Worthy Of The Name Of The First Wave Brand Champion What Is The Trick To Achieve The First Quarter Income Of $500 Million?

Despite the accelerated growth of the Champion champion brand, HanesBrands Inc. (NYSE:HBI), the underwear and sportswear group of the United States, delivered slightly better than expected revenue and earnings, but fell by 5.02% on Thursday, worse than expected market revenue and EPS expectations.

HBI expects the median income of 17.4 - 1 billion 770 million dollars in the current fiscal season is lower than the $1 billion 760 million expected by the market, and the EPS of 0.43 - 0.45 US dollars is also expected to be lower than the US $0.46 expected by the market.

Group management said that the cautious anticipation of the current fiscal season is mainly concerned about the prospects of the US physical retail market, the continuous progress of the underwear business revitalization plan in the US market, and the impact of price increases and negative exchange rates. Meanwhile, increasing marketing investment to support the brand plan will also erode profits.

However, in the past quarter, HBI has been exceeding the expected performance under the stimulation of Champion business.

Champion's global business surged 75% in the first quarter of March 30th, compared with 25% and 50% in the previous two quarters.

Benefiting from the strong growth of Champion, HBI's organic exchange rate of fixed exchange rate increased by 10% in the first quarter, a real increase of 7.9% to 1 billion 588 million US dollars, compared with 1 billion 471 million 500 thousand US dollars in the same period last year, and the fixed exchange rate increased by 11%, much higher than the 1 billion 530 million US dollar expected by Zacks.

Quarterly earnings of US $79 million 482 thousand or earnings per share of US $0.22 were basically unchanged from the same period last year, adjusted by US $97 million 842 thousand or earnings per share of US $0.27, a slight increase over the same period of US $95 million 845 thousand in 2018 or US $0.26 per share, but better than Zacks's expected US $0.25.

Champion's global business is strong in all markets and channels, including the US direct channel and online channel, Western European and Nordic wholesale business, Asian direct channel and Australian wholesale business, in addition to the US public market.

Last August, HBI announced that it will end the exclusive C9 by Champion series with Target Corp. (NYSE:TGT) of the department store, focusing on the cultivation of Champion in Taghit.

The C9 series now sells for about 380 million US dollars, and the contract expires at the end of January 2020.

The group's chief financial officer, Barry Hytinen, said at the performance meeting that the US sports business revenue in the current fiscal year is expected to reach $1 billion 800 million, an increase of 30+% lower than the previous year, compared with the expected high end of 20+%.

However, he also said that in view of the current development momentum of Champion, this prediction may eventually be considered conservative.

He also pointed out that the global business income of Champion in the first quarter was about US $490 million, an increase of about US $210 million, of which domestic revenue increased by US $85 million to US $190 million, and international business grew from 60+% to US $290 million.

Tang Xiaotang, an analyst at No Agency, a fashion industry research and consulting firm, said that the problem of HBI is still the overall problem of large apparel retailers in the United States, including the development of Gap Inc. (NYSE:GPS) cap Pu and L Brands Inc. (NYSE:LB) two giants. The development of multi brand groups is unbalanced, which is reflected in the use of multi brands to expand the scale and resist risks. At the same time, it will also bear the risk that brands are exposed to risks because of the trend changes.

However, analysts who hold HBI long and forward Call believe that Champion's performance can offset the downturn in HBI underwear business, and the plan and practice of Cape group to split Old Navy is expected to provide experience for HBI.

In response to analysts' questions, HBI CEO Gerald W. Evans Jr. said that Champion was especially popular with millennial young consumers and saw the potential of market segmentation, among which sporting goods channels were developing very well.

HBI put forward the goal of 15% years of compound sales growth (CAGR) in Champion in five years, and expected to achieve a sales target of 2 billion US dollars in 2022. In the current momentum, this goal is expected to be realized ahead of schedule in May.

Barry Hytinen said at its performance meeting that it will further invest in Champion to support its growth, so that the US sports business profit margin recorded a 30 basis point decline to 10.8% last quarter. However, excluding the C9 series Champion, the US business jumped 80%, while stimulating the US sports business revenue to grow 17.1%, from 346 million 100 thousand US dollars to 405 million 300 thousand US dollars, and the operating profit increased 13.9% to 43 million 593 thousand US dollars.

The first quarter sales of underwear business in the United States were 475 million 900 thousand US dollars, down 3.1% from 491 million 100 thousand US dollars in the same period last year, but the operating profit increased 3.2% to 104 million 600 thousand US dollars and the operating profit rate rose 130 basis points.

International business revenue in the first quarter was $646 million 200 thousand, up 13.4% from a year earlier of US $569 million 900 thousand, including the non organic contribution of the US $18 million acquisition of Bras N Things, but the exchange rate caused a negative impact of US $46 million.

Excluding the exchange rate, international business increased by 18% in the first quarter, and the growth of underwear and sports business exceeded expectations.

International business profit margin increased by 80 basis points to 14.3% year-on-year, three consecutive quarters higher than the average level of the group.

In the first quarter, HBI adjusted its operating profit rate by an annual decline of 40 basis points to 10.7%, excluding 10.9% of a customer's bad debts of $4 million, and adjusted gross margin to a slight improvement of 10 basis points to 40.2%.

At the end of the quarter, the HBI leverage ratio was 3.5 times, much lower than 3.9 times at the end of last year, and it is expected to reduce the leverage to 2.9 times by the end of the year.

For the current fiscal year, HBI expects revenue of 68.85 to 6 billion 985 million dollars unchanged, representing an increase of 2%; the expected operating profit is 9 - 930 million US dollars, adjusted by 9.55 -9.85 billion, representing 5% and 2% growth respectively; EPS is expected to be 1.59 - 1.67 dollars, and adj EPS is expected to 1.72 -1.80 dollars, representing the growth of 1.72 and 1.72 respectively; and the expected increase in operating cash flow to $- $.

As of Thursday's closing, HanesBrands Inc. (NYSE:HBI) shares recorded a 37.51% increase this year, far exceeding the 16.38% increase in the same period in the S & P 500 index.