Hanesbrands gears up to grow DBApparel in Europe
US apparel maker Hanesbrands is gearing up to integrate newly-acquired DBApparel into its business using its its Innovate-to-Elevate platform and low-cost global supply chain as a lever for growth.
Although net profit fell 5% on last year’s quarter, this was skewed by the $63m in charges incurred by the two acquisitions, while net sales were up 17%, or up 1% at constant currencies without contributions from the new businesses. Net sales were up for all of its business segments, with Maidenform contributing $115m in revenues, and DBApparel $81m.
The company bought European lingerie leader DBApparel - owner of the DIM, Playtex, Wonderbra and Shock Absorber brands - in a EUR400m (US$545m) deal in July. This was nearly a year after its $581m acquisition of intimate apparel maker Maidenform. Together, Hanesbrands and DBA make up one of the world's largest basic innerwear apparel companies, with a combined value of nearly $6bn.
Speaking on the firm's earnings call last week, CEO Richard Noll told analysts that even though it has only owned DBApparel for two months, the priority now is to focus on developing its integration plan for the new business.
An eye for acquisitions
However, he also suggested the company was still open to the idea of further acquisitions going forward.
"We have very strict criteria that guide our acquisition thinking: one being in our core categories, and the second is being able to leverage that global supply chain where we can create a lot of value for our shareholders. And when you think about the types of companies, domestically and globally, that are in our core categories, that actually, over the last decade or so, got out of their supply chains, we believe we've got a lot of opportunity to continue to create value through acquisitions for many years."
Noll told analysts that growing DBApparel in Europe will need to be done on a country-by-country basis in order to best position the brand.
"When you look at Europe, in the innerwear market there is no Europe. There are countries. And each country has its own set of brands, a lot of which have been around for 60 to 100 years, they're strong in their categories."
On the flip side, Noll believes there are two areas where Hanesbrands has a headstart, the first being its Innovate-to-Elevate platform, combining brand power with product innovation.
"[This] can work across countries, it can work across brands. We find that consumers are looking for the same types of things in innerwear products in a lot of those countries as they are in the US, Mexico, Canada or Brazil. So we'll be able to drive our platform innovations across countries and across brands."
The second, he said, is the company's global supply chain and the opportunity to scale it up.
"It's going to be a bit of a hybrid model in Europe," where there are country-specific brands and commercial organisations focused on local consumers, "but we're going to be able to get scale advantages by driving Innovate-to-Elevate platform innovation across, as well as leveraging our global supply chain.
"From our perspective, acquisitions work extremely well in this. You can buy strong number one or number two positions, plug them into your global platforms and supply chain and really create a lot of shareholder value."
As well as scaling up through acquisitions to layer on to its new European platform, Noll also suggests there will be also be a fair amount of organic growth.
"In some of those more developed markets there are strong branded positions, for example, in Germany. While we have a strong position with the DBA acquisition, and we have a strong position in hosiery, we don't necessarily have a strong position in men's underwear or even women's intimate apparel. We've got efforts to drive organic growth there."
Noll says an acquisition in that market might not be out of the question from a long-term perspective.
"I'm not saying we're focused on any target there today. In other markets such as Eastern Europe and some of the other countries where there's a lot more fragmentation and you don't see those kind of strong brands, continued organic growth with some of the European brands could also make sense.
"We're going to have to look at that country-by-country, category-by-category, but we've got a lot of opportunity once we fully integrate DBA [to] use that as a platform for continued growth in Europe for a long time."
Noll also pointed to Asia where Hanesbrands has made a number of small acquisitions over time. This region, he said, was also "in the mix".
Looking to the full year, the company has raised its full-year adjusted earnings per share guidance to $5.55-$5.65, up from a previous forecast of $5.40-$5.60, with its sales outlook unchanged at $5.35-$5.37bn.
COO Gerald Evans told analysts the business continues to perform well and the company is confident the momentum can continue.
"Our supply chain is delivering strong results as factory efficiencies and ongoing optimisation efforts are helping drive margin improvement. Innovate-to-Elevate continues to deliver benefits across the organisation, and our acquisitions of Maidenform and DBA are contributing nicely to profits.
"Looking to holiday, while we expect the overall consumer environment to remain challenging, we believe we are well-positioned as our retail inventories are in line with last year's levels and the sell-through momentum in Basics has continued into early October."
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