Retail traffic troubles weigh on HanesBrands

A high single digit decline in retail traffic in November and early December caused retailers to cut orders of HanesBrands products, but not enough to keep the leading apparel suppliers from posting impressive profit growth and its third consecutive year of record sales.

HanesBrand’s fourth quarter sales woes highlight the weather related difficulties experienced by retailers, the negative effect on traffic and the subsequent margin pressure that was created as retailers had to intensify promotional activity to move merchandise.

“Retail traffic declined by high-single-digit percentages in November and the first three weeks of December. The prolonged traffic declines weighed on point-of-sale trends and caused retailers to pull back on orders, impacting shipments for both replenishment innerwear and cold-weather and replenishment activewear,” HanesBrand said in a statement. “Improvement in retail traffic and Hanes’ point-of-sale sell-through in the latter third of December and into January was too late to influence fourth-quarter shipments.”

The company’s sales declined 7% during the period ended Jan. 2, to $1.4 billion, which makes the reported profit performance all the more impressive, even if it did fall short of Wall Street’s expectations. On an adjusted basis to exclude some acquisition costs and other non-recurring expenses, HanesBrands said gross margins expanded to 39.4% of sales from 37.9% during the fourth quarter the prior year, net income increased 17.6% to $174 million and earnings per share increased 22% to 44 cents, two cents below analysts’ consensus estimate.

Commenting on the results, HanesBrand Chairman and CEO Richard A. Noll focused on the company’s full year performance and the road ahead.

“We delivered our third consecutive record year in 2015, although we are disappointed with our fourth-quarter performance. For 2016, I feel confident in our growth expectations and outlook for a fourth consecutive year with a double-digit increase in adjusted EPS.”

Even with the fall off in the fourth quarter, the company’s sales increase 8% to $5.73 billion for the full year. This year, the company expects sales to grow between 1% and 3% to $5.8 billion to $5.9 billion.