HBI-2015.04.04-10Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549FORM 10-Q |
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x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended April 4, 2015
or
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¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number: 001-32891
(Exact name of registrant as specified in its charter)
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Maryland | | 20-3552316 |
(State of incorporation) | | (I.R.S. employer identification no.) |
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1000 East Hanes Mill Road Winston-Salem, North Carolina | | 27105 |
(Address of principal executive office) | | (Zip code) |
(336) 519-8080
(Registrant’s telephone number including area code) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer | | x | | Accelerated filer | | ¨ |
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Non-accelerated filer | | ¨ (Do not check if a smaller reporting company) | | Smaller reporting company | | ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
As of April 24, 2015, there were 401,666,283 shares of the registrant’s common stock outstanding.
TABLE OF CONTENTS
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Item 1. | | |
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Item 2. | | |
Item 3. | | |
Item 4. | | |
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PART II | | |
Item 1. | | |
Item 1A. | | |
Item 2. | | |
Item 3. | | |
Item 4. | | |
Item 5. | | |
Item 6. | | |
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FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements include all statements that do not relate solely to historical or current facts, and can generally be identified by the use of words such as “may,” “believe,” “will,” “expect,” “project,” “estimate,” “intend,” “anticipate,” “plan,” “continue” or similar expressions. In particular, statements under the heading “Outlook” and other information appearing under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” include forward-looking statements. Forward-looking statements inherently involve many risks and uncertainties that could cause actual results to differ materially from those projected in these statements.
Where, in any forward-looking statement, we express an expectation or belief as to future results or events, such expectation or belief is based on the current plans and expectations of our management, expressed in good faith and believed to have a reasonable basis. However, there can be no assurance that the expectation or belief will result or will be achieved or accomplished. More information on factors that could cause actual results or events to differ materially from those anticipated is included from time to time in our reports filed with the Securities and Exchange Commission (the “SEC”), including our Annual Report on Form 10-K for the year ended January 3, 2015, under the caption “Risk Factors,” as well as on the “Investors” section of our corporate website, www.Hanes.com/investors.
All forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q and are expressly qualified in their entirety by the cautionary statements included in this Quarterly Report on Form 10-Q or our Annual Report on Form 10-K for the year ended January 3, 2015, particularly under the caption “Risk Factors.” We undertake no obligation to update or revise forward-looking statements that may be made to reflect events or circumstances that arise after the date made or to reflect the occurrence of unanticipated events, other than as required by law.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and other information with the SEC. You can read our SEC filings over the Internet at the SEC’s website at www.sec.gov. To receive copies of public records not posted to the SEC’s web site at prescribed rates, you may complete an online form at www.sec.gov, send a fax to (202) 772-9337 or submit a written request to the SEC, Office of FOIA/PA Operations, 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information.
We make available free of charge at www.Hanes.com/investors (in the “Investors” section) copies of materials we file with, or furnish to, the SEC. By referring to our corporate website, www.Hanes.com/corporate, or any of our other websites, we do not incorporate any such website or its contents into this Quarterly Report on Form 10-Q.
PART I
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Item 1. | Financial Statements |
HANESBRANDS INC.
Condensed Consolidated Statements of Income
(in thousands, except per share amounts)
(unaudited)
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| | | | | | | |
| Quarter Ended |
| April 4, 2015 | | March 29, 2014 |
Net sales | $ | 1,208,921 |
| | $ | 1,059,370 |
|
Cost of sales | 762,690 |
| | 702,593 |
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Gross profit | 446,231 |
| | 356,777 |
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Selling, general and administrative expenses | 356,300 |
| | 284,989 |
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Operating profit | 89,931 |
| | 71,788 |
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Other expenses | 382 |
| | 435 |
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Interest expense, net | 26,887 |
| | 21,818 |
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Income before income tax expense | 62,662 |
| | 49,535 |
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Income tax expense | 10,026 |
| | 7,975 |
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Net income | $ | 52,636 |
| | $ | 41,560 |
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| | | |
Earnings per share: | | | |
Basic | $ | 0.13 |
| | $ | 0.10 |
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Diluted | $ | 0.13 |
| | $ | 0.10 |
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See accompanying notes to Condensed Consolidated Financial Statements.
2
HANESBRANDS INC.
Condensed Consolidated Statements of Comprehensive Income
(in thousands)
(unaudited)
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| | | | | | | |
| Quarter Ended |
| April 4, 2015 | | March 29, 2014 |
Net income | $ | 52,636 |
| | $ | 41,560 |
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Other comprehensive income (loss), net of tax of ($3,840) and $807, respectively | 4,843 |
| | (781 | ) |
Comprehensive income | $ | 57,479 |
| | $ | 40,779 |
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See accompanying notes to Condensed Consolidated Financial Statements.
3
HANESBRANDS INC.
Condensed Consolidated Balance Sheets
(in thousands, except share and per share amounts)
(unaudited)
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| | | | | | | |
| April 4, 2015 | | January 3, 2015 |
Assets | | | |
Cash and cash equivalents | $ | 277,067 |
| | $ | 239,855 |
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Trade accounts receivable, net | 713,113 |
| | 672,048 |
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Inventories | 1,692,712 |
| | 1,537,200 |
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Deferred tax assets | 211,477 |
| | 215,065 |
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Other current assets | 126,319 |
| | 101,064 |
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Total current assets | 3,020,688 |
| | 2,765,232 |
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| | | |
Property, net | 662,809 |
| | 674,379 |
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Trademarks and other identifiable intangibles, net | 650,614 |
| | 691,201 |
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Goodwill | 712,410 |
| | 723,120 |
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Deferred tax assets | 293,116 |
| | 294,347 |
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Other noncurrent assets | 68,289 |
| | 73,502 |
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Total assets | $ | 5,407,926 |
| | $ | 5,221,781 |
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Liabilities and Stockholders’ Equity | | | |
Accounts payable | $ | 613,261 |
| | $ | 621,220 |
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Accrued liabilities | 459,670 |
| | 495,627 |
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Notes payable | 116,742 |
| | 144,438 |
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Accounts Receivable Securitization Facility | 199,609 |
| | 210,963 |
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Current portion of long-term debt | 11,464 |
| | 14,354 |
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Total current liabilities | 1,400,746 |
| | 1,486,602 |
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Long-term debt | 1,973,876 |
| | 1,613,997 |
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Pension and postretirement benefits | 365,503 |
| | 472,003 |
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Other noncurrent liabilities | 264,572 |
| | 262,407 |
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Total liabilities | 4,004,697 |
| | 3,835,009 |
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Stockholders’ equity: | | | |
Preferred stock (50,000,000 authorized shares; $.01 par value) | | | |
Issued and outstanding — None | — |
| | — |
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Common stock (2,000,000,000 authorized shares; $.01 par value) | | | |
Issued and outstanding — 401,444,293 and 400,789,120, respectively | 4,014 |
| | 4,008 |
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Additional paid-in capital | 290,651 |
| | 290,926 |
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Retained earnings | 1,476,310 |
| | 1,464,427 |
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Accumulated other comprehensive loss | (367,746 | ) | | (372,589 | ) |
Total stockholders’ equity | 1,403,229 |
| | 1,386,772 |
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Total liabilities and stockholders’ equity | $ | 5,407,926 |
| | $ | 5,221,781 |
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See accompanying notes to Condensed Consolidated Financial Statements.
