(Filed Under Financial and General Interest News). Innerwear sales, the largest segment within Hanesbrands, Inc., rose 2.0% in the third quarter, while Activewear sales shrank by 2.1%. Overall, company sales rose 10.7%, net income 7.2%.
Hanes CEO Gerald Evans Jr. pointed to “three different levers” that combined to drive the increase in sales, earnings and “a record level of cash flow from operations,” during the conference call to discuss the results. First, “our basics revenue increased 9% organically driven by a 20% growth in men’s underwear as we gained market share and begin to flow in shipments of our new odor control innovation FreshIQ. Year-to-date, our basics business is up 2% organically and we expect momentum to continue through the fourth quarter as our holiday promotions are in place and we begin to advertise behind FreshIQ.”
Evans added, “Global Champion for the quarter delivered low single digit organic revenue growth driven by low double-digit growth in the mass channel and strong double-digit organic growth in Japan. And in terms of our U.S. online business, sales across all channels increased 17% in the quarter.”
“The second lever of our business model that drove strong third quarter results was our acquisition strategy. We continued to generate significant synergies from our prior acquisitions including Hanes Europe, Knights Apparel and Maidenform, which continues to create synergies even three years after closing. For the full year, we remain on track to achieve our target of $40 million in acquisition synergies. We also benefited from the addition of Champion Europe and Pacific Brands. Both businesses drove revenue and operating profit results that exceeded our plan, further reinforcing our excitement about these acquisitions.” Evans noted, “We remain on schedule with the integration planning and we’re confident in our ability to deliver over $125 million in combined annual operating profit within three years.”
The third lever “was our cash generation strategy,” Evans explained, which “helped drive $337 million in cash flow from operations” in the quarter.
In the three months ended October 1, Hanes earned $173.9 million on sales of $1.76 billion, compared to $162.2 million on sales of $1.59 billion in the same quarter last year. Innerwear segment operating profit rose to $151.1 million on segment net sales of $688.3 million in the third quarter, compared to $142.2 million on sales of $674.9 million in the same three months in 2015.
Richard D. Moss, CFO, elaborated in the conference call, “Looking at our two largest segments, Innerwear sales increased 2% organically in the quarter. Our basics business was up 9% over last year, including a 20% increase in men’s underwear. This strong organic growth was driven by our various focus-on-the-core sales initiatives, including increased marketing and promotion as well as the launch of FreshIQ, the first innovation in our core in over a decade. Year-to-date, our basics business is up 2% with the growth evenly balanced across all product categories. This is partially offset by the expected decline in intimates as we anniversaried the large pipe of Hanes Bras in last year’s third quarter.”
Looking ahead, Evans announced a “big launch behind” FreshIQ. “ We’ll do a combination of TV and digital advertising. In fact, some of the digital efforts started two weeks ago. We’ll turn the TV on next week, and along with that we’ll do a number of off-shelf displays that’ll encourage trial and bonus packs and those kind of things to get the consumer to give it a try. This is a big launch for us. It goes across our core underwear and socks as well. We really haven’t done a launch like that since tagless tee over 10 years ago and this really reaches a broad base of consumers. As we turn on the TV and we encourage that trial, this is a product that’s built on one of the biggest concerns of the consumer, and so as you offer them that odor elimination option, it creates a real reason for trial that we’re going to back up with great advertising and promotion packs. We get the trial and we tend to see the repeat. And, of course, we’re now launching it in one of the highest traffic periods of the year. So we would expect it to ramp up and get trial and repeat over the next few quarters.” — NM
The complete conference call can be found here: http://seekingalpha.com/article/4016125-hanesbrands-hbi-q3-2016-results-earnings-call-transcript?page=1
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