02/15/24
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HanesBrands Reports First-Quarter 2017 Financial Results
HanesBrands Reports First-Quarter 2017 Financial Results
May 2, 2017 at 4:06 PM EDT
-
1Q 2017 Net Sales of
$1.38 Billion Increased 13%; GAAP EPS of$0.19 and Adjusted EPS of$0.29 - Strong Cash Flow Benefited from Working Capital Discipline
-
Company Announces “Project Booster” Multiyear Initiative to Invest
for Consistent Organic Sales Growth and Drive Annual Cash from
Operations to more than
$1 Billion
The growth initiative, called Project Booster, is expected to drive the
company’s Sell More, Spend Less, Generate Cash business strategy. By
2020, the effort is expected to generate approximately
Incremental growth efforts will focus on leveraging the company’s global Champion activewear business, increasing global online and omnichannel sales, and investing in brand building. The project launched in the first quarter and is expected to be neutral to full-year operating results in 2017, while providing significant benefits in coming years.
“We are off to the strong start of 2017 that we sought,” said Hanes
Chief Executive Officer
For the first quarter ended
On a GAAP basis for continuing operations, first-quarter operating
profit of
Net cash from operations improved by
Key Callouts for First-Quarter 2017 Financial Results
Growth from Acquisitions, while Global Champion Activewear and
Online Sales Increase. As indicated in the company’s first-quarter
guidance, the sales from acquisitions more than offset the decline in
organic sales, which was expected. Acquisitions completed in 2016
contributed approximately
Segment Realignment Matches Business Model. In the first quarter
of 2017, the company realigned its reporting segments to reflect the new
model under which the business will be managed and results will be
reviewed. The former Direct to Consumer segment, which consisted of
outlet stores, the legacy catalog business and retail Internet
operations in
With the realignment, the company’s U.S. retail Internet operations, which sell products directly to consumers, are reported in the respective Innerwear and Activewear segments. The Other category consists of the U.S. businesses for outlet stores, hosiery (previously reported in the Innerwear segment), and legacy catalog operations. Prior-year segment sales and operating profit results have been revised to conform to the current year presentation.
Segment Results Reflect Acquisition Contributions, Retail and Online
Environment, and Overhead Reduction Efforts. In the first quarter,
Hanes incurred Project Booster-related expense of approximately
- Innerwear segment affected by retail environment, as expected. Segment sales and operating profit decreased 6 percent as a result of reduced consumer traffic at retailers, store closings, and cautious retailer inventory management. These factors were partially offset by growth of online sales and men’s underwear.
- Champion growth and space gains contributed to Activewear segment results. Activewear sales increased 3 percent and operating profit increased 4 percent. Double-digit Champion sales growth benefited from space gains and overcame weak retailer store traffic and inventory management that affected the overall segment.
-
International segment growth driven by acquisitions and Champion
Asia space gains. Segment sales increased 71 percent with acquisitions and space gains more than offsetting pockets of soft consumer traffic trends and negative currency impacts. Operating profit more than doubled as a result of new acquisitions and synergies from prior acquisitions.
Project Booster
In the first quarter, Hanes began executing its multiyear Project Booster program to drive investment for sales growth, cost reduction and increased cash flow.
The Booster initiative is expected to generate approximately
“Our core Sell More, Spend Less, Generate Cash strategy is effective and creating value, but we feel we have the opportunity to energize these efforts to drive additional benefits, particularly by taking advantage of the strong global commercial and supply chain scale we have created through acquisitions,” Evans said. “Project Booster will unlock value beyond our ongoing growth efforts and the synergies we are reaping from acquisition integrations.”
Under Project Booster, the company will invest to accelerate worldwide omnichannel and global Champion growth, while also investing in marketing and brand building for its leading lineup of brands globally.
The company intends to bolster its organizational alignment and
capabilities to take advantage of additional growth potential in the
online channel in
Through the acquisition of Champion Europe, Hanes has unified the Champion
brand globally across the
The company will also increase its investment in brand building for the
rest of its leading global portfolio, including multinational brands and
regional brands. The company holds the
To fund growth initiatives, reduce costs and increase cash flow, the company expects to reduce overhead, including headcount to reflect market trends and needs; drive additional supply chain optimization beyond integration synergies; and focus on inventory and inventory turns and other working capital improvements. The company intends to use its size and scale to drive supply chain optimization, including investing in its domestic distribution center network to better serve the online channel, gaining procurement and product development savings, utilizing global fabric platforms and silhouettes, and continuing to internalize production.