4
HANESBRANDS INC. Condensed Consolidated Statements of Cash Flows (in thousands) (unaudited)
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| Quarter Ended |
| April 4, 2015 | | March 29, 2014 |
Operating activities: | | | |
Net income | $ | 52,636 |
| | $ | 41,560 |
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Adjustments to reconcile net income to net cash from operating activities: | | | |
Depreciation and amortization of long-lived assets | 24,573 |
| | 23,059 |
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Amortization of debt issuance costs | 1,690 |
| | 1,426 |
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Stock compensation expense | 4,152 |
| | 3,322 |
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Deferred taxes and other | 1,446 |
| | (2,134 | ) |
Changes in assets and liabilities, net of acquisition of business:
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Accounts receivable | (58,024 | ) | | (34,449 | ) |
Inventories | (180,352 | ) | | (120,142 | ) |
Other assets | (6,166 | ) | | (8,522 | ) |
Accounts payable | 10,534 |
| | 27,943 |
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Accrued liabilities and other | (109,834 | ) | | 5,701 |
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Net cash from operating activities | (259,345 | ) | | (62,236 | ) |
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Investing activities: | | | |
Purchases of property, plant and equipment | (36,368 | ) | | (12,224 | ) |
Proceeds from sales of assets | 4,735 |
| | 55 |
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Net cash from investing activities | (31,633 | ) | | (12,169 | ) |
| | | |
Financing activities: | | | |
Borrowings on notes payable | 43,828 |
| | 33,494 |
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Repayments on notes payable | (61,137 | ) | | (31,016 | ) |
Borrowings on Accounts Receivable Securitization Facility | 79,039 |
| | 48,172 |
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Repayments on Accounts Receivable Securitization Facility | (90,393 | ) | | (65,083 | ) |
Borrowings on Revolving Loan Facility | 1,327,500 |
| | 1,118,000 |
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Repayments on Revolving Loan Facility | (921,000 | ) | | (965,000 | ) |
Repayments on Euro Term Loan Facility | (974 | ) | | — |
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Cash dividends paid | (40,083 | ) | | (29,850 | ) |
Taxes paid related to net shares settlement of equity awards | (17,982 | ) | | (4,631 | ) |
Excess tax benefit from stock-based compensation | 12,833 |
| | 5,602 |
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Other | 2,123 |
| | 503 |
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Net cash from financing activities | 333,754 |
| | 110,191 |
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Effect of changes in foreign exchange rates on cash | (5,564 | ) | | (513 | ) |
Change in cash and cash equivalents | 37,212 |
| | 35,273 |
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Cash and cash equivalents at beginning of year | 239,855 |
| | 115,863 |
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Cash and cash equivalents at end of period | $ | 277,067 |
| | $ | 151,136 |
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See accompanying notes to Condensed Consolidated Financial Statements.
5
HANESBRANDS INC.
Notes to Condensed Consolidated Financial Statements
(dollars and shares in thousands, except per share data)
(unaudited)
These statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) and, in accordance with those rules and regulations, do not include all information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Management believes that the disclosures made are adequate for a fair statement of the results of operations, financial condition and cash flows of Hanesbrands Inc., a Maryland corporation, and its consolidated subsidiaries (the “Company” or “Hanesbrands”). In the opinion of management, the condensed consolidated interim financial statements reflect all adjustments, which consist only of normal recurring adjustments, necessary to state fairly the results of operations, financial condition and cash flows for the interim periods presented herein. The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make use of estimates and assumptions that affect the reported amounts and disclosures. Actual results may vary from these estimates. A subsidiary of the Company closes one week earlier than the Company’s consolidated quarter end. The difference in reporting one week of financial information for this subsidiary did not have a material impact on the Company’s financial condition, results of operations or cash flows.
Certain prior year amounts in the notes to condensed consolidated financial statements, none of which are material, have been reclassified to conform with the current year presentation. These reclassifications had no impact on the Company’s results of operations.
These condensed consolidated interim financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s most recent Annual Report on Form 10-K. The results of operations for any interim period are not necessarily indicative of the results of operations to be expected for the full year.
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(2) | Recent Accounting Pronouncements |
Discontinued Operations
In April 2014, the FASB issued new accounting rules related to updating the criteria for reporting discontinued operations and enhancing related disclosures requirements. The new rules were effective for the Company in the first quarter of 2015. The new accounting rules did not have an impact on the Company’s financial condition, results of operations or cash flows.
Revenue from Contracts with Customers
In May 2014, the FASB issued new accounting rules related to revenue recognition for contracts with customers requiring revenue recognition based on the transfer of promised goods or services to customers in an amount that reflects consideration the Company expects to be entitled to in exchange for goods or services. The new rules supercede prior revenue recognition requirements and most industry-specific accounting guidance. The new rules will be effective for the Company in the first quarter of 2017 with retrospective application required. The Company is currently in the process of evaluating the impact of adoption of the new rules on the Company’s financial condition, results of operations or cash flows.
Extraordinary and Unusual Items
In January 2015, the FASB issued new accounting rules that remove the concept of extraordinary items from U.S. GAAP. Under the existing guidance, an entity is required to separately disclose extraordinary items, net of tax, in the income statement after income from continuing operations if an event or transaction is of an unusual nature and occurs infrequently. This separate, net-of-tax presentation (and corresponding earnings per share impact) will no longer be allowed. The new rules will be effective for the Company in the first quarter of 2016. The Company does not expect the adoption of the new accounting rules to have a material impact on the Company’s financial condition, results of operations or cash flows.
Debt Issuance Costs
In April 2015, the FASB issued new accounting rules, which require debt issuance costs to be presented in the balance sheet as a direct deduction from the associated debt liability. The new rules will be effective for the Company in the first quarter of 2016. The Company does not expect the adoption of the new accounting rules to have a material impact on the Company’s financial condition, results of operations or cash flows.
HANESBRANDS INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
In August 2014, MFB International Holdings S.à r.l. (“MF Lux”), a wholly owned subsidiary of the Company, acquired DBA Lux Holding S.A. (“Innerwear Europe”) from SLB Brands Holdings, Ltd and certain individual Innerwear Europe shareholders in an all-cash transaction equal to €400,000 enterprise value less net debt and working capital adjustments as defined in the purchase agreement. Total purchase price was €297,031 (approximately $391,861 based on acquisition date exchange rates). The acquisition was financed through a combination of cash on hand and third party-borrowings.
Innerwear Europe is a leading marketer of intimate apparel, hosiery and underwear in Europe with a portfolio of strong brands including DIM, Nur Die/Nur Der and Lovable. The Company believes the acquisition will create growth and cost savings opportunities and increased scale to serve retailers. Innerwear Europe utilizes a mix of self-owned manufacturing and third-party manufacturers. Factors that contribute to the amount of goodwill recognized for the acquisition include the value of the existing work force and cost savings by utilizing the Company’s low-cost supply chain and expected synergies with existing Company functions. Goodwill associated with the acquisition is not tax deductible.
The allocation of purchase price is preliminary and subject to change. For the quarter ended April 4, 2015, the Company has not recorded any purchase price adjustments. The primary areas of the purchase price that are not yet finalized are related to certain income taxes, working capital adjustments as defined in the purchase agreement and residual goodwill. Accordingly, adjustments will be made to the values of the assets acquired and liabilities assumed as additional information is obtained about the facts and circumstances that existed at the valuation date.
Basic earnings per share (“EPS”) was computed by dividing net income by the number of weighted average shares of common stock outstanding. Diluted EPS was calculated to give effect to all potentially dilutive shares of common stock using the treasury stock method. On March 3, 2015, the Company implemented a four-for-one stock split on the Company’s common stock in the form of a 300% stock dividend. All references to the number of shares outstanding, per share amounts and share options data of the Company’s common shares have been restated to reflect the effect of the split for all periods presented.
The reconciliation of basic to diluted weighted average shares outstanding is as follows:
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| | | | | |
| Quarter Ended |
| April 4, 2015 | | March 29, 2014 |
Basic weighted average shares outstanding | 403,578 |
| | 401,564 |
|
Effect of potentially dilutive securities: | | | |
Stock options | 3,166 |
| | 4,840 |
|
Restricted stock units | 1,498 |
| | 1,472 |
|
Employee stock purchase plan and other | 18 |
| | — |
|
Diluted weighted average shares outstanding | 408,260 |
| | 407,876 |
|
For the quarters ended April 4, 2015 and March 29, 2014, there were no options or restricted stock units excluded from the diluted earnings per share calculation because their effect would be anti-dilutive.
