HanesBrands reported a 5% decrease in net sales from $1.51bn to $1.44bn in the second quarter of 2023 due to sluggish growth in its US Innerwear brand and Champion in Asia brand as well as a slowdown in consumer spending in Australia.
Net sales were also affected by unfavourable foreign exchange rates.
Operating profit slid to $69m from $147m in the same quarter last year.
For the second-quarter HanesBrands reported a $22.5m loss compared with a $92.1m profit a year earlier.
But Steve Bratspies, CEO of HanesBrands, remained upbeat adding the results were in line with the company’s outlook despite the difficult apparel market, particularly in Australia and the US activewear category.
He explains: “We also delivered sequential gross margin improvement, further reduced inventory, generated positive operating cash flow, and began paying down debt earlier than expected. Looking at our Full Potential strategy, we’re progressing on or ahead of plan in several areas, while other areas are not delivering results in the timeline we anticipated.”
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Bratspies shares that the company is taking a number of actions, including additional cost-saving initiatives, to improve performance as well as actively looking across the business at additional options to enhance shareholder value.
Highlights from Q2 results
- Began paying down debt earlier than anticipated – Due to positive first-half cash generation, the Company was able to begin its commitment to using free cash flow to pay down debt earlier than anticipated. For the quarter, the Company reduced total debt by nearly $100m.
- Generated positive operating cash flow and further reduced inventory – Through its working capital initiatives, which began in the second half of last year, the Company continued to reduce inventory, both sequentially and year-over-year, and generated positive cash flow. Inventory declined 7% sequentially and 12% year-over-year, which helped generate $88m of operating cash flow in the quarter and $132m in the first six months of 2023.
- Full Potential strategy gaining traction in US Innerwear as product innovation reaches consumers – Revenue from new product innovation increased approximately 30% over the prior year as the Company launched its Hanes Originals product line supported by a national media campaign. Its Originals product is attracting new and younger consumers to the Hanes franchise. The Company is also launching its next innovation, M by Maidenform, which is a collection of extremely “soft-on-the-skin” intimate apparel products focused on younger consumers.
Outlook for remaining 2023
Sharing his outlook for the company moving forward, Bratspies says: “We’re confident in our ability to exit the year with gross margin in the high 30% range, generate $500m of operating cash flow, and pay down more than $400m of debt, despite the difficult apparel market, particularly in Australia and the US activewear category, which caused us to adjust our second-half outlook.”
With respect to its 2023 guidance, HanesBrands expects a muted consumer demand environment given the continued macroeconomic uncertainty, including increased pressure in Australia and the US activewear apparel market; and year-over-year improvement in second-half margins, particularly the fourth quarter, as lower-cost inventory currently being produced is sold and it anniversaries last year’s manufacturing time-out costs related to its inventory reduction initiative in 2022.
Earlier this month, HanesBrands’ shareholder Barington Capital Group LP, an investment firm, sent a letter to the company’s board chairman, Ronald L. Nelson, calling for “immediate and decisive actions to create long-term value for shareholders.”