Hanes(HBI) - 2025 Q1 - Quarterly Results

Q1 2025 Performance Overview HanesBrands exceeded Q1 2025 expectations, reporting strong revenue, operating profit, and EPS, while reiterating full-year guidance and reducing leverage Executive Summary HanesBrands exceeded Q1 2025 expectations for revenue, operating profit, and EPS, reiterating full-year guidance and confident in mitigating tariff impacts through cost reductions and supply chain leverage - CEO Steve Bratspies highlighted that the company exceeded expectations and is confident in its ability to mitigate tariff-related cost headwinds through cost reductions, pricing actions, and leveraging its supply chain advantages[4] - The company successfully completed the refinancing of all its 2026 debt maturities during the first quarter[5] Q1 2025 Key Performance Indicators (vs. Prior Year) | Metric | Q1 2025 Value | Change vs. Prior Year | | :--- | :--- | :--- | | Net Sales | $760 million | +2.1% | | GAAP Gross Margin | 41.7% | +170 bps | | Adjusted Gross Margin | 41.6% | +165 bps | | GAAP Operating Profit | $80 million | +126% | | Adjusted Operating Profit | $81 million | +61% | | GAAP EPS | $0.04 | +145% | | Adjusted EPS | $0.07 | +240% | | Leverage Ratio | 3.6x | -1.4x | Q1 2025 Detailed Financial Performance The company achieved significant profitability improvements in Q1 2025, driven by higher sales, lower input costs, and disciplined expense management, leading to a positive GAAP EPS turnaround Revenue and Profitability Q1 2025 net sales increased to $760 million, with significant profitability improvements driven by lower input costs, cost savings, and disciplined expense management - Net sales were $760 million, an increase of 2.1% year-over-year, remaining flat on an organic constant currency basis[6][10] - Gross margin improvement was driven by lower input costs, cost savings initiatives, and benefits from assortment management[7] - SG&A expenses as a percentage of net sales decreased by 400 basis points, reflecting cost savings and disciplined expense management, despite a 50 basis point increase in strategic brand investments[8][10] Q1 2025 Profitability Metrics (GAAP) | Metric | Q1 2025 | Q1 2024 | Change | | :--- | :--- | :--- | :--- | | Gross Profit | $317 million | $297 million | +6.5% | | Gross Margin | 41.7% | 39.9% | +170 bps | | Operating Profit | $80 million | $35 million | +126% | | Operating Margin | 10.5% | 4.8% | +575 bps | Interest Expense, Taxes, and EPS Interest and other expenses increased due to refinancing costs, but adjusted expenses decreased, contributing to a significant turnaround in GAAP EPS to $0.04 - Interest and Other Expenses increased by $1 million to $61 million, which included $10 million of expenses related to the refinancing of 2026 maturities, while Adjusted Interest and Other Expenses decreased by $9 million (15%) to $51 million due to lower debt[16] - The effective tax rate was 26.8%, a significant shift from (35.4%) in Q1 2024, though not reflective of the U.S. statutory rate due to valuation allowances[16] Q1 2025 Earnings Per Share (from continuing operations) | Metric | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | GAAP EPS | $0.04 | ($0.09) | | Adjusted EPS | $0.07 | ($0.05) | Business Segment Performance The U.S. segment saw slight sales decline but improved operating margin, while the International segment achieved constant currency sales growth and significant margin expansion U.S. Segment U.S. segment net sales decreased slightly due to Intimate Apparel weakness, but operating margin significantly improved to 20.9% from cost savings and favorable mix - Net sales decreased 1.4% to $536.2 million, as growth in Basics and Active businesses was more than offset by headwinds in the Intimate Apparel business[15][51] - Operating margin increased by 285 basis points to 20.9%, driven by cost savings initiatives, lower input costs, and favorable product mix[15][51] International Segment International segment sales grew 4% constant currency, driven by Australia and Asia, with operating margin expanding significantly to 11.5% from favorable mix and cost savings - Net sales decreased 2.2% to $195.5 million on a reported basis, which included a $12 million headwind from foreign exchange, but increased 4% on a constant currency basis[15][51] - Sales grew in Australia and Asia and were consistent with the prior year in the Americas on a constant currency basis[17] - Operating margin increased by 310 basis points to 11.5%, driven by favorable mix, cost savings, and lower input costs[17][51] Financial Position and Cash Flow The company strengthened its balance sheet by reducing leverage and inventory, though Q1 2025 cash flow from operations was negative due to seasonal inventory build Balance Sheet and Cash Flow Summary The company strengthened its balance sheet by reducing leverage to 3.6x and inventory by 5%, despite negative Q1 2025 operating cash flow due to seasonal build - The leverage ratio declined to 3.6 times net debt-to-adjusted EBITDA, compared to 5.0 times in the