Inventories consisted of the following:
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| | | | | | | |
| April 4, 2015 | | January 3, 2015 |
Raw materials | $ | 172,480 |
| | $ | 155,073 |
|
Work in process | 176,020 |
| | 164,686 |
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Finished goods | 1,344,212 |
| | 1,217,441 |
|
| $ | 1,692,712 |
| | $ | 1,537,200 |
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HANESBRANDS INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
Debt consisted of the following:
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| | | | | | | | | | | |
| Interest Rate as of April 4, 2015 | | Principal Amount | | Maturity Date |
| April 4, 2015 | | January 3, 2015 | |
Senior Secured Credit Facility: | | | | | | | |
Revolving Loan Facility | 1.83% | | $ | 583,000 |
| | $ | 176,500 |
| | July 2018 |
Euro Term Loan | 3.50% | | 387,770 |
| | 436,953 |
| | August 2021 |
6.375% Senior Notes | 6.38% | | 1,000,000 |
| | 1,000,000 |
| | December 2020 |
Accounts Receivable Securitization Facility | 1.07% | | 199,609 |
| | 210,963 |
| | March 2016 |
Other International Debt | Various | | 14,570 |
| | 14,898 |
| | Various |
| | | 2,184,949 |
| | 1,839,314 |
| | |
Less current maturities | | | 211,073 |
| | 225,317 |
| | |
| | | $ | 1,973,876 |
| | $ | 1,613,997 |
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As of April 4, 2015, the Company had $500,151 of borrowing availability under the $1,100,000 revolving credit facility (the “Revolving Loan Facility”) under its senior secured credit facility (the “Senior Secured Credit Facility”) after taking into account outstanding borrowings and $16,849 of standby and trade letters of credit issued and outstanding under this facility.
The Other International Debt outstanding as of April 4, 2015 consists of mortgage loans and term loans collateralized by fixed assets. These loans have maturity dates ranging from May 2015 to May 2018, and bear interest primarily based on EURIBOR rates ranging from 1.22% to 6.25% as of April 4, 2015.
In March 2015, the Company amended the accounts receivable securitization facility that it entered into in November 2007 (the “Accounts Receivable Securitization Facility”). This amendment primarily extended the termination date to March 2016.
As of April 4, 2015, the Company was in compliance with all financial covenants under its credit facilities.
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(7) | Accumulated Other Comprehensive Loss |
The components of Accumulated other comprehensive loss (“AOCI”) are as follows:
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| Cumulative Translation Adjustment | | Foreign Exchange Contracts | | Defined Benefit Plans | | Income Taxes | | Accumulated Other Comprehensive Loss |
| | | |
Balance at January 3, 2015 | $ | (34,099 | ) | | $ | 4,834 |
| | $ | (564,831 | ) | | $ | 221,507 |
| | $ | (372,589 | ) |
Amounts reclassified from accumulated other comprehensive loss | — |
| | (835 | ) | | 2,770 |
| | (693 | ) | | 1,242 |
|
Current-period other comprehensive income (loss) activity | (1,255 | ) | | 11,185 |
| | (3,182 | ) | | (3,147 | ) | | 3,601 |
|
Balance at April 4, 2015 | $ | (35,354 | ) | | $ | 15,184 |
| | $ | (565,243 | ) | | $ | 217,667 |
| | $ | (367,746 | ) |
HANESBRANDS INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
The Company had the following reclassifications out of AOCI:
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| | | | | | | | | | |
Component of AOCI | | Location of Reclassification into Income | | Amount of Reclassification from AOCI |
| Quarter Ended |
| April 4, 2015 | | March 29, 2014 |
Gain on foreign exchange contracts | | Cost of sales | | $ | 835 |
| | $ | 675 |
|
| | Income tax | | (507 | ) | | (269 | ) |
| | Net of tax | | 328 |
| | 406 |
|
| | | | | | |
Amortization of deferred actuarial loss and prior service cost | | Selling, general and administrative expenses | | (2,770 | ) | | (2,601 | ) |
| | Income tax | | 1,200 |
| | 1,020 |
|
| | Net of tax | | (1,570 | ) | | (1,581 | ) |
| | | | | | |
Total reclassifications | | | | $ | (1,242 | ) | | $ | (1,175 | ) |
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(8) | Financial Instruments and Risk Management |
The Company uses forward foreign exchange contracts to manage its exposures to movements in foreign exchange rates. As of April 4, 2015, the notional U.S. dollar equivalent of commitments to sell and purchase foreign currencies within the Company’s derivative portfolio was $205,218 and $9,608, respectively, primarily consisting of contracts hedging exposures to the Euro, Canadian dollar, Brazilian real and Australian dollar.
Fair Values of Derivative Instruments
The fair values of derivative financial instruments recognized in the Condensed Consolidated Balance Sheets of the Company were as follows:
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| | | | | | | | | |
| Balance Sheet Location | | Fair Value |
| April 4, 2015 | | January 3, 2015 |
Hedges | Other current assets | | $ | 10,199 |
| | $ | 3,447 |
|
Non-hedges | Other current assets | | 3,830 |
| | 2,960 |
|
Total derivative assets | | | 14,029 |
| | 6,407 |
|
| | | | | |
Hedges | Accrued liabilities | | (235 | ) | | — |
|
Non-hedges | Accrued liabilities | | (613 | ) | | (109 | ) |
Total derivative liabilities | | | (848 | ) | | (109 | ) |
| | | | | |
Net derivative asset | | | $ | 13,181 |
| | $ | 6,298 |
|
Cash Flow Hedges
The Company uses forward foreign exchange contracts to reduce the effect of fluctuating foreign currencies on short-term foreign currency-denominated transactions, foreign currency-denominated investments and other known foreign currency exposures. Gains and losses on these contracts are intended to offset losses and gains on the hedged transaction in an effort to reduce the earnings volatility resulting from fluctuating foreign currency exchange rates.
The Company expects to reclassify into earnings during the next 12 months a net gain from AOCI of approximately $15,660.
The changes in fair value of derivatives excluded from the Company’s effectiveness assessments and the ineffective portion of the changes in the fair value of derivatives used as cash flow hedges are reported in the “Selling, general and administrative expenses” line in the Condensed Consolidated Statements of Income.
HANESBRANDS INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
The effect of cash flow hedge derivative instruments on the Condensed Consolidated Statements of Income and AOCI is as follows:
|
| | | | | | | |
| Amount of Gain Recognized in AOCI (Effective Portion) |
| Quarter Ended |
| April 4, 2015 | | March 29, 2014 |
Foreign exchange contracts | $ | 11,185 |
| | $ | 142 |
|
|
| | | | | | | | |
| Location of Gain (Loss) Reclassified from AOCI into Income (Effective Portion) | Amount of Gain Reclassified from AOCI into Income (Effective Portion) |
| Quarter Ended |
| April 4, 2015 | | March 29, 2014 |
Foreign exchange contracts | Cost of sales | $ | 835 |
| | $ | 675 |
|
Derivative Contracts Not Designated As Hedges
The Company uses foreign exchange derivative contracts as economic hedges against the impact of foreign exchange fluctuations on existing accounts receivable and payable balances and intercompany lending transactions denominated in foreign currencies. These contracts are not designated as hedges under the accounting standards and are recorded at fair value in the Condensed Consolidated Balance Sheet. Any gains or losses resulting from changes in fair value are recognized directly into earnings. Gains or losses on these contracts largely offset the net remeasurement gains or losses on the related assets and liabilities.
The effect of derivative contracts not designated as hedges on the Condensed Consolidated Statements of Income is as follows:
|
| | | | | | | | | |
| Location of Gain (Loss) Recognized in Income on Derivative | | Amount of Gain (Loss) Recognized in Income |
| Quarter Ended |
| April 4, 2015 | | March 29, 2014 |
Foreign exchange contracts | Selling, general and administrative expenses | | $ | 3,470 |
| | $ | (50 | ) |
| |
(9) | Fair Value of Assets and Liabilities |
As of April 4, 2015, the Company held certain financial assets and liabilities that are required to be measured at fair value on a recurring basis. These consisted of the Company’s derivative instruments related to foreign exchange rates and deferred compensation plan liabilities. The fair values of foreign currency derivatives are determined using the cash flows of the foreign exchange contract, discount rates to account for the passage of time and current foreign exchange market data and are categorized as Level 2. The fair value of deferred compensation plans is based on readily available current market data and are categorized as Level 2. The Company’s defined benefit pension plan investments are not required to be measured at fair value on a recurring basis.
