Hanesbrands Beats Q2 Earnings, Revenues In Line; Ups FY View

Hanesbrands Inc.'s HBI second-quarter fiscal 2014 earnings per share of $1.71 shot up 43.7% from prior-year quarter. Earnings also beat the Zacks Consensus Estimate of $1.50 by 14.0%.

Profit was driven by strong sales and higher margins backed by the success of the Innovate-to-Elevate strategy. Increased supply chain operating efficiencies and lower selling, general and administrative costs.

The Innovate-to-Elevate strategy focuses on value-added, higher-priced and higher-margin items that can be supplied at lower costs.

The adjusted earnings per share excludes pretax charges of $24 million related to the acquisition of Maidenform Brands and other actions.

Revenues and Operating Profits

Quarterly revenues gained 12.0% and came in at $1.34 billion driven by strong performance of Activewear segment, especially the Champion brand. Sales were in line with the Zacks Consensus Estimate. Currency continued to affect the company's sales results negatively. On a constant currency basis, net sales went up 1% versus the year-ago period. The Maidenform acquisition, completed in fiscal 2013, contributed almost $141 million to total sales in the quarter.

Operating profit in the quarter went up 27.0% to $231.0 million year over year.

Segment Details

Innerwear: Net revenue for the Innerwear segment climbed 14.7% year over year to $788.3 million in the reported quarter driven by the Maidenform acquisition and growth of intimate apparel. Sales, excluding the Maidenform acquisition, slipped 2% as retailers tightened their overall inventory levels.

Activewear:Activewear segment sales went up 8.0% from the year-ago period to $317.8 million, backed by strong performance of the retail, branded printwear and Gear for Sports businesses.

International: Net sales in the International segment went up 5.2% to $131.6 million in the quarter. Sales were negatively affected by international sales. On a constant currency basis, international sales went up 11% year over year.

Direct to Consumer: Direct to Consumer segment's sales went up 12.7% to $104.4 million backed by contributions from the Maidenform acquisition.

Other Financial Updates

During the quarter, Hanesbrands completed its integration of Maidenform business in Oct 8, 2013 functions. All Maidenform financial reporting and business operations moved into Hanesbrands' financial and operating systems.

Moreover, last month, Hanesbrands announced that it intends to take over Europe-based intimate apparel company DBApparel DBA, for approximately Euro 400 million or $550 million. Hanesbrands expects the DBA acquisition to add adjusted earnings of approximately 25 cents per share in 2015 and approximately $1.00 annually by 2018. The takeover is expected to be closed in the third quarter of fiscal 2014 once the regulatory compliances for the deal are met.

Guidance Upped

Following strong business momentum in the first two quarters of the fiscal year, Hanesbrands raised full-year fiscal 2014 outlook. The company expects business momentum to continue through the rest of 2014 backed by the Innovate-to-Elevate strategy. Moreover, the company now expects a higher contribution of operating profit from Maidenform acquisition for the second quarter.

Hanesbrands now expects earnings per share in the range of $5.20 to $5.40 up from $4.80 to $5.00 expected earlier. The company expects operating profits within $710 to $730 million versus $665 to $685 million. The company, however, refined its sales guidance and expects net sales to be $5.075 million against prior expectations of sales being  slightly less than $5.1 billion.

Hanesbrands sports a Zacks Rank #1 (Strong Buy). Some stocks in the same sector that are also performing well include Columbia Sportswear Company COLM, Vince Holding Corp. VNCE and Perry Ellis International Inc. PERY. All the stocks sport the same Zacks Rank as Hanesbrands.

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