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HanesBrands (NYSE: HBI), a leading marketer of everyday branded basic apparel, today reported financial results for the second quarter ended June 30, 2012. In the quarter, the company announced exiting certain international and domestic imagewear businesses that are all now classified as discontinued operations. Unless otherwise noted, all financial results in this press release are GAAP measures for continuing operations.
In the quarter, net sales were $1.18 billion, an increase of 1 percent over last year’s quarter, and earnings per diluted share were $0.67, a decrease of 14 percent. The decrease in EPS was primarily due to substantially higher cotton costs, although the Innerwear segment had 18 percent growth in operating profit on strong sales of men’s underwear, children’s underwear, and women’s panties and bras.
With the majority of cotton inflation behind the company, Hanes expects solid results in the second half of 2012. The company’s full-year guidance is for diluted EPS of $2.50 to $2.60; net sales of $4.52 billion to $4.57 billion, an increase of approximately 2 percent to 3 percent over last year; and free cash flow of $400 million to $500 million.
“Our business had a solid quarter, and we are performing slightly ahead of our plans for the year, especially in the Innerwear segment,” Hanes Chairman and Chief Executive Officer Richard A. Noll said. “While we still have a long way to go, we are well positioned for the second half of the year.”
Second-Quarter Business Highlights
Innerwear segment net sales increased 2 percent in the quarter over last year, following a 1 percent sales gain in the first quarter. Excluding sales declines to a major mid-tier retail customer that is undergoing a major strategic shift, year-over-year Innerwear sales would have increased 4.4 percent in the second quarter and 2.7 percent in the first quarter. Operating profit in the quarter increased 18 percent over last year, and the segment operating profit margin increased 2.4 percentage points.
Outerwear segment net sales increased 1 percent while the segment had an operating loss. Sales increased for Champion activewear and Hanes casualwear, but as expected, sales declined in branded printwear. Higher cotton costs and lower prices in branded printwear reduced margins and profitability.
International segment net sales declined 2 percent, and operating profit was comparable to a year ago. On a constant currency basis, International net sales increased 5 percent and operating profit increased 10 percent. With the sale of the company’s European imagewear operations, the company has no exposure to the European market.
The company’s overall operating profit margin was 10.2 percent in the quarter, and its gross margin was 31.1 percent despite cotton costs of more than double those of the prior-year quarter.
Hanes 2012 full-year guidance for continuing operations is diluted EPS of $2.50 to $2.60 and net sales of $4.52 billion to $4.57 billion.