There were no changes during the quarter ended April 4, 2015 to the Company’s valuation techniques used to measure asset and liability fair values on a recurring basis. There were no transfers between the three level categories and there were no Level 3 assets or liabilities measured on a quarterly basis during the quarter ended April 4, 2015. As of and during the quarter ended April 4, 2015, the Company did not have any non-financial assets or liabilities that were required to be measured at fair value on a recurring or non-recurring basis.
HANESBRANDS INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
The following tables set forth, by level within the fair value hierarchy, the Company’s financial assets and liabilities accounted for at fair value on a recurring basis.
|
| | | | | | | | | | | |
| Assets (Liabilities) at Fair Value as of April 4, 2015 |
| Quoted Prices In Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
Foreign exchange derivative contracts | $ | — |
| | $ | 14,029 |
| | $ | — |
|
Foreign exchange derivative contracts | — |
| | (848 | ) | | — |
|
| — |
| | 13,181 |
| | — |
|
| | | | | |
Deferred compensation plan liability | — |
| | (32,871 | ) | | — |
|
| | | | | |
Total | $ | — |
| | $ | (19,690 | ) | | $ | — |
|
|
| | | | | | | | | | | |
| Assets (Liabilities) at Fair Value as of January 3, 2015 |
| Quoted Prices In Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
Foreign exchange derivative contracts | $ | — |
| | $ | 6,407 |
| | $ | — |
|
Foreign exchange derivative contracts | — |
| | (109 | ) | | — |
|
| — |
| | 6,298 |
| | — |
|
| | | | | |
Deferred compensation plan liability | — |
| | (28,289 | ) | | — |
|
| | | | | |
Total | $ | — |
| | $ | (21,991 | ) | | $ | — |
|
Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, trade accounts receivable, notes receivable and accounts payable approximated fair value as of April 4, 2015 and January 3, 2015. The carrying amount of trade accounts receivable includes allowance for doubtful accounts, chargebacks and other deductions of $21,008 and $16,856 as of April 4, 2015 and January 3, 2015, respectively. The fair value of debt, which is classified as a Level 2 liability, was $2,254,411 and $1,893,514 as of April 4, 2015 and January 3, 2015, respectively. Debt had a carrying value of $2,184,949 and $1,839,314 as of April 4, 2015 and January 3, 2015, respectively. The fair values were estimated using quoted market prices as provided in secondary markets, which consider the Company’s credit risk and market related conditions. The carrying amounts of the Company’s notes payable, which is classified as a Level 2 liability, approximated fair value as of April 4, 2015 and January 3, 2015, primarily due to the short-term nature of these instruments.
On April 6, 2015, the Company completed the acquisition of Knights Holdco, Inc. (“Knights”), a leading seller of licensed collegiate logo apparel in the mass retail channel, from Merit Capital Partners in an all cash transaction valued at approximately $200,000 on an enterprise value basis. The Company funded the acquisition with cash on hand and short-term borrowings under its Revolving Loan Facility.
On April 29, 2015, the Company refinanced its Senior Secured Credit Facility to, among other things, extend the maturity date of the Revolving Loan Facility to April 2020, re-price the Revolving Loan Facility at favorable rates and add an additional $850,000 in term loan borrowings. The Company incurred $9,500 in fees related to this refinancing. After the refinancing, the
HANESBRANDS INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
Company’s domestic debt was comprised of a $1,000,000 revolving credit facility, a $425,000 Term Loan A and an additional $425,000 Term Loan B.
| |
(11) | Business Segment Information |
The Company’s operations are managed and reported in four operating segments, each of which is a reportable segment for financial reporting purposes: Innerwear, Activewear, Direct to Consumer and International. These segments are organized principally by product category, geographic location and distribution channel. Each segment has its own management that is
responsible for the operations of the segment’s businesses, but the segments share a common supply chain and media and marketing platforms.
The types of products and services from which each reportable segment derives its revenues are as follows:
| |
• | Innerwear sells basic branded products that are replenishment in nature under the product categories of men’s underwear, children’s underwear, socks, panties, hosiery and intimates, which includes bras and shapewear. |
| |
• | Activewear sells basic branded products that are primarily seasonal in nature under the product categories of branded printwear and retail activewear, as well as licensed logo apparel in collegiate bookstores and other channels. |
| |
• | Direct to Consumer includes the Company’s value-based (“outlet”) stores and Internet operations that sell products from the Company’s portfolio of leading brands. The Company’s Internet operations are supported by its catalogs. |
| |
• | International primarily relates to the Europe, Asia, Latin America, Canada and Australia geographic locations that sell products that span across the Innerwear and Activewear reportable segments. |
The Company evaluates the operating performance of its segments based upon segment operating profit, which is defined as operating profit before general corporate expenses and amortization of intangibles. The accounting policies of the segments are consistent with those described in Note 2 to the Company’s consolidated financial statements included in its Annual Report on Form 10-K for the year ended January 3, 2015. The Company decided in the first quarter of 2015 to revise the manner which the Company allocates certain selling, general and administrative expenses. Certain prior-year segment operating profit disclosures have been revised to conform to the current-year presentation.
|
| | | | | | | |
| Quarter Ended |
April 4, 2015 | | March 29, 2014 |
Net sales: | | | |
Innerwear | $ | 546,174 |
| | $ | 571,154 |
|
Activewear | 298,096 |
| | 294,504 |
|
Direct to Consumer | 81,501 |
| | 83,714 |
|
International | 283,150 |
| | 109,998 |
|
Total net sales | $ | 1,208,921 |
| | $ | 1,059,370 |
|
|
| | | | | | | |
| Quarter Ended |
| April 4, 2015 | | March 29, 2014 |
Segment operating profit: | | | |
Innerwear | $ | 110,777 |
| | $ | 98,005 |
|
Activewear | 32,751 |
| | 33,745 |
|
Direct to Consumer | (2,278 | ) | | (1,326 | ) |
International | 22,116 |
| | 8,186 |
|
Total segment operating profit | 163,366 |
| | 138,610 |
|
Items not included in segment operating profit: | | | |
General corporate expenses | (25,412 | ) | | (20,289 | ) |
Acquisition, integration and other action related charges | (43,228 | ) | | (42,637 | ) |
Amortization of intangibles | (4,795 | ) | | (3,896 | ) |
Total operating profit | 89,931 |
| | 71,788 |
|
Other expenses | (382 | ) | | (435 | ) |
Interest expense, net | (26,887 | ) | | (21,818 | ) |
Income before income tax expense | $ | 62,662 |
| | $ | 49,535 |
|
For the quarter ended April 4, 2015, the Company incurred acquisition, integration and other action related charges of $43,228, of which $14,068 is reported in the “Cost of sales” line and $29,160 is reported in the “Selling, general and administrative expenses” line in the Condensed Consolidated Statement of Income. For the quarter ended March 29, 2014, the Company incurred acquisition, integration and other action related charges of $42,637, of which $14,827 is reported in the
HANESBRANDS INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
“Cost of sales” line and $27,810 is reported in the “Selling, general and administrative expenses” line in the Condensed Consolidated Statement of Income.
(12) Consolidating Financial Information
In accordance with the indenture governing the Company’s $1,000,000 6.375% Senior Notes issued on November 9, 2010, as supplemented from time to time, certain of the Company’s subsidiaries have guaranteed the Company’s obligations under the 6.375% Senior Notes. The following presents the condensed consolidating financial information separately for:
(i) Parent Company, the issuer of the guaranteed obligations. Parent Company includes Hanesbrands Inc. and its 100% owned operating divisions, which are not legal entities, and excludes its subsidiaries, which are legal entities;
(ii) Guarantor subsidiaries, on a combined basis, as specified in the Indentures;
(iii) Non-guarantor subsidiaries, on a combined basis;
(iv) Consolidating entries and eliminations representing adjustments to (a) eliminate intercompany transactions between or among Parent Company, the guarantor subsidiaries and the non-guarantor subsidiaries, (b) eliminate intercompany profit in inventory, (c) eliminate the investments in the Company’s subsidiaries and (d) record consolidating entries; and
(v) The Company, on a consolidated basis.
