Hanesbrands sales drop in Q3 as it faces major headwinds

Q3 results from Hanesbrands showed a slowdown at the business as consumer spending in its core US market faltered, US stores tightened their inventories and some Asian markets proved patchy.

The company reported net sales from continuing operations down 7% to $1.67 billion year over year, which includes a $59 million unfavorable impact from foreign exchange rates, compared to last year. On a constant currency basis, net sales fell only 3%.

And the group said those headwinds more than offset innerwear growth in Australia and the Other Americas, as well as Champion growth in Europe.

Brand-wise, global Champion brand sales fell 14% on a reported basis, with similar declines in both the US and internationally. In constant currency, they fell 9%. And while they rose in Europe and US collegiate channels, that growth was countered by soft consumer demand in the US, by US order cancellations from late shipments as retailers tightly managed inventory, and lingering Covid challenges in certain Asian markets.

Gross profit fell 20% with the gross margin down to 33.7%, from 39.1%. Adjusted gross profit, which excludes certain costs related to the Full Potential plan, was $576 million. And the adjusted gross margin of 34.5% declined 460 basis points.

Near-term headwinds, including commodity and ocean freight inflation as well as manufacturing time-out costs related to its inventory reduction actions, represented more than 500 basis points of margin headwinds. But pricing actions, decreased use of air freight, and Full Potential cost savings initiatives partially made up for these.

Operating profit was $141 million, down from $235 million, while adjusted operating profit fell as much $96 million on the year to hit $168 million.

Income from continuing operations fell to $80 million from $177 million.

SEGMENT PERFORMANCE

The company said that innerwear sales fell 11%, with the issues mentioned above more than offsetting the benefits from the first-quarter price increase and retail space gains.

But activewear sales were comparable to the prior year. As mentioned, it saw continued growth in the collegiate channel as well as solid growth in the printwear channel for both its Champion and Hanes brands. This growth was essentially offset by declines in its other channels due to lower point-of-sale trends and higher activewear inventory levels at retail that drove order cancellations, particularly within Champion.

By brand, Champion sales within the activewear segment fell 9% while sales of other activewear brands increased 15%.

International sales fell 6% on a reported basis, including the $59 million from unfavorable foreign exchange rates. But international sales increased 5% on a constant currency basis.

CEO Steve Bratspies talked about the “tougher-than-expected sales environment” but said that “our business fundamentals, brands and categories remain strong, and we are focused on controlling those things that are in our control. We’re making progress in reducing SKUs and inventory, while optimizing our global supply chain. We’re launching products aimed at younger consumers. We’re taking aggressive actions to manage through the near-term challenges as we execute the Full Potential strategy, which will put us in an advantaged position when the macroenvironment stabilizes.”

YOUNGER CONSUMERS

In fact, the business has a “robust pipeline of new products and innovations continues to roll out to younger consumers”.

Beginning in Q4, the Hanes Originals product line will be available in certain retail channels followed by expanded distribution in early 2023. This consists of “enhanced core men’s and women’s innerwear products with a fit and style aimed at younger consumers”.

In its Maidenform portfolio, the company has launched a seamless collection of bras and underwear delivering stretch-to-fit comfort as well as a lace-based shapewear short. These products, aimed at younger consumers, became top sellers on the brand webstore with expanded distribution for bras beginning in 2023.

And for the fourth quarter, the company expects net sales from continuing operations of approximately $1.4 billion-$1.45 billion, which includes a projected headwind of around $68 million from changes in foreign currency exchange rates.

At the midpoint, this represents 15% decline on the year on a constant currency basis.

GAAP operating profit from continuing operations will range from $53 million to $83 million.

Hanesbrands sales drop in Q3 as it faces major headwinds

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