019’s pre-pandemic fourth quarter. For the full year, activewear sales rose nearly 42 percent to nearly $1.7 billion.
The firm logged more than $60 million for the quarter, or $77 million for the year, as a result.
“Our underlying fundamentals are strong and getting stronger; we expect this to be increasingly visible as the year progresses,” Bratspies told analysts on Thursday morning’s conference call. “What’s underlying that, the biggest piece is consumer demand. Our environment is strong, demand is outpacing supply right now, which will be an issue that will challenge throughout the year. But it’s a really good challenge for us to meet as consumers continue to want our brand and want our products as we go forward.”
The CEO added that HanesBrands remains bullish on Champion, especially in China. “The consumer there receives it very well,” he said.
The company raised its 2024 revenue targets as a result. The company now expects to surpass the $8 billion revenue mark by this time, up from the prior goal of $7.4 billion. At the Champion brand, the company expects global sales to reach $3.4 billion, up from previous estimates of $3 billion, for the same time period. In addition, HanesBrands expects to have a cumulative three-year free cash flow of about $1.6 billion by 2024.
But investors remain wary, with shares of HanesBrands teetering back and forth between positive and negative Thursday, only to close down 1.27 percent to $15.60 apiece.
HanesBrands ended the year with more than $536 million in cash and cash equivalents and about $3.3 billion in long-term debt. The retailer’s portfolio also includes nearly 1,000 company-owned stores throughout its many brands in 47 countries, in addition to its e-commerce businesses. As of November, there were more than 300 doors in the fast-growing China region.
“The company continues to operate with a heavy debt load that cuts into earnings power,” Zachary Warring, equity analyst at CFRA Research, wrote in a note, maintaining the firm’s “hold” position on HanesBrands stock and setting a 12-month price target of $18 a share. “The company announced a three-year $600 million share-repurchase plan and continues to pay a $0.15 quarterly cash dividend. We see limited upside in shares from these levels.”
Industrywide inflationary pressures, increased transportation costs and local lockdowns in Japan and Australia added pressure to the retailer in the most recent quarter. HanesBrands’ chief financial officer Michael Dastugue told analysts on the conference call that HanesBrands expects these pressures to continue in the first half of fiscal year 2022, but that they will likely abate in the back half thanks to continued demand for products, sku reductions, planned air freight use and supplier consolidation. Meanwhile, the company said it will continue to invest in advertising and other media spend.
“We feel very good about the underlying fundamentals of our business and strong consumer demand for our brands,” Dastugue told analysts. “That said, we continue to be impacted by disruptions in the global transportation with logistics environment, which are causing higher levels of in transit inventory. These continued supply constraints are restricting our ability to fully capture all of the consumer demand we’re seeing.
“In every part of the cost of goods sold at this point there is pressure,” he continued. “Transportation is probably the biggest year-over-year increase, raw materials to a certain extent and to a lesser extent wage pressure. As we think about it, we’re controlling the things that we can control.”
In addition, the firm said last fall that it plans to raise prices globally, starting with innerwear in the first quarter and activewear halfway through the year.
“Our brands do have pricing power, so we’re not concerned about [raising prices and losing revenues] in any way and you’ll see the prices flow through the P&L,” Bratspies said.
“Pricing is a strategic lever that we talk about to cover cost and inflation,” he added. “You have to be really smart about it and you have to be able to think about it product by product, channel by channel, season by season to make sure you manage price gaps, absolute price and [generally accepted accounting principle] prices at the shelf.”
Ike Boruchow, senior retail analyst at Wells Fargo, is also bullish on the company, rating HanesBrands’ stock “overweight” and setting a price target of $20 a share.
“With greater clarity on 2022, pricing and capital allocation, we now see a stock [that] is too cheap to ignore,” Boruchow wrote in a note. “At the end of the day, the new management team at [HanesBrands] is doing everything right: reinvesting behind the brands, driving customer engagement, shelf space, divesting non-core assets and deleveraging the BS. While cost pressures are certainly impacting the [near-term] margins, we view this as largely transitory while the outlook for demand is actually stronger than we had expected; our 2023 [earnings per share are] actually moving higher. Last, with leverage now back down to management’s targeted levels, we can begin to see a greater use of [free cash flow] going to shareholders.”
Shares of HanesBrands are down about 1 percent, year-over-year.
“I am very encouraged by the fast start to our Full Potential growth plan, despite the extremely challenging operating environment,” Bratspies said. “Our strong early execution in growing global Champion, reigniting innerwear growth, driving consumer centricity and focusing our portfolio gives me confidence in what we can achieve over the next three years.”
