This Apparel Company is Accelerating at High Speed

Satarupa is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

It seems to be party time for the US Textile – Apparel Clothing Industry. Most of the companies in this industry are shining brightly after their earnings reports came out. Among all these companies, one which really caught my eyes is the maker of Hanes and Champion underwear, HanesBrands (NYSE: HBI). The company lit up the Street with its fourth quarter earnings, as its net income almost doubled.  Let’s have a closer look at the company.

A look into the quarter:

HanesBrands reported a 95% surge in its net income, which reached $80.4 million from $41 million in its fourth quarter earnings. The company’s revenue increased by 4.7% and reached $1.15 billion.

The company performed brilliantly across all of its segments.  Net revenue for the Innerwear segment increased 6.6%, backed by a decent performance of men’s underwear and women’s panties. The company’s new product innovation worked successfully in this segment. Hanes and Champion men’s underwear and Hanes panties and Bali bras performed well as their sales increased by double digits, resulting in a 79.6% surge in the operating profit for the segment. Sales in the Outerwear segment also jumped 5.8% as the company’s Hanes branded T-shirts and other products under the Champion brand’s performed much better than expected, resulting the operating profit surging by 241% and reaching $37.0 million during the quarter.

As I have already mentioned earlier, HanesBrands is not the only apparel company showing such positive numbers on its balance sheet. The premium lifestyle clothing, accessories, and perfume company, Ralph Lauren (NYSE: RL) reported a 35% surge in its earnings, and its total revenue rose 2.2%. Even though the company suffered in the second half of 2012 due to the surge in the cotton prices and because of the cost the company had to bear as it eliminated some of its business to focus on the most profitable ones, the premium lifestyle clothing and  accessories retailer reported better than expected third quarter results as its affluent shoppers in the US continued to spend even in these challenging economic times. Ralph Lauren reported a 27% surge in its third quarter profit.

Meanwhile G-III Apparel Group (NASDAQ: GIII), which designs, manufactures, imports, and markets a range of outerwear and sportswear apparel to retailers in the United States, also reported in their latest quarter that their net sales surged 6.6% year over year. The significant growth in sales was backed by its strong performance in wholesale licensed apparel and retail operations, which surged 7.6% and 21%, respectively. The company expects their EPS to grow by 20% in the next 5 years.

However, though most of the apparel companies have witnessed growth, HanesBrands was definitely accelerating at the highest speed. Apart from those surging sales let’s see what else helped that let this company deliver such outstanding results.

Some strategic moves:

When something is not working out, it’s better to stop trying and focus on what’s really working well to get the best out of it. That’s the exact strategy that HanesBrands followed. In the first half of 2012, due to rising cotton prices and increased competition, HanesBrands made constant losses in some quarters. Thus it was time for them to do some restructuring. As we all know there has been a huge financial crisis in Europe and almost all the companies that are carrying out their business operations in Europe are feeling the pinch of the recent contraction in the European economy. So the first step the company took was to exit its entire Imagewear division from Europe. The company also planned to narrow the focus of its worldwide imagewear business, and in order to restructure it, HanesBrands planned to exit all the noncore segments and thus reduce the risk. In the US the company discontinued its  private-label production and exited its Outer Banks business. Thus the company re-organized its domestic screen print business and devoted all of its energies to grow its branded portfolio in core geographies in the Americas and Asia. HanesBrands’ decision to exit from unprofitable businesses worked well and helped the company to report positive numbers on its balance sheet.

Along with reporting strong quarterly sales, HanesBrands also generated $508 million of free cash flow in the year and prepaid $550 million of long-term bonds.

Foolish bottomline:

Due to the cotton inflation in the first half of the year HanesBrands' profitability has suffered a lot. However, with the company’s successful pricing strategies and introduction of a series of new products, the company survived the cotton inflation bubble and has performed brilliantly in this quarter. Adding to that, once the cotton prices lower, I think there will be more improvement in the company’s top and bottom lines. Again, as HanesBrands has decided to increase media spending by around $30 to $40 million, this will surely act as a driving factor towards the further growth of the company’s leading brands. Investors should thus keep an eye on this stock. 

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