Q2 2025 Hanesbrands Inc Earnings Call
Good day and thank you for standing by. Welcome to the Haynes brand second quarter, 2025 earnings call.
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I'd now like to hand the conference over to TC robard vice president of investor relations. Please go ahead.
Good day, everyone. And welcome to the hannes brands, quarterly investor conference call on webcast. We are pleased to be here today to provide an update on our progress. After the second quarter of 2025
Hopefully, everyone has had a chance to review the news release. We issued earlier today.
Thank you. Document in the replay of this, call can be found in the investor section of our hanes.com website.
On the call today we may make forward-looking statements either in our prepared remarks or in the associated question and answer session.
These statements are based on current expectations or beliefs and are subject to certain risks and uncertainties that may cause actual results to differ materially.
These risks include those related to current macroeconomic conditions, consumer demand dynamics, our ability to successfully execute our strategic initiatives, including our restructuring, and other action-related items. Our ability to de-lever on the anticipated time frame in the inflationary environment.
These risks, also include those details in our various filings with the SEC, which may be found on our website.
These forward-looking statements should be considered in conjunction with the cautionary statements and our news release and in our filings with the SEC, the company does not undertake to update or revise, any, forward-looking statements, which speak only to the time at, which they are made.
Unless otherwise noted today's references to our Consolidated Financial results and guidance exclude all restructuring and other action related charges and speak to continuing operations additional information on the quarter's results. And our guidance, including a Reconciliation of these and other non-gaap performance measures to Gap, can be found in today's news release.
With me on the call today or Steve Brady's, our chief executive officer, in Scott Lewis, our Chief Financial Officer for today's call, Steve and Scott will provide some brief remarks and then we'll open it up to your questions. I will now turn the call over to Steve.
Thank you, TC.
Good morning everyone and Welcome to our second quarter earnings call.
For the third consecutive quarter Haynes Brands delivered, better than expected sales, gross margin operating profit and earnings per share.
Our strong performance, underscores the continued success of our growth strategy and is why we're raising our full year guidance.
I want to thank the global hbi team for all their hard work and efforts.
As we've highlighted over the past several quarters Haynes Brands is a new company.
For healthier more focused and more profitable.
Our Brands are stronger. We're driving Innovation, including the expansion of our Haynes moves products,
We're elevating the Haynes brand, including our exclusive product offering with Urban Outfitters in the U.S. and our Hanes premium T-shirts offerings at specialty retailers in Japan.
We're creating new categories behind our absorbency products in Australia and the US.
We're extending Our Brands into adjacent categories, including loungewear and scrubs. And we're consistently investing in our brands at levels that are more than double what we spent 4 years ago.
We're generating structurally higher profit, margins through increased productivity and lower fixed costs. Even while simultaneously investing for growth.
We streamlined our supply chain while remaining diversified and balanced across the globe, which makes us more efficient and provides us with capacity for growth.
And we're leveraging advanced analytics with the use of AI to drive operational improvement around the globe, including inventory and assortment management, as well as demand planning and forecasting.
We've also strengthened our balance sheet, paying down 1.5 billion dollars of debt, and reducing leverage by nearly 2 and a half turns over the past 2 years.
Our transformation worked and the execution of our growth strategy are generating tangible results for operating on a stronger Foundation. We're leveraging our competitive advantages and we're delivering strong financial performance.
For the second quarter. We once again saw growth rates that accelerated down the pnl.
A sales increase 2% operating profit increased 22% and EPS increased 60% of our prior year.
When a constant currency basis sales increased over prior year in the Americas were flat in Australia and decreased slightly, or about 5 million dollars in the US with our performance in each region in line with our expectations.
As we've experienced over the past several quarters ongoing, consumer headwinds continue to pressure the US in Market especially with the intimate apparel category.
While our intimate business was down compared to last year, we delivered strong growth in our other businesses including low single digit growth in Basics. Nearly 30% growth, inactive and 165% growth in new businesses which includes our scrubs and loungewear products.
We delivered another quarter of strong profit growth driven primarily by our cost restructuring actions and productivity Improvement initiatives.
For the quarter, operating margin expanded 255 basis points over the last year, to 15.5% with the Improvement. Roughly split between gross margin expansion, and sgna Leverage.
Have scaled to the point where they are more than offsetting our investments.
And with lower interest expense from our debt reduction actions profit growth further accelerated resulting in a 60% increase in EPS for the quarter.
So in closing, our strategy is working, it's delivering consistent, strong results, and we're confident it positions us for continued success, long term.
We have a strong Global asset base, meaningful competitive advantages and the speed and flexibility to manage due to the current market environment.
