HanesBrands Reports First-Quarter 2019 Financial Results

  • Strong 1Q net sales, operating profit and EPS exceed company
  • Net sales increased 8% on strength of 10% constant-currency organic
    growth, including global Champion constant-currency sales growth of 75%
  • Operating profit up low single digits; GAAP EPS flat at $0.22 and
    adjusted EPS of $0.27 increased 4%
  • Cash generation on plan, and net debt reduced to 3.5 times adjusted
  • Full-year 2019 guidance reiterated and 2Q guidance issued

WINSTON-SALEM, N.C.–(BUSINESS WIRE)–HanesBrands (NYSE: HBI), a leading global marketer of everyday basic
apparel under world-class brands, today announced first-quarter 2019
results that exceeded its guidance, including net sales growth of 8%,
operating profit growth, and reduced debt leverage.

For the first quarter ended March 30, 2019, net sales increased 8% to
$1.59 billion and organic sales in constant currency increased 10%, the
seventh consecutive quarter of constant-currency organic growth. Sales
were fueled by strong U.S. Activewear growth, broad-based International
growth, and increased sales of U.S. Innerwear basics. Globally, strong Champion
sales growth accelerated.

GAAP operating profit in the first quarter increased 1% to $148 million,
while adjusted operating profit increased 2% to $169 million. GAAP
diluted earnings per share in the quarter were $0.22, the same as a year
ago, and adjusted EPS increased 4% to $0.27. (See the Note on Adjusted
Measures and Reconciliation to GAAP Measures section later in this news
release for additional discussion and details.)

“We are delighted to continue our business momentum with a very strong
first quarter,” said Hanes Chief Executive Officer Gerald W. Evans Jr.
“We are generating broad-based growth across businesses and geographies.
Our brands are strong, and growth-related investment is delivering
results. In addition to the acceleration of Champion growth
globally, Innerwear sales increased in Asia, Australia and the Americas,
and sales of U.S. Innerwear basics increased for the second consecutive

“Our cash generation is on plan, our debt leverage is coming down, and
our diversified business portfolio is paying dividends. We feel
confident in achieving our long-term goals and enhancing value creation
with our business model.”

Callouts for First-Quarter 2019 Financial Results

Accelerated Growth Rates for Organic Net Sales and Champion.
The 10% growth in constant-currency organic sales in the first quarter
accelerated from the 6% growth rate in the fourth-quarter 2018.
First-quarter sales for the Innerwear, Activewear and International
segments all exceeded company expectations.

Growth initiatives drove a 75% increase in constant-currency global Champion
sales outside the mass channel with strong double-digit increases in all
regions. Contributors included: U.S. expansion across retail and online
channels; strong wholesale expansion in northern and western Europe;
strong wholesale and consumer-direct growth in Asia, including continued
store openings in China and elsewhere; and distribution expansion
beginning in Australia.

Total company consumer-direct sales, defined as brand retail stores and
all online business, increased 16% in the first quarter. E-commerce
sales increased for each of the Innerwear, Activewear and International

Bad Debt Expense Lowers Operating Profit and EPS Results. The
company incurred an unexpected bad debt charge of $4 million in the
first quarter related to the insolvency of Heritage Sportswear, a
U.S.-based apparel wholesaler for the screen-print industry. The charge
affected both GAAP and adjusted operating profit and lowered GAAP and
adjusted EPS by approximately $0.01.

Cash Flow on Track, Debt Leverage Reduced. Cash flow from
operations was a use of $194 million in the first quarter, which was
better than expected as a result of higher net income and improved
working capital performance. The company’s debt leverage at the end of
the quarter was 3.5 times adjusted EBITDA, down from 3.9 times a year
ago. The company continues to expect the leverage ratio to decline to
2.9 times by the end of the year, which is within the company’s target

First-Quarter Business Segment Summaries

Innerwear Segment Results Better Than Guidance. U.S. Innerwear
segment sales decreased 3% in the first quarter, compared with
expectations of a 4% decrease. Operating profit increased 3%, with the
operating margin improving 130 basis points to 22%.

Sales of Innerwear basics increased nearly 2%, while Innerwear intimates
decreased in line with company expectations. Sales increased for
underwear, socks, and shapewear, while the company’s bra turnaround
initiatives are continuing. Sales of Innerwear in the online channel
increased 6%.

Activewear Segment Sales and Profits Increased on Organic Growth.
U.S. Activewear segment first-quarter sales increased 17% and
operating profit increased 14%. Operating margin declined 30 basis
points as the company invested in distribution to maintain service
levels and fulfill accelerating demand for Champion products.

Champion sales increased more than 80% outside the mass channel.
As expected, sales of Champion at mass retail declined
approximately 3%.