The 6.375% Senior Notes are fully and unconditionally guaranteed on a joint and several basis by each guarantor subsidiary, each of which is 100% owned, directly or indirectly, by Hanesbrands Inc. A guarantor subsidiary’s guarantee can be released in certain customary circumstances. Each entity in the consolidating financial information follows the same accounting policies as described in the consolidated financial statements, except for the use by the Parent Company and guarantor subsidiaries of the equity method of accounting to reflect ownership interests in subsidiaries that are eliminated upon consolidation.
|
| | | | | | | | | | | | | | | | | | | |
| Condensed Consolidating Statement of Comprehensive Income Quarter Ended April 4, 2015 |
| Parent Company | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Consolidating Entries and Eliminations | | Consolidated |
Net sales | $ | 951,090 |
| | $ | 153,174 |
| | $ | 792,012 |
| | $ | (687,355 | ) | | $ | 1,208,921 |
|
Cost of sales | 772,889 |
| | 74,310 |
| | 600,410 |
| | (684,919 | ) | | 762,690 |
|
Gross profit | 178,201 |
| | 78,864 |
| | 191,602 |
| | (2,436 | ) | | 446,231 |
|
Selling, general and administrative expenses | 224,682 |
| | 52,864 |
| | 80,454 |
| | (1,700 | ) | | 356,300 |
|
Operating profit | (46,481 | ) | | 26,000 |
| | 111,148 |
| | (736 | ) | | 89,931 |
|
Equity in earnings of subsidiaries | 131,166 |
| | 108,170 |
| | — |
| | (239,336 | ) | | — |
|
Other expenses | 382 |
| | — |
| | — |
| | — |
| | 382 |
|
Interest expense, net | 19,123 |
| | (4 | ) | | 7,782 |
| | (14 | ) | | 26,887 |
|
Income before income tax expense | 65,180 |
| | 134,174 |
| | 103,366 |
| | (240,058 | ) | | 62,662 |
|
Income tax expense | 12,544 |
| | (11,090 | ) | | 8,572 |
| | — |
| | 10,026 |
|
Net income | $ | 52,636 |
| | $ | 145,264 |
| | $ | 94,794 |
| | $ | (240,058 | ) | | $ | 52,636 |
|
| | | | | | | | | |
Comprehensive income | $ | 57,479 |
| | $ | 145,264 |
| | $ | 90,404 |
| | $ | (235,668 | ) | | $ | 57,479 |
|
HANESBRANDS INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
|
| | | | | | | | | | | | | | | | | | | |
| Condensed Consolidating Statement of Comprehensive Income Quarter Ended March 29, 2014 |
| Parent Company | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Consolidating Entries and Eliminations | | Consolidated |
Net sales | $ | 892,330 |
| | $ | 219,950 |
| | $ | 560,186 |
| | $ | (613,096 | ) | | $ | 1,059,370 |
|
Cost of sales | 721,146 |
| | 133,481 |
| | 430,550 |
| | (582,584 | ) | | 702,593 |
|
Gross profit | 171,184 |
| | 86,469 |
| | 129,636 |
| | (30,512 | ) | | 356,777 |
|
Selling, general and administrative expenses | 190,705 |
| | 70,023 |
| | 26,479 |
| | (2,218 | ) | | 284,989 |
|
Operating profit | (19,521 | ) | | 16,446 |
| | 103,157 |
| | (28,294 | ) | | 71,788 |
|
Equity in earnings of subsidiaries | 85,065 |
| | 74,860 |
| | — |
| | (159,925 | ) | | — |
|
Other expenses | 435 |
| | — |
| | — |
| | — |
| | 435 |
|
Interest expense, net | 17,884 |
| | 1,986 |
| | 2,056 |
| | (108 | ) | | 21,818 |
|
Income before income tax expense | 47,225 |
| | 89,320 |
| | 101,101 |
| | (188,111 | ) | | 49,535 |
|
Income tax expense | 5,665 |
| | (2,314 | ) | | 4,624 |
| | — |
| | 7,975 |
|
Net income | $ | 41,560 |
| | $ | 91,634 |
| | $ | 96,477 |
| | $ | (188,111 | ) | | $ | 41,560 |
|
| | | | | | | | | |
Comprehensive income | $ | 40,779 |
| | $ | 91,634 |
| | $ | 94,212 |
| | $ | (185,846 | ) | | $ | 40,779 |
|
HANESBRANDS INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
|
| | | | | | | | | | | | | | | | | | | |
| Condensed Consolidating Balance Sheet April 4, 2015 |
| Parent Company | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Consolidating Entries and Eliminations | | Consolidated |
Assets | | | | | | | | | |
Cash and cash equivalents | $ | 4,243 |
| | $ | 12,111 |
| | $ | 260,713 |
| | $ | — |
| | $ | 277,067 |
|
Trade accounts receivable, net | 100,560 |
| | 39,309 |
| | 573,964 |
| | (720 | ) | | 713,113 |
|
Inventories | 1,113,536 |
| | 144,556 |
| | 583,349 |
| | (148,729 | ) | | 1,692,712 |
|
Deferred tax assets | 197,291 |
| | 3,515 |
| | 10,671 |
| | — |
| | 211,477 |
|
Other current assets | 56,074 |
| | 9,262 |
| | 60,983 |
| | — |
| | 126,319 |
|
Total current assets | 1,471,704 |
| | 208,753 |
| | 1,489,680 |
| | (149,449 | ) | | 3,020,688 |
|
Property, net | 90,461 |
| | 40,503 |
| | 531,845 |
| | — |
| | 662,809 |
|
Trademarks and other identifiable intangibles, net | 4,249 |
| | 77,949 |
| | 568,416 |
| | — |
| | 650,614 |
|
Goodwill | 232,882 |
| | 124,247 |
| | 355,281 |
| | — |
| | 712,410 |
|
Investments in subsidiaries | 3,878,036 |
| | 1,940,944 |
| | — |
| | (5,818,980 | ) | | — |
|
Deferred tax assets | 202,820 |
| | 74,703 |
| | 15,593 |
| | — |
| | 293,116 |
|
Receivables from related entities | 4,794,908 |
| | 4,587,194 |
| | 2,169,608 |
| | (11,551,710 | ) | | — |
|
Other noncurrent assets | 52,430 |
| | 426 |
| | 15,433 |
| | — |
| | 68,289 |
|
Total assets | $ | 10,727,490 |
| | $ | 7,054,719 |
| | $ | 5,145,856 |
| | $ | (17,520,139 | ) | | $ | 5,407,926 |
|
| | | | | | | | | |
Liabilities and Stockholders’ Equity | | | | | | | | | |
Accounts payable | $ | 345,709 |
| | $ | 22,995 |
| | $ | 244,557 |
| | $ | — |
| | $ | 613,261 |
|
Accrued liabilities | 211,107 |
| | 37,452 |
| | 211,467 |
| | (356 | ) | | 459,670 |
|
Notes payable | — |
| | — |
| | 116,742 |
| | — |
| | 116,742 |
|
Accounts Receivable Securitization Facility | — |
| | — |
| | 199,609 |
| | — |
| | 199,609 |
|
Current portion of long-term debt | — |
| | — |
| | 11,464 |
| | — |
| | 11,464 |
|
Total current liabilities | 556,816 |
| | 60,447 |
| | 783,839 |
| | (356 | ) | | 1,400,746 |
|
Long-term debt | 1,583,000 |
| | — |
| | 390,876 |
| | — |
| | 1,973,876 |
|
Pension and postretirement benefits | 301,064 |
| | — |
| | 64,439 |
| | — |
| | 365,503 |
|
Payables to related entities | 6,742,128 |
| | 3,371,383 |
| | 1,438,199 |
| | (11,551,710 | ) | | — |
|
Other noncurrent liabilities | 141,253 |
| | 12,480 |
| | 111,642 |
| | (803 | ) | | 264,572 |
|
Total liabilities | 9,324,261 |
| | 3,444,310 |
| | 2,788,995 |
| | (11,552,869 | ) | | 4,004,697 |
|
Stockholders’ equity | 1,403,229 |
| | 3,610,409 |
| | 2,356,861 |
| | (5,967,270 | ) | | 1,403,229 |
|
Total liabilities and stockholders’ equity | $ | 10,727,490 |
| | $ | 7,054,719 |
| | $ | 5,145,856 |
| | $ | (17,520,139 | ) | | $ | 5,407,926 |
|
HANESBRANDS INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
|
| | | | | | | | | | | | | | | | | | | |
| Condensed Consolidating Balance Sheet January 3, 2015 |
| Parent Company | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Consolidating Entries and Eliminations | | Consolidated |
Assets | | | | | | | | | |
Cash and cash equivalents | $ | 10,910 |
| | $ | 10,796 |
| | $ | 218,149 |
| | $ | — |
| | $ | 239,855 |
|
Trade accounts receivable, net | 73,794 |
| | 37,511 |
| | 561,514 |
| | (771 | ) | | 672,048 |
|
Inventories | 958,376 |
| | 120,341 |
| | 607,356 |
| | (148,873 | ) | | 1,537,200 |
|
Deferred tax assets | 200,050 |
| | 3,515 |
| | 11,500 |
| | — |
| | 215,065 |
|
Other current assets | 38,446 |
| | 11,224 |