In the first quarter, the company offered headquarters employees a voluntary separation program and in the second quarter is making additional corporate headcount reductions. In total, approximately 220 corporate employees are being separated, with the majority through the voluntary program. Project Booster initiatives in 2017, including the headcount reductions, are expected to be cost-neutral for full-year 2017.
2017 Financial Guidance
Hanes issued initial full-year guidance for 2017 in February and reaffirmed guidance in April. The company has issued second-quarter guidance for select performance measures.
For 2017, the company continues to expect net sales of
Compared with 2016 results, the midpoint of 2017 guidance represents net sales growth of 8 percent, GAAP operating profit growth of 12 percent, adjusted operating profit growth of 5 percent, GAAP EPS growth from continuing operations of 26 percent, adjusted EPS growth from continuing operations of 7 percent, and operating cash flow growth of 11 percent.
Factors Affecting Cadence of Guidance. Full-year net sales
guidance includes expected incremental sales from acquisitions of
approximately
Second-Quarter Guidance. The company expects total net sales of
approximately
Second-quarter GAAP EPS for continuing operations is expected to be
As part of Project Booster, the company expects to incur Project Booster
expense of approximately
Additional Full-Year Guidance. The company expects approximately
In conjunction with acquisition integration in 2017, the company
continues to expect to incur an estimated
Guidance for operating cash flow growth in 2017 includes the expected benefits from net income growth and lower pretax cash charges related to acquisitions.
The company continues to expect capital expenditures of approximately
Hanes continues to expect interest expense and other expenses to be
approximately
Hanes has updated its quarterly frequently-asked-questions document, which is available at www.Hanes.com/faq.
Note on Adjusted Measures and Reconciliation to GAAP Measures
To supplement our financial guidance prepared in accordance with generally accepted accounting principles, we provide quarterly and full-year results and guidance concerning certain non-GAAP financial measures, including adjusted EPS, adjusted net income, adjusted operating profit (and margin), adjusted SG&A, adjusted gross profit (and margin) and EBITDA.
Adjusted EPS is defined as diluted EPS excluding actions and the tax effect on actions. Adjusted net income is defined as net income excluding actions and the tax effect on actions. Adjusted operating profit is defined as operating profit excluding actions. Adjusted gross profit is defined as gross profit excluding actions. Adjusted SG&A is defined as selling, general and administrative expenses excluding actions. EBITDA is defined as earnings before interest, taxes, depreciation and amortization.
Actions during the periods presented include adjustments for acquisition-related integration costs. Acquisition-related integration costs include adjustments directly related to completed acquisitions and their integration. These costs include legal fees, consulting fees, bank fees, severance costs, certain purchase accounting items, facility closures, inventory write-offs, information technology integration costs, and similar charges. While these costs are not operational in nature and are not expected to continue for any singular transaction on an ongoing basis, similar types of costs, expenses and charges have occurred in prior periods and may recur in the future as the company continues to integrate prior acquisitions and pursues any future acquisitions.
Hanes has chosen to present non-GAAP measures excluding the effects of these actions to investors to enable additional analyses of past, present and future operating performance and as a supplemental means of evaluating operations absent the effect of acquisition-related expenses and other actions. Hanes believes these non-GAAP measures provide management and investors with valuable supplemental information for analyzing the operating performance of the company’s ongoing business during each period presented without giving effect to costs associated with the execution and integration of any of the aforementioned actions taken.
In addition to these non-GAAP measures, the company has chosen to present EBITDA to investors because it considers it to be an important supplemental means of evaluating operating performance. Hanes believes that EBITDA is frequently used by securities analysts, investors and other interested parties in the evaluation of companies in the industry, and management uses EBITDA for planning purposes in connection with setting its capital allocation strategy. EBITDA should not, however, be considered as a measure of discretionary cash available to invest in the growth of the business.