Broad-based and Widespread Strength Drove Strong International
Segment Growth.
Despite stronger than expected currency headwinds in
the quarter, International segment sales increased 13%, while operating
profit increased 20%, benefiting from increased volume and integration

Organic constant-currency sales increased by more than a $100 million,
up 18% with regional growth in Europe, Asia, Australia and the Americas.
The segment’s total innerwear and total activewear sales each increased.

Bras N Things growth, including increases in comparable-store sales,
contributed to increased organic sales after the anniversary of its
acquisition in February. The business contributed $18 million in
non-organic sales prior to the acquisition anniversary.

2019 Financial Guidance

Hanes has reiterated its full-year 2019 financial guidance issued Feb.
7, 2019, and has issued guidance for the second quarter.

The company expects 2019 net sales of $6.885 billion to $6.985 billion,
GAAP operating profit of $900 million to $930 million, adjusted
operating profit of $955 million to $985 million, GAAP EPS of $1.59 to
$1.67, adjusted EPS of $1.72 to $1.80, and net cash from operations of
$700 million to $800 million.

At the midpoint, the 2019 guidance versus 2018 results represents net
sales growth of approximately 2%; GAAP and adjusted operating profit
growth of 5% and 2%, respectively; GAAP and adjusted EPS growth of 7%
and 3%, respectively; and operating cash flow growth of 17%.

For the second quarter, net sales are expected to be approximately
$1.735 billion to $1.765 billion. GAAP operating profit is expected to
be $223 million to $233 million, and adjusted operating profit is
expected to be $238 million to $248 million. GAAP EPS is expected to be
$0.40 to $0.42, and adjusted EPS is expected to be $0.43 to $0.45.

Guidance Assumptions. Key assumptions in the company’s guidance
include: a cautious outlook for the U.S. brick-and-mortar retail 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.

Organic sales in constant currency for 2019 are expected to increase
approximately 3%. Adverse foreign currency exchange rates for the year
are expected to reduce net sales as reported by approximately $115
million compared with last year, up from previous expectations of
approximately $60 million. The estimate includes the $46 million impact
in the first quarter compared with last year and an estimated $40
million impact expected in the second quarter compared with last year.
For operating profit, adverse foreign currency exchange rates are
expected to reduce full-year results as reported by $17 million compared
with last year, up from previous expectations of a $7 million effect.

Segment Guidance. At the midpoint of full-year guidance,
International segment net sales are expected to increase approximately
5% and constant-currency organic sales are expected to increase slightly
more than 9%. Growth drivers are expected to be Champion sales
growth in Asia and Europe and increased innerwear sales in Asia,
Australia and the Americas, including the Hanes and Bonds
brands. For the second quarter, International segment net sales on a
reported basis are expected to increase approximately 1%.

U.S. Innerwear net sales at the midpoint of guidance for both the full
year and second quarter are expected to decrease approximately 2%,
reflecting a cautious outlook for the impact from retail door closings
and benefits from price increases taken in the first quarter.

U.S. Activewear net sales growth at the midpoint of 2019 guidance is
expected to approach 4%. Champion sales outside of the mass
channel are expected to increase at double-digit rates each quarter,
while the Champion mass business is expected to decrease by a low
teens percentage, primarily in the second half of the year. Full-year
sales for the remainder of the Activewear segment are expected to
decrease with a larger decline in the second half as the company
transitions to a focus on higher-margin products. The company expects
margin expansion for the Activewear segment for the year. For the second
quarter, Activewear segment sales are expected to increase approximately

Additional Guidance. The midpoint of 2019 guidance implies
approximately 50 basis points of gross margin enhancement and 10 basis
points of adjusted operating profit margin expansion.

GAAP operating profit in 2019 is expected to be affected by
approximately $55 million in pretax charges, including $21 million taken
in the first quarter and an expected $15 million in the second quarter,
related to acquisition integration and other supply chain actions.
Approximately $20 million of the full-year charges are expected to be
noncash. The charges reflect the completion of all outstanding
acquisition integrations as well as Western Hemisphere supply chain
realignment that includes speed-to-market initiatives that are part of
the revitalization strategy for U.S. Innerwear.

Hanes expects interest expense and other expenses to be approximately
$224 million combined, with an estimated $56 million expected in the
second quarter. The company expects capital expenditure investment of
approximately $90 million to $100 million. A pension contribution of
approximately $26 million made in the first quarter is reflected in
operating cash flow guidance.

The company’s priority for use of excess operating cash flow is to pay
down debt. The company’s debt leverage on a net-debt-to-adjusted-EBITDA
basis is expected to be 2.9 times at year end. Consistent with the
company’s seasonality, net cash from operations is expected to be a use
in the first half.