| | 51,394 |
| | — |
| | 101,064 |
|
Total current assets | 1,281,576 |
| | 183,387 |
| | 1,449,913 |
| | (149,644 | ) | | 2,765,232 |
|
Property, net | 88,599 |
| | 46,221 |
| | 539,559 |
| | — |
| | 674,379 |
|
Trademarks and other identifiable intangibles, net | 4,102 |
| | 79,393 |
| | 607,706 |
| | — |
| | 691,201 |
|
Goodwill | 232,881 |
| | 124,247 |
| | 365,992 |
| | — |
| | 723,120 |
|
Investments in subsidiaries | 3,732,783 |
| | 1,792,790 |
| | — |
| | (5,525,573 | ) | | — |
|
Deferred tax assets | 202,910 |
| | 74,735 |
| | 16,702 |
| | — |
| | 294,347 |
|
Receivables from related entities | 4,585,755 |
| | 4,471,644 |
| | 2,087,280 |
| | (11,144,679 | ) | | — |
|
Other noncurrent assets | 55,540 |
| | 428 |
| | 17,534 |
| | — |
| | 73,502 |
|
Total assets | $ | 10,184,146 |
| | $ | 6,772,845 |
| | $ | 5,084,686 |
| | $ | (16,819,896 | ) | | $ | 5,221,781 |
|
| | | | | | | | | |
Liabilities and Stockholders’ Equity | | | | | | | | | |
Accounts payable | $ | 353,799 |
| | $ | 11,925 |
| | $ | 255,496 |
| | $ | — |
| | $ | 621,220 |
|
Accrued liabilities | 190,739 |
| | 61,339 |
| | 242,437 |
| | 1,112 |
| | 495,627 |
|
Notes payable | — |
| | — |
| | 144,438 |
| | — |
| | 144,438 |
|
Accounts Receivable Securitization Facility | — |
| | — |
| | 210,963 |
| | — |
| | 210,963 |
|
Current portion of long-term debt | — |
| | — |
| | 14,354 |
| | — |
| | 14,354 |
|
Total current liabilities | 544,538 |
| | 73,264 |
| | 867,688 |
| | 1,112 |
| | 1,486,602 |
|
Long-term debt | 1,176,500 |
| | — |
| | 437,497 |
| | — |
| | 1,613,997 |
|
Pension and postretirement benefits | 399,931 |
| | — |
| | 72,072 |
| | — |
| | 472,003 |
|
Payables to related entities | 6,544,095 |
| | 3,270,513 |
| | 1,330,071 |
| | (11,144,679 | ) | | — |
|
Other noncurrent liabilities | 132,310 |
| | 12,609 |
| | 118,287 |
| | (799 | ) | | 262,407 |
|
Total liabilities | 8,797,374 |
| | 3,356,386 |
| | 2,825,615 |
| | (11,144,366 | ) | | 3,835,009 |
|
Stockholders’ equity | 1,386,772 |
| | 3,416,459 |
| | 2,259,071 |
| | (5,675,530 | ) | | 1,386,772 |
|
Total liabilities and stockholders’ equity | $ | 10,184,146 |
| | $ | 6,772,845 |
| | $ | 5,084,686 |
| | $ | (16,819,896 | ) | | $ | 5,221,781 |
|
HANESBRANDS INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
|
| | | | | | | | | | | | | | | | | | | |
| Condensed Consolidating Statement of Cash Flows Three Months Ended April 4, 2015 |
| Parent Company | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Consolidating Entries and Eliminations | | Consolidated |
Net cash from operating activities | $ | (115,241 | ) | | $ | 68,660 |
| | $ | (391,119 | ) | | $ | 178,355 |
| | $ | (259,345 | ) |
Investing activities: | | | | | | | | | |
Purchases of property, plant and equipment | (8,864 | ) | | (3,796 | ) | | (23,708 | ) | | — |
| | (36,368 | ) |
Proceeds from sales of assets | — |
| | 4,322 |
| | 413 |
| | — |
| | 4,735 |
|
Net cash from investing activities | (8,864 | ) | | 526 |
| | (23,295 | ) | | — |
| | (31,633 | ) |
Financing activities: | | | | | | | | | |
Borrowings on notes payable | — |
| | — |
| | 43,828 |
| | — |
| | 43,828 |
|
Repayments on notes payable | — |
| | — |
| | (61,137 | ) | | — |
| | (61,137 | ) |
Borrowings on Accounts Receivable Securitization Facility | — |
| | — |
| | 79,039 |
| | — |
| | 79,039 |
|
Repayments on Accounts Receivable Securitization Facility | — |
| | — |
| | (90,393 | ) | | — |
| | (90,393 | ) |
Borrowings on Revolving Loan Facility | 1,327,500 |
| | — |
| | — |
| | — |
| | 1,327,500 |
|
Repayments on Revolving Loan Facility | (921,000 | ) | | — |
| | — |
| | — |
| | (921,000 | ) |
Repayments on Euro Term Loan Facility | — |
| | — |
| | (974 | ) | | — |
| | (974 | ) |
Cash dividends paid | (40,083 | ) | | — |
| | — |
| | — |
| | (40,083 | ) |
Taxes paid related to net shares settlement of equity awards | (17,982 | ) | | — |
| | — |
| | — |
| | (17,982 | ) |
Excess tax benefit from stock-based compensation | 12,833 |
| | — |
| | — |
| | — |
| | 12,833 |
|
Other | 1,183 |
| | — |
| | 946 |
| | (6 | ) | | 2,123 |
|
Net transactions with related entities | (245,013 | ) | | (67,871 | ) | | 491,233 |
| | (178,349 | ) | | — |
|
Net cash from financing activities | 117,438 |
| | (67,871 | ) | | 462,542 |
| | (178,355 | ) | | 333,754 |
|
Effect of changes in foreign exchange rates on cash | — |
| | — |
| | (5,564 | ) | | — |
| | (5,564 | ) |
Change in cash and cash equivalents | (6,667 | ) | | 1,315 |
| | 42,564 |
| | — |
| | 37,212 |
|
Cash and cash equivalents at beginning of year | 10,910 |
| | 10,796 |
| | 218,149 |
| | — |
| | 239,855 |
|
Cash and cash equivalents at end of period | $ | 4,243 |
| | $ | 12,111 |
| | $ | 260,713 |
| | $ | — |
| | $ | 277,067 |
|
HANESBRANDS INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
|
| | | | | | | | | | | | | | | | | | | |
| Condensed Consolidating Statement of Cash Flow Three Months Ended March 29, 2014 |
| Parent Company | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Consolidating Entries and Eliminations | | Consolidated |
Net cash from operating activities | $ | (16,895 | ) | | $ | 54,176 |
| | $ | 60,424 |
| | $ | (159,941 | ) | | $ | (62,236 | ) |
Investing activities: | | | | | | | | | |
Purchases of property, plant and equipment | (4,164 | ) | | (1,454 | ) | | (6,606 | ) | | — |
| | (12,224 | ) |
Proceeds from sales of assets | — |
| | — |
| | 55 |
| | — |
| | 55 |
|
Net cash from investing activities | (4,164 | ) | | (1,454 | ) | | (6,551 | ) | | — |
| | (12,169 | ) |
Financing activities: | | | | | | | | | |
Borrowings on notes payable | — |
| | — |
| | 33,494 |
| | — |
| | 33,494 |
|
Repayments on notes payable | — |
| | — |
| | (31,016 | ) | | — |
| | (31,016 | ) |
Borrowings on Accounts Receivable Securitization Facility | — |
| | — |
| | 48,172 |
| | — |
| | 48,172 |
|
Repayments on Accounts Receivable Securitization Facility | — |
| | — |
| | (65,083 | ) | | — |
| | (65,083 | ) |
Borrowings on Revolving Loan Facility | 1,118,000 |
| | — |
| | — |
| | — |
| | 1,118,000 |
|
Repayments on Revolving Loan Facility | (965,000 | ) | | — |
| | — |
| | — |
| | (965,000 | ) |
Cash dividends paid | (29,850 | ) | | — |
| | — |
| | — |
| | (29,850 | ) |
Taxes paid related to net shares settlement of equity awards | (4,631 | ) | | — |
| | — |
| | — |
| | (4,631 | ) |
Excess tax benefit from stock-based compensation | 5,602 |
| | — |
| | — |
| | — |
| | 5,602 |
|
Other | 828 |
| | — |
| | (325 | ) | | — |
| | 503 |
|
Net transactions with related entities | (99,344 | ) | | (53,910 | ) | | (6,687 | ) | | 159,941 |
| | — |
|
Net cash from financing activities | 25,605 |
| | (53,910 | ) | | (21,445 | ) | | 159,941 |
| | 110,191 |
|
Effect of changes in foreign exchange rates on cash | — |
| | — |
| | (513 | ) | | — |
| | (513 | ) |
Change in cash and cash equivalents | 4,546 |
| | (1,188 | ) | | 31,915 |
| | — |
| | 35,273 |
|
Cash and cash equivalents at beginning of year | 5,695 |
| | 7,811 |
| | 102,357 |
| | — |
| | 115,863 |
|
Cash and cash equivalents at end of period | $ | 10,241 |
| | $ | 6,623 |
| | $ | 134,272 |
| | $ | — |
| | $ | 151,136 |
|
|
| |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
