HanesBrands (NYSE: HBI) reported Q4 EPS of $0.51, in-line with the analyst estimate of $0.51. Revenue for the quarter came in at $1.75 billion versus the consensus estimate of $1.75 billion.

• Solid 4Q results include inline net sales of $1.75 billion, as well as GAAP operating profit of $243 million and adjusted operating profit of $263 million
• 4Q GAAP EPS and adjusted EPS, both $0.51, increased 24% and 13%, respectively
• Record net cash from operations of $803 million for full year and $559 million in 4Q
• Net debt reduced to 2.9 times adjusted EBITDA with debt reduction of $460 million in 4Q
• Regular quarterly cash dividend declared, new share-repurchase program authorized, and 2020 guidance issued, including expectations of $200 million in share repurchases

“HanesBrands delivered a solid fourth quarter right in line with our guidance and concluded a very successful year with record operating cash flow, significantly reduced debt, continued organic revenue growth, and strong underlying business fundamentals,” said Hanes Chief Executive Officer Gerald W. Evans Jr. “Looking forward, we expect to create meaningful shareholder value using our strong balance sheet, stabilized Innerwear profitability, and Champion, International and consumer-directed growth. We view 2020 to be an inflection point for sales, profit and EPS growth rates that accelerate down the P&L.”

GUIDANCE:

HanesBrands sees Q1 2020 EPS of $0.23-$0.26, versus the consensus of $0.27. HanesBrands sees Q1 2020 revenue of $1.466-1.496 billion, versus the consensus of $1.54 billion.

HanesBrands sees FY2020 EPS of $1.72-$1.80, versus the consensus of $1.76. HanesBrands sees FY2020 revenue of $6.675-6.775 billion, versus the consensus of $6.82 billion.

2020 Financial Guidance

Hanes has issued initial 2020 guidance for the fiscal year ending Jan. 2, 2021, which includes a 53rd week. Certain year-over-year comparisons reference rebased 2019 results, which adjusts for the exited C9 Champion program and DKNY license for intimate apparel. (See the Note on Adjusted Measures, Rebased Measures and Reconciliation to GAAP Measures later in this news release for additional discussion and details.)

Full-Year Guidance. The company expects 2020 net sales of $6.675 billion to $6.775 billion, GAAP operating profit of $850 million to $880 million, adjusted operating profit excluding actions of $900 million to $930 million, GAAP EPS of $1.60 to $1.68, adjusted EPS excluding actions of $1.72 to $1.80, and net cash from operations of $700 million to $800 million.

The company continues to expect growth for its underlying business on a rebased basis when isolating program exits. When comparing the midpoint of 2020 guidance to 2019 results rebased to account for the exits of the C9 Champion and DKNY programs, full-year net sales are expected to increase 3%, adjusted operating profit is expected to increase 7%, and adjusted EPS is expected to increase 15%.

First-Quarter Guidance. For the first quarter, net sales are expected to be approximately $1.466 billion to $1.496 billion. GAAP operating profit is expected to be $118 million to $128 million, and adjusted operating profit is expected to be $145 million to $155 million. GAAP EPS is expected to be $0.17 to $0.20, and adjusted EPS is expected to be $0.23 to $0.26.

For the first-quarter 2020, the midpoint of guidance represents a net sales decrease of 7% compared with 2019, GAAP operating profit and adjusted operating profit declines of approximately 18% and 12%, respectively, and GAAP and adjusted EPS declines of approximately 14% and 7%, respectively.

When comparing the midpoint of first-quarter 2020 guidance to 2019 results rebased to account for the exits of the C9 Champion and DKNY programs, net sales are expected to decrease 1%, adjusted operating profit is expected to be flat, and adjusted EPS is expected to increase 14%.

Guidance Assumptions. The company expects foreign currency exchange rates to reduce net sales by approximately $25 million for the full year compared with 2019 and reduce first-quarter net sales by approximately $14 million compared with the first quarter of 2019.

The currency exchange rates are expected to reduce operating profit by approximately $3 million and $1 million in the full year and first quarter, respectively.

The company expects global Champion sales growth of approximately 10% for the year with growth in Asia, Australia, Europe and the United States.

The fiscal year’s 53rd week occurs in the fourth quarter and is expected to contribute approximately $40 million in net sales.

Segment Guidance. At the midpoint of full-year guidance, International segment revenue is expected to increase approximately 5% as reported and approximately 6% in constant currency. Growth drivers are expected to be Champion sales growth and increased innerwear sales.

For the first quarter, International segment revenue comparisons are expected to be affected by the timing of Asia distribution expansion for Champion (earlier in 2019 and later in 2020). Net sales growth on a reported basis in the quarter is expected to be flat at the midpoint of guidance while increasing approximately 2% in constant currency. The segment’s operating profit margin is expected to decline in the first quarter as a result of increased investments to support Asia distribution expansion as well as cost pressures related to foreign currency exchange rates on operational transactions. Price increases are expected to mitigate the transactional currency pressures as the year progresses.

U.S. Innerwear net sales are expected to decrease by approximately 1.5% to 3.5% for the full year and approximately 5.5% to 7.5% for the first quarter as result of the C9 Champion and DKNY program exits, retailer door closures and higher year-ago shipments for a new sock program. When 2019 is rebased for the program exits, full-year net sales for the segment are expected to range from -1% to +1% and first-quarter net sales are expected to decline approximately 3% to 6%.

The company expects an improving sales trend for U.S. Innerwear through the year as store resets in the mass channel for Innerwear basics start to yield benefits and the Innerwear intimates revitalization progresses, particularly in bras. The company believes that supply chain restructuring initiatives are stabilizing segment profitability with operating profit margins expected to increase for the full year on a reported and rebased basis.

U.S. Activewear net sales, at the midpoint of 2020 guidance, are expected to decrease by approximately 17% for both the full year and the first quarter as a result of the C9 Champion program exit at mass retail. On a rebased comparison at the midpoint of guidance, segment sales for the full year and first quarter are expected to increase approximately 3.5% and 4.5%, respectively. The company expects reduced segment profitability as reported for the full year but improved profitability on a rebased comparison.

Additional Guidance. GAAP operating profit in 2020 is expected to be reduced by approximately $50 million for pretax charges for restructuring and other actions, including approximately $27 million in the first quarter. Cash charges are expected to account for approximately $30 million of the full-year total.

The charges are related to supply chain cost-reduction initiatives and program exit costs. None of the charges are related to acquisition integrations, which have been completed for all prior acquisitions.

Hanes expects interest expense and other expenses to be approximately $185 million combined for the year, including approximately $46 million in the first quarter. The company expects capital expenditure investment of approximately $100 million.

The company’s priority for use of excess operating cash flow in 2020 is to repurchase shares, and the company expects to make approximately $200 million of share repurchases early in the year. The company expects diluted shares outstanding of approximately 354 million for the year and approximately 357 million in the first quarter. The company expects an annual tax rate and first-quarter tax rate of approximately 14.5%.

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