(Filed Under Financial and General Interest News). Hanes Innerwear division sales fell 3.4% and operating profit dropped 9.3% in 2018. But the parent company fared much better with overall sales rising 5.1% and profit surging 793.6%.
Helping to balance its results, the $6.8 billion company has three other divisions, including Activewear and International, which generated $4.4 billion in sales last year. For the full year 2018, Hanes reported a profit of $553.1 million on sales of $6.804 billion compared to a profit of $61.9 million on sales of $6.471 billion in 2017.
In 2018 the Innerwear segment generated an operating profit of $526.8 million on sales of $2.380 billion compared to an operating profit of $580.9 million on sales of $2.463 billion in 2017. In the fourth quarter of 2018, division sales and operating profit improved, moving to almost the same levels in the same quarter in 2017, and Hanes noted “the operating margin was 22.6 percent” for the segment. In the last three months of the year, “sales of Innerwear basics increased 2 percent with growth in men’s and women’s underwear. Products that feature comfort innovations continue to perform well and account for 20 percent of basics sales,” the company explained. “Sales of Innerwear intimates decreased 7 percent in the fourth quarter, although shapewear sales realized double-digit growth after the successful relaunch of the Maidenform product lineup featuring cooling innovations. The intimates sales trend was sequentially better than the third quarter.”
“The company is continuing to execute its revitalization initiatives for the intimates business, which is more concentrated in the mid tier and department store channel and is affected by door closings and channel disruption. The company’s ongoing bra turnaround strategy includes expansion within the online and mass channels, increased investment, and speed-to-market initiatives.”
In the conference call with analysts to discuss the results, CEO Gerald Evans Jr. stated “our U.S. innerwear business saw meaningful improvement from the third quarter with revenue and profit results that were in line with our guidance,” adding “International growth came from Champion strength in Europe and Asia and constant-currency organic sales growth for innerwear in Australia, Asia and the Americas. In addition, net sales for Australia-based Bras N Things, acquired in February 2018, were $43 million. The segment’s operating margin of 16.2 percent increased 200 basis points over the year-ago quarter, benefiting from the acquisition of Bras N Things, organic growth, and integration synergies from past acquisitions.”
Evans warned, however, that “the U.S. retail landscape remains challenging. We’re encouraged by a number of positive signs underlying both our basics in Intimates business, but the prolonged bankruptcies and door closings are impeding our return to consistent growth in the segment. Despite our improving fourth quarter trends, we decided to take a more conservative view of our U.S. Innerwear segment for 2019 than we held in November, given the ongoing uncertainty in the U.S. mid tier and department store channel.”
He continued, “we remain committed to returning this business to long-term growth. In 2019, we’re increasing our marketing investment behind our key brands and innovations. We’re also taking additional steps to further streamline our U.S. Intimate supply-chain, which should lower costs and increase our speed to market.”
Providing additional detail on Innerwear marketing, Evans added, “we are certainly going to put support as we always do behind our basics business. We’ve got some important innovations out there and we will support those with our ComfortFlex Fit underwear being, in particular, one of them. On the Intimates side,” he continued, the company as been supporting aspects of its Bali “business and we intend to do that, but we also intend to invest behind our Maidenform business. It’s -- it has a lot of appeal among the millennial consumer and we intend to take the -- take some success from our play book with Champion and apply to Maidenform and really begin to connect digitally with the young consumer. And we opened up maidenform.com at the end of the year. We’re already seeing some nice connection and the younger consumer coming to the brand and we will reinforce that with our investment.”
Looking ahead at the upcoming year, Hanes stated it “expects 2019 net sales of $6.885 billion to $6.985 billion, GAAP operating profit of $900 million to $930 million.” It explained that “key assumptions in the company’s guidance include: a cautious outlook for the U.S. brick-and-mortar market, including continued door closures; continued progress in U.S. Innerwear revitalization initiatives; price increases and a conservative view on elasticity; negative effects of currency exchange rates; and increased marketing investment to support brand plans. The acquisition of Bras N Things is expected to contribute $17 million to net sales prior to the acquisition’s Feb. 12 anniversary date.”
Continuing its predictions for the year ahead, the company stated “U.S. Innerwear net sales for the year at the midpoint of guidance are expected to decrease by approximately 2 percent, while first-quarter net sales are expected to decline 4 percent, reflecting the impact from retail door closings. The company expects an improving trend as it progresses through the year following mid-first-quarter price increases.” — NM
The full transcript of the earnings call can be found here: https://seekingalpha.com/article/4239074-hanesbrands-inc-hbi-ceo-gerald-evans-q4-2018-results-earnings-call-transcript
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