Q1 2024 Earnings Summary
- Hanesbrands is successfully reducing its debt, having paid down $500 million last year and planning to pay down another $300 million plus this year, focusing on higher-rate debt that is prepayable without penalty.
- The company has high confidence in operating profit growth, expecting year-over-year improvement each quarter in gross and operating margins, supported by cost savings initiatives that are overdelivering.
- Increased marketing investments and a focus on product innovation are yielding results, with point-of-sale (POS) sales jumping 18% for M by Maidenform when marketing efforts increased.
- Significant decline in Champion brand sales, with global Champion sales decreasing 25% on a constant currency basis in Q1, including declines across most channels in the U.S.
- Ongoing weakness in the U.S. Innerwear market, with expectations of a 3%-4% year-over-year decline in U.S. Innerwear sales for Q2, indicating that consumer demand remains challenging for the company's core product segment.
- Retailer inventory reductions exceeded expectations by $10-$15 million in Q1, with the company not anticipating restocking in future quarters, potentially impacting future sales.
-
Profit Recovery and Margins Outlook
Q: Can you elaborate on visibility into profit recovery?
A: Management expressed high confidence in the operating profit guidance for the year, expecting year-over-year improvement each quarter in both gross and operating margins. They highlighted cost savings programs that are overdelivering and anticipate operating profit of $500 million to $520 million. -
Gross Margin Expectations
Q: Will gross margins remain strong rest of the year?
A: Management is confident in gross margins for the rest of the year, expecting continued improvement. After a strong first quarter gross margin of 39.9%, they guide to a gross margin rate of 38.5% to 39% for the second quarter and full year. -
Innerwear Segment Outlook
Q: How is the Innerwear category performing?
A: The Innerwear category shows consistent performance with men's underwear outperforming. Despite an 8% decline in U.S. Innerwear sales in Q1, they expect the trend to moderate, guiding to a 3% to 4% year-over-year decline in Q2. Management believes the category will rebound to historical growth rates over time. -
Champion Brand Performance
Q: Where are Champion sales declining?
A: Champion sales declines are seen generally across most channels in the U.S., due to inventory clean-up, but management is excited about the upcoming fall/winter line. In Asia, sales are up, with Japan and China performing well. They believe the brand is well-positioned across all channels going forward. -
Inventory Levels and POS Trends
Q: Are there restocking opportunities from inventory reductions?
A: Management noted that while inventories were reduced slightly more than expected, they don't view it as a business model shift and haven't included restocking in their guidance. POS trends improved in March and into April, with their POS outperforming the struggling category, gaining 50 basis points of share. -
Debt Paydown Plans
Q: How will you apply the $300 million debt paydown?
A: They plan to pay down over $300 million in debt this year, focusing on higher-rate debt that is prepayable, such as their Term A and Term B loans, utilizing flexibility in their debt structure. -
Marketing Investments Impact
Q: What are you doing differently with marketing investments?
A: Increased marketing investments are focused on brand strength and innovation, such as M by Maidenform and SuperSoft. They saw positive results, like an 18% POS jump in M by Maidenform when they increased advertising. The cost savings and margin improvements enable funding for these investments. -
Australia Business Trends
Q: Is the Australia business improving?
A: They are starting to see improvement in Australia. The Bonds business is strong, especially in wholesale and grocery channels. The D2C business remains softer but is improving. They're optimistic about the second half, expecting some tax relief and easier comps. -
Champion Kids Licensing Impact
Q: Did you receive cash from the Champion kids licensing deal?
A: The transition from a wholesale model to a licensing model did not involve a sale or cash payment but provides a royalty income stream. The largest revenue headwind from this will be in Q1 and will moderate going forward. -
Decision on Selling Champion
Q: Have you decided to sell or keep Champion?
A: Management stated they are not making any announcement regarding keeping or selling the Champion brand at this time. The process is continuing, and they will update as appropriate when there's news to share.