Champion parent Hanesbrands Inc. reported third-quarter activewear sales falling 16.8 percent to $383.6 million while Gildan‘s came in flat at $744 million. The results show why Hanes is shopping the popular sweats and tees label after Barrington Capital pressed it to act on debt, inventory and what it described as unfit leadership.
While Champion sales were down 16 percent in the U.S. from last year, they were down 22 percent internationally, thanks to cautious European wholesale accounts.
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In a call with investors, Hanesbrands CEO Stephen B. Bratspies mentioned “strong initial interest” in Champion from investment contenders and touched on talk that Reebok owner Authentic Brands Group and WHP Global could make a play for the M&Ms collaborator. Data shows Champion is making “meaningful” inroads with 18-to-24-year-old consumers, he said, with back-to-school product resonating at two specialty accounts.
According to the CEO, Hanesbrands has generated nearly $290 million of operating cash so far this year and will get to $500 million by year end. It’s paid off close to $270 million in debt, and eyeing $400 million before 2023 is over.
The innerwear business, what Hanes is known for, is doing better than the activewear category. Net sales fell just 0.4 percent to $622.6 million. Internationally, they were down 12.2 percent to $440.9 million.
Product innovation is driving a 40 percent revenue increase year over year and helping build U.S. market share. New initiatives such as the Hanes Originals product line and M by Maidenform, focused on younger women, launched this year “with strong initial consumer response,” Hanesbrands said. New innovations will roll out through 2025.
Hanesbrands has worked to get more retail space, improve on-shelf availability, address younger consumers and invest in back-to-school advertising. These efforts are helping it gain market share in the women’s and men’s categories, as well as in socks, it said.
However, the company still reported a net loss in the third quarter of $38.8 million versus $80.1 million in net income 12 months earlier. Net sales from continuing operations fell 9.5 percent to $1.51 billion from $1.67 billion. For the nine months, the net loss from continuing operations was $95.7 million on an 8.8 percent decline in net sales from continuing operations to $4.34 billion.
Hanesbrands is operating under the assumption that “muted global consumer demand” and macroeconomic uncertainty will continue for the foreseeable future. Fourth quarter net sales from continuing operations are projected at $1.36 billion. For full fiscal 2023 which ends on Dec. 30, Hanesbrands projected net sales from continuing operations of $5.70 billion.
During the third quarter, Hanesbrands also closed its last U.S. cut-and-sew site.
Over at Canada-based rival Gildan, the activewear giant seems to be firing “on all four cylinders,” president and CEO Glenn Chamandy crowed to investors earlier this month when discussing third-quarter earnings.
Beyond activewear’s steady performance, hosiery and underwear sales rose 16 percent to $126 million from a year ago, thanks to broader private-label penetration, and a new mass-market underwear rollout. But Gildan flagged weak replenishment trends for men’s socks and underwear, which suggests some retailers are still carrying too much inventory.
Still, Gildan is “pretty excited about our share momentum,” Chamandy told investors, citing point-of-sale up in the mid-single digits, driven by double-digit gains in fleece and ring-spun products, when the overall market for its distribution channel was down double-digits.
“We’re really performing well in a really tough environment,” he said, pointing to rising sales from the “growth category” of fleece products such as sweatshirts.
Chamandy also cited the advantages of Gildan’s low-cost structure versus rivals saddled with a more burdensome business model. The company continues investing in a new Bangladesh manufacturing facility that cranks out ring-spun garments, as well as its other yarn-spinning plants. “We’re widening the gap in our cost position that will continue allowing us to continue taking more share,” the CEO said.
“We have got a lot of innovation that we are going to bring to the market in 2024 and we think we’re going to enhance our value proposition. And we’re working on supporting new programs as well,” Chamandy said. “The market conditions are weak, but more importantly…we’re focusing on what we can control and just making sure that we stick to our knitting and deliver strong operating results for Q4 and as we move into 2024.”
Gildan doesn’t “expect de-stocking to be a headwind in 2024,” meaning the new calendar year should bring a “stable environment from an inventory perspective,” Chamandy noted.
Gildan, which in the past has picked up the Anvil and Alstyle brands and owns American Apparel, Comfort Colors, Goldtoe and Peds, is focused on “organic growth” but wouldn’t rule out a future acquisition.
The company’s sales growth trajectory got back on track in the third quarter.
“We benefited from strong fleece shipments, which were driven by both double-digit sell-through trends and seasonal replenishment,” said Rhod Harries, Gildan’s executive vice president and chief financial and administrative officer. “Within fleece, we did see some of the trade-down we had described in Q2, but all in all it was a strong quarter for our fleece category. We also saw strong shipments of ring-spun products as we continued to grow share in this category.”
Harries cited “unfavorable” price impacts affecting basic T-shirts in certain channels. And international sales, down 23 percent, reflected lower demand and price pressures.
In contrast, Harries said hosiery and underwear drove strong demand despite industry weakness. “On the whole, and despite the challenging environment, we are pleased with the sales performance we were able to deliver in the quarter as travel, tourism, large events and the everyday use and replenishment nature of our products continue to drive underlying demand,” he said.
Gildan’s gross margin, at 27.5 percent of sales, was down 220 basis points from a year ago, reflecting higher raw material and manufacturing input costs and slightly lower net selling prices. Peak cotton costs in the first half improved by the third quarter. “This will continue to be a tailwind for us as we move through Q4 and, importantly, as we move into 2024,” Harries said.
But Gildan is “seeing some softness in certain markets stemming from the macro environment,” he said.
For the third quarter ended Oct. 1, the company reported net income falling 16.7 percent to $127.4 million, or 73 cents a diluted share, from $153.0 million, or 84 cents, in the year-ago quarter. On an adjusted basis, diluted earnings per share (EPS) for the quarter was 74 cents. Net sales rose 2.3 percent to $869.9 million from $850.0 million for the same period a year ago. For the nine months, net income fell 16.9 percent to $380.3 million on net sales decline of 4.3 percent to $2.41 billion.
Gildan guided full-year 2023 revenues and earnings to the lower end of prior forecasts, reflecting muted demand trends in some markets. Adjusted diluted EPS was guided to $2.55 to $2.65, with revenues flat to down low single digits.
Gildan is working to cut supply chain greenhouse gas emissions. Its largest manufacturing operation is in Honduras, but it also has textile, sewing and sock production in Central America, the Caribbean and Bangladesh.
Last month, Gildan Yarns said it will shut a North Carolina manufacturing facility by the end of the year to balance production and inventory.