Non-GAAP financial measures have limitations as analytical tools and should not be considered in isolation or as an alternative to, or substitute for, financial results prepared in accordance with GAAP. Further, the non-GAAP measures presented may be different from non-GAAP measures with similar or identical names presented by other companies.
In the first quarter of 2017, Hanes incurred approximately
In the first quarter of 2016, Hanes incurred approximately
Hanes expects to incur approximately
Webcast Conference Call
Hanes will host an internet webcast of its quarterly investor conference
call at
An archived replay of the conference call webcast will be available at www.Hanes.com/investors.
A telephone playback will be available from approximately
Cautionary Statement Concerning Forward-Looking Statements
This
press release contains certain “forward-looking statements,” as defined
under U.S. federal securities laws, with respect to our long-term goals
and trends associated with our business, as well as guidance as to
future performance. In particular, among others, statements following
the heading “2017 Financial Guidance,” as well as statements about the
benefits anticipated from Project Booster, the acquisitions of Hanes
Europe Innerwear, Hanes Australasia, Knights Apparel and Champion
TABLE 1 |
||||||||||||||
HANESBRANDS INC. Condensed Consolidated Statements of Income (Amounts in thousands, except per-share amounts) (Unaudited) |
||||||||||||||
Quarter Ended | ||||||||||||||
April 1, |
April 2, |
% Change | ||||||||||||
Net sales | $ | 1,380,355 | $ | 1,219,140 | 13.2 | % | ||||||||
Cost of sales | 840,824 | 761,884 | ||||||||||||
Gross profit | 539,531 | 457,256 | 18.0 | % | ||||||||||
As a % of net sales | 39.1 | % | 37.5 | % | ||||||||||
Selling, general and administrative expenses | 418,263 | 334,851 | ||||||||||||
As a % of net sales | 30.3 | % | 27.5 | % | ||||||||||
Operating profit | 121,268 | 122,405 | (0.9 | )% | ||||||||||
As a % of net sales | 8.8 | % | 10.0 | % | ||||||||||
Other expenses | 1,384 | 649 | ||||||||||||
Interest expense, net | 42,137 | 31,566 | ||||||||||||
Income from continuing operations before income tax expense | 77,747 | 90,190 | ||||||||||||
Income tax expense | 4,665 | 9,921 | ||||||||||||
Income from continuing operations | 73,082 | 80,269 | (9.0 | )% | ||||||||||
Loss from discontinued operations, net of tax | (2,465 | ) | — | |||||||||||
Net income | $ | 70,617 | $ | 80,269 | (12.0 | )% | ||||||||
Earnings per share - basic: | ||||||||||||||
Continuing operations | $ | 0.20 | $ | 0.21 | ||||||||||
Discontinued operations | (0.01 | ) | — | |||||||||||
Net income | $ | 0.19 | $ | 0.21 | (9.5 | )% | ||||||||
Earnings per share - diluted: | ||||||||||||||
Continuing operations | $ | 0.19 | $ | 0.21 | ||||||||||
Discontinued operations | (0.01 | ) | — | |||||||||||
Net income | $ | 0.19 | $ | 0.21 | (9.5 | )% | ||||||||
Weighted average shares outstanding: | ||||||||||||||
Basic | 373,218 | 386,598 | ||||||||||||
Diluted | 375,251 | 389,043 | ||||||||||||
TABLE 2 |
||||||||||||||
HANESBRANDS INC. Supplemental Financial Information (Dollars in thousands) (Unaudited) |
||||||||||||||
Quarter Ended | ||||||||||||||
April 1, |
April 2, |
% Change | ||||||||||||
Segment net sales1: | ||||||||||||||
Innerwear | $ | 505,190 | $ | 537,021 | (5.9 | )% | ||||||||
Activewear | 327,343 | 316,543 | 3.4 | % | ||||||||||
International | 477,398 | 279,087 | 71.1 | % | ||||||||||
Other | 70,424 | 86,489 | (18.6 | )% | ||||||||||
Total net sales | $ | 1,380,355 | $ | 1,219,140 | 13.2 | % | ||||||||
Segment operating profit1: | ||||||||||||||
