It is the second consecutive year Hanesbrands has delivered record financial results

It is the second consecutive year Hanesbrands has delivered record financial results

US apparel maker Hanesbrands has said 2015 is shaping up to be another record year and that it is open to all opportunities that will create value, despite challenges from currency exchange rates.

It is the second consecutive year the company has delivered record financial results, delivering US$5.66 in earnings per share, around $1 per share more than their initial guidance, along with acquiring and integrating Maidenform and closing its acquisition of DBApparel.

Speaking on the firm's earnings call, CEO Richard Noll, said the group's acquisition strategy was working extremely well, with DBA progressing as planned, and consultations with works councils in Europe expected within the next 30-60 days, working towards ultimately delivering EUR100m in operating profit.

“Looking back over the past two years, two things have become crystal clear: first, we have a very powerful and resilient business model that has been able to generate significant returns for our shareholders in any environment, especially when it is leveraged through acquisitions; and second, this feels like it's only the beginning. As we continue to generate cash and pursue our acquisition strategy, we believe we can continue to deliver solid double-digit earnings growth for many years to come.”

Growth trajectory
Hanesbrands is currently in the midst of a growth strategy that involves making acquisitions that create value, driving continued efficiency gains in its supply chain, and reaping the benefits from its margin-enhancing Innovate-to-Elevate strategy. The latter emphasises value-added products that can be made at a lower cost and sold at a higher price.

The company said its aim is to continue to drive acquisitions; the next priority for cash usage. Noll, however, stopped short of offering any indication as to timings on these.

He suggested the emerging global environment headwinds were unlikely to derail Hanesbrands from potentially looking at other deals outside the US.

“We've got a four very strict criteria in terms of companies that are in our core categories. We can leverage our global supply chain and infrastructure and are complementary from a revenue growth perspective, and that includes both international companies as well as domestic opportunities. The currency change doesn't really impact our predisposition for geography. We're open to all opportunities in which we can create value.”

Innovation platforms
Two of the group's four apparel categories continued to show solid gains in the quarter, and the company has continued to drive additional space gains in men's underwear in both the mass and mid-tier channels as well as in bras in the mass channel through the Innovate-to-Elevate platforms.

Looking to the next two years, COO Gerald Evans, said the company is always focused on the next consumer big idea, but admitted that it follows a “very disciplined process” with regard to innovation.

“We do think there's a lot of legs still in the ones that we're expanding as we push them across our accounts and across our categories. In the case of X-Temp, we even now pushed in to some of our hosiery products so we continue to find ways to continue to extend what we have.”

Hanesbrands said will also continue to internalise Maidenform's production, which it said should drive costs of goods synergies throughout the year. In the autumn, the company will introduce innovation, such as Flexible Fit, to its first Maidenform line as part of the early steps of the long-term innovation platforms which it believes are generating continued success with both ComfortBlend and X-Temp in the basics categories.

“We're really delighted that as we introduce the fall line, as it comes to market, it's got the full breadth of our design capabilities and our Innovate-to-Elevate thinking behind it,” Evans told analysts. “We really believe it's going to be great.”

Headwinds
Hanesbrands conceded, however, that growth rates in 2014 would have been more substantial had they not been dampened by the rapid strengthening of the dollar and the unexpected bankruptcy of Target Canada, 90% of which is assumed to be unrecoverable in 2015.

Noll said: "As we have done in the past when faced with headwinds that are outside our control, we fully incorporate them into our guidance, which allows us to focus on the things we can control, executing our plan and, as always, driving for upside all through the year."

Forward focus
In response to consumer comments that intimates is a very difficult category to shop, the company is now focusing on clarifying brand positions in the market and simplifying these offerings.

Hanesbrands said it will focus intimates businesses around their four core businesses: Bali, Playtex, Hanes and Maidenform. In this process, some of the smaller brands will be consolidated into the larger brands and create some reduction of inventories at retail. The best of the Barely There line for example, will be folded into Maidenform to improve the shop-ability of the departments in the long term.

However, this is expected to cause some headwind in shipments in the short term which will be felt into the first half of this year's report.

Noll told analysts that if Innovate-to-Elevate is applied now to the four brands in intimates, he believes the company can start to move the category over time, just as has been done previously in the basics category.

He concluded: “We have had a great couple of years, and we believe this is only the beginning. Our entire organisation remains focused on executing our long-term strategy and that comes from having great people who can rise to the occasion in any environment. This, along with the strength of our business model, gives me confidence in delivering another year of double-digit earnings growth.”