Hanesbrands Inc. CEO Stephen B. Bratspies sees some green shoots, but the company still has a lot of work to do.
While the firm in the fourth quarter was able to surpass key internal financial targets—such as improved gross margins, lowered inventory levels, accelerated debt paydown, and higher than projected operating cash flow—it still missed Wall Street’s consensus estimates on both adjusted diluted earnings per share (EPS) and revenue. Moreover, the company projected a revenue decline for the first quarter ending March 30 and the full year ending Dec. 28, 2024. Investors weren’t happy and sent shares of the stock down nearly 10 percent to the $4.26 range in mid-afternoon trading.
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“While we are not at all satisfied with our results, we’ve seen several positive indicators that demonstrate progress on our strategy and give us confidence that our margins and our leverage have reached an inflection point,” Bratspies told investors during a company conference call, adding that Hanesbrands continued to “strengthen the foundation of our business in 2023.”
As for the pluses, fourth quarter gross margin of 38.1 percent increased by 400 basis points, helped by cost savings initiatives and lower input costs, such as ocean freight. Year-end inventory of less than $1.4 billion was better than the company’s $1.5 billion target, and reflected a 31 percent year-over-year improvement. The lower inventory level helped generate $562 million of operating cash flow, which exceeded the company’s $500 million target. And the improved liquidity helped the company accelerate its debt reduction by paying down more than $500 million of debt in 2023, exceeding its $500 million target.
Also a positive was the balance sheet swinging to the black for the quarter, with $77.9 million in net income, or 22 cents a diluted share, versus a net loss of $418.1 million, or $1.19, a year ago. And for the year, the company narrowed its net loss to $17.7 million, or 5 cents a diluted share, versus a net loss of $127.2 million, or 37 cents, in 2022.
Not so great was the 12 percent decline in net sales in the quarter to $1.3 billion, reflecting in part the divestiture in September of its U.S. hosiery business. For the year, net sales fell 9.6 percent to $5.64 billion. Hanesbrands also missed Wall Street’s expectations of adjusted diluted EPS of 3 cents on revenue totaling $1.36 billion.
Investors weren’t happy with company expectations that fourth quarter sales headwinds would continue into the first quarter. The company expects to post a loss per share at between 8 cents to 14 cents. Net sales were guided to between $1.13 billion to $1.19 billion, representing a 16 percent decrease from year-ago figures at the midpoint of estimates. For the year, Hanesbrands forecasted EPS at between 22 cents and 28 cents on an estimated net sales between $5.35 billion to $5.47 billion.
As for the green shoots, new products and permanent retail space gains drove increased market share in U.S. innerwear, which the company expects to build on via another year of new product launches. Bratspies said the business had been on the decline and losing market share a few years ago, but that through its Reignite Innerwear strategy, U.S. innerwear sales have grown at a 2 percent annual growth rate over the past four years. He said 2023 was the company’s most successful innovation year in decades, which included Hanes Originals having the largest innovation launch—multiple product categories in five countries—in the company’s history. And he noted that 2024 has a robust pipeline of new products, including Hanes Supersoft.
“We’ve globalized our design process. As a result, we’re now launching cross-category, cross-geography products, and we have a robust innovation pipeline that provides visibility to new product offerings through 2025. We’ve improved our speed to market across a large portion of our products with the lead time from design to on-shelf availability shortened by 30 percent,” Bratspies said of the firm’s innerwear initiatives.
“In the fourth quarter, we gained additional market share with both men and women in the U.S., with the strongest share gains coming from younger consumers,” he said, noting that during the back half of the year, “each one of our innerwear categories gained share with younger consumers.”
The Champion business, which posted a 23 percent year-over-year decrease in global brand sales in the quarter, continued to struggle due to challenges within the activewear category over the past year. Bratspies said initiatives to strengthen the brand will take time. “We’re cleaning up our inventory in the channel. We’re implementing a disciplined product and channel segmentation strategy with a focus on our Fall-Winter 2024 offering,” he said.
Champion’s collegiate business began to show signs of improvement in the third quarter, and Bratspies said the company will be ready for a “replenishment chase” model in the back half of the year for both Champion and its global innerwear businesses.
The review of strategic options for Champion continues, with Bratspies saying very little other than that “we’ve seen strong interest from a broad and diverse group of global parties.”
Bratspies said the company plans to pay down another $300 million of debt in 2024, and is “committed to using all of our free cash flow to reduce debt.”
The company on Tuesday said it was suspending operations at its Annapolis distribution center in Winston-Salem, N.C., resulting in the loss of 159 jobs. The facility reportedly will be repurposed.
