Hanesbrands Inc.’s (HBI) third-quarter fiscal 2014 earnings per share of $1.73 beat the Zacks Consensus Estimate by a penny and also increased 41% from the prior-year quarter.
Profit was driven by strong sales and higher margins backed by the success of the Innovate-to-Elevate strategy. Increased supply chain operating efficiencies and lower selling, general and administrative costs also added to earnings growth during the quarter.
The Innovate-to-Elevate strategy focuses on value-added, higher-priced and higher-margin items that can be supplied at lower costs.
The adjusted earnings per share exclude pre-tax charges of 57 cents per share related to the acquisition of Maidenform Brands, DB Apparel and other actions.
Revenues and Operating Profits
Quarterly revenues gained 17% and came in at $1.40 billion driven by strong performance of most of the segments, especially 62.7% growth in International sales. Sales marginally lagged the Zacks Consensus Estimate of $1.42 billion. Currency continued to affect the company’s sales results negatively.
On a constant currency basis, net sales went up 1% versus the year-ago period. The Maidenform acquisition, completed in fiscal 2013, contributed almost $115 million to total quarterly sales. The DB Apparel (DBA) takeover completed in Aug 2014 contributed $81 million to total sales.
Operating profit in the quarter went up 22.6% to $217.0 million year over year. Operating margins increased 70 basis points to 15.5%
Segment Details
Innerwear: Net revenue for the Innerwear segment climbed 15.7% year over year to $648.3 million in the reported quarter driven by the Maidenform acquisition and growth of the company’s base business. Sales during the quarter were partly offset by a continued uneven and challenging retail environment. Strong performance of categories like socks, boys’ underwear and panties were offset by softness in other Innerwear segment.
Activewear: Activewear segment sales went up 5% from the year-ago period to $424.7 million on the back of strong performance by the retail, Champion business, branded printwear and Gear for Sports businesses.
International: Net sales in the International segment went up 63% to $215.0 million in the quarter. Sales were negatively impacted by foreign currency movements. On a constant currency basis, international sales slipped 3% year over year. Sales excluding DBA buyout increased 1% year over year.
Direct to Consumer: Direct to Consumer segment’s sales went up 13% to $112.7 million backed by contributions from the Maidenform acquisition.
Other Financial Updates
During the quarter, Hanesbrands acquired Europe-based intimate apparel company DBApparel on Aug 29 for €400 million or $528 million. The acquisition is expected to be accretive to fiscal 2014 results The buyout is in accordance with Hanesbrands’ acquisition strategy as DBA sells intimate apparel — a core category of Hanesbrands. The takeover has opened opportunities in Europe for Hanesbrands.
Guidance Upped
Following strong business momentum in the first three quarters of the fiscal year, Hanesbrands raised the full-year fiscal 2014 earnings outlook. The company expects the business momentum to continue through the rest of 2014 backed by the Innovate-to-Elevate strategy and back to back acquisitions. Hanesbrands updated its outlook for fiscal 2014 following the DBA takeover on Sep 3, 2014.
Hanesbrands now expects earnings per share in the range of $5.55 to $5.65 up from $5.40 to $5.60 expected previously. The company expects operating profits within $750 to $770 million versus $735 to $755 million. The company, however, maintained its sales guidance and expects net sales to be between $5.350 billion and $5.375 billion.
Hanesbrands sports a Zacks Rank #2 (Buy). Some stocks in the same sector that are also performing well include GIII Apparel (GIII), Vince Holding Corp. (VNCE) and Gildan Activewear Inc. (GIL). All the stocks sport the same Zacks Rank as Hanesbrands.
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