• Revenue: $937 million, a decrease of 2.5% versus prior year.
• Gross Margin: Increased 525 basis points to 41.8%.
• Operating Margin: Increased 245 basis points to 13%.
• Operating Profit: Increased 46% over prior year.
• Earnings Per Share (EPS): $0.15, up from last year's loss of $0.2.
• Net Sales (U.S.): Decreased 1% compared to last year.
• Net Sales (International): Increased 4% over prior year on a constant currency basis.
• Operating Cash Flow: $92 million in the quarter, nearly $200 million year-to-date.
• Debt Reduction: Paid down $870 million of debt in October.
• Leverage Ratio: 4.3 times on a net debt to adjusted EBITDA basis, down from 5.5 times last year.

• Warning! GuruFocus has detected 9 Warning Signs with HBI.

Release Date: November 07, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Hanesbrands Inc (NYSE:HBI) delivered strong third-quarter results, exceeding the high-end of their guidance range for gross margin, operating profit, and earnings per share.
• The company generated significant cash flow and reduced leverage, paying down $870 million of debt in October, with a goal of $1 billion debt reduction in the second half of the year.
• Hanesbrands Inc (NYSE:HBI) raised their fourth-quarter and full-year outlook for operating profit, earnings per share, and cash flow.
• The company is seeing benefits from strategic actions, including SKU optimization and cost savings initiatives, leading to structurally higher and sustainable margins.
• Innovation across major brands like Hanes, Bonds, Maidenform, and Bali is driving market share gains, particularly among young consumers, with innovation shipments up over 30% year-to-date.

Negative Points

• Net sales decreased by 2.5% compared to the prior year, with challenges in the U.S. market and FX headwinds impacting results.
• The divestiture of the U.S. hosiery business and completion of the transition service agreement with the European innerwear business contributed to a year-over-year sales decrease.
• Despite improvements, the consumer environment remains challenging, affecting point-of-sale trends and overall market conditions.
• The company is still in the process of removing stranded costs associated with the Champion divestiture, which is expected to be completed by mid-next year.
• While Hanesbrands Inc (NYSE:HBI) has improved its leverage ratio, it remains relatively high at 4.3 times net debt to adjusted EBITDA, with a target to reduce it to approximately three times by the end of 2025.

Q & A Highlights

Q: Your guidance implies a slightly lower gross margin rate in the fourth quarter than the third quarter. Were there factors that allowed 3Q to overachieve, and how should we expect gross margin to trend over the next few years? A: (M. Scott Lewis, CFO) We are guiding Q4 to be roughly similar to Q3's gross margin of 41.8%. Looking forward, we are focusing on structural and sustainable margin expansion. This includes assortment management and cost savings initiatives, which have already led to significant SKU reductions and margin-accretive innovations. We expect continued year-over-year margin expansion in 2025 and beyond.

Q: Now that the Champion sale is complete, are there any synergies from separating that manufacturing capacity that you've uncovered? A: (Stephen Bratspies, CEO) We have clearly identified and are removing costs associated with Champion, including stranded costs, by mid-next year. Beyond that, we are implementing structural changes to improve efficiency, which are progressing faster than anticipated. This will enhance our margins and operational performance.

Q: What gives you confidence in improving sales trends, and is this based on point-of-sale data or discussions with wholesale partners? A: (M. Scott Lewis, CFO) Our confidence is based on several factors, including incremental holiday and brand programs, space gains, and a rebound in our Australian wholesale business. While the consumer environment remains challenging, our actions and investments are driving improvements, and we expect to see positive growth in Q4.

Q: What do you view as the right level of brand investments to drive growth above the market rate? A: (Stephen Bratspies, CEO) We target a brand investment level of roughly 5% of sales, which we believe is appropriate given our global footprint and brand portfolio. This level allows us to drive growth without needing additional cost savings to fund it.

Q: Could you discuss your outlook for ocean freight and cotton costs for next year? A: (Stephen Bratspies, CEO) We are well-positioned with our ocean freight contracts, and rates are currently below our plans. We have also secured our cotton purchases for almost the entire next year, providing stability in our input costs. This visibility supports our confidence in continued gross margin improvement.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.