By Tomi Kilgore, MarketWatch
Hanesbrands Inc. reported Thursday a surprise second-quarter profit and a big sales beat, as it sold a whopping $752 million worth of face masks and medical gowns amid the COVID-19 pandemic, far exceeding sales of underwear.
Meanwhile, the stock /zigman2/quotes/200637580/composite HBI -0.82% fell 2.6% to close at $14.26, reversing course from an earlier intraday gain of as much as 6.6% to an 8-month high — it was up as much as 10.7% in premarket trading — as the company is expecting a sharp drop in sales of personal protective equipment (PPE) for the rest of the year.
The parent of Hanes and Champion branded innerwear and activewear reported net income for the quarter to June 27 that rose to $161.2 million, or 46 cents a share, from $149.6 million, or 41 cents a share, in the year-ago period. Excluding one-time restructuring and other charges, adjusted earnings per share increased to 60 cents from 38 cents, compared with the FactSet consensus for a loss of 2 cents a share.
Total net sales fell 1.3% to $1.74 billion, but that was well above the FactSet consensus of $1.17 billion, boosted by $752.2 million in sales of personal protective equipment, such as face masks and medical gowns. The PPE sales were predominantly part of government contracts, some of which came late in the quarter.
Excluding the PPE sales, U.S. innerwear sales fell 27%, with basics down 18% and intimates down 52%. Read more about how analysts expected Hanesbrands to benefit from Victoria’s Secret store closures.
“The earnings growth resulted from the company’s ability to pivot to production and sales of personal protective garments (face masks and medical gowns) combined with relatively strong apparel performance in pandemic conditions, including 68% sales growth in the online channel,” the company said in a statement.
In the post-earnings conference call with analysts, Evercore ISI’s Omar Saad asked whether the pivot to manufacturing PPE was a difficult one, and whether it would be easy to switch back as traditional innerwear sales ramp back up. Chief Executive Gerald Evans answered, according to a FactSet transcript:
“It’s very similar in production to our panty and underwear products, (in) that we make them alongside in the same facilities and we can certainly support that going forward. There’s not a capital intensive move on our part. So we find it very complementary to what we already do.”
Hanesbrands CEO Gerald Evans
Among Hanesbrands’ business segments, sales of innerwear, which includes underwear and the new PPE products, soared 66.5% to $1.09 billion, compared with the FactSet consensus of $404.2 million. PPE sales totaled $613.5 million, or 56% of innerwear sales. Online sales of apparel and PPE rose 70%.
The company did not provide a more detailed breakdown of innerwear sales.
Meanwhile, activewear sales tumbled 52.0% to $168.4 million, below expectations of $194.1 million, and international sales declined 19.7% to $456.9 million to beat expectations of $337.7 million. International sales included $138.7 million worth of PPE products.
The company expects the sale of PPE to drop significantly the rest of the year. Excluding the potential for additional government contracts, Hanesbrands estimates PPE sales of more than $150 million in the second half of 2020.
Going forward, the company believes consumer demand for face masks since the COVID-19 outbreak will “last for some time,” as it expects PPE sales of $200 million to $300 million a year going forward. The company now sells face masks to consumers under its Hanes, Champion, Bonds and Dim brands.
Hanesbrands’ stock has lost 4.0% year to date, while the SPDR Consumer Discretionary Select Sector exchange-traded fund /zigman2/quotes/200844504/composite XLY -1.39% has rallied 8.7% and the S&P 500 index /zigman2/quotes/210599714/realtime SPX -1.12% has tacked on 0.5%.