The company expects an annual effective tax rate of approximately 14%
and expects approximately 366 million shares outstanding, a slight
increase versus 2018. For the second quarter, the company expects an
effective tax rate of approximately 14% and slightly more than 365
million shares outstanding.

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 financial guidance prepared in accordance with generally
accepted accounting principles, the company provides 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, EBITDA, adjusted EBITDA, and the ratio of net debt to adjusted

Adjusted EPS is defined as diluted EPS from continuing operations
excluding actions and the tax effect on actions. Adjusted net income is
defined as net income from continuing operations 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.

Charges for actions taken in 2018 primarily represent acquisition and
integration costs related to Hanes Europe Innerwear, Hanes Australasia,
Champion Europe, Alternative Apparel and Bras N Things, and other costs
related to supply chain network changes. Charges for actions expected to
be taken in 2019 primarily represent supply chain network changes and
overhead reduction as well as completion of outstanding acquisition
integration. Acquisition and integration 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 future periods
depending upon acquisition activity.

Hanes has chosen to present these non‐GAAP measures 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 acquisitions 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, the company has chosen to present EBITDA, adjusted EBITDA,
and the ratio of net debt to adjusted EBITDA to investors because it
considers these measures to be an important supplemental means of
evaluating operating performance. EBITDA is defined as earnings before
interest, taxes, depreciation and amortization. Adjusted EBITDA is
defined as EBITDA excluding actions and stock compensation expense. Net
debt is defined as total debt less cash and cash equivalents. These
metrics are frequently used by securities analysts, investors and other
interested parties in the evaluation of companies in the industry, and
management uses the ratio of net debt to adjusted EBITDA for planning
purposes in connection with setting its capital allocation strategy.
These metrics should not, however, be considered as measures of
discretionary cash available to invest in the growth of the business.

Hanes is a global company that reports financial information in U.S.
dollars in accordance with GAAP. As a supplement to the company’s
reported operating results, Hanes also presents constant-currency
financial information, which is a non-GAAP financial measure that
excludes the impact of translating foreign currencies into U.S. dollars.
The company uses constant-currency information to provide a framework to
assess how the business performed compared to prior-year reporting
periods excluding the effects of changes in the rates used to calculate
foreign currency translation.

To calculate foreign currency translation on a constant currency basis,
operating results for the current-year period for entities reporting in
currencies other than the U.S. dollar are translated into U.S. dollars
at the average exchange rates in effect during the comparable period of
the prior year (rather than the actual exchange rates in effect during
the current year period).

Organic net sales are net sales excluding those derived from businesses
acquired within the previous 12 months of a reporting date.

Hanes believes this information is useful to management and investors to
facilitate comparison of operating results and better identify trends in
the company’s businesses.

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.

Reconciliations of non-GAAP financial measures to the most directly
comparable GAAP financial measures are presented in the supplemental
financial information included with this release.

Webcast Conference Call

Hanes will host an Internet webcast of its first-quarter investor
conference call at 8:30 a.m. EDT today, May 2, 2019. The webcast of the
call, which will consist of prepared remarks followed by a
question-and-answer session, may be accessed at www.Hanes.com/investors.
The call is expected to conclude by 9:30 a.m.

An archived replay of the conference call webcast will be available in
the investors section of the Hanes corporate website. A telephone
playback will be available from approximately noon EDT today through
midnight EDT May 9, 2019. The replay will be available by calling
toll-free (855) 859-2056 or by toll call at (404) 537-3406. The replay
ID is 9684087.

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 regarding channel disruption and future retail door closures,
our outlook for cash flow growth and reduced leverage, and statements
following the heading 2019 Financial Guidance, are forward-looking
statements. These forward-looking statements are based on our current
intent, beliefs, plans and expectations. Readers are cautioned not to
place any undue reliance on any forward-looking statements.
Forward-looking statements necessarily involve risks and uncertainties,
many of which are outside of our control, that could cause actual
results to differ materially from such statements and from our
historical results and experience. These risks and uncertainties include
such things as: the highly competitive and evolving nature of the
industry in which we compete; the rapidly changing retail environment;
any inadequacy, interruption, integration failure or security failure
with respect to our information technology; the impact of significant
fluctuations and volatility in various input costs, such as cotton and
oil-related materials, utilities, freight and wages; our ability to
properly manage strategic projects in order to achieve the desired
results; our ability to attract and retain a senior management team with
the core competencies needed to support growth in global markets;
significant fluctuations in foreign exchange rates; our reliance on a
relatively small number of customers for a significant portion of our
sales; legal, regulatory, political and economic risks related to our
international operations; our ability to realize all of the anticipated
benefits of acquisitions; and other risks identified from time to time
in our most recent Securities and Exchange Commission reports, including
our annual report on Form 10-K and quarterly reports on Form 10-Q. Since
it is not possible to predict or identify all of the risks,
uncertainties and other factors that may affect future results, the
above list should not be considered a complete list. Any forward-looking
statement speaks only as of the date on which such statement is made,
and HanesBrands undertakes no obligation to update or revise any
forward-looking statement, whether as a result of new information,
future events or otherwise, other than as required by law.


