HanesBrands Swings into Lower-than-Expected Q1 Loss

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Winston-Salem, NC—HanesBrands Inc. reported Thursday that it had swung into a first quarter loss, hurt by rising cotton costs and losses in its screen-print business. Nonetheless, shares of the company rose in early trading since the losses were lower than expected.

For the quarter ended March 31, HanesBrands reported a loss of $26.8 million, or 27 cents a share, from a profit of $48.1 million, or 49 cents, a year earlier. Total sales fell 3% to $1.01 billion.

Still, the results were better than the company’s own forecast for a loss of up to 35 cents a share on sales of about $1 billion. Analysts’ average estimate expected HanesBrands to post a loss of 33 cents a share on sales of $1 billion.

In February, the company warned that high cotton costs and “hypercompetitive pricing” in the wholesale screen-print market would contribute to much of the loss.

Ironically, the company’s product categories that sustained the largest price increases to offset cotton inflation, generated solid sales growth and better than expected retail point-of-sale growth in the quarter.

‘Worst of Cotton Inflation is Behind Us’

On a percentage basis, Hanes men’s underwear sales increased mid-single digits, Hanes women’s panty sales increased in the high teens, and total Innerwear segment sales, including sheer hosiery, increased 1%. In the outerwear segment, Champion activewear sales increased in the mid-teens.

“We are tracking consistent with our expectations, and now with the worst of the cotton inflation behind us, our operating profit margin for the remainder of the year should average in the low double digits,” said Richard Noll, chairman/ceo, said. “Sales, profits and cash flow are running consistent with, or better than, our plans. When coupled with the visibility of our pricing and costs for the rest of the year, we feel very good about our momentum and are confident in our ability to achieve our full-year financial goals.”

Looking ahead, the company is repositioning its screen-print business to focus on branded product and de-emphasize the “highly promotional sector.” Moreover, the company reported that its cotton costs are locked in through December and that 95% of the company’s domestic product pricing has been confirmed with retailers.

Hanes also affirmed its 2012 earnings forecast to be $2.50 to $2.60 a share with net sales increasing between 2 to 4%. In the second half, gross margins are expected to improve to the low 30s, while the operating profit margin is expected to average in the low double digits.

The company continues to expect full-year free cash flow in the range of $400 million to $500 million, which will be used to pay down its long-term debt.

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