- Prachi Singh |
For the first quarter ended April 1, 2017, HanesBrands net sales of 1.38 billion dollars increased 13 percent on acquisition contributions. To fund growth initiatives, reduce costs and increase cash flow, the company said it expects to reduce overhead, including headcount. 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.
“We are off to the strong start of 2017 that we sought,” said Hanes Chief Executive Officer Gerald W. Evans Jr. in a statement, adding, “We had one of our best first quarters for cash flow as we executed a disciplined working capital plan. Acquisitions, our Champion brand and online sales are contributing to growth as we weather expected challenges in the retail environment. In addition, we are pleased to launch Project Booster, which we believe provides a clear roadmap to accelerating growth and value creation.”
Acquisitions and Project Booster expected to drive growth
Sales for the activewear and international segments increased, while sales decreased for the innerwear and manage-for-cash businesses. The company now expects its growth initiative, Project Booster to drive the company’s sell more, spend less, generate cash business strategy.
The company said, incremental growth efforts will focus on leveraging the company’s global Champion activewear business, increasing global online and omni-channel 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 by 2020, it is expected to generate approximately 300 million dollars of incremental annual net cash from operations and 100 million dollars in annualized net cost savings after annualized growth reinvestment of 50 million dollars.
On a GAAP basis for continuing operations, first-quarter operating profit of 121 million dollars decreased 1 percent and EPS of 0.19 dollar decreased 10 percent. When excluding pretax charges related to acquisition integrations, adjusted operating profit of 160 million dollars increased 9 percent and adjusted EPS of 0.29 dollar increased 12 percent.
HanesBrands added that the sales from acquisitions more than offset the decline in organic sales as expected. Acquisitions completed in 2016 contributed approximately 210 million dollars in net sales in the quarter. Organic sales decreased 4 percent, primarily as a result of the expected lower sales in innerwear, which are anticipated to normalize in the second half, and domestic manage-for-cash businesses.
Categories and businesses that posted organic sales growth included Champion in the United States and Asia, US men’s underwear, and the US online channel. The online sales channel in the United States accounted for 10 percent of domestic sales, compared with 9 percent in the year-ago quarter.
Segment-wise Q1 sales performance
In the first quarter, the company realigned its reporting segments. Former direct to consumer segment, which consisted of outlet stores, the legacy catalog business and retail internet operations in the United States, was eliminated. With the realignment, the company’s US retail Internet operations, which sell products directly to consumers, are reported in the respective innerwear and activewear segments. The other category consists of the US businesses for outlet stores, hosiery and legacy catalog operations.
In the first quarter, Hanes incurred Project Booster-related expense of approximately 7 million dollars to execute a voluntary separation program for corporate employees. Innerwear segment was affected by retail environment. 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. Activewear sales increased 3 percent and operating profit increased 4 percent.
International 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.
Issues FY17 and Q2 guidance
For 2017, the company continues to expect net sales of 6.45 billion dollars to 6.55 billion dollars, GAAP operating profit of 845 million dollars to 895 million dollars, adjusted operating profit excluding actions of 935 million dollars to 975 million dollars, GAAP EPS for continuing operations of 1.70 dollars to 1.82 dollars, adjusted EPS excluding actions for continuing operations of 1.93 dollars to 2.03 dollars.
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.
The company expects total net sales of approximately 1.65 billion dollars in the second quarter. Acquisitions are expected to contribute approximately 200 million dollars in net sales, while organic sales are expected to decline as a result of the retail sales environment and a timing shift of back-to-school shipments. Second-quarter GAAP EPS for continuing operations is expected to be 0.45 dollar to 0.49 dollar, and adjusted EPS is expected to be 0.51 dollar to 0.54 dollar.