Hanesbrands Inc.’s HBI second-quarter 2015 earnings per share of 50 cents came in line with the Zacks Consensus Estimate but jumped 16% from the prior-year quarter.
Year-over-year earnings growth was driven by strong year-over-year sales and higher margins, backed by theSUCCESS OF THE INNovate-to-Elevate strategy. The strategy, which began, focuses on value-added, higher-priced and higher-margin items that can be supplied at lower costs. Benefits from back-to-back acquisitions also contributed to the earnings growth.
The adjusted earnings per share exclude pre-tax charges of $24 million related to acquisitions and other activities.
Revenues and Operating Profits
Quarterly revenues rose 13% to $1.52 billion, driven by strong sales growth in the Activewear and International segments and acquisitions.
The Europe-based intimate apparel company, DBApparel, acquired in Aug 2014 contributed $149 million to total sales. Collegiate logo apparel business, Knights Apparel, acquired in Apr 2015 accounted for $37 million sales in the quarter.
Sales however lagged the Zacks Consensus Estimate of $1.55 billion marginally. On a constant currency basis and excluding the benefits of the acquisitions, sales increased 1%.
Gross profit increased 17% to $594.4 million. Gross margin inflated 120 basis points (bps) to 39.1%, with acquisitions contributing approximately 190 bps. Adjusted operating profit went up 15% to $264.9 million year over year backed by higher operating profit in the International segment. Operating margins increased 20 bps to 17.4%.
Segment Details
Innerwear: Net revenue slipped 1.4% year over year to $777.6 million due to significant reduction in short-term retail inventory of basics. However, operating profit increased 7% driven by Maidenform synergies (acquired in October 2013) and benefits from the Innovate-to-Elevate strategy.
Activewear: Sales went up 19% from the year-ago period to $378.2 million backed by strong growth in Champion and Gear for Sports brands as well as the Knights Apparel buyout. Operating profit gained 30%, driven by lower administrative expenses.
International: This segment witnessed 101.2% surge in sales to $264.7 million backed by the DBApparel takeover and strong results in Japan. Operating profit jumped 31.8% to $21 million driven by lower selling and general administrative expenses.
Direct to Consumer: Sales slipped 2.7% to $101.5 million. Operating income decreased 6.5% to $11.9 billion.
Other Financial Updates
On Apr 6, Hanesbrands took over Knights Apparel for $200 million in cash on an enterprise basis. Prior to that, the company acquired DBApparel. While the Knights Apparel integration will begin in the fourth quarter of 2015, the DBApparel integration is well underway.
Updates Full-Year 2015 Guidance
Hanesbrands is optimistic about the Knights Apparel acquisition and expects higher profit from the DBApparel takeover also. However, the company expects negative currency effects to persist in the rest of the year.
Hanesbrands continues to expect earnings in the range of $1.61 to $1.66, up 13% to 17% from the 2014 level.
The company expects net sales to be slightly lower than $5.9 million, compared to previously guided range of $5.90 billion to $5.95 billion.The outlook represents 11% growth from the previous year.
Operating profit is expected in the range of $855 million to $875 million, up from the $853 million to $873 million range. The Knights Apparel takeover is expected to contribute approximately $18 million to operating profit.
Hanesbrands has a Zacks Rank #2 (Buy). Other stocks in the same sector that are performing well are GIII Apparel GIII, Guess’ Inc. GES and Perry Ellis International Inc. PERY. While GIII Apparel and Guess’ sport a Zacks Rank #1 (Strong Buy), Perry Ellis carries a Zacks Rank #2.
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