And we have multiple avenues to drive increased shareholder returns over the next several years. This includes consistent sales growth, additional margin expansion, and continued debt reduction.
And with that, I'll turn the call over to Scott.
Thanks. Steve, we delivered another strong quarter, including better than expected sales, gross margin operating profit, and earnings per share.
This strong performance over the first half of the year is a direct result of our growth strategy and transformation work and gives us the confidence to raise our full year guidance.
For today's call, I'll touch on the highlights from the quarter. Then I'll provide some thoughts on our outlook for additional details. I'll point you to our news release and FAQ documents
Trying to the details of the quarter sales, on a reported basis increased 2% over prior year to 991 million.
Adjusting for the impact, from foreign exchange rates transition service, Revenue sales on organic constant, currency basis were relatively consistent with prior year.
We saw continued year-over-year expansion in both our gross and operating margins as our cost savings and productivity initiatives, such as assortment management for driving structurally, higher and sustainable margins. While funding growth related Investments,
For the quarter Rose margin increased 145 basis points over prior year to 41.2%.
Sta expenses decreased 2% compared to Prior year or 110 basis points as a percent of sales.
The combination of these drove, a 255 basis points expansion of our operating margin of 15.5% for the quarter.
And with respect to earnings per share, EPS increased 60% over last year to 24 cents driven by higher margins, as well as lower interest expense. As we benefited from meaningful debt reduction efforts over the past year.
With respect to cash flow and the balance sheet.
We reported 36 million dollars of operating cash flow in a quarter.
Driven by strong profit performance and discipline working Capital Management.
Leverage at the end of the second quarter was 3.3 times on a net debt to adjusted Eva dot basis.
Which is 1.3 terms lower than prior year, and is approaching our target range of 2 to 3 times.
and now turning to guidance,
I'll look for the third quarter includes continued margin expansion and operating profit growth and even faster, EPS growth,
For the third quarter, we expect salesman approximately 900 million dollars operating profit of approximately 122 million dollars and EPS of approximately 16 cents.
We also raised our full year sales and profit Outlook to reflect our strong performance year to today.
We now expect 4 year sales to increase over prior year to approximately 3.53 billion dollars.
We expect operating profit to increase 17% to approximately 485 million.
And we expect EPS to increase, 65% to approximately 66 cents.
Could you some contacts on the assumptions within our full year outlook? As we have all year, we continue to take a conservative view in the mood to Consumer environment.
With our advantage supply chain, we continue to have good visibility to input cost and cost savings through the remainder of the year.
So in closing a transformation work and the execution of our growth strategy are delivering consistent results.
We're operating on a stronger foundation with meaningful competitive advantages for leaner.
Healthier.
Or profitable and well positioned to succeed at any operating environment. And we believe we can deliver strong shareholder returns over the next several years, who consistent Revenue growth, margin expansion and strong cash generation. And with that, I'll turn the call over to TC.
Thanks Scott that concludes our prepared remarks. We'll now begin taking your questions and we'll continue as time allows I'll turn the call back over to the operator to begin the question and answer session operator.
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Our first question comes from the line of J, soul with UBS.
Great. Thank you so much. Uh, Steve. I'd like to just ask if you could elaborate a little bit about what drove the outperformance in the quarter and also what gave you the confidence to, you know, increase the Outlook in sort of what's driving that increase Outlook that that's where I'd like to start first. Thank you.
Sure Jay, good morning. Um, why not Scott? I'll let you talk about kind of the the quarter and I'll talk a little about the Outlook and and the guys good morning. Thanks for your question. So we were very pleased with our Q2 performance. Um, and we're continuing to build on the momentum that we started last year. Um, for Q2 specifically, we really exceeded expectations across all of our key metrics. Um, on the sales side, we saw upside there, um, as we discussed continue to focus on, you know, driving the benefits from our growth strategy, um, on the profit side,
Of our margin. I had a really good performance there. Uh, we're now consistently generating, structurally higher margins, we're seeing that every quarter now, uh, Q2, op Mars and came in at 15.5%, which was 280 basis points above last year and 150 basis points above our guide. And to give you some color around that within gross margin. Um, you know,
Benefits from our cost savings and productivity initiatives. I continue to build um and we're seeing strong performance within our facilities. The productivity there has been really good, um,
That's favorably, um, above and beyond our expectations, our savings initiatives are coming through and just general plant performance has been really, really strong.