prior year[20] - Inventory decreased by 5% ($54 million) year-over-year to $977 million, driven by better inventory management capabilities and lower input costs[20] - Cash Flow from Operations was ($108) million, a decrease from $26 million in Q1 2024, attributed to a seasonal inventory build ahead of back-to-school programs[20] - Free Cash Flow for the quarter was ($119) million, compared to $6 million in the prior year[20] Financial Outlook HanesBrands provided its full-year 2025 outlook, anticipating consistent net sales and positive adjusted EPS, alongside a stable second-quarter forecast Full-Year 2025 Outlook Full-year 2025 outlook anticipates net sales consistent with prior year, adjusted EPS between $0.51 and $0.55, and free cash flow of approximately $300 million Full-Year 2025 Financial Outlook | Metric | Guidance Range | | :--- | :--- | | Net Sales | $3.47 billion to $3.52 billion | | GAAP Operating Profit | $425 million to $440 million | | Adjusted Operating Profit | $450 million to $465 million | | GAAP EPS | $0.42 to $0.46 | | Adjusted EPS | $0.51 to $0.55 | | Cash Flow from Operations | ~$350 million | | Free Cash Flow | ~$300 million | Second-Quarter 2025 Outlook Second-quarter 2025 outlook projects net sales of approximately $970 million, adjusted operating profit around $136 million, and adjusted EPS of approximately $0.18 Second-Quarter 2025 Financial Outlook | Metric | Guidance | | :--- | :--- | | Net Sales | ~$970 million | | GAAP Operating Profit | ~$129 million | | Adjusted Operating Profit | ~$136 million | | GAAP EPS | ~$0.16 | | Adjusted EPS | ~$0.18 | Appendix: Financial Statements and Reconciliations This appendix provides detailed explanations of non-GAAP measures, unaudited consolidated financial statements, and comprehensive reconciliations of GAAP to non-GAAP figures Note on Non-GAAP Measures This section explains HanesBrands' non-GAAP financial measures, their purpose in analyzing core operating performance, and the methodology for constant currency and organic sales - The company uses non-GAAP measures to provide supplemental information for analyzing operating performance, excluding costs from material, stand-alone initiatives like supply chain restructuring[31] - Adjustments in 2025 and 2024 include charges for supply chain restructuring, headcount actions, professional services, loss on debt extinguishment, and related tax effects[29] - Constant-currency information is presented to assess business performance excluding the impact of foreign currency translation[35] Consolidated Financial Statements This section presents the unaudited condensed consolidated financial statements for Q1 2025, including the Statement of Operations, Balance Sheet, and Cash Flows Condensed Consolidated Statement of Operations (Unaudited, in thousands) | Line Item | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net sales | $760,148 | $744,675 | | Gross profit | $316,700 | $297,433 | | Operating profit | $79,908 | $35,414 | | Income (loss) from continuing operations | $14,146 | $(32,802) | | Net loss | $(9,456) | $(39,122) | | Diluted EPS from continuing operations | $0.04 | $(0.09) | Condensed Consolidated Balance Sheet Highlights (Unaudited, in thousands) | Line Item | March 29, 2025 | March 30, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | $175,940 | $176,003 | | Inventories | $977,302 | $1,031,655 | | Total assets | $3,821,230 | $5,589,676 | | Long-term debt | $2,322,065 | $3,237,419 | | Total liabilities | $3,777,784 | $5,251,502 | | Total stockholders' equity | $43,446 | $338,174 | Condensed Consolidated Statement of Cash Flows (Unaudited, in thousands) | Line Item | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net cash from operating activities | $(108,183) | $26,171 | | Net cash from investing activities | $17,576 | $(20,229) | | Net cash from financing activities | $51,055 | $(7,459) | Reconciliation of GAAP to Non-GAAP Measures This section provides detailed reconciliations of GAAP to non-GAAP measures, outlining adjustments for restructuring, professional services, and debt extinguishment, along with leverage ratio and free cash flow calculations Q1 2025 Reconciliation of GAAP to Adjusted Operating Profit (in thousands) | Line Item | Amount | | :--- | :--- | | Operating profit, as reported under GAAP | $79,908 | | Professional services | $457 | | Headcount actions and related severance | $209 | | Supply chain restructuring and consolidation | $(60) | | Other | $503 | | Operating profit, as adjusted | $81,017 | Q1 2025 Reconciliation of GAAP to Adjusted Diluted EPS | Line Item | Amount | | :--- | :--- | | Diluted EPS, as reported under GAAP | $0.04 | | Loss on extinguishment of debt | $0.03 | | Other adjustments (rounding) | $0.00 | | Diluted EPS, as adjusted | $0.07 | Leverage Ratio Calculation (Net debt/EBITDA, as adjusted) | Metric | LTM March 29, 2025 | LTM March 30, 2024 | | :--- | :--- | :--- | | Total EBITDA, as adjusted | $613,375 | $630,734 | | Net debt | $2,196,520 | $3,128,827 | | Net debt/EBITDA, as adjusted | 3.6x | 5.0x |