WINSTON-SALEM, N.C.--(BUSINESS WIRE)--Hanesbrands Inc. (NYSE: HBI), a leading global marketer of branded everyday basic apparel, today announced third-quarter results, delivering strong sales, operating profit and cash flow on improving business trends, despite continued market disruption from the COVID-19 pandemic.

Net sales for the third quarter ended September 26, 2020, were $1.81 billion compared with $1.87 billion a year ago. The company sold $179 million in personal protective garments globally. The year-ago quarter included net sales of $119 million from the now exited C9 Champion mass program and the DKNY intimate apparel license. Excluding the exited programs and the effect of changes in foreign exchange rates, total constant-currency net sales for third-quarter 2020 increased 2.6%.

Third-quarter GAAP operating profit decreased 35% to $175 million, and the quarter’s adjusted operating profit excluding actions decreased 9% to $227 million.

Third-quarter GAAP EPS decreased 43% to $0.29, and adjusted EPS excluding actions decreased 11% to $0.42. (See the Note on Reconciliation of Select GAAP Measures to Non-GAAP Measures later in this news release for additional discussion and details of actions, which include pandemic-related charges.)

“I want to thank our incredible team of more than 63,000 around the globe for their commitment and dedication during these challenging times,” said Hanes Chief Executive Officer Steve Bratspies. “I’m pleased with our third-quarter results as we saw significant improvements across our business and exceeded our expectations for sales, profits and cash flow from operations. We saw particularly strong performance in our U.S. Innerwear and global Champion businesses, and I’m encouraged by our momentum even as we continue to operate in a challenging environment.

“Hanesbrands has iconic brands, a strong balance sheet, global reach, a deep commitment to sustainability and a passionate team. We have tremendous opportunities ahead of us, and we are committed to delivering long-term growth. We are conducting an in-depth review of our business as we build our growth strategy. Parts of our strategy will begin to unfold in the fourth quarter, and I look forward to reporting on our progress in the months ahead.”

Callouts for Third-Quarter Results and Ongoing Operations

Momentum across the business: Apparel revenue trends improved sequentially in each business segment. Global sales of Champion grew nearly 130% over the previous quarter, and consumer demand remains strong.

Strong cash flow: The company delivered another strong cash flow quarter, generating $249 million of operating cash flow. The company expects to end the year with higher-than-anticipated inventory of personal protective garments, but continues to expect to generate positive operating cash flow in the second half and for the full year.

Digital progress: For the third quarter, online sales increased nearly 70% on a rebased basis through company e-commerce websites, retailer websites, large internet pure-plays, and business-to-business customers.

Improved liquidity: The company ended the third quarter with $2 billion of liquidity, up from $1.8 billion last quarter, while paying its regular dividend and reducing debt by approximately $130 million.

Sustainability goals: In the quarter, Hanesbrands announced 2030 global sustainability goals, including addressing the use of plastics and sustainable raw materials in products and packaging and improving the lives of 10 million people through initiatives that focus on health, education and wellness. In addition, the company launched a new sustainability website, www.hbisustains.com, designed to increase transparency on key metrics, including diversity, human rights benchmarks and risk assessments for investors.

COVID-related uncertainty: The company continues to operate in a highly uncertain environment due to increasing concerns of COVID-19 and increased restrictions by governments around the world.

Third-Quarter 2020 Business Segment Summaries

Innerwear Segment. U.S. Innerwear sales increased 8.4%, excluding protective garments, with growth in the basics and intimate apparel businesses. Overall, U.S. Innerwear sales increased 37% over prior year driven by sales of protective garments, continued positive point-of-sale trends and inventory restocking. When the year-ago quarter is rebased to reflect the exit of the C9 Champion mass program and the DKNY intimate apparel license, sales increased 11.5%, excluding protective garments, and 41% overall.

Activewear Segment. U.S. Activewear sales declined 41%, a significant improvement from the second quarter. When the year-ago quarter is rebased for the C9 Champion program exit, U.S Activewear sales declined 27%.

Excluding $103 million of C9 Champion sales in mass retail in the year-ago quarter, sales of the Champion brand, while down 27% over the prior year, showed an 85% increase over the second quarter, driven by strong point-of-sale trends and continued online growth.

The vast majority of these declines occurred in the segment’s sports apparel business, which was significantly impacted by COVID-related issues, such as cancelled sporting events and the closure of college bookstores.

International Segment. As reported, third quarter International segment net sales declined 5% and operating profit declined 10%. On a constant currency basis, net sales decreased 7% and operating profit declined 12%.

Excluding sales of protective garments, core International sales declined 7% as compared to prior year, marking a significant improvement from the 44% decline in the second quarter.

Year over year constant currency sales growth in the company’s Americas and Champion Europe businesses was more than offset by declines in the company’s European innerwear, Asia and Australia businesses, where COVID-related challenges continued to slow the retail recovery.

Fourth-Quarter 2020 Financial Guidance

The company’s outlook for the fourth quarter reflects continued uncertainty due to the COVID-19 pandemic and is based on the current business environment, including the recently implemented COVID-related restrictions in Europe, but does not reflect any potential impact to the consumer or operating environments should governments or businesses institute additional lockdowns and store closings.

For the fourth-quarter 2020, net sales are expected to be approximately $1.60 billion to $1.66 billion. Included in our sales outlook is approximately $50 million of protective garment sales and approximately $10 million of foreign exchange benefit.

As reported last quarter, the company continues to face second-half 2020 profitability headwinds. Negative manufacturing variances and higher SG&A expense are expected to pressure both gross and operating margins in the fourth quarter. GAAP operating profit is expected to range from $154 million to $174 million. Adjusted operating profit is expected to range from $160 million to $180 million. GAAP earnings per share is expected to range from $0.24 to $0.29 and adjusted EPS is expected to range from $0.25 to $0.30.

For the fourth-quarter 2020, the midpoint of guidance represents a net sales decline of 7% compared with 2019. When comparing the midpoint of fourth-quarter 2020 guidance to 2019 results rebased to account for the exits of the C9 Champion and DKNY programs, net sales are expected to decline approximately 2%, GAAP operating profit and adjusted operating profits are expected to decline approximately 33% and 30%, respectively, and GAAP and adjusted EPS are expected to decline approximately 47% and 39% respectively.

Full-year 2020 net cash from operations is expected to be $300 million to $400 million, which includes the impact from the higher-than-anticipated protective garment inventory. Based on year-to-date cash flow, this implies fourth quarter net cash from operations of approximately $70 million to $170 million.

The fiscal year ending January 2, 2021, includes a 53rd week in the fourth quarter, and the company’s net sales outlook includes approximately $40 million from this week.

The tax rate for the quarter was 17.6%. The company expects its fourth-quarter tax rate to be approximately 17.5%.

Hanesbrands has updated its quarterly frequently-asked-questions document, which is available at www.Hanes.com/faq.

Note on Adjusted Measures, Rebased Measures and Reconciliation to GAAP Measures

To supplement financial results prepared in accordance with generally accepted accounting principles, the company provides quarterly and full-year results concerning certain non‐GAAP financial measures, including adjusted EPS, adjusted net income, adjusted operating profit (and margin), adjusted SG&A, adjusted gross profit (and margin), adjusted net sales, EBITDA and adjusted EBITDA.

Adjusted EPS is defined as diluted EPS excluding actions and the tax effect on actions. Adjusted net income is defined as net income excluding actions and the tax effect on actions. Adjusted operating profit is defined as operating profit excluding actions.

Adjusted SG&A is defined as selling, general and administrative expenses excluding actions. Adjusted gross profit is defined as gross profit excluding actions. Adjusted net sales are defined as net sales excluding actions.

Charges for actions taken in 2019 primarily represented supply chain network changes, program exit costs, and overhead reduction as well as completion of outstanding acquisition integration. Charges taken in 2020 include supply chain restructuring actions, program exit costs and COVID-19 related non-cash charges and supply chain re-startup charges. Acquisition and integration costs include legal fees, consulting fees, bank fees, severance costs, certain purchase accounting items, facility closures, inventory write-offs, information technology integration costs and similar charges. While these costs are not operational in nature and are not expected to continue for any singular transaction on an ongoing basis, similar types of costs, expenses and charges have occurred in prior periods and may recur in future periods depending upon acquisition activity.

Hanesbrands has chosen to present these non‐GAAP measures to investors to enable additional analyses of past, present and future operating performance and as a supplemental means of evaluating operations absent the effect of acquisitions and other actions, as well as the COVID-19 pandemic. Hanesbrands believes these non-GAAP measures provide management and investors with valuable supplemental information for analyzing the operating performance of the company’s ongoing business during each period presented without giving effect to costs associated with the execution and integration of any of the aforementioned actions taken.

The company has also chosen to present EBITDA and adjusted EBITDA to investors because it considers these measures to be an important supplemental means of evaluating operating performance. EBITDA is defined as earnings before interest, taxes, depreciation and amortization. Adjusted EBITDA is defined as EBITDA excluding actions and stock compensation expense. Hanesbrands believes that EBITDA and adjusted EBITDA are frequently used by securities analysts, investors and other interested parties in the evaluation of companies in the industry, and management uses EBITDA and adjusted EBITDA for planning purposes in connection with setting its capital allocation strategy. EBITDA and adjusted EBITDA should not, however, be considered as measures of discretionary cash available to invest in the growth of the business.

In addition, with respect to 2020 financial performance, Hanesbrands has chosen to present certain year-over-year comparisons with respect to the company’s rebased 2019 business, which excludes the exited C9 Champion program at mass retail and DKNY intimate apparel license. Hanes believes this information is useful to management and investors to facilitate a more meaningful comparison of the results of the company’s ongoing business between 2019 and 2020. The company has provided rebased 2019 quarterly income statements in Supplemental Table B dated February 7, 2020, which is available online at www.hanes.com/investors.

Hanesbrands is a global company that reports financial information in U.S. dollars in accordance with GAAP. As a supplement to the company’s reported operating results, Hanes also presents constant-currency financial information, which is a non-GAAP financial measure that excludes the impact of translating foreign currencies into U.S. dollars. The company uses constant-currency information to provide a framework to assess how the business performed excluding the effects of changes in the rates used to calculate foreign currency translation.

To calculate foreign currency translation on a constant currency basis, operating results for the current-year period for entities reporting in currencies other than the U.S. dollar are translated into U.S. dollars at the average exchange rates in effect during the comparable period of the prior year (rather than the actual exchange rates in effect during the current year period).

Hanes believes constant-currency information is useful to management and investors to facilitate comparison of operating results and better identify trends in the company’s businesses.

Non-GAAP financial measures have limitations as analytical tools and should not be considered in isolation or as an alternative to, or substitute for, financial results prepared in accordance with GAAP. Further, the non-GAAP measures presented may be different from non-GAAP measures with similar or identical names presented by other companies.

Reconciliations of these non-GAAP measures to the most directly comparable GAAP financial measures are presented in the supplemental financial information included with this news release.

HanesBrands

HanesBrands, based in Winston-Salem, N.C., is a socially responsible leading marketer of everyday basic innerwear and activewear apparel in the Americas, Europe, Australia and Asia-Pacific. The company sells its products under some of the world’s strongest apparel brands, including Hanes, Champion, Bonds, DIM, Maidenform, Bali, Playtex, Lovable, Bras N Things, Nur Die/Nur Der, Alternative, L’eggs, JMS/Just My Size, Wonderbra, Berlei, and Gear for Sports. The company sells T-shirts, bras, panties, shapewear, underwear, socks, hosiery, and activewear produced in the company’s low-cost global supply chain. A Fortune 500 company and member of the S&P 500 stock index (NYSE: HBI), Hanes has approximately 63,000 employees in more than 40 countries. For more information, visit the company’s corporate website at www.Hanes.com/corporate and newsroom at https://newsroom.hanesbrands.com/. Connect with the company via social media: Twitter (@hanesbrands), Facebook (www.facebook.com/hanesbrandsinc), Instagram (@hanesbrands_careers), and LinkedIn (@Hanesbrandsinc).