On sgna, uh, similar story there. Um, we're seeing really good, um, benefits from our cost reduction, a actions. We're now, uh, scaling, um, or sgna leverage. Now, from tour to quarter, we saw in the first quarter, we were we levered STNA around 220 basis points, and a second quarter. Um, it was down 110 basis points, so we're consistently driving. Again, those benefits, we're seeing it, uh, from an incremental standpoint, and at a faster clip. We're seeing those sta Savings in our facilities within our distribution centers. Uh, also in our back office, like corporate and business support activities. We're seeing, um, that were operating much leaner that we actually in initially anticipated. Uh, so we're we're running really well there. And then, the last thing I got to point out, um, it's on the address and we've talked a lot about, uh, you know, debt and reduction. There, I we're seeing that benefit flowing through on the uh, on the p&l side with lower interest and leverage coming down. So that's the human magnifying. The growth rate as the
I'm speaking on top of the guy. Yeah, so um, I was just got a good recap, so obviously we feel really good about where we are and we think we have really good visibility to the back half. Um, you know, if you look at on the revenue side of the guy, you know, certainly the strong first, half results, uh kind of booster bolster where we're going to go, um, the transformation work that we doing, we're simpler business, and that really positions us well to operate in this environment. Um, Poss is improving in the business and if you go back and you look, um, you know, June was better than May July has been better than June, so, you know, still headwinds there, but we're starting to see momentum in the business and we feel good about that. So whether it's us continue to invest in our brands,
You know, leveraging, the new assortment capabilities, we have the new businesses which are really starting to gain traction. Uh, we feel good about Topline and continue to to perform as we've been performing and then as Scott said, you know about profit, you know, in the first half we did well, and we continue to see that margin expansion. Coming as we have more cost savings opportunities and maybe most importantly visibility that we have to the cost, that will be, uh, flowing into the p&l on the back half of the year. So um, you roll all that up and that's our confidence to take the guide up for the back half.
Got it. Sounds great. Thank you so much.
Our next question comes from Peter moldrik with stifel.
This is Alex Douglas, uh, on for Peter. Um,
Apologies, if I missed this in the prepared remarks, but could you maybe, uh, provide any insight into kind of the Cadence of tariff impacts kind of through 25 and 26? Um, and do you still not expect an impact for tariffs until 4 q? Thank you.
Inventory, um, that we have and the way cost flows off of our balance sheet, but we're very confident that we will mitigate the tariffs, um, at the rates that we're experiencing today. Um, we have very clear plans to do that, and as you think about our business, um, not only do you have the Q4 impact, but you have to think about those other offsets about meaningful. Us content content that we have in our products that are exempt from reciprocal, um, good East West balance that we have, um, in our supply chain and, you know, the teams being extremely proactive, a lot of cost actions, um, that we are taking to reduce costs. Um, we're going to have some surgical pricing actions that will be taken. And we just have a lot of, um, ability to not have that impact, our business, um, fully in Q4. So we, uh, we feel good and it's all built into our guide. And, uh, we can offset the the situation
Thank you.
Our next question comes from Ike burrow with Wells Fargo.
Hi, good morning. This is Juliana on for I. Um so there's been some chatter in the math channel. On push back on pricing and we're curious if you could speak towards your conversation today and try your thinking about that Mash Channel through its second half. Thank you.
Hi Julia, um I I think correct me if I'm wrong. I think you were asking about pricing and the mass channel on our ability and the push back that we're gonna get you broke up a little bit. Is that correct?
Yes, that's correct.
Okay, um, so yeah, pricing is going to be a part of our um, you know, tariff offset program as you can imagine. Um, I'm not going to get into details for our competitive reasons. Uh, it is 1 of the tools and levers that we have, but we feel really good and confident about our ability to take price, um, supported by our brand strength. You know, continued investment that we're making and very important is um, The Innovation that we're putting into the market. So in the past when we've taken price, uh, it has stuck and we certainly expect that to go through, uh, as we go forward. Um, we're going to take a very strategic approach, um, we know very well how the market reacts uh, understand the competitive situation.
We put the consumer at the center of pricing decisions that we make. So while we haven't taken price in a few years, we're very confident in our ability to do that. Obviously, we have um, very in-depth conversations with all of our key customers including the mass Channel, and we think our, you know, share leadership position and as The Innovation and, and other things will bring it to Market. Puts us in a, a really good position to take the appropriate price, uh, what we need and where we need to take it.
Great. Thank you.
Our next question comes from David Schwartz with Morning Star.
Yes, thanks for taking my question. Uh, can you explain maybe what you're doing to try to bring the profitability of the international business up, to be closer to the US operations? And do you think that over time, the difference will close. Thanks.
