Hanesbrands Inc. (HBI)
Q2 2011 Earnings Call
July 20, 2011 8:30 AM ET
Charlie Stack – Executive Director, IR
Rich Noll – Chairman and CEO
Dale Boyles – Interim Chief Financial Officer and CAO
Eric Tracy – FBR Capital Markets
Bob Drbul – Barclays Capital
Jim Duffy – Stifel Nicolaus
Omar Saad – ISI Group
David Glick – Buckingham Research
Ken Stumphauzer – Sterne Agee
Andrew Burns – D.A. Davidson
Eric Beder – Brean Murray
Susan Anderson – Citi
Scott Krasik – BB&T Capital Markets
William Reuter – Bank of America-Merrill Lynch
Carla Casella – J.P. Morgan
Emily Shanks – Barclays Capital
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Thank you. I'll now turn the call over to Mr. Charlie Stack, Executive Director of Investor Relations. Please go ahead.
Good morning, everyone. And welcome to the Hanesbrands’ quarterly investor call and webcast. We are pleased to be here today to provide an update on our progress after the second quarter of 2011. Hopefully everyone has had a chance to review the news release we issued earlier today. The news release and the audio replay of the webcast of this call can be found in the Investor section of our hanesbrands.com website.
I want to remind everyone that we may make forward-looking statements on the call today either in our prepared remarks or in the associated question-and-answer session. These statements are based on current expectations and are subject to certain risks and uncertainties that may cause actual results to differ materially.
These results are detailed in our various filings with the SEC such as our most recent Forms 10-K and 10-Q, as well as our news releases and other communications. The company does not undertake to update or revise any forward-looking statements which speak only to the time at which they are made.
With me on the call today are Rich Noll, our Chairman and Chief Executive Officer; and Dale Boyles, our Interim Chief Financial Officer and Chief Accounting Officer.
Before I turn the call over to Rich, we want to reiterate that inflationary environment there are some aspect of our business that we intend to refrain from discussing in great detail for competitive reasons. Specifically, we will refrain from discussing details regarding cotton [pack] purchasing practices and forward-looking cost positions and we will not discuss specific timing or amounts of pricing actions.
I will now turn the call over to Rich.
Thank you, Charlie. We continued our strong start to 2011, as Q2 was another great quarter. A combination of domestic and international performance drove both top and bottom line results. Sales grew 14%, marking our sixth consecutive quarter of accelerating sales growth and operating margins grew 70 basis points, highlighting the leverage generated from our supply chain and overhead.
Domestically we grew topline both organically and through our Gear For Sports acquisition. Our Champion brand grew double-digit as we experienced strong sales across our activewear channel. We continue to have strong support of our brand and strong media and we saw male underwear, panties and socks all have double-digit sales increases.
Gear For Sports had a good quarter and we remain optimistic about their future potential. They continue to expand outdoor account in the low single-digit and are aggressively rolling out concept shops to increase brand presence and drive space schemes. They are also now leveraging our supply chain for product and remain on track for the cost synergies that we have projected.
Now, let me make a comment or two about the general economic trends we're seeing in the U.S. Consumer spending continues to yield mixed results as evidenced by retailer comp store sales reports. Strong month follow lackluster months, repeating the trend we have witnessed since the recession. We don't expect changes in this pattern anytime soon.
Another trend we are seeing is that retailers more liberal with inventory dollars and units appear to be seeing stronger sales and comp results.
And lastly, consumers are migrating some of their purchases upscale, resulting in mid-tier specialty and department store retailers performing slightly better than the overall market.
Now turning to our international businesses, we are growing across the Americas and Asia. Asia provided the largest dollar growth with China and India both experiencing over 50% gains. We expect growth to continue as we expanded our offerings, placing hosiery, socks and women's panties across many accounts.
We also completed our acquisition of TNF, an Australia Champion licensee, which helps us further build our activewear base in Asia. And finally, Latin America was strong as well with Brazil and Mexico driving sales gains in the quarter. All of these actions further strengthen our potential for our future growth as we work towards our goal of $1 billion in international revenue by mid-decade.
Turning to pricing, we executed a price increase in late spring to offset higher cotton and other inflationary costs evidence by our innerwear segment profits that while down versus a year ago, did improve over the first quarter. In terms of elasticity, while still early preliminary results support our assumption that units fall off less than the rate of price increases.
Now looking ahead we have instituted another price increase in the U.S. retail business for the fourth quarter which should cover the increases needed as we head into 2012. We are also going after the additional space gains for next year to mitigate unit fall off from pricing elasticity and will provide more updates on 2012 space and program gains during the third quarter call in October.