This management’s discussion and analysis of financial condition and results of operations, or MD&A, contains forward-looking statements that involve risks and uncertainties. Please see “Forward-Looking Statements” in this Quarterly Report on Form 10-Q for a discussion of the uncertainties, risks and assumptions associated with these statements. This discussion should be read in conjunction with our historical financial statements and related notes thereto and the other disclosures contained elsewhere in this Quarterly Report on Form 10-Q. The unaudited condensed consolidated financial statements and notes included herein should be read in conjunction with our audited consolidated financial statements and notes for the year ended January 3, 2015, which were included in our Annual Report on Form 10-K filed with the SEC. The results of operations for the periods reflected herein are not necessarily indicative of results that may be expected for future periods, and our actual results may differ materially from those discussed in the forward-looking statements as a result of various factors, including but not limited to those included elsewhere in this Quarterly Report on Form 10-Q and those included in the “Risk Factors” section and elsewhere in our Annual Report on Form 10-K for the year ended January 3, 2015.
Overview
We are a consumer goods company with a portfolio of leading apparel brands, including Hanes, Champion, Bali, Playtex, Maidenform, DIM, JMS/Just My Size, L’eggs, Nur Die/Nur Der, Flexees, barely there, Wonderbra, Gear for Sports, Lilyette, Lovable, Rinbros, Shock Absorber, Track N Field, Abanderado and Zorba. We design, manufacture, source and sell a broad range of basic apparel such as T-shirts, bras, panties, men’s underwear, children’s underwear, activewear, socks and hosiery.
Our operations are managed and reported in four operating segments, each of which is a reportable segment for financial reporting purposes: Innerwear, Activewear, Direct to Consumer and International. These segments are organized principally by product category, geographic location and distribution channel. Each segment has its own management that is responsible for the operations of the segment’s businesses, but the segments share a common supply chain and media and marketing platforms. A subsidiary of ours closes one week earlier than the consolidated quarter end. The difference in reporting one week of financial information for this subsidiary did not have a material impact on our financial condition, results of operations or cash flows. In the first quarter of 2015, we revised the manner in which we allocate certain selling, general and administrative expenses. Certain prior-year segment operating profit disclosures have been revised to conform to the current-year presentation.
Highlights from the First Quarter Ended April 4, 2015
Key financial highlights during the quarter are as follows:
| |
• | Total net sales in the first quarter of 2015 were $1.2 billion, compared with $1.1 billion in the same period of 2014, representing a 14% increase. |
| |
• | Operating profit increased 25% to $90 million in the first quarter of 2015, compared with $72 million in the same period of 2014. As a percentage of sales, operating profit was 7.4% in the first quarter of 2015 compared to 6.8% in the same period of 2014. Included within operating profit for the first quarter of 2015 and 2014 were acquisition, integration and other action related charges of $43 million. |
| |
• | On March 3, 2015, we effected a four-for-one stock split in the form of a stock dividend to stockholders of record as of the close of business on February 9, 2015. All references to the number of common shares outstanding, per share amounts and share options data have been restated to reflect the effect of the split for all periods presented. |
| |
• | Diluted earnings per share increased 30% to $0.13 in the first quarter of 2015, compared with diluted earnings per share of $0.10 in the same period of 2014. |
| |
• | We acquired DBA Lux Holding S.A. (“Innerwear Europe”) on August 29, 2014. The total purchase price paid at closing was €297 million (approximately $392 million based on acquisition date exchange rates). Since the acquisition date, we have paid an additional $7 million in purchase price, primarily related to working capital adjustments. The acquisition was financed through a combination of cash on hand and third party borrowings. We believe the acquisition will create growth and cost savings opportunities and increased scale to serve retailers. The operating results of Innerwear Europe from the date of acquisition are included in the International segment. |
| |
• | Subsequent to quarter end, on April 6, 2015, we completed the acquisition of Knights Holdco Inc. (“Knights”), a leading seller of licensed collegiate logo apparel in the mass retail channel, from Merit Capital Partners, in an all cash transaction valued at approximately $200 million on an enterprise value basis. We funded the acquisition with cash on hand and short-term borrowings. We believe the acquisition will create growth and cost savings opportunities and increased scale to serve retailers. |
Outlook
We expect our 2015 full year sales to be between $5.9 billion and $5.95 billion.
Interest expense and other expenses are expected to be approximately $95 million to $100 million, including approximately $5 million from higher debt balances associated with the Knights acquisition.
We estimate our full year effective income tax rate to be approximately 13% with slightly higher rates in the first half of the year.
We expect cash flow from operations to be $550 million to $600 million, which reflects approximately $100 million in pension contributions. Net capital expenditures are expected to be approximately $80 million to $85 million and dividend payments are expected to be roughly $160 million.
Our current estimate for pretax charges in 2015 for acquisition, integration and other actions is approximately $200 million or more. We currently expect these charges related to Maidenform to be completed by the end of the third quarter of 2015. Foundational charges are expected to be completed by the end of 2015.
Seasonality and Other Factors
Our operating results are subject to some variability due to seasonality and other factors. Generally, our diverse range of product offerings helps mitigate the impact of seasonal changes in demand for certain items. We generally have higher sales during the back-to-school and holiday shopping seasons and during periods of cooler weather, which benefits certain product categories such as fleece. Sales levels in any period are also impacted by customers’ decisions to increase or decrease their inventory levels in response to anticipated consumer demand. Our customers may cancel orders, change delivery schedules or change the mix of products ordered with minimal notice to us. Media, advertising and promotion expenses may vary from period to period during a fiscal year depending on the timing of our advertising campaigns for retail selling seasons and product introductions.
Although the majority of our products are replenishment in nature and tend to be purchased by consumers on a planned, rather than on an impulse, basis, our sales are impacted by discretionary spending by consumers. Discretionary spending is affected by many factors, including, among others, general business conditions, interest rates, inflation, consumer debt levels, the availability of consumer credit, taxation, gasoline prices, weather, unemployment trends and other matters that influence consumer confidence and spending. Many of these factors are outside of our control. Consumers’ purchases of discretionary items, including our products, could decline during periods when disposable income is lower, when prices increase in response to rising costs, or in periods of actual or perceived unfavorable economic conditions. These consumers may choose to purchase fewer of our products or to purchase lower-priced products of our competitors in response to higher prices for our products, or may choose not to purchase our products at prices that reflect our price increases that become effective from time to time.
Changes in product sales mix can impact our gross profit as the percentage of our sales attributable to higher margin products, such as intimate apparel and men’s underwear, and lower margin products, such as activewear, fluctuate from time to time. In addition, sales attributable to higher and lower margin products within the same product category fluctuate from time to time. Our customers may change the mix of products ordered with minimal notice to us, which makes trends in product sales mix difficult to predict. However, certain changes in product sales mix are seasonal in nature, as sales of socks, hosiery and fleece products generally have higher sales during the last two quarters (July to December) of each fiscal year as a result of cooler weather, back-to-school shopping and holidays, while other changes in product mix may be attributable to customers’ preferences and discretionary spending.
Condensed Consolidated Results of Operations — First Quarter Ended April 4, 2015 Compared with First Quarter Ended March 29, 2014
|
| | | | | | | | | | | | | | |
| Quarter Ended | | | | |
| April 4, 2015 | | March 29, 2014 | | Higher (Lower) | | Percent Change |
| (dollars in thousands) |
Net sales | $ | 1,208,921 |
| | $ | 1,059,370 |
| | $ | 149,551 |
| | 14.1 | % |
Cost of sales | 762,690 |
| | 702,593 |
| | 60,097 |
| | 8.6 |
|
Gross profit | 446,231 |
| | 356,777 |
| | 89,454 |
| | 25.1 |
|
Selling, general and administrative expenses | 356,300 |
| | 284,989 |
| | 71,311 |
| | 25.0 |
|
Operating profit | 89,931 |
| | 71,788 |
| | 18,143 |
| | 25.3 |
|
Other expenses | 382 |
| | 435 |
| | (53 | ) | | (12.2 | ) |
Interest expense, net | 26,887 |
| | 21,818 |
| | 5,069 |
| | 23.2 |
|
Income before income tax expense | 62,662 |
| | 49,535 |
| | 13,127 |
| | 26.5 |
|
Income tax expense | 10,026 |
| | 7,975 |
| | 2,051 |
| | 25.7 |
|
Net income | $ | 52,636 |
| | $ | 41,560 |
| | $ | 11,076 |
| | 26.7 | % |
Net Sales
Net sales increased 14% during the first quarter of 2015 primarily due to the following:
| |
• | Acquisition of Innerwear Europe in August 2014, which added an incremental $184 million of net sales in 2015; |
| |
• | Higher net sales in our Activewear segment due to higher sales volume and net space gains at retailers. |
Offset by:
•Lower sales in our Innerwear segment due to lower sales volume;
| |
• | Unfavorable foreign currency exchange rates. Excluding this impact, consolidated net sales and International segment net sales increased 15% and 170%, respectively. |
Gross Profit
Our gross profit was higher for the first quarter of 2015 as compared to the same period of 2014. The increase in gross profit was attributable to supply chain efficiencies and our Innovate-to-Elevate strategy, which combines our brand power, our innovation platforms and our low cost supply chain to drive margin expansion by increasing our price per unit and reducing our cost per unit. Included with gross profit in the first quarter of 2015 and the first quarter of 2014 are charges of approximately $14 million and $15 million, respectively, related to acquisition, integration and other action related costs.
Selling, General and Administrative Expenses
As a percentage of net sales, our selling, general and administrative expenses were 29.5% in the first quarter of 2015 compared to 26.9% in the same period of 2014. The higher selling, general and administrative expenses were attributable to higher planned marketing and media related spending and higher distribution costs in the first quarter of 2015 compared to the same period of 2014. Included with selling, general and administrative expenses in the first quarter of 2015 and the first quarter of 2014 are charges of approximately $29 million and $28 million, respectively, related to acquisition, integration and other action related costs.
Other Highlights
Interest Expense – higher by $5 million in the first quarter of 2015 compared to the first quarter of 2014 primarily due to higher debt balances related to the acquisition of Innerwear Europe. Our weighted average interest rate on our outstanding debt was 4.04% during the first quarter of 2015, compared to 4.12% in the first quarter of 2014.
Income Tax Expense – our effective income tax rate remained consistent at 16% for the first quarter of 2015 and the first quarter of 2014.
Operating Results by Business Segment — First Quarter Ended April 4, 2015 Compared with First Quarter Ended March 29, 2014
|
| | | | | | | | | | | | | | | |
| Net Sales | | Operating Profit |
| Quarter Ended | | Quarter Ended |
| April 4, 2015 | | March 29, 2014 | | April 4, 2015 | | March 29, 2014 |
| (dollars in thousands) |
Innerwear | $ | 546,174 |
| | $ | 571,154 |
| | $ | 110,777 |
| | $ | 98,005 |
|
Activewear | 298,096 |
| | 294,504 |
| | 32,751 |
| | 33,745 |
|
Direct to Consumer | 81,501 |
| | 83,714 |
| | (2,278 | ) | | (1,326 | ) |
International | 283,150 |
| | 109,998 |
| | 22,116 |
| | 8,186 |
|
Corporate | — |
| | — |
| | (73,435 | ) | | (66,822 | ) |
Total | $ | 1,208,921 |
| | $ | 1,059,370 |
| | $ | 89,931 |
| | $ | 71,788 |
|
Innerwear
|
| | | | | | | | | | | | | | |
| Quarter Ended | | | | |
| April 4, 2015 | | March 29, 2014 | | Higher (Lower) | | Percent Change |
| (dollars in thousands) |
Net sales | $ | 546,174 |
| | $ | 571,154 |
| | $ | (24,980 | ) | | (4.4 | )% |
Segment operating profit | 110,777 |
| | 98,005 |
| | 12,772 |
| | 13.0 |
|
The lower net sales in our Innerwear segment primarily resulted from the following:
| |
• | Lower sales in our basics product category primarily due to retail inventory reductions; |
| |
• | Lower sales in the intimates and hosiery product categories as a result of lower sales volume, partially offset by higher product pricing. |
Supply chain efficiencies primarily driven by synergies gained from our Maidenform acquisition and our Innovate-to-Elevate strategy continue to positively impact our Innerwear segment margins as we are able to increase our price per unit with product innovations and reduce our cost per unit. Offsetting the improvement were higher distribution costs.
Activewear
|
| | | | | | | | | | | | | | |
| Quarter Ended | | | | |
| April 4, 2015 | | March 29, 2014 | | Higher (Lower) | | Percent Change |
| (dollars in thousands) |
Net sales | $ | 298,096 |
| | $ | 294,504 |
| | $ | 3,592 |
| | 1.2 | % |
Segment operating profit | 32,751 |
| | 33,745 |
| | (994 | ) | | (2.9 | ) |
Activewear sales increased due to the following:
| |
• | Higher sales in our Gear for Sports licensed apparel, primarily due to net space gains and higher sales volume; |
| |
• | Higher sales for our Hanes branded product in branded printwear, primarily as a result of higher sales volume and new program channels. |
Offset by:
•Lower sales in our Champion branded product in our retail channel, resulted from later timing of space gains and the loss of a seasonal program.
Our Innovate-to-Elevate strategy continues to positively impact our Activewear segment margins as we are able to increase our price per unit with product innovations and reduce our cost per unit. Offsetting these benefits were higher distribution costs and unfavorable product mix.
Direct to Consumer