HanesBrands, based in Winston-Salem, N.C., is a socially responsible
leading marketer of everyday basic innerwear and activewear apparel in
the Americas, Europe, Australia and Asia-Pacific. The company sells its
products under some of the world’s strongest apparel brands, including Hanes,
Champion, Bonds, Maidenform, DIM, Bali,
, Bras N Things, Nur Die/Nur Der,
Alternative, L’eggs
, JMS/Just My Size, Lovable, Wonderbra,
and Gear for Sports. The company sells T-shirts,
bras, panties, shapewear, underwear, socks, hosiery, and activewear
produced in the company’s low-cost global supply chain. A member of the
S&P 500 stock index, Hanes has approximately 68,000 employees in more
than 40 countries and is ranked No. 432 on the Fortune 500 list of
America’s largest companies by sales. Hanes takes pride in its strong
reputation for ethical business practices. For more information, visit
the company’s corporate website at www.Hanes.com/corporate
and newsroom at https://newsroom.hanesbrands.com/.
Connect with the company via social media: Twitter (@hanesbrands),
Facebook (www.facebook.com/hanesbrandsinc),
Instagram (@hanesbrands_careers),
and LinkedIn (@Hanesbrandsinc).



Condensed Consolidated Statements of Income and Supplemental
Financial Information
(in thousands, except per-share amounts)


      Quarter Ended    

March 30,


March 31,

% Change
Net sales $ 1,588,024 $ 1,471,504 7.9 %
Cost of sales 967,148   892,583  
Gross profit 620,876 578,921 7.2 %
As a % of net sales 39.1 % 39.3 %
Selling, general and administrative expenses 472,838 432,863
As a % of net sales 29.8 % 29.4 %
Operating profit 148,038 146,058 1.4 %
As a % of net sales 9.3 % 9.9 %
Other expenses 7,451 5,761
Interest expense, net 48,059   45,763  
Income before income tax expense 92,528 94,534
Income tax expense 13,046   15,125  
Net income $ 79,482   $ 79,409   0.1 %
Earnings per share:
Basic $ 0.22 $ 0.22
Diluted $ 0.22 $ 0.22
Weighted average shares outstanding:
Basic 364,570 361,882
Diluted 365,299 363,291
The following table presents a reconciliation of reported results on
a constant currency basis for the quarter ended March 30, 2019 and a
comparison to prior year:
Quarter Ended March 30, 2019
As Reported    

Impact from



March 31,

% Change,
As Reported

% Change,

As reported under GAAP:

Net sales $ 1,588,024 $ (45,536 ) $ 1,633,560 $ 1,471,504 7.9 % 11.0 %
Operating profit 148,038 (5,938 ) 153,976 146,058 1.4 % 5.4 %
Diluted earnings per share $ 0.22 $ (0.01 ) $ 0.23 $ 0.22 % 4.5 %
As adjusted:2
Net sales $ 1,588,024 $ (45,536 ) $ 1,633,560 $ 1,471,504 7.9 % 11.0 %
Operating profit 169,411 (5,938 ) 175,349 165,675 2.3 % 5.8 %
Diluted earnings per share $ 0.27 $ (0.01 ) $ 0.28 $ 0.26 3.8 % 7.7 %


  Effect of the change in foreign currency exchange rates
year-over-year. Calculated by applying prior period exchange rates
to the current year financial results. This calculation excludes
entities acquired within the past twelve months.


See “Reconciliation of Select GAAP Measures to Non-GAAP Measures” in
Table 5.


Supplemental Financial Information
(in thousands)
      Quarter Ended    

March 30,


March 31,

% Change
Segment net sales:
Innerwear $ 475,945 $ 491,078 (3.1 )%
Activewear 405,340 346,125 17.1
International 646,180 569,887 13.4
Other 60,559   64,414   (6.0 )
Total net sales $ 1,588,024   $ 1,471,504   7.9 %
Segment operating profit:
Innerwear $ 104,626 $ 101,419 3.2 %
Activewear 43,593 38,287 13.9
International 92,698 77,061 20.3
Other 754 2,627 (71.3 )
General corporate expenses/other (72,260 ) (53,719 ) 34.5
Acquisition, integration and other action-related charges (21,373 ) (19,617 ) 9.0  
Total operating profit $ 148,038   $ 146,058   1.4 %


News Media, contact:
Matt Hall, (336) 519-3386
Analysts and
Investors, contact:
T.C. Robillard, (336) 519-2115

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