Yes sir. Good morning David. Yeah. So the uh, international business, very similar to the US business. You know, we have when we talk about our costs savings initiatives, it's broadly, right? It's not just 1 business or just 1 specific function and really focusing on, you know, taking out fixed costs across the board. And so the international business. Um, you know, we're seeing that uh, Improvement year-over-year, uh, very consistently with the, with the, uh, the US business. Um, you know, the 1 thing to to, to factor in when you're looking at the international business, that's a has a heavier retail component. Um so you have some more fixed costs sgna type cost is flowing through there. Um you know the top Line's been been challenged there but you know it's coming around. We feel like we are you know, we're not sitting still there. We see opportunities to grow the top line with help uh kind of Leverage that sgna even more so going forward. Yeah and 1 thing I would add to that is when you look at the international market, you have a little bit of quarter to quarter fluctuation, because we have a lot more direct to Consumer business. That's got mentioned called the retail business. Um, there's a lot.
Our fixed costs in there. So when we get into Q4 and there's more volume flowing through there, you'll see, uh, a better margin in the fourth quarter, so it does fluctuate quarter to quarter and then with seasonality,
Thanks, that's very helpful. Secondly uh on this announcement with SNS and the printwear channel. Do you uh can you explain why you decided to uh make SNS, your exclusive distributor and and what that means for your printwear business, going forward.
Yeah. Um,
Arrangement investment.
About the assets that we have our brand and some of the key products we have, uh, we thought it was a, a an arrangement, that would be very beneficial to to both sides as we go forward. Um, and that's a business that we're going to continue to lean into as we go forward.
Yes, a reminder. If you'd like to ask a question at this time, please press star 1 1 on your touchtone bone.
Our next question, comes from William, reuter with Bank of America.
Good morning. Um, I have 2, the first, um, I was wondering if you could quantify what the benefit of lower cotton was on margins in the quarter. Or, you know, you talked a lot about cost savings and productivity. Um, if you could unpack, uh, some of the specific drivers of that gross margin Improvement,
Before I get thanks for.
Uh, we don't disclose specific kind of details with within cotton as far as the benefits from for the quarter. I, I would say that, you know, cotton is a relatively small percentage of our total cost of sales, um, and we we're seeing, you know, the productivity. Um you know the vast majority of that flowing through broadly across all of our raw materials, we're seeing that um within our productivity and facilities and so we've seen a Tailwind from input costs in the first half. We expect that Tailwind to continue into the back half and so that's, you know, layering on top of the all the savings and other issues that we have. So we've really seen that growth margin, uh really expand or quarter to quarter and then full year will be up, 55 basis points.
Got it and then you discussed a little bit of, uh, softness and inner wear. You mentioned the category, um, is a little bit soft. I guess. How do you think you performed relative to the category and given that private label continues to be, um, a disruptive Force kind of across every product in the world? Um, are you seeing any increased competition? Uh, from third-party, private label manufacturers, that's it.
Yes. So, um, just be clear that the softness, we reference was in the Intimates part of our, um, our portfolio, not in at the broader innerwear business. The broader innerwear business is, is actually, um, is doing quite well. Our Basics business is actually upload single digits, um, the active business up nearly 30%, so it's really contained, uh, in the intimate business, uh, and, and really inside the intimate, that's really driven by the Maiden Form brand and some of the challenges that we have there. So we are taking real action there as the exposure to shapewear is pretty significant inside of Intimates. Um, I feel good about Bali and Plex and where they're headed particularly in our growth in uh, in the mass Channel and and Amazon.
But um, we have to work to do in the main form business. The the m in that we brought to market last year, did did good in its intention which was to gain share with younger consumers. It improved the brand perception uh but it was a little bit too narrow to drive the overall brand. So we're pivoting this year to much broader focus into t-shirt bras and a broader focus in in the mass and uh, and the online channel. So um, work to do an intimate, no doubt about that as we go forward on, um, on private label, you know, it's a mixed bag. Um, if you look at our most important category to US, men's underwear, private labels down. And it's not gaining shares, it's actually losing share. Um, it is, it is up slightly in, uh, and women's on the inwear side. So you know, Arc strategy always has been to manage private label is to run our business and run it really well as a branded business. So I'm a firm believer. If we continue to invest in Our Brands, we continue to drive Innovation. We continue to be market leader partner with our Retail Partners. On
Insights. Um, and have the best service that we will um we will win versus private label as we go forward.
That concludes today's question and answer session. I'd like to turn the call back to TC, robal for closing remarks.
We'd like to thank everyone for attending our call today and we look forward to speaking with you soon. Have a great day.
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