Innerwear | $ | 102,701 | $ | 109,735 | (6.4 | )% | ||||||||
Activewear | 33,408 | 32,105 | 4.1 | % | ||||||||||
International | 50,495 | 24,719 | 104.3 | % | ||||||||||
Other | 445 | 5,679 | (92.2 | )% | ||||||||||
General corporate expenses/other | (27,414 | ) | (25,164 | ) | 8.9 | % | ||||||||
Acquisition-related and integration charges | (38,367 | ) | (24,669 | ) | 55.5 | % | ||||||||
Total operating profit | $ | 121,268 | $ | 122,405 | (0.9 | )% | ||||||||
EBITDA2: | ||||||||||||||
Net income from continuing operations | $ | 73,082 | $ | 80,269 | (9.0 | )% | ||||||||
Interest expense, net | 42,137 | 31,566 | 33.5 | % | ||||||||||
Income tax expense | 4,665 | 9,921 | (53.0 | )% | ||||||||||
Depreciation and amortization | 28,765 | 22,820 | 26.1 | % | ||||||||||
Total EBITDA | $ | 148,649 | $ | 144,576 | 2.8 | % | ||||||||
1 |
In the first quarter of 2017, the Company realigned its reporting segments to reflect the new model under which the business will be managed and results will be reviewed by the chief executive officer, who is the Company’s chief operating decision maker. The former Direct to Consumer segment, which consisted of the Company’s U.S. value-based (“outlet”) stores, legacy catalog business and U.S. retail Internet operations, was eliminated. The Company’s U.S. retail Internet operations, which sells products directly to consumers, is now reported in the respective Innerwear and Activewear segments. The Other category consists of the Company’s U.S. value-based (“outlet”) stores, U.S. hosiery business (previously reported in the Innerwear segment) and legacy catalog operations. Prior year segment sales and operating profit results have been revised to conform to the current year presentation. | |
2 |
Earnings from continuing operations before interest, taxes, depreciation and amortization (EBITDA) is a non-GAAP financial measure. | |
TABLE 3 |
||||||||
HANESBRANDS INC. Condensed Consolidated Balance Sheets (Dollars in thousands) (Unaudited) |
||||||||
April 1, 2017 | December 31, 2016 | |||||||
Assets | ||||||||
Cash and cash equivalents | $ | 463,623 | $ | 460,245 | ||||
Trade accounts receivable, net | 800,467 | 836,924 | ||||||
Inventories | 1,998,501 | 1,840,565 | ||||||
Other current assets | 196,216 | 137,535 | ||||||
Current assets of discontinued operations | — | 45,897 | ||||||
Total current assets | 3,458,807 | 3,321,166 | ||||||
Property, net | 620,393 | 692,464 | ||||||
Trademarks and other identifiable intangibles, net | 1,318,904 | 1,285,458 | ||||||
Goodwill | 1,118,509 | 1,098,540 | ||||||
Deferred tax assets | 467,993 | 464,872 | ||||||
Other noncurrent assets | 71,322 | 67,980 | ||||||
Total assets | $ | 7,055,928 | $ | 6,930,480 | ||||
Liabilities | ||||||||
Accounts payable and accrued liabilities | $ | 1,385,670 | $ | 1,381,442 | ||||
Notes payable | 43,418 | 56,396 | ||||||
Accounts Receivable Securitization Facility | 192,786 | 44,521 | ||||||
Current portion of long-term debt | 140,620 | 133,843 | ||||||
Current liabilities of discontinued operations | — | 9,466 | ||||||
Total current liabilities | 1,762,494 | 1,625,668 | ||||||
Long-term debt | 3,763,119 | 3,507,685 | ||||||
Pension and postretirement benefits | 375,036 | 371,612 | ||||||
Other noncurrent liabilities | 197,219 | 201,601 | ||||||
Total liabilities | 6,097,868 | 5,706,566 | ||||||
Equity | 958,060 | 1,223,914 | ||||||
Total liabilities and equity | $ | 7,055,928 | $ | 6,930,480 | ||||
TABLE 4 |
||||||||||
HANESBRANDS INC. Condensed Consolidated Statements of Cash Flows (Dollars in thousands) (Unaudited) |
||||||||||
Quarter Ended | ||||||||||
April 1, 2017 | April 2, 2016 | |||||||||
Operating Activities: | ||||||||||
Net income | $ | 70,617 | $ | 80,269 | ||||||
Depreciation and amortization | 28,765 | 22,820 | ||||||||
Loss on disposition of businesses | 1,639 | — | ||||||||
Other noncash items | 11,521 | 926 | ||||||||
Changes in assets and liabilities, net | (135,340 | ) | (388,821 | ) | ||||||
Net cash from operating activities | (22,798 | ) | (284,806 | ) | ||||||
Investing Activities: | ||||||||||
Purchases/sales of property and equipment, net, and other | (11,446 | ) | (12,573 | ) | ||||||
Acquisition of businesses, net of cash acquired | (524 | ) | (7,062 | ) | ||||||
Disposition of businesses | 37,434 | — | ||||||||
Net cash from investing activities | 25,464 | (19,635 | ) | |||||||
Financing Activities: | ||||||||||
Cash dividends paid | (55,875 | ) | (42,683 | ) | ||||||
Share repurchases | (299,919 | ) | (379,901 | ) | ||||||
Net borrowings on notes payable, debt and other | 360,305 | 737,268 | ||||||||
Net cash from financing activities | 4,511 | 314,684 | ||||||||
Effect of changes in foreign currency exchange rates on cash | (3,799 | ) | 3,010 | |||||||
Change in cash and cash equivalents | 3,378 | 13,253 | ||||||||
Cash and cash equivalents at beginning of year | 460,245 | 319,169 | ||||||||
Cash and cash equivalents at end of period | $ | 463,623 | $ | 332,422 | ||||||
TABLE 5 |
||||||||||
HANESBRANDS INC. Supplemental Financial Information Reconciliation of Select GAAP Measures to Non-GAAP Measures (Amounts in thousands, except per-share amounts) (Unaudited) |
||||||||||
Quarter Ended | ||||||||||
April 1, |
April 2, |
|||||||||
Gross profit, as reported under GAAP | $ | 539,531 | $ | 457,256 | ||||||
Acquisition-related and integration charges | 15,475 | 4,869 | ||||||||
Gross profit, as adjusted | $ | 555,006 | $ | 462,125 | ||||||
As a % of net sales | 40.2 | % | 37.9 | % | ||||||
Selling, general and administrative expenses, as reported under GAAP | $ | 418,263 | $ | 334,851 | ||||||
Acquisition-related and integration charges | (22,892 | ) | (19,800 | ) | ||||||
Selling, general and administrative expenses, as adjusted | $ | 395,371 | $ | 315,051 | ||||||
As a % of net sales | 28.6 | % | 25.8 | % | ||||||
Operating profit, as reported under GAAP | $ | 121,268 | $ | 122,405 | ||||||
Acquisition-related and integration charges included in gross profit | 15,475 | 4,869 | ||||||||
Acquisition-related and integration charges included in SG&A | 22,892 | 19,800 | ||||||||
Operating profit, as adjusted | $ | 159,635 | $ | 147,074 | ||||||
As a % of net sales | 11.6 | % | 12.1 | % | ||||||
Net income from continuing operations, as reported under GAAP | $ | 73,082 | $ | 80,269 | ||||||
Acquisition-related and integration charges included in gross profit | 15,475 | 4,869 | ||||||||
Acquisition-related and integration charges included in SG&A | 22,892 | 19,800 | ||||||||
Tax effect on actions | (2,302 | ) | (2,713 | ) | ||||||
Net income from continuing operations, as adjusted | $ | 109,147 | $ | 102,225 | ||||||
Diluted earnings per share from continuing operations, as reported under GAAP | $ | 0.19 | $ | 0.21 | ||||||
Acquisition-related and integration charges | 0.10 | 0.06 | ||||||||
Diluted earnings per share from continuing operations, as adjusted | $ | 0.29 | $ | 0.26 | ||||||
View source version on businesswire.com: http://www.businesswire.com/news/home/20170502006727/en/
Source:
HanesBrands
News Media, contact:
Matt Hall, 336-519-3386
or
Analysts
and Investors, contact:
T.C. Robillard, 336-519-2115
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