HanesBrands Unveils Financial Performance for Q4 and Full-Year 2023

HanesBrands Inc. (NYSE: HBI), a prominent global player in renowned apparel brands, has disclosed its performance outcomes for the fourth quarter and full-year 2023. Despite confronting a challenging sales environment, the company has surpassed its year-end objectives across its four key 2023 performance metrics. Encouragingly, positive trends are evident in both margins and leverage.

The fourth quarter witnessed a notable improvement in gross margin, reaching 38.1%, marking a 400 basis points increase compared to the prior year. The adjusted gross margin also surged approximately 395 basis points over the preceding year, surpassing expectations.

The company successfully freed up tied-up working capital, concluding the year with inventory below $1.4 billion, ahead of projections. Notably, the full-year 2023 showcased a remarkable 31% year-over-year enhancement in inventory, totaling $612 million.

Cash flow from operations reached $562 million, surpassing expectations. Leveraging the robust operating cash flow, the company accelerated its debt paydown, exceeding $500 million in 2023, ahead of projections. The year-end leverage of 5.2 times net debt-to-adjusted EBITDA was 0.4 times lower than its peak in the second quarter of 2023, with the company finishing the year with a liquidity position exceeding $1.3 billion.

For the fourth quarter of 2023, the company reported sales of $1.3 billion, an operating profit of $96 million, and adjusted operating profit of $111 million. GAAP and adjusted earnings per share from continuing operations were $0.22 and $0.03, respectively.

Looking ahead, HanesBrands provides optimistic 2024 guidance, anticipating robust profit and EPS growth despite maintaining a cautious outlook on consumer demand. The company plans to pay down over $300 million of debt in 2024 and has provided first-quarter guidance.

CEO Steve Bratspies acknowledged that while the fourth quarter did not meet expectations due to a challenging sales environment, positive indicators suggest a favorable turn in margins and leverage. He emphasized the company’s commitment to simplifying the business, reducing inventory, cutting costs, and driving growth in Innerwear.

Highlights from the report include the return of gross margin to pre-inflation levels, exceeding 2023 inventory and operating cash flow goals, and continued U.S. Innerwear market share gains, particularly with younger consumers. The company anticipates building upon these achievements with a record year of innovation and increased brand marketing investments in 2024.

Fourth-Quarter 2023 Performance Overview

In the fourth quarter of 2023, net sales from continuing operations for the company amounted to $1.3 billion, reflecting a 12% decrease compared to the previous year. The decline was influenced by factors such as the divestiture of the U.S. Hosiery segment, accounting for approximately 130 basis points, and an additional 40 basis points attributable to adverse effects from foreign exchange rates. On an organic constant currency basis, the company experienced a roughly 10% reduction in net sales compared to the prior year, with global consumer challenges particularly impacting the U.S. activewear market and Australia.

The sales performance of the Global Champion brand saw a reported decrease of 23%, and a 24% decline on a constant currency basis, in comparison to the previous year. U.S. sales, specifically, dropped by 30%, driven by challenges in the activewear apparel market and expected headwinds from strategic initiatives aimed at strengthening the brand for sustained profitable growth. These initiatives involve meticulous product and channel segmentation, mix adjustments, and assortment changes. International sales reported a 14% decrease, or a 15% decline on a constant currency basis. While constant currency sales witnessed growth in China and Latin America, it was outweighed by reductions in Europe, Japan, and Canada.

Gross profit reached $494 million, marking a modest 2% decrease, while gross margin increased by 400 basis points to 38.1% compared to the same quarter in the previous year. Adjusted Gross Profit, excluding certain costs related to the Full Potential transformation plan and the global Champion performance plan, amounted to $495 million. The adjusted gross margin of 38.2% increased by approximately 395 basis points from the fourth quarter of 2022, surpassing the company’s outlook. This improvement can be attributed to expected benefits from inventory actions, including the overlap of last year’s manufacturing timeout actions, cost savings initiatives, and lower input costs, effectively offsetting the impact of wage inflation. Notably, the headwinds from commodity and ocean freight inflation turned into a year-over-year benefit of approximately 200 basis points in the fourth quarter as the company began selling lower-cost inventory, especially in the Innerwear business.

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