In the money: Hanesbrands left counting cotton cost
Unless you’ve been living on Mars or have been trapped under something heavy for the past year or so, you won’t need telling about the cotton price hikes of recent times.
Assessing the precise impact of those historically high prices – which have of course since plummeted back down again – is another matter. When you’re a company as big as basic apparel specialist Hanesbrands, however, you know one thing: the impact is huge.
Just how huge? According to company chairman and CEO Rich Noll, about US$200m in 2011 alone, followed by what he calls “a similar headwind” in the first half of this year. Ouch.
The “cotton bubble”, as Noll calls it, would be bad enough in isolation; but combine it with some loss-making divisions and volatility in the US retail market, and you have an extremely challenging combination, reflected in Hanesbrands’ second quarter results.
“When we started the year, we outlined two goals: to successfully manage through the cotton bubble and to de-risk our business,” Noll told analysts in a post-results call.
“When you look at this quarter’s solid results, you will see we’re making good progress towards both.”
As evidence for managing the cotton bubble, Hanesbrands points to the second quarter performance of the company’s innerwear business, where sales rose 2% thanks to good growth for men’s underwear, children’s underwear, and women’s panties and bras.
If that 2% growth figure looks soft, it’s not helped by the “major strategic shift” undertaken by retailer JC Penney, which has had a major negative impact on Hanesbrands sales there.
Noll will be hoping that Hanesbrands’ outerwear will follow the example of its innerwear division soon: sales here edged up 1% in the quarter, but the division posted an operating loss, impacted by those high cotton costs and reduced margins for branded printwear.
Meanwhile, international sales fell 2%, with operating profit flat, but at least the company is no longer exposed to the fragile European markets thanks to the sale of its European imagewear business in May this year.
That disposal, along with the discontinuation of Hanesbrands’ private label and Outer Banks domestic imagewear operations (the latter serving wholesalers selling to the screen-print industry) are key to the de-risking part of Noll’s plan.
“These moves allow us to devote our energy and resources to our branded businesses, while removing volatility inherent in the sectors we exited,” Noll explains.
The resultant renamed branded printwear division should, Noll believes, be more profitable and less volatile, also allowing the company to focus on growth for its Hanes and Champion brands.
Indeed, he says: “We believe this is the right strategy for the category going forward and in hindsight only regret not taking these actions sooner.”
Now Hanesbrands is preparing for what it hopes will be an altogether more positive second half, with most of the impact of cotton price inflation behind it, and sales trends on a more even keel in the months ahead.
But, as the US macro-economic picture continues to look shaky, nobody – certainly not Noll – is making any predictions.
Describing the year to date as “relatively mixed”, he says: “You see some good selling periods followed by some weak selling periods.
“You’ve got some retailers that are doing pretty well; you’ve got other retailers that are struggling – and so it’s sort of a little bit of a choppy environment.”
And, looking forward, he adds: “When you look around at the headlines, you can’t help but wonder about with all of the bad news that’s constantly bombarding everybody: are they going to start to get a little bit nervous later in the year and pull back?”
Cotton prices may have come down, and the Hanesbrands business may be better-balanced than this time last year – but broader retail trends could yet have the last word on the company’s full-year 2012 performance.
Textile-making countries came up against a range of labour, economic and environmental issues in 2012, including the worsening Eurozone crisis which dampened demand in key export markets. While some s...
Faced with continuing challenging trading conditions in 2012, retailers responded with a number of different strategies to try to grow their businesses. International expansion, new and larger format ...
US brands and retailers were baling out of Bangladesh even before the fire at the Tazreen Fashion factory killed more than 110 people at the end of last month. And given the subsequent criticism aimed...
Among the industry executives who spoke with just-style this year were Ranjan Mahtani, CEO of Epic Group; Henry Tan, CEO of Luen Thai Holdings; Andrew Lo, CEO of Crystal Group; and Marks & Spencer's K...
Kenya-based clothing manufacturing giant United Aryan (UAL) has selected the WFX Cloud ERP software for its African production facilities....
- Crystal Group eyes “mega-capacity” in Vietnam
- Sourcing in Africa: An alternative to Asia?
- Sourcing in Africa: Foreign investment flows in
- Capacity building key to Myanmar momentum
- Apparel buyers point to potential in Africa
- SOURCING: Global sourcing snapshots launch
- TPP “will benefit” apparel and discount retailers
- VF Corp lifts outlook despite Q1 profit fall
- Living wages briefing urges strategic approach
- Cotton stocks